<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON SEPTEMBER 6, 1996
REGISTRATION NO. 333-10969
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
TALX CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
MISSOURI 7373 43-0988805
(STATE OR OTHER (PRIMARY STANDARD INDUSTRIAL (IRS
JURISDICTION CLASSIFICATION CODE NUMBER) EMPLOYER
OF INCORPORATION OR IDENTIFICATION
ORGANIZATION) NUMBER)
1850 BORMAN COURT
ST. LOUIS, MO 63146
(314) 434-0046
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
PRINCIPAL EXECUTIVE OFFICES AND PRINCIPAL PLACE OF BUSINESS)
----------------
WILLIAM W. CANFIELD
CHAIRMAN, PRESIDENT AND
CHIEF EXECUTIVE OFFICER
TALX CORPORATION
1850 BORMAN COURT
ST. LOUIS, MO 63146
(314) 434-0046
(NAME, ADDRESS INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
----------------
COPIES OF ALL CORRESPONDENCE TO:
WALTER L. METCALFE, JR., ESQ. STUART M. CABLE, ESQ.
BRYAN CAVE LLP GOODWIN, PROCTER & HOAR LLP
ONE METROPOLITAN SQUARE EXCHANGE PLACE
211 N. BROADWAY, SUITE 3600 BOSTON, MA 02109
ST. LOUIS, MO 63102-2750 (617) 570-1000
(314) 259-2000
----------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
----------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, SEPTEMBER 6, 1996
2,000,000 SHARES
LOGO
COMMON STOCK
--------------
All of the shares of Common Stock offered hereby are being sold by TALX
Corporation ("TALX" or the "Company"). Prior to this offering, there has been
no public market for the Common Stock. It is currently estimated that the
initial public offering price will be between $9.00 and $11.00 per share. See
"Underwriting" for a discussion of the factors to be considered in determining
the initial public offering price. The Company's Common Stock has been approved
for quotation on the Nasdaq National Market under the symbol "TALX," subject to
official notice of issuance.
--------------
THESE SECURITIES INVOLVE A HIGH DEGREE OF RISK. FOR A SUMMARY OF CERTAIN
FACTORS WHICH SHOULD BE CONSIDERED BY PROSPECTIVE INVESTORS, SEE "RISK FACTORS"
BEGINNING ON PAGE 7.
--------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION
PASSED UPON THE ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY
REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
- -------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share........................ $ $ $
- -------------------------------------------------------------------------------------------
Total(2)(3)...................... $ $ $
- -------------------------------------------------------------------------------------------
</TABLE>
- --------------------------------------------------------------------------------
(1) Does not reflect additional compensation to the Representatives of the
Underwriters by the Company in the form of warrants entitling the
Representatives to purchase up to 100,000 shares of Common Stock during the
four-year period commencing one year after the date of this Prospectus at
an exercise price equal to 120% of the initial public offering price (the
"Representatives Warrants") and a non-accountable expense allowance of
$100,000. The Company has agreed to indemnify the Underwriters against
certain liabilities, including liabilities under the Securities Act of
1933. See "Underwriting."
(2) Before deducting offering expenses payable by the Company, estimated at
$850,000.
(3) The Company has granted the Underwriters a 30-day option to purchase up to
an additional 300,000 shares solely to cover over-allotments, if any. If
such option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be $ ,
$ and $ , respectively. See "Underwriting."
--------------
The shares of Common Stock are offered by the several Underwriters, subject to
prior sale, when, as and if delivered to and accepted by them, subject to the
right of the Underwriters to reject any order in whole or in part and certain
other conditions. It is expected that delivery of the certificates for such
shares will be made in Boston, Massachusetts on or about , 1996.
FIRST ALBANY CORPORATION PRINCIPAL FINANCIAL SECURITIES, INC.
THE DATE OF THIS PROSPECTUS IS , 1996
<PAGE>
[Description of Art Work Contained in the Registration Statement]
Inside Front Cover
- ------------------
Heading caption is "TALX Corporation--Harnessing Technology for Enhanced
Interactive Access." The page contains text describing how three actual TALX
customers use The Work Number for Everyone(R) as well as the Company's customer
premises systems and outsourced services.
Left-Side and Right Side Fold-Out Page
- --------------------------------------
The heading caption is "Interactive Communication--Timely and Effective
Access to Enterprise Information." The page illustrations of a dial-up personal
computer, fax phone, intranet, internet, call center and information networks,
with arrows pointing to a list of TALXWare technologies.
----------------
IN CONNECTION WITH THIS OFFERING, THE UNDERWRITERS MAY OVER-ALLOT OR EFFECT
TRANSACTIONS WHICH STABILIZE OR MAINTAIN THE MARKET PRICE OF THE COMMON STOCK
AT A LEVEL ABOVE THAT WHICH MIGHT OTHERWISE PREVAIL IN THE OPEN MARKET. SUCH
TRANSACTIONS MAY BE EFFECTED ON THE NASDAQ NATIONAL MARKET, IN THE OVER-THE-
COUNTER MARKET OR OTHERWISE. SUCH STABILIZING, IF COMMENCED, MAY BE
DISCONTINUED AT ANY TIME.
----------------
TALX(R), EasyScript(R) and The Work Number for Everyone(R) are registered
trademarks, tradenames or service marks of the Company. TALXWare is a trademark
of the Company. This Prospectus also includes references to trademarks and
tradenames of other companies.
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and Consolidated Financial
Statements, including the notes thereto, appearing elsewhere in this
Prospectus.
THE COMPANY
TALX Corporation ("TALX" or the "Company") designs and implements interactive
communications solutions, primarily for Fortune 500 organizations other than
telephone service providers, using computer telephony ("CT") to integrate
technologies such as interactive voice response ("IVR"), facsimile, e-mail,
Internet and corporate Intranet. The Company's interactive communications
solutions enable an organization's employees, customers, vendors and business
partners ("Users") to access, input and update information without human
assistance. The Company's solutions enhance service levels, improve
productivity and reduce costs by enabling Users to perform self-service
transactions using interactive communications technologies. Historically, the
Company has designed and implemented "tailored" systems that provide an
organization's Users with access to databases of information relating to that
organization. In early 1995, the Company introduced a "branded" service, The
Work Number for Everyone(R) ("The Work Number"), which is a national service
providing automated access to information from multiple organizations.
The Work Number provides automated employment verification to mortgage lenders
and other verifiers. Using The Work Number, verifiers are able to confirm
employment information regarding participating employers' current and former
employees, including their past three years' salary history. The Work Number
reduces an employer's cost of providing this information and at the same time
increases the timeliness and accuracy of the delivery of such information to
mortgage lenders and other verifiers. Four out of the five largest mortgage
lenders in the U.S., including Countrywide Home Loans, Inc., the country's
leading independent mortgage lender, currently utilize The Work Number to
facilitate their underwriting process. Verification of employment and salary
history via The Work Number is accepted by the Federal National Mortgage
Association ("Fannie Mae") and the Federal Home Loan Mortgage Corporation
("Freddie Mac") in connection with the securitization and resale of residential
mortgages, as well as by the Department of Veteran's Affairs ("VA") and the
Federal Housing Administration ("FHA") for home loan guarantee purposes. As of
June 30, 1996, 69 employers had contracted to provide approximately 5.7 million
employment records of current and former employees. Contracting employers
include Hewlett Packard Company, J.C. Penney Company, Inc., McDonnell Douglas
Corporation, Motorola, Inc., The Procter and Gamble Company and The Quaker Oats
Company.
Tailored interactive communications solutions are offered by TALX to its
customers either as systems for installation on customers' premises or on an
outsourced services basis. The Company has provided tailored interactive
communications systems for installation at customers' premises since the early
1980s and has shipped over 575 systems to approximately 350 customers during
the last five years. In 1993, the Company introduced its outsourced services
business, which allows a customer to realize the benefits of an interactive
communications system without incurring the administrative or maintenance
burdens of operating such a system. For outsourced services customers, the
Company maintains the customer's database on a system at the Company's
facilities, where incoming requests for access to the information are received.
Acquiring an interactive communications capability on an outsourced basis is an
attractive alternative to many of the Company's existing and prospective
customers. For example, the human resources departments of many companies have
outsourced their annual benefits enrollment process to the Company.
The Company has established the broad utility of its interactive communications
solutions for complex business problems in a wide range of industries. The
Company believes it is the leader in providing such solutions for human
resource applications, which include 401(k) plan administration, benefit plan
enrollment and modification,
3
<PAGE>
staffing, scheduling and payroll. The Company has targeted two additional
horizontal application segments: financial applications (e.g., status inquiry
for accounts payable or accounts receivable) and distribution/logistics
applications (e.g., order entry and inventory status). The Company is pursuing
these horizontal marketing initiatives both through direct sales and through
strategic marketing alliances with providers of enterprise software
applications. TALX entered into such an alliance with PeopleSoft, Inc.
("PeopleSoft") in 1993. More recently, it has entered into similar alliances
with Oracle Corporation ("Oracle") and SAP AG ("SAP"). All three are leading
providers of enterprise-wide client/server business applications, with
PeopleSoft, similarly to the Company, being particularly well established in
human resource applications. The Company has also developed and markets its
value added expertise in certain vertical market segments such as health care
(e.g., prescription refill and appointment scheduling and cancellation) and
financial services (e.g., account balance inquiry, funds transfer and credit
card balance inquiry). The Company has provided tailored interactive
communications solutions to customers such as Aetna, GE Capital Services,
Kaiser Permanente, Motorola, Inc., Putnam Investments, Inc. and Texaco, Inc.
TALX has been a pioneer in implementing tailored, interactive communications
solutions. The Company's systems combine "best-of-class" technologies with
proprietary software called TALXWare. TALXWare's open architecture enables
popular interactive features such as voice recognition, text-to-speech,
facsimile, e-mail and client/server interfaces to be integrated to create
effective interactive communications solutions. In 1989, with the introduction
of EasyScript to its TALXWare software platform, the Company became the first
among its competitors to offer a powerful graphical user interface ("GUI")
application development environment. Subsequent releases of TALXWare have
included enhancements to EasyScript such as advanced editing capabilities and
self-documenting features. In 1992, EasyScript received Voice Processing
Magazine's Editors' Choice Award, and, in 1996, the most recent TALXWare
release received the Editors' Choice Award from Call Center Magazine.
In addition to providing interactive communications systems, the Company has
historically provided database and document services. In August 1996, the
Company determined to pursue the divestiture of the database and document
services businesses and, accordingly, has reflected the results of operations
of such businesses as discontinued operations. Database services include
providing sales leads and pre-press services for directory publishers, and
document services include the preparation and mailing of invoices, statements
and confirmation letters for organizations with high volume requirements.
The Company was incorporated under Missouri law in 1973. Its principal
executive offices are located at 1850 Borman Court, St. Louis, Missouri 63146,
and its telephone number is (314) 434-0046.
RISK FACTORS
For a discussion of considerations relevant to an investment in the Common
Stock, see "Risk Factors."
4
<PAGE>
THE OFFERING
Except as otherwise noted, all information in this Prospectus (i) reflects the
1-for-3.5 reverse split of the Company's outstanding Common Stock, which became
effective on August 2, 1996 (the "Reverse Stock Split"), (ii) reflects the
conversion of all outstanding shares of Series A, B and C Convertible Preferred
Stock into an aggregate of 751,160 shares of Common Stock upon the closing of
this offering (the "Preferred Stock Conversions"), and (iii) assumes no
exercise of the Underwriters' over-allotment option. See "Description of
Capital Stock," "Underwriting" and Notes 10 and 15 of the Notes to Consolidated
Financial Statements. Throughout this Prospectus, the terms the "Company" and
"TALX" refer to TALX Corporation and its subsidiaries.
<TABLE>
<S> <C>
Common Stock offered by the 2,000,000 Shares
Company.......................
Common Stock to be outstanding
after the offering(1)......... 5,239,022 Shares
Proposed Nasdaq National Market TALX
symbol........................
Use of proceeds................ For repayment of approximately $3.0 million of
bank debt and $4.0 million of subordinated debt
and for general corporate purposes.
</TABLE>
- --------
(1) Assumes no exercise of outstanding stock options or warrants. As of the
date of this prospectus, there were outstanding options and warrants to
purchase 372,743 and 163,142 shares, respectively, of Common Stock at a
weighted average price of $4.57 and $1.08 per share, respectively. An
additional 320,114 shares of Common Stock are currently available for
future grants under the Company's employee benefit plans. See "Management--
Benefit Plans" and Note 10 of the Notes to Consolidated Financial
Statements.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------------------- -----------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- --------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
The Work Number........ $ -- $ -- $ -- $ 74 $ 453 $ 42 $ 251
Outsourced services.... -- 60 776 515 998 105 330
Customer premises
systems............... 5,273 6,868 8,497 6,957 9,442 2,125 2,844
Maintenance and
support............... 1,090 1,530 1,949 2,310 2,624 640 868
------ ------ ------- ------- --------- ------ ---------
Total revenues....... 6,363 8,458 11,222 9,856 13,517 2,912 4,293
------ ------ ------- ------- --------- ------ ---------
Cost of revenues
The Work Number........ -- -- -- 48 429 99 111
Outsourced services.... -- 22 190 260 493 106 128
Customer premises
systems............... 2,326 3,175 3,902 4,143 4,489 985 1,447
Maintenance and
support............... 360 558 767 793 619 166 237
------ ------ ------- ------- --------- ------ ---------
Total cost of
revenues............ 2,686 3,755 4,859 5,244 6,030 1,356 1,923
------ ------ ------- ------- --------- ------ ---------
Gross margin........... 3,677 4,703 6,363 4,612 7,487 1,556 2,370
------ ------ ------- ------- --------- ------ ---------
Operating expenses
Selling and marketing.. 1,877 2,332 2,700 2,854 4,084 884 1,369
General and
administrative........ 1,235 1,611 2,268 2,556 2,828 659 637
------ ------ ------- ------- --------- ------ ---------
Total operating
expenses............ 3,112 3,943 4,968 5,410 6,912 1,543 2,006
------ ------ ------- ------- --------- ------ ---------
Operating income
(loss)................ $ 565 $ 760 $ 1,395 $ (798) $ 575 $ 13 $ 364
====== ====== ======= ======= ========= ====== =========
Earnings (loss) from
continuing operations. $ 247 $ 385 $ 1,235 $ (754) $ 123 $ (45) $ 141
====== ====== ======= ======= ========= ====== =========
Earnings (loss) from
discontinued
operations............ $ 392 $ 575 $ 474 $ (410) $ (703) $ (38) $ (164)
====== ====== ======= ======= ========= ====== =========
Loss on disposal of
discontinued
operations............ $ -- $ -- $ -- $ -- $ -- $ -- $ (350)
====== ====== ======= ======= ========= ====== =========
Net earnings (loss).... $ 790 $1,421 $ 1,709 $(1,164) $ (580) $ (83) $ (373)
====== ====== ======= ======= ========= ====== =========
Pro forma net earnings
(loss) per share (1):
Earnings from
continuing
operations............ $ .04 $ .04
Loss from discontinued
operations............ (.21) (.15)
--------- ---------
Net loss............. $ (.17) $ (.11)
========= =========
Pro forma weighted
average number of
shares outstanding(1). 3,400,439 3,400,439
========= =========
</TABLE>
<TABLE>
<CAPTION>
JUNE 30, 1996
----------------------
ACTUAL AS ADJUSTED(2)
------- --------------
<S> <C> <C>
BALANCE SHEET DATA:
Working capital........................................ $ 186 $14,545
Net assets of businesses held for sale................. 2,505 2,505
Total assets........................................... 14,686 28,544
Notes payable to bank.................................. 2,396 --
Current installments of obligations under capital
leases and long-term debt............................. 533 33
Long-term debt(3)...................................... 69 27
Subordinated note payable (net of discount of $736).... 2,614 --
Stockholders' equity................................... 5,400 22,510(4)
</TABLE>
- --------
(1) Pro forma net loss per share has been computed using the number of shares
of Common Stock and Common Stock equivalents outstanding. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares
issued at prices below the assumed initial public offering price of $10.00
per share and stock options and warrants granted with exercise prices below
the assumed initial public offering price during the twelve-month period
preceding the date of the assumed initial filing of the Registration
Statement have been included in the calculation of Common Stock equivalent
shares, using the treasury stock method, as if such shares, options and
warrants were outstanding for all of fiscal 1996 and the first quarter of
fiscal 1997.
(2) Reflects the sale of the 2,000,000 shares of Common Stock offered by the
Company hereby at the assumed initial public offering price of $10.00 per
share after deduction of the underwriting discount and estimated offering
expenses payable by the Company and after application of a portion of the
estimated net proceeds from the offering to retire indebtedness. See "Use
of Proceeds" and "Capitalization."
(3) Includes long-term debt and obligations under capital leases, less current
installments.
(4) Includes the loss of $640,000 on extinguishment of the Subordinated Note
(as hereinafter defined), net of income tax effect. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
6
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following factors
should be considered carefully by prospective investors in evaluating the
Company before purchasing the Common Stock offered hereby.
OPERATING LOSSES
The Company has incurred losses in each of the last two fiscal years and in
the first quarter of fiscal 1997. In fiscal 1995, the Company incurred losses
from continuing operations and discontinued operations. In fiscal 1996 and in
the first quarter of fiscal 1997, the Company incurred losses only from
discontinued operations. Future operating results will depend on many factors,
including the demand for the Company's services, software and hardware
products, the level of product and price competition, the Company's success in
expanding its sales and distribution channels, the Company's success in
attracting and retaining motivated and qualified personnel, the ability of the
Company to develop and market new products and services and control costs, the
acceptance and the profitability of The Work Number and other branded services
the Company may introduce, and general economic conditions. Operating results
for future periods are subject to numerous uncertainties, and there can be no
assurance that the Company will return to or sustain profitability on an
annual or quarterly basis or otherwise be successful in addressing such
uncertainties. See "--Certain Risks Associated with Divestiture of the
Database and Document Services Businesses" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
POTENTIAL FLUCTUATIONS IN OPERATING RESULTS
The Company's revenues, margins and operating results have fluctuated in the
past, and are expected to continue to fluctuate in the future, on an annual
and quarterly basis as a result of a number of factors. These factors include
the length of the sales cycle, the timing of orders from and shipments to
customers, delays in development and customer acceptance of custom software
applications, new product introductions or announcements by the Company or its
competitors, levels of market acceptance for new products and the hiring and
training of additional staff, as well as general economic conditions. In
particular, the Company plans to continue to increase its operating expenses
to expand its sales and marketing efforts, expand its distribution channels in
both domestic and international markets and fund greater levels of product
development. A relatively high percentage of the Company's expenses are fixed
in the short term as the Company's expense levels are based, in part, on its
expectations as to future revenues. If revenues fall below expectations,
expenditure levels could be disproportionately high as a percentage of total
net revenues, and operating results would be immediately and adversely
affected. As a result, the Company's results of operations for any quarter may
not be indicative of results for any future period.
The Company historically has operated with little backlog because its customer
premises systems are generally delivered shortly after orders are received. As
a result, customer premises systems revenues, which have represented the
largest percentage of the Company's total revenues, in any quarter depend on
the volume and timing of, and the Company's ability to fill, orders received
in that quarter. Individual orders for the Company's customer premises systems
typically are for relatively large dollar amounts. The Company believes the
purchase of its customer premises systems is relatively discretionary.
Therefore, any downturn in any potential customer's business, or any loss or
delay of individual orders for any reason, would have a significant impact on
the Company's revenues and quarterly results. In addition, because the Company
typically recognizes a substantial portion of its customer premises systems
revenue from transactions booked and shipped in the last weeks, or even days,
of the quarter, the magnitude of quarterly fluctuations may not become evident
until very late in a particular quarter. The Company's customer premises
systems sales cycle, including initial order, provision of services and
follow-on sales, varies substantially from customer to customer. See"--Lengthy
Sales Cycle." There can be no assurance that the Company will be able to
sustain its level of total revenue or its rate of revenue growth on a
quarterly or annual basis. It is likely that, in some future quarters, the
Company's operating results will be below the Company's targets and below the
expectations of stock market analysts and investors. In such event, the price
of the Company's Common Stock could be materially adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
7
<PAGE>
CERTAIN RISKS ASSOCIATED WITH THE WORK NUMBER
In 1995, the Company began marketing The Work Number, which provides automated
responses to requests by lenders and other verifiers for employment
confirmation, employment history and salary history. Although, as of June 30,
1996, 69 employers had contracted to provide approximately 5.7 million
employment records of current and former employers, there can be no assurance
that additional employers will contract with the Company to provide employment
records, or that existing employers will renew their contracts with the
Company. The ultimate demand for, and market acceptance of, The Work Number by
lenders and other verifiers is unproven and therefore subject to a high level
of uncertainty. Additionally, there are no significant barriers to entry in
this area and, thus, there can be no assurance that other companies will not
choose to create similar employee database verification systems. The Company
is aware of at least one other company which is marketing a similar service.
Additionally, the Company is aware of at least one other company which is
marketing, and a number of employers who have established, similar systems for
the internal use of such employers. The Company anticipates that additional
competitors will emerge, but is unable to predict what its relative
competitive position will be in a more mature market. In addition, revenues
are dependent on the cooperation of contracting employers in converting
employment records to The Work Number format and referring verification
requests to The Work Number. Further, The Work Number depends on the accuracy
of highly confidential information provided to the Company by employers, and
any inaccuracies, whether in the recording of such information or otherwise,
or the inability to keep such information confidential may give rise to
potential claims against the Company and adversely affect market acceptance of
The Work Number. If the market for The Work Number fails to develop or be
sustained, develops more slowly than expected or becomes subject to
significant competition, or if any claims should be asserted, the Company's
business, financial condition, results of operations and business prospects
would be materially adversely affected.
CERTAIN RISKS ASSOCIATED WITH DIVESTITURE OF THE DATABASE AND DOCUMENT
SERVICES BUSINESSES
In August 1996, the Company decided to pursue the divestiture of the database
and document services businesses and, accordingly, has reflected the results
of operations of such businesses as discontinued operations. A provision of
$350,000 has been recorded as of June 30, 1996 to reflect the anticipated loss
from operations until the time of disposal. The Company has estimated that the
proceeds from such divestiture will approximate the net assets held for sale
as of June 30, 1996. However, if the proceeds from the divestiture are
insufficient to cover the costs of the divestiture, or if the costs of the
divestiture are significant, such events could have a material adverse effect
on the Company's results of operations and financial condition. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and Note 2 of the Notes to Consolidated Financial Statements.
INTENSE COMPETITION
The markets in which the Company sells its interactive communications
solutions are rapidly evolving, extremely competitive and subject to rapid
technological change. The Company expects competition to increase in the
future from existing competitors and from companies that may enter the
Company's existing or future markets with similar or substitute solutions that
may be less costly or provide better performance or functionality than the
Company's products. To be successful in the future, the Company must continue
to respond promptly and effectively to the challenges of changing customer
requirements, technological change and competitors' innovations. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, financial condition, results of operations and business prospects.
Additionally, the Company may be required to reduce prices or increase
spending in response to competition in order to pursue new market
opportunities or to invest in research and development efforts, and, as a
result, the Company's operating results in the future may be adversely
affected. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect the
Company's business, financial condition, results of operations and business
prospects.
The Company competes in its markets with CT system hardware suppliers and
systems integrators assembling systems from available components. Companies
offering competing CT systems include Computer
8
<PAGE>
Communications Specialists, Inc., Edify Corporation, InterVoice, Inc., Lucent
Technologies, Inc. and Periphonics, Inc. The Company's interactive
communications business is heavily dependent on sales to the human resources
departments of large organizations. In fiscal 1996 and the first quarter of
fiscal 1997, sales to human resources departments represented 56.7% and 77.2%,
respectively, of customer premises systems revenues. In response to customers'
desires to outsource certain aspects of database access functionality, the
Company provides interactive communications services to organizations which
choose not to purchase customer premises systems. This outsourced services
business competes with employee benefit plan consulting firms and accounting
firms, including Coopers & Lybrand LLP, Hewitt Associates LLC, William M.
Mercer Companies, Inc., Towers, Perrin, Forster & Crosby, Inc. and Watson
Wyatt & Company, which provide comprehensive packages of plan design,
administration and consulting services, including automated access services.
Many of the Company's current and potential competitors have greater name
recognition, larger installed customer bases and significantly greater
financial, technical, marketing and other resources than the Company. Any such
competitor could use its superior financial resources, market power, service
or technical resources and installed base of customers to compete effectively
against the Company. Such competition could materially adversely affect the
Company's ability to sustain current pricing levels and could have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. Further, competition for the customers of
the database and document services businesses may increase as a result of the
Company's determination to pursue the divestiture of such businesses. See
"Business--Competition" and "Business--Database and Document Services
Businesses."
DEPENDENCE ON STRATEGIC MARKETING ALLIANCES
An integral part of the Company's growth strategy is to develop and utilize
alliances with companies producing complementary software products in order to
obtain introductions or referrals to potential customers, as well as to
coordinate the development of the Company's complementary software products
directly with such companies to enhance interoperability and performance.
Future customer premises systems revenues will be dependent to a significant
extent on the market success of such companies and the effectiveness of the
alliances. Factors that adversely affect the revenues of these companies, such
as competition, technological changes or product failures, may have a
substantial adverse effect upon the Company's financial results. These
strategic marketing alliances are generally reflected by non-exclusive
contractual arrangements that are terminable at will. The success of the
Company is dependent on the interest and commitment of these companies to
promote and coordinate product development and marketing efforts with the
Company, which is entirely at the discretion of these companies. The Company's
strategic marketing allies maintain similar relationships with certain of the
Company's competitors. There is intense competition by other companies to
establish such relationships, and there can be no assurance that the Company
will be able to maintain or expand its network of strategic marketing
alliances in the future, or that such companies will continue to support the
Company or not choose to favor one of the Company's competitors. Additionally,
there can be no assurance that the companies with which the Company maintains
such alliances will not decide to enter into the same business as, and compete
directly against, the Company. The loss of any of these relationships, or the
inability of the Company to attract and develop new strategic marketing
alliances with other leading software companies, or adverse developments
affecting the business or prospects of such companies, could have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. See "Business--Technology and Product
Development," "Business--Marketing" and "Business--Strategic Marketing
Alliances."
RISKS ASSOCIATED WITH TECHNOLOGICAL CHANGE
The markets for the Company's interactive communications solutions are
characterized by rapid technological advancement, changes in customer
requirements, frequent new product introductions and enhancements and emerging
industry standards. The Company must continually change and improve its
products and services in response to changes in operating systems, application
software, computer and telephony hardware,
9
<PAGE>
communications, database and networking systems, programming tools and
computer language technology. The introduction of products or services
embodying new technologies and the emergence of new industry standards can
render existing products and services obsolete and unmarketable. In
particular, the market for self-service applications through the Internet's
World Wide Web, corporate Intranets, and dial-up browser software has only
recently begun and is rapidly developing. The Company's success will depend
upon its ability to enhance, on a timely and cost-effective basis, its current
products and services (e.g., to effectively add new Internet and corporate
Intranet capabilities) and to develop new products and services that meet
changing market conditions, which include changing customer needs, new
competitive product and service offerings, emerging industry standards and
changing technology. There can be no assurance that the Company will be
successful in developing and marketing, on a timely and cost-effective basis
or at all, fully functional and integrated product enhancements or new
products or services that respond to technological change, updates or
enhancements to third party products or services used in conjunction with the
Company's products or services, changes in customer requirements or emerging
industry standards, or that the Company's enhanced or new products and
services will be accepted by customers. Any failure by the Company to
anticipate or respond adequately to changing market conditions, or any
significant delays in product or service development or introduction, could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects.
The current version of the Company's TALXWare software runs on the
International Business Machines Corporation ("IBM") OS/2 operating system and
the Company is therefore dependent upon the continued viability of the OS/2
operating system and upon IBM's continuing support for the OS/2 operating
system. However, the Company believes that some potential customers will not
purchase the Company's product unless and until it runs on an alternative
operating system. Accordingly, the Company has begun to devote significant
engineering and product development resources to design and develop a fully
functional version of its TALXWare software to run on the Microsoft Windows NT
operating system. This project is intended to expand market acceptance of the
Company's products and to limit the market and technical risks associated with
the Company's dependence on a single operating system. It is possible that the
Company's intention to develop a fully functional Windows NT-based version of
its TALXWare software will cause potential customers to defer or forgo
purchases of current or future versions of the TALXWare software until it is
available on the Windows NT operating system, which could have a material
adverse effect on the Company's business, financial condition, results of
operations and business prospects. Failure by the Company to develop a Windows
NT-based version of the TALXWare software successfully and in a timely and
cost effective manner may have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
Further, when and if the Company markets a Windows NT-based version of its
TALXWare software, the Company will be dependent upon the viability of that
operating environment.
The Company's products not only involve integration with operating systems but
also with products developed by others. For example, the Company has recently
introduced a lower cost version of the TALX system utilizing Natural
MicroSystems, Inc. standards-based computer telephony hardware boards and
software drivers. The Company believes that marketing this product as an
alternative to its proprietary computer telephony processor ("VP/2000") based
TALX system may provide a means to gain increased access to European and other
international markets, as well as to more price sensitive U.S. domestic market
segments. Currently, this product is available only in a form with reduced
performance and functionality compared to the VP/2000-based TALX system.
Although the Company is devoting significant resources to enhance this new
product to be a fully functional counterpart to the VP/2000-based TALX system,
this project could take 18 months or longer. There can be no assurance that
delays in increasing the functionality of this product will not adversely
affect sales opportunities, as customers may purchase competitive standards-
based systems. Such delays would have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects.
10
<PAGE>
If any of these third-party products, including IBM OS/2, Microsoft Windows NT
or the Natural MicroSystems boards and drivers, should become unavailable for
any reason, fail in their operation with the Company's products or fail to be
supported by their respective vendors, it would be necessary for the Company
to redesign its products. There can be no assurance that any redesign could be
accomplished in a cost-effective or timely manner. The Company or its
customers could also experience difficulties integrating the Company's
products with other hardware and software. Further, should new releases of
these operating systems, computer telephony hardware boards and software
drivers, remote communications software, database connectivity software or
facsimile hardware boards and software drivers occur before the Company
develops products compatible with such new releases, any resulting decline in
demand for the Company's products could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects.
Additionally, the Company licenses and integrates complementary enhancement
technologies into the systems it develops and seeks to provide the "best-of-
class" technologies to its customers. Some of the interactive features which
are licensed from third party suppliers by the Company pursuant to non-
exclusive license or resale agreements (the "Supplier Agreements") and
integrated into the Company's products are voice recognition, text-to-speech,
facsimile, e-mail and client/server database interfaces used in creating
interactive communications solutions. The Company believes that if any
Supplier Agreement expires or is cancelled or otherwise terminated and the
existing third party supplier refuses to enter into a subsequent agreement,
the Company could enter into a similar agreement with any number of different
suppliers. However, if a new supplier is necessary, the integration of the
relevant technology from the new supplier would require a significant amount
of time resulting in a meaningful delay in the Company's ability to offer the
particular enhancement covered by such Supplier Agreement. The Company could
also experience difficulties integrating the new supplier's technology with
all of its products. Additionally there can be no assurance that any such
integration could be accomplished in a cost-effective manner. Significant
delays in the offering of product enhancements due to integration of
technology from new suppliers could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects. See "Business--Services and Products" and "Business--Technology and
Product Development."
LENGTHY SALES CYCLE
Purchases of TALX interactive communications solutions are often the result of
a multi-department decision by prospective customers and generally require the
Company to engage in a lengthy sales cycle to provide a significant level of
education to prospective customers regarding the use and benefits of the TALX
interactive communications solutions. Due in part to the mission-critical
nature of certain of the TALX interactive communications solutions
applications and the associated investment in hardware, software and
consulting expenditures, potential customers tend to be cautious in making
product acquisition decisions. For these and other reasons, the sales cycle
for the Company's products and services can range from one month to over one
year and is subject to a number of significant risks, including customers'
budgetary constraints and internal acceptance reviews, over which the Company
has little or no control. Consequently, if sales anticipated from specific
customers for a particular quarter are not realized in that quarter, the
Company is unlikely to be able to generate revenue from alternative sources in
time to compensate for the shortfall. As a result, lost or delayed sales could
have a material adverse effect on the Company's quarterly operating results.
Moreover, to the extent that significant sales occur earlier than expected,
operating results for subsequent quarters may be adversely affected. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
DEPENDENCE ON KEY PERSONNEL
The Company's future performance depends to a significant degree upon the
continued contributions of its officers and key management, sales and
technical personnel, many of whom would be difficult to replace. The loss of
any of these individuals could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
The Company will enter into employment agreements with William W. Canfield,
its Chairman, President and Chief Executive Officer, and certain other senior
11
<PAGE>
management members prior to completion of this offering. See "Management--
Directors and Executive Officers" and "Management--Employment Agreements" In
addition, the Company's future success and ability to manage growth will be
dependent upon its ability to hire additional highly skilled employees for a
variety of management, engineering, technical and sales and marketing
positions. The competition for such personnel is intense. Further, the Company
anticipates that retention of existing personnel of its database and document
services businesses may become more difficult as a result of the Company's
determination to pursue the divestiture of such businesses. There can be no
assurance that the Company will be able to attract, assimilate or retain
sufficient qualified personnel to achieve its future business objectives. The
failure to do so could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
RISKS OF PRODUCT DEFECTS; PRODUCT LIABILITY
As a result of their complexity, hardware and software products may contain
undetected errors or failures when first introduced or as new versions are
released. There can be no assurance that, despite testing by the Company and
testing and use by current and potential customers, errors will not be found
in systems after implementation. The occurrence of such errors could result in
loss or delay in market acceptance of the Company's products or services,
which could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects. The
Company's Internet and corporate Intranet applications, which were recently
introduced or are under development, may result in unauthorized access and
similar disruptive problems caused by Internet or other users. Such
unauthorized access and other disruptions could jeopardize the security of
information stored in and transmitted through the computer systems of the
Company's customers, which may result in significant liability to the Company
and deter potential customers. The Company's license agreements with its
customers typically contain provisions designed to limit the Company's
exposure to potential product liability claims. It is possible, however, that
the limitation of liability provisions contained in the Company's license
agreements may not be effective under the laws of certain jurisdictions.
Although the Company has not experienced any product liability claims to date,
the sale and support of the Company's products or services may entail the risk
of such claims. While the Company maintains insurance for product liability
risks, there can be no assurance the Company's insurance will be adequate in
the event of a material product liability claim. A successful product
liability claim in excess of the Company's insured limits brought against the
Company could have a material adverse effect on the Company's business,
financial condition, results of operations and business prospects.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is heavily dependent upon its proprietary technology.
Although the Company copyrights certain elements of its products, the primary
means of protecting its interactive communications products and services is
through non-disclosure agreements, which provide only limited protection. As
part of its confidentiality procedures, the Company generally enters into non-
disclosure agreements with its employees, distributors and strategic marketing
partners, and limits access to and distribution of its software, documentation
and other proprietary information. The Company also seeks to protect its
software, documentation and other written materials through trade secret and
copyright laws. Despite the Company's efforts to protect its proprietary
rights, unauthorized parties may attempt to copy or otherwise obtain and use
the Company's products or technology that the Company considers proprietary,
and third parties may attempt to develop similar technology independently. In
particular, the Company provides certain distributors with access to its
product architecture and other proprietary information underlying the
Company's licensed software. In addition, effective protection of intellectual
property rights may be unavailable or limited in certain countries.
Accordingly, there can be no assurance that the Company's means of protecting
its proprietary rights will be adequate or that the Company's competitors will
not independently develop similar technology.
In the past, the Company has received and may in the future receive
communications from third parties asserting that the Company's products,
trademarks or other proprietary rights require a license of intellectual
property rights or infringe, or may infringe, on their proprietary rights.
Based on the information currently available, the
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<PAGE>
Company does not believe there are any valid claims of which it is aware which
it is infringing or which, if infringed, would result in any material adverse
effect on the Company's financial condition or results of operations. On
August 16, 1996, Elk Industries, Inc. ("Elk") filed an action in the United
States District Court for the Southern District of Florida against the
Company. The action alleges patent infringement by the Company in connection
with the Company's making, selling and using an audio storage and distribution
system allegedly covered under a patent held by Elk. The complaint seeks
unspecified damages. The Company believes the lawsuit to be without merit and
intends to defend itself vigorously. As the number of software products in the
industry increases, and the functionality of these products further overlaps,
the Company believes that software developers may become increasingly subject
to infringement claims. Any such claims, with or without merit, could be time
consuming, result in costly litigation, cause product shipment delays or
require the Company to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to the Company, or at all, which could have a material adverse
effect on the Company's business, financial condition, results of operations
and business prospects. In addition, the Company may initiate claims or
litigation against third parties for infringement of the Company's proprietary
rights or to establish the validity of the Company's proprietary rights.
Litigation to determine the validity of any claims could result in significant
expense to the Company and divert the efforts of the Company's technical and
management personnel from productive tasks, whether or not such litigation is
determined in favor of the Company. In the event of an adverse ruling in any
such litigation, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to
infringing technology. The failure of the Company to develop or license a
substitute technology could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
See "Business--Proprietary Rights."
RISKS ASSOCIATED WITH INCREASED INTERNATIONAL SALES
Since its inception, the Company has derived less than 2% of its total
revenues in any year from sales to customers outside of the United States. The
Company intends to expand its interactive communications operations outside of
the United States and enter additional international markets, which will
require significant management attention and financial resources. The
Company's ability to expand its business internationally is limited by the
general acceptance of interactive communications in other countries and
ability to obtain appropriate regulatory approval of the third party telephony
and connectivity hardware supported by TALXWare, and potentially reduced needs
for employee benefit applications. The Company expects to commit additional
time and development resources to customizing its products for selected
international markets and to developing international sales and support
channels. There can be no assurance that such efforts will be successful.
International operations are subject to a number of risks, including costs of
customizing products for foreign countries, dependence on independent
resellers, multiple and conflicting regulations regarding communications, use
of data and control of Internet access, longer payment cycles, unexpected
changes in regulatory requirements, import and export restrictions and
tariffs, difficulties in staffing and managing foreign operations, greater
difficulty or delay in accounts receivable collection, potentially adverse tax
consequences, the burdens of complying with a variety of foreign laws, the
impact of possible recessionary environments in economies outside the United
States, and political and economic instability. In addition, the Company's
ability to expand its interactive communications business in certain countries
will depend upon the certification of third party hardware compatible with the
TALX system. Because the Company will depend on third party suppliers to
certify such telephony and connectivity hardware and obtain regulatory
approval on a country by country basis, there can be no assurance that such
approval will exist or continue to exist in the future. Further, the Company's
export sales are currently denominated predominately in United States dollars.
An increase of the United States dollar relative to foreign currencies could
make the Company's products more expensive and, therefore, potentially less
competitive in foreign markets. As, and if, the Company increases its
international sales, its total revenue may also be affected to a greater
extent by seasonal fluctuations resulting in lower sales that typically occur
during the summer months in Europe and other parts of the world. See
"Business--Technology and Product Development," "Business--Marketing," and
"Business--Strategic Marketing Alliances."
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<PAGE>
COMPUTER NETWORK AND TELEPHONE OPERATIONS; RISK OF INTERRUPTION
Significant portions of the Company's operations are dependent on the
Company's ability to protect its computer equipment and the information stored
in its data processing centers against damage that may be caused by fire,
power loss, telecommunications failures, unauthorized intrusion and other
events. The Company's data processing centers are located in St. Louis,
Missouri. Software and related data files are backed-up regularly and stored
off-site. There can be no assurance that these measures are sufficient to
eliminate the risk of extended interruption in the Company's operation. The
Company also relies on local and long-distance telephone companies to provide
dial-up access, Internet and corporate Intranet access to the Company's
services. The Company is currently in the process of creating an alternate
disaster recovery facility. Any damage or failure that interrupts the
Company's operations could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
SHARES ELIGIBLE FOR FUTURE SALE; POSSIBLE ADVERSE EFFECT ON FUTURE MARKET
PRICES
Sales of substantial numbers of additional shares of Common Stock in the
public market could adversely affect the market price of the Common Stock and
make it more difficult for the Company to raise funds through future equity
offerings. Several of the Company's principal shareholders hold a significant
portion of the Company's outstanding Common Stock (see "Principal
Shareholders"), and a sale by one or more of these shareholders of their
shares could adversely affect the market price of the Common Stock.
Shareholders holding, in the aggregate, 3,222,972 of the 3,239,022 shares
outstanding on the date hereof (the "Previously Issued Shares") have entered
into lock-up agreements under which they have agreed, other than with the
consent of First Albany Corporation, not to sell such shares for a period of
180 days following the completion of the offering. At the expiration of such
lock-up period, the Previously Issued Shares will either (i) in the case of
1,716,358 "affiliate" shares held by officers, directors and other affiliates,
be eligible for sale, subject to the volume and other limitations of Rule 144,
(ii) in the case of shares issued less than three years prior but more than
two years prior and held by non-affiliates, be eligible for sale, but also
subject to such volume and other limitations, and (iii) in the case of shares
issued more than three years prior, be eligible for sale without restriction.
See "Shares Available for Future Sale." Following effectiveness of the
registration statement covering the shares offered hereby, the Company will
register on Form S-8 under the Securities Act 692,857 shares of Common Stock
issuable under employee stock option and purchase plans, which registrations
are expected to become effective upon filing. There are options to purchase
372,743 shares of Common Stock outstanding on the date hereof, of which
175,429 are currently exercisable, and warrants to purchase 163,142 shares of
Common Stock outstanding on the date hereof, none of which are currently
exercisable. Certain holders of shares of Common Stock are entitled to have
their shares registered for sale under the Securities Act by the Company under
certain circumstances. The exercise of these rights and the sale of such
shares could have a material adverse effect on the market price for the Common
Stock. See "Management--Benefit Plans." "Description of Capital Stock" and
"Shares Eligible for Future Sale."
SIGNIFICANT SHARE OWNERSHIP; CERTAIN ANTITAKEOVER PROVISIONS
Upon completion of this offering, the Company's directors, officers and
principal (5% or more) shareholders, taken as a group, will beneficially own
in the aggregate approximately 32.9% of the Company's outstanding Common Stock
(31.1% if the Underwriters' over-allotment option is exercised in full).
Certain principal shareholders and their representatives are directors or
executive officers of the Company. As a result of such ownership, these
shareholders can influence matters requiring approval by the shareholders of
the Company, including the election of directors, and the management and
affairs of the Company. In addition, certain provisions of Missouri law and of
the Company's Restated Articles of Incorporation ("Articles") and Bylaws
("Bylaws") could have the effect of making it more difficult for a third party
to acquire, or of discouraging a third party from attempting to acquire,
control of the Company. Such provisions could also limit or depress the price
that certain investors might be willing to pay in the future for shares of the
Company's Common Stock. The Company is also authorized to issue preferred
stock with rights senior to, and that may adversely affect, the Common Stock,
without the necessity of shareholder approval and with such rights,
preferences and privileges
14
<PAGE>
as the Company's Board of Directors may determine. The Company, however, has
no present plans to issue any shares of preferred stock. See "Principal
Shareholders," "Description of Capital Stock" and "Certain Charter and Bylaw
Provisions."
NO PRIOR MARKET FOR COMMON STOCK
Prior to this offering, there has been no public market for the Company's
Common Stock, and there can be no assurance that an active public market will
develop or be sustained after this offering or that investors will be able to
sell the Common Stock should they desire to do so. The initial public offering
price was determined by negotiations between the Company and the
representatives of the Underwriters and may bear no relationship to the price
at which the Common Stock will trade upon completion of this offering. See
"Underwriting" for a discussion of the factors considered in determining the
initial public offering price.
POSSIBLE VOLATILITY OF STOCK PRICE
The market price of the shares of Common Stock is likely to be highly volatile
and could be subject to wide fluctuations in response to factors such as
actual or anticipated variations in the Company's operating results,
announcements of technological innovations, new products or new contracts by
the Company or its competitors, developments with respect to patents,
copyrights or proprietary rights, changes in financial estimates by securities
analysts, conditions and trends in the software and other technology
industries, adoption of new accounting standards affecting the software
industry, general market conditions and other factors. Further, the stock
market has experienced extreme price and volume fluctuations that have
particularly affected the market prices of equity securities of many high
technology companies and that often have been unrelated or disproportionate to
the operating performance of such companies. In the past, following periods of
volatility in the market price of a company's securities, securities class
action litigation has often been instituted against such company. Such
litigation, if instituted, could result in substantial costs and a diversion
of management attention and resources, which would have a material adverse
effect on the Company's business, financial condition, results of operations
and business prospects. These market fluctuations, as well as general
economic, political and market conditions such as recessions or international
currency fluctuations, may adversely affect the market price of the Common
Stock.
NO DIVIDENDS
The Company does not anticipate paying dividends on the Common Stock for the
foreseeable future. The Company anticipates that it will reinvest its net
income, if any, in its businesses. See "Dividend Policy."
15
<PAGE>
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 2,000,000 shares of
Common Stock offered by the Company hereby are estimated to be approximately
$17.8 million, assuming an initial public offering price of $10.00 per share
(after deducting the underwriting discount and estimated offering expenses
payable by the Company).
The Company will repay outstanding indebtedness represented by (i) the
Subordinated Note in the aggregate principal amount of $4.0 million as of
August 15, 1996, which is due and payable in July 2001 and accrues interest at
an annual rate of 13.25% (see "Certain Relationships and Related
Transactions"), (ii) a promissory note in the principal amount of
approximately $500,000 as of August 15, 1996, and which is due and payable
through August 1997 and accrues interest at the bank's prime rate (8.25% as of
August 15, 1996) plus 0.75%, and (iii) a demand note representing borrowings
under a revolving line of credit (approximately $2.5 million as of August 15,
1996) which accrues interest at the bank's prime rate (8.25% as of August 15,
1996) plus 0.875%. The $4.0 million Subordinated Note was incurred to reduce
outstanding bank debt. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Relationships and Related
Transactions."
The Company anticipates that the balance of the net proceeds of this offering
will be used for general corporate purposes. The Company's business strategy
contemplates that it will seek to complement internal growth with strategic
investments and acquisitions. Accordingly, a portion of the net proceeds may
also be used for acquiring related businesses, licensing technology or
investing in strategic or collaborative relationships. The Company has no
present understandings, agreements or commitments with respect to any such
acquisition, and no assurance can be given that any such acquisition will take
place. Pending application to the uses described above, the Company intends to
invest the net proceeds of this offering in short-term, investment-grade,
interest-bearing securities.
DIVIDEND POLICY
The Company has not paid any cash dividends and does not anticipate that it
will do so in the foreseeable future. The Company currently intends to retain
future earnings, if any, to provide funds for the growth and development of
the Company's business. Any future determination to pay dividends will be at
the discretion of the Company's Board of Directors and will be dependent upon
the Company's earnings, capital requirements and operating and financial
condition, and such other factors as the Board of Directors may deem relevant.
An existing loan agreement prohibits the payment of cash dividends; however,
such agreement will terminate upon the closing of this offering. See "Use of
Proceeds."
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<PAGE>
CAPITALIZATION
The following table sets forth the total debt and capitalization of the
Company on an actual basis as of June 30, 1996 and as adjusted to give effect
to (i) the sale by the Company of 2,000,000 shares of Common Stock at an
assumed initial public offering price of $10.00 per share, (ii) the payment by
the Company of the underwriting discount and other estimated expenses of this
offering, and (iii) the anticipated application of a portion of the net
proceeds to retire certain indebtedness of the Company. See "Use of Proceeds."
The information set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," the Consolidated Financial Statements and the related notes
included elsewhere herein.
<TABLE>
<CAPTION>
JUNE 30, 1996
--------------------
ACTUAL AS ADJUSTED
------- -----------
(IN THOUSANDS)
<S> <C> <C>
Short-term debt (including current portion of long-term
debt and
capital lease obligations)............................. $ 2,929 $ 33
Long-term debt, less current installments............... 42 --
Obligations under capital leases, less current
installments........................................... 27 27
Subordinated note payable, gross proceeds of $3,350 net
of discount of $736;
does not reflect subsequent additional gross proceeds
of $650 with
a related net discount of $143......................... 2,614 --
------- -------
Total debt.......................................... 5,612 60
------- -------
Stockholders' equity (1):
Preferred Stock, $.01 par value, 5,000,000 shares
authorized; none outstanding ......................... -- --
Series A convertible preferred stock, $.01 par value,
2,373,000 shares authorized; 1,776,441 shares
outstanding (none outstanding as adjusted)............ 18 --
Series B convertible preferred stock, $.01 par value,
327,000 shares authorized; 236,873 shares outstanding
(none outstanding as adjusted)........................ 2 --
Series C convertible preferred stock, $.01 par value,
6,000,000 shares authorized; 615,745 shares
outstanding (none outstanding as adjusted)............ 6 --
Common Stock, $.01 par value, 30,000,000 shares
authorized; 2,478,070 shares outstanding (5,229,230
outstanding as adjusted)(2)........................... 25 52
Additional paid-in capital............................. 7,166 24,915
Retained earnings (accumulated deficit)................ (1,817) (2,457)(3)
------- -------
Total stockholders' equity.......................... 5,400 22,510
------- -------
Total capitalization................................ $11,012 $22,570
======= =======
</TABLE>
- --------
(1) Gives effect to the Reverse Stock Split and to changes in the Company's
authorized capital effected in August 1996. Upon the closing of this
offering, all issued and outstanding shares of Convertible Preferred Stock
will be converted into an aggregate of 751,160 shares of Common Stock and
the Company intends to file an amendment to its Articles to eliminate the
Series A, B and C Convertible Preferred Stock. See "Description of Capital
Stock."
(2) Assumes no exercise of outstanding stock options or warrants. As of the
date of this Prospectus, there were outstanding options and warrants to
purchase 372,743 and 163,142 shares, respectively, of Common Stock at a
weighted average price of $4.57 and $1.08 per share, respectively. An
additional 320,114 shares are currently available for future grants under
the Company's employee benefit plans. See "Management--Benefit Plans" and
Note 10 of the Notes to Consolidated Financial Statements.
(3) Includes the loss of $640,000 on extinguishment of the Subordinated Note,
net of income tax effect. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
17
<PAGE>
DILUTION
The net tangible book value of the Company at June 30, 1996 was $2,538,000 or
$0.79 per share. Net tangible book value per share is determined by dividing
the total tangible net worth of the Company (total tangible assets less total
liabilities) by the number of shares of Common Stock outstanding. Without
taking into account any changes in such net tangible book value after June 30,
1996, other than to give effect to this offering at the assumed initial public
offering price of $10.00 per share and the receipt by the Company of the
estimated net proceeds therefrom, the net tangible book value of the Company
at June 30, 1996 would have been $19,648,000 or $3.76 per share. This
represents an immediate increase in net tangible book value of $2.97 per share
to existing shareholders and an immediate dilution of $6.24 per share to
purchasers of Common Stock in this offering. The following table illustrates
this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share.............. $10.00
Net tangible book value per share before this offering...... $0.79
Increase attributable to new investors...................... 2.97
-----
Net tangible book value per share after this offering....... 3.76
------
Dilution per share to new investors......................... $ 6.24
======
</TABLE>
The following table summarizes, at June 30, 1996, the difference between
existing shareholders and new investors with respect to the number of shares
of Common Stock purchased from the Company, the approximate total
consideration paid, and the average price paid per share by existing holders
of Common Stock and by the investors purchasing shares of Common Stock in this
offering before deduction of the underwriting discount and estimated offering
expenses.
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION
----------------- ------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- ----------- ------- -------------
<S> <C> <C> <C> <C> <C>
Existing shareholders... 3,229,230 61.8% $ 6,481,784 24.5% $2.01
New investors........... 2,000,000 38.2 20,000,000 75.5 10.00
--------- ----- ----------- -----
Total................. 5,229,230 100.0% $26,481,784 100.0%
========= ===== =========== =====
</TABLE>
The above computations assume no exercise of outstanding stock options or
warrants. As of date of this Prospectus, there were outstanding options and
warrants to purchase 372,743 and 163,142 shares, respectively, of Common Stock
at a weighted average exercise price of $4.57 and $1.08 per share,
respectively. An additional 320,114 shares are currently reserved for future
grants under the Company's employee benefit plans. To the extent these options
and warrants are exercised, there will be further dilution to new investors.
See "Management--Benefit Plans" and Note 10 of the Notes to Consolidated
Financial Statements.
18
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below should be read in
conjunction with the Consolidated Financial Statements and the Notes thereto
included elsewhere in this Prospectus. The data for, and as of the end of,
each of the years in the five-year period ended March 31, 1996 are derived
from the financial statements of the Company, which financial statements have
been audited by KPMG Peat Marwick LLP, independent certified public
accountants. The financial statements as of March 31, 1995 and 1996, and for
each of the years in the three-year period ended March 31, 1996, and the
report thereon, are included elsewhere in this Prospectus. The selected
financial data presented below for the years ended March 31, 1992 and 1993 and
as of March 31, 1992, 1993 and 1994 are derived from audited financial
statements not included in this Prospectus. The selected financial data
presented below for the three months ended June 30, 1995 and 1996 and as of
June 30, 1995 and 1996 are unaudited but have been prepared on the same basis
as the audited financial statements and, in the opinion of management, reflect
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the results of operations for such periods. The
results of operations for the three months ended June 30, 1996 are not
necessarily indicative of results to be expected for any future period. The
information set forth below reflects the classification of the database and
document services businesses as discontinued operations and should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," the Consolidated Financial Statements and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED MARCH 31, JUNE 30,
---------------------------------------- ------------------
1992 1993 1994 1995 1996 1995 1996
------ ------ ------- ------- --------- ------- ---------
(IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
The Work Number........ $ -- $ -- $ -- $ 74 $ 453 $ 42 $ 251
Outsourced services.... -- 60 776 515 998 105 330
Customer premises
systems............... 5,273 6,868 8,497 6,957 9,442 2,125 2,844
Maintenance and
support............... 1,090 1,530 1,949 2,310 2,624 640 868
------ ------ ------- ------- --------- ------- ---------
Total revenues....... 6,363 8,458 11,222 9,856 13,517 2,912 4,293
------ ------ ------- ------- --------- ------- ---------
Cost of revenues
The Work Number........ -- -- -- 48 429 99 111
Outsourced services.... -- 22 190 260 493 106 128
Customer premises
systems............... 2,326 3,175 3,902 4,143 4,489 985 1,447
Maintenance and
support............... 360 558 767 793 619 166 237
------ ------ ------- ------- --------- ------- ---------
Total cost of
revenues............ 2,686 3,755 4,859 5,244 6,030 1,356 1,923
------ ------ ------- ------- --------- ------- ---------
Gross margin........... 3,677 4,703 6,363 4,612 7,487 1,556 2,370
------ ------ ------- ------- --------- ------- ---------
Operating expenses
Selling and marketing.. 1,877 2,332 2,700 2,854 4,084 884 1,369
General and
administrative........ 1,235 1,611 2,268 2,556 2,828 659 637
------ ------ ------- ------- --------- ------- ---------
Total operating
expenses............ 3,112 3,943 4,968 5,410 6,912 1,543 2,006
------ ------ ------- ------- --------- ------- ---------
Operating income
(loss)................ 565 760 1,395 (798) 575 13 364
Other expense, net..... 167 140 153 284 395 88 140
Income tax expense
(benefit)............. 151 235 7 (328) 57 (30) 83
------ ------ ------- ------- --------- ------- ---------
Earnings (loss) from
continuing operations. 247 385 1,235 (754) 123 (45) 141
------ ------ ------- ------- --------- ------- ---------
Discontinued
operations:
Earnings (loss) from
operations of
discontinued
operations, net....... 392 575 474 (410) (703) ( 38) (164)
Loss on disposal of
discontinued
operations, net....... -- -- -- -- -- -- (350)
------ ------ ------- ------- --------- ------- ---------
Earnings (loss) from
discontinued
operations, net....... 392 575 474 (410) (703) (38) (514)
------ ------ ------- ------- --------- ------- ---------
Earnings (loss) before
extraordinary item and
cumulative effect of
change in accounting
principle............. 639 960 1,709 (1,164) (580) (83) (373)
Extraordinary item..... 151 -- -- -- -- -- --
------ ------ ------- ------- --------- ------- ---------
Net earnings (loss)
before cumulative
effect of change in
accounting principle.. 790 960 1,709 (1,164) (580) (83) (373)
Cumulative effect of
change in accounting
principle............. -- 461 -- -- -- -- --
------ ------ ------- ------- --------- ------- ---------
Net earnings (loss).... $ 790 $1,421 $ 1,709 $(1,164) $ (580) $ (83) $ (373)
====== ====== ======= ======= ========= ======= =========
Pro forma net earnings
(loss) per share (1):
Earnings from
continuing
operations............ $ .04 .04
Loss from discontinued
operations............ (.21) (.15)
--------- ---------
Net loss............. $ (.17) (.11)
========= =========
Pro forma weighted
average number of
shares outstanding
(1)................... 3,400,439 3,400,439
========= =========
</TABLE>
19
<PAGE>
<TABLE>
<CAPTION>
AS OF MARCH 31, AS OF JUNE 30,
-------------------------------------- ----------------
1992 1993 1994 1995 1996 1995 1996
------ ------- ------- ------- ------- ------- -------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash................... $ 156 $ 258 $ 145 $ 27 $ 56 $ 160 $ 287
Working capital........ 24 1,582 2,449 183 (1,261) (172) 186
Net assets of
businesses held for
sale.................. -- -- -- -- -- -- 2,505
Total assets........... 6,927 10,103 12,824 14,476 15,844 14,566 14,686
Notes payable to bank.. 1,572 757 1,100 2,654 4,243 3,309 2,396
Current installments of
long-term debt and
obligations under
capital leases........ 281 499 602 722 726 711 533
Long-term debt and
obligations under
capital leases, less
current installments.. 199 750 620 1,318 630 1,149 69
Subordinated note
payable, net of
discount.............. -- -- -- -- -- -- 2,614
Due to stockholders.... 105 -- -- -- -- -- --
Stockholders' equity... 2,069 4,365 6,774 5,610 5,038 5,528 5,400
</TABLE>
- --------
(1) Pro forma net loss per share has been computed using the number of shares
of Common Stock and Common Stock equivalents outstanding. Pursuant to
Securities and Exchange Commission Staff Accounting Bulletin No. 83,
shares issued at prices below the assumed initial public offering price of
$10.00 per share and stock options and warrants granted with exercise
prices below the assumed initial public offering price during the twelve-
month period preceding the date of the initial filing of the Registration
Statement have been included in the calculation of Common Stock equivalent
shares, using the treasury stock method, as if such shares, options and
warrants were outstanding for all of fiscal 1996 and the first quarter of
fiscal 1997.
20
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive communications, which
consists of The Work Number, outsourced services, the sale of customer
premises systems, and maintenance and support services related to those
systems.
The Work Number service is in the early stage of its life cycle. Accordingly,
no meaningful relationship can be drawn between revenues recognized to date,
or in a given quarter, and the corresponding number of employers that have
contracted for the service or the number of employment records covered by the
service. Revenues derived from The Work Number include fees charged to
mortgage lenders and other verifiers for verification of employment history,
including the past three years of salary history of participating employers'
current and former employees, ongoing maintenance fees charged to employers
and one-time conversion fees from new employers. The lag between the time an
employer enters into an agreement with the Company for The Work Number and the
time the employer converts its records to the service and begins to routinely
refer inquiries to The Work Number can distort normal quarter to quarter
revenue comparisons early in the service's life cycle. Further, revenues to
date primarily reflect the relatively large percentage of conversion fees
recognized early in the service's life cycle as compared to fees from
verifications, which can also distort normal quarter to quarter revenue
comparisons at this stage of the service's life cycle. The Company expects
that over time ongoing fees from verifications will be a greater source of
revenues than conversion fees. Additionally, due to the early stage of the
service and the attendant start-up costs, no meaningful relationship can be
drawn between historical gross margins and gross margins that may be realized
in the future. The future success of this branded service is contingent upon a
number of factors, including, without limitation, increased acceptance and
usage of the service. See "Risk Factors--Certain Risks Associated with The
Work Number."
The Company's customer premises systems business designs and implements
customer premises systems with interactive communications capabilities.
Revenues from customer premises systems are derived from the license or sale
of software, related hardware and custom applications. The typical size of a
system ranges from $35,000 to $200,000 or more and averages approximately
$75,000. The Company provides maintenance and support services with respect to
installed customer premises systems. Revenues from maintenance and support are
recognized ratably over the term of the maintenance agreement.
The Company's outsourced services business provides interactive communication
services to organizations that choose not to purchase a customer premises
system. The Company maintains a system on its premises that contains a
customer database and receives incoming requests for access to the
information. Revenues from outsourced services include fees derived from
establishment of the service and transaction-based fees.
In addition to providing interactive communication systems, the Company has
historically provided database and document services. The Company offers
database services, including sales leads and pre-press services for directory
publishers, and document services, including the preparation and mailing of
invoices, statements and confirmation letters for organizations with high
volume requirements. Revenues from database and document services are
recognized as the services are performed. In August 1996, the Company
determined to pursue the divestiture of the database and document services
businesses and, accordingly, has reflected the results of operations of such
businesses as discontinued operations.
In connection with the issuance of a $4.0 million subordinated promissory note
(the "Subordinated Note"), of which $3.35 million was funded as of June 30,
1996 and the balance of which was committed as of that date and funded on
August 15, 1996, the Company issued to Petra Capital, LLC (the "Lender") and
other participants warrants for the purchase of Common Stock at $.01 per
share. See "Certain Relationships and Related Transactions." For financial
reporting purposes, the warrants have been valued based on a $7.00 per share
value of the underlying Common Stock on the date the Subordinated Note was
issued. The $736,000 difference
21
<PAGE>
between the $3.35 million funded in connection with the Subordinated Note at
June 30, 1996 and the amount reflected in the financial statements as of that
date represents the value of the warrants issued to the Lender and other
participants in connection with such Subordinated Note and such amount has
been treated as a discount on the Subordinated Note. This discount and costs
associated with the issuance of the Subordinated Note and warrants amount to
approximately $1.0 million. Upon repayment of this Subordinated Note, the
Company will expense the unamortized discount and deferred costs associated
with the issuance of the Subordinated Note and warrants. This amount, net of
income tax effect, will be approximately $640,000 and will be treated as an
extraordinary item.
This discussion and analysis contains certain statements that may be
considered forward looking statements ("Forward Looking Statements") within
the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. Actual results
could differ materially from those projected in the Forward Looking Statements
as a result of, among other things, the factors set forth in the section
entitled "Risk Factors." In particular, note the Risk Factors captioned
"Operating Losses," "Potential Fluctuations in Operating Results," "Certain
Risks Associated with The Work Number," "Certain Risks Associated with
Divestiture of the Database and Document Services Businesses," "Intense
Competition," "Dependence on Strategic Marketing Alliances," "Risks Associated
with Technological Change," "Lengthy Sales Cycle" and "Limited Intellectual
Property Protection" as well as "Business--Proprietary Rights" and "Business--
Legal Proceedings."
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, certain items from
the Company's consolidated statements of operations, expressed as a percentage
of total revenues, and the percentage change in the dollar amount of such
items compared to the prior comparable period.
<TABLE>
<CAPTION>
PERCENTAGE INCREASE (DECREASE)
------------------------------------
THREE
MONTHS FIRST
FISCAL YEAR ENDED ENDED JUNE THREE MONTHS
MARCH 31, 30, FISCAL 1995 FISCAL 1996 FISCAL 1997
-------------------- ------------- OVER OVER OVER
1994 1995 1996 1995 1996 FISCAL 1994 FISCAL 1995 FISCAL 1996
----- ----- ----- ----- ----- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
The Work Number........ - % 0.8% 3.3% 1.4% 5.9% * 518.9% 504.1%
Outsourced services.... 6.9 5.2 7.4 3.6 7.7 (33.8) 93.9 213.0
Customer premises
systems............... 75.7 70.6 69.9 73.0 66.2 (18.1) 35.7 33.8
Maintenance and
support............... 17.4 23.4 19.4 22.0 20.2 18.6 13.6 35.7
----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 (12.2) 37.2 47.4
----- ----- ----- ----- -----
Cost of revenues
The Work Number........ - 0.5 3.2 3.4 2.6 * 796.5 12.1
Outsourced services.... 1.7 2.6 3.6 3.7 3.0 36.2 89.5 20.7
Customer premises
systems............... 34.8 42.0 33.2 33.8 33.7 6.2 8.4 47.0
Maintenance and
support............... 6.8 8.1 4.6 5.7 5.5 3.3 (22.0) 42.5
----- ----- ----- ----- -----
Total cost of
revenues............ 43.3 53.2 44.6 46.6 44.8 7.9 15.0 41.8
----- ----- ----- ----- -----
Gross margin........... 56.7 46.8 55.4 53.4 55.2 (27.5) 62.4 52.3
----- ----- ----- ----- -----
Operating expenses
Selling and marketing.. 24.1 29.0 30.2 30.4 31.9 5.7 43.1 54.9
General and
administrative........ 20.2 25.9 20.9 22.6 14.8 12.7 10.6 (3.3)
----- ----- ----- ----- -----
Total operating
expenses............ 44.3 54.9 51.1 53.0 46.7 8.9 27.8 30.0
----- ----- ----- ----- -----
Operating income
(loss)................ 12.4 (8.1) 4.3 0.4 8.5 (157.2) * 2,595.4
Other expense, net..... 1.3 2.9 2.9 3.0 3.3 86.0 38.9 59.0
----- ----- ----- ----- -----
Earnings (loss) from
continuing operations
before income tax
expense (benefit)..... 11.1 (11.0) 1.4 (2.6) 5.2 (187.2) * *
Income tax expense
(benefit)............. 0.1 (3.3) 0.5 (1.0) 1.9 * * *
----- ----- ----- ----- -----
Earnings (loss) from
continuing operations. 11.0 (7.7) 0.9 (1.6) 3.3 (161.1) * *
Discontinued
operations, net....... 4.2 (4.1) (5.2) (1.3) (12.0) (186.4) * *
----- ----- ----- ----- -----
Net earnings (loss).... 15.2% (11.8)% (4.3)% (2.9)% (8.7)% (168.1)% * *
===== ===== ===== ===== =====
</TABLE>
- --------
*Not meaningful.
22
<PAGE>
Three Months Ended June 30, 1995 and 1996
Revenues. Total revenues increased by 47.4%, from $2.9 million for the three
months ended June 30, 1995 to $4.3 million for the three months ended June 30,
1996. Revenues from The Work Number increased from $42,000 for the three
months ended June 30, 1995 to $251,000 for the three months ended June 30,
1996, due to the completion of the pilot phase during fiscal 1996 and
commencement of marketing on a nationwide basis. Revenues from outsourced
services increased from $105,000 for the three months ended June 30, 1995 to
$330,000 for the three months ended June 30, 1996, due to the Company
capitalizing on the trend of some corporations to outsource their non-core
functions. Revenues from customer premises systems increased by 33.8%, from
$2.1 million for the three months ended June 30, 1995 to $2.8 million for the
three months ended June 30, 1996. This revenue growth is due to increases in
sales and marketing resources, replacement of a regional sales manager who
left the Company in September 1994, and the continuing development of
strategic marketing alliances. Revenues from maintenance and support related
to the customer premises systems increased by 35.7%, from $640,000 for the
three months ended June 30, 1995 to $868,000 for the three months ended June
30, 1996, reflecting the support provided to an increased installed base of
customer premises systems.
Cost of Revenues. Total cost of revenues increased by 41.8%, from $1.4 million
for the three months ended June 30, 1995 to $1.9 million for the three months
ended June 30, 1996. Cost of revenues from The Work Number increased from
$99,000 for the three months ended June 30, 1995 to $111,000 for the three
months ended June 30, 1996, due to increased costs incurred with respect to
this service as it moved from the pilot phase to a national service, offset by
a reduction in start-up costs. Due to the early stage of the service in its
life cycle and the attendant start up costs, no meaningful relationship can be
drawn between historical gross margins and gross margins that may be realized
in the future. Cost of revenues from outsourced services increased by 20.7%,
from $106,000 for the three months ended June 30, 1995 to $128,000 for the
three months ended June 30, 1996. This increase in cost is attributable to the
revenue growth described above. Cost of revenues from outsourced services as a
percentage of revenues from outsourced services decreased from 100.6% for the
three months ended June 30, 1995, to 38.8% for the three months ended June 30,
1996, reflecting the better utilization of the fixed personnel and equipment
costs incurred starting in 1995. Cost of revenues from customer premises
systems increased by 47.0%, from $1.0 million for the three months ended June
30, 1995 to $1.4 million for the three months ended June 30, 1996. Cost of
revenues for customer premises systems as a percentage of customer premises
system revenue increased from 46.3% for the three months ended June 30, 1995
to 50.9% for the three months ended June 30, 1996, principally due to an
increase in fixed labor costs as the Company is staffing for anticipated
increased levels of revenue. Cost of revenues from maintenance and support
related to customer premises systems increased by 42.5%, from $166,000 for the
three months ended June 30, 1995 to $237,000 for the three months ended June
30, 1996, principally due to an increase in personnel costs to provide a
higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 54.9%
from $884,000 for the three months ended June 30, 1995 to $1.4 million for the
three months ended June 30, 1996. As a percentage of revenues, such expenses
increased from 30.4% for the three months ended June 30, 1995 to 31.9% for the
three months ended June 30, 1996. The increase reflects continuing expansion
of the Company's sales and marketing efforts, including development of
distribution channels both in domestic and international markets. The Company
anticipates that selling and marketing expenses will continue to increase in
dollar amount in order to achieve greater than historical revenue growth
rates.
General and Administrative Expenses. General and administrative expenses
decreased 3.3% from $659,000 for the three months ended June 30, 1995 to
$637,000 for the three months ended June 30, 1996. As a percentage of
revenues, such expenses decreased from 22.6% for the three months ended June
30, 1995 to 14.8% for the three months ended June 30, 1996. The decrease
reflects the cost control efforts implemented by the Company throughout fiscal
1996. The Company does not anticipate that general and administrative expenses
will decrease in dollar amount in future years.
Other Expense. Interest expense, which is the primary component of other
expense, net, increased from $71,000 for the three months ended June 30, 1995
to $116,000 for the three months ended June 30, 1996. This increase
23
<PAGE>
is due principally to a higher level of borrowings caused by the net loss
incurred during fiscal 1996. As the Company intends to repay most of its
outstanding borrowings with the proceeds of this offering, it expects interest
expense will decrease substantially in future periods.
Income Tax Expense. The Company's effective income tax rate was 40.0% for the
three months ended June 30, 1995 and 37.1% for the three months ended June 30,
1996.
Fiscal Years Ended March 31, 1996 and 1995
Revenues. Total revenues increased by 37.2%, from $9.9 million in fiscal 1995
to $13.5 million in fiscal 1996. Revenues from The Work Number increased from
$74,000 in fiscal 1995 to $453,000 in fiscal 1996, due to the completion of
the pilot phase and commencement of marketing on a nationwide basis. Revenues
from outsourced services increased by 93.9%, from $515,000 in fiscal 1995 to
$1.0 million in fiscal 1996, due to the Company capitalizing on the trend of
some corporations to outsource their non-core functions. Revenues from
customer premises systems increased by 35.7%, from $7.0 million in fiscal 1995
to $9.4 million. This revenue growth is due to increases in sales and
marketing resources, restaffing of a regional sales office, including the
replacement of the regional sales manager who left the Company in September
1994, and the continuing development of strategic marketing alliances.
Revenues from maintenance and support related to the customer premises systems
increased by 13.6%, from $2.3 million in fiscal 1995 to $2.6 million in fiscal
1996, reflecting the support provided to an increased installed base of
customer premises systems.
Cost of Revenues. Total cost of revenues increased by 15.0%, from $5.2 million
in fiscal 1995 to $6.0 million in fiscal 1996. Cost of revenues from The Work
Number increased from $48,000 in fiscal 1995 to $429,000 in fiscal 1996, due
to increased costs incurred with respect to this service as it moved from the
pilot phase to a national service. Due to the early stage of the service in
its life cycle and the attendant start up costs, no meaningful relationship
can be drawn between historical gross margins and gross margins that may be
realized in the future. Cost of revenues from outsourced services increased by
89.5%, from $260,000 in fiscal 1995 to $493,000 in fiscal 1996, due to the
revenue growth described above. Cost of revenues from customer premises
systems increased by 8.4%, from $4.1 million in fiscal 1995 to $4.5 million in
fiscal 1996. However, cost of revenues for customer premises systems as a
percentage of customer premises systems revenue decreased from 59.6% in fiscal
1995 to 47.5% in fiscal 1996, principally due to better leveraging of
personnel costs in fiscal 1996. Cost of revenues from maintenance and support
related to customer premises systems decreased by 22.0%, from $793,000 in
fiscal 1995 to $619,000 in fiscal 1996, principally due to better leveraging
of personnel costs in fiscal 1996 and reductions in the costs of contracted
third-party maintenance services.
Selling and Marketing Expenses. Selling and marketing expenses increased 43.1%
from $2.9 million in fiscal 1995 to $4.1 million in fiscal 1996. As a
percentage of revenues, such expenses increased from 29.0% in fiscal 1995 to
30.2% in fiscal 1996. These increases reflect continuing expansion of the
Company's sales and marketing efforts, including development of distribution
channels both in domestic and international markets.
General and Administrative Expenses. General and administrative expenses
increased 10.6% from $2.6 million in fiscal 1995 to $2.8 million in fiscal
1996. As a percentage of revenues, such expenses decreased from 25.9% in
fiscal 1995 to 20.9% in fiscal 1996. The increase in dollar amount reflects
the expansion of the Company's infrastructure to respond to increased levels
of revenues, offset by cost control efforts implemented by the Company
throughout fiscal 1996.
Other Expense. Interest expense, which is the primary component of other
expense, net, increased from $212,000 in fiscal 1995 to $343,000 in fiscal
1996. This increase is due principally to a higher average level of borrowings
caused by financing the net losses in fiscal 1995 and 1996 with additional
bank borrowings.
Income Tax Expense. The Company's effective income tax rate was 30.3% in
fiscal 1995 and 31.7% in fiscal 1996. See Note 9 of the Notes to Consolidated
Financial Statements.
24
<PAGE>
Fiscal Years Ended March 31, 1995 and 1994
Revenues. Total revenues decreased by 12.2%, from $11.2 million in fiscal 1994
to $9.9 million in fiscal 1995, due primarily to a significant decline in
revenues from customer premises systems. Initial revenues from The Work Number
were $74,000 in fiscal 1995, as the Company began the pilot phase of this
service. Revenues from outsourced services decreased by 33.8%, from $776,000
in fiscal 1994 to $515,000 in fiscal 1995. This decrease was due to the loss
of a significant account. Revenues from customer premises systems decreased by
18.1%, from $8.5 million in fiscal 1994 to $7.0 million in fiscal 1995. The
decrease was principally due to the departure of a regional sales manager and
associated staff in one of the Company's key sales territories during the
second half of the fiscal year. Revenues from maintenance and support related
to the customer premises systems sales increased by 18.6%, from $1.9 million
in fiscal 1994 to $2.3 million in fiscal 1995. This growth is reflective of
the increased installed base of customer premises systems.
Cost of Revenues. Total cost of revenues increased by 7.9%, from $4.9 million
in fiscal 1994 to $5.2 million in fiscal 1995. Cost of revenues from The Work
Number were $48,000 in fiscal 1995, as the Company began the pilot phase of
this service. Cost of revenues from outsourced services increased by 36.2%,
from $190,000 in fiscal 1994 to $260,000 in fiscal 1995, due to increasing
costs to support the Company's objective of higher revenues. Cost of revenues
from customer premises systems increased by 6.2%, from $3.9 million in fiscal
1994 to $4.1 million in fiscal 1995. However, cost of revenues for customer
premises systems as a percentage of customer premises systems revenue
increased from 45.9% in fiscal 1994 to 59.6% in fiscal 1995. This is
principally due to the unexpected decrease in revenues during the second half
of fiscal 1995, coupled with a relatively fixed labor cost. Cost of revenues
from maintenance and support related to the customer premises systems
increased by 3.3%, from $767,000 in fiscal 1995 to $793,000 in fiscal 1996.
However, this represents a declining percentage of maintenance and support
revenues, as the Company better leveraged its labor costs.
Selling and Marketing Expenses. Selling and marketing expenses increased 5.7%
from $2.7 million in fiscal 1994 to $2.9 million in fiscal 1995. As a
percentage of revenues, such expenses increased from 24.1% in fiscal 1994 to
29.0% in fiscal 1995. The increase reflects continuing expansion of the
Company's sales and marketing efforts offset by decreased incentive
compensation due to a lower level of sales volume.
General and Administrative Expenses. General and administrative expenses
increased 12.7% from $2.3 million in fiscal 1994 to $2.6 million in fiscal
1995. As a percentage of revenues, such expenses increased from 20.2% in
fiscal 1994 to 25.9% in fiscal 1995. The increase in dollar amount reflects
the expansion of the Company's infrastructure to respond to an anticipated
increase in the level of revenues. The increase as a percentage of revenues
was due to the unanticipated decrease in sales during the second half of the
fiscal year.
Other Expense. Interest expense, which is the primary component of other
expense, net, increased from $131,000 in fiscal 1994 to $212,000 in fiscal
1995. This increase is due principally to a higher average level of borrowings
caused by financing the net loss in fiscal 1995 with additional bank
borrowings.
Income Tax Expense. The Company's effective income tax rate was 0.5% in fiscal
1994 and 30.3% in fiscal 1995. The rate in fiscal 1994 reflects a change in
the valuation allowance for deferred tax assets. See Note 9 of the Notes to
Consolidated Financial Statements.
DISCONTINUED OPERATIONS
In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses and, accordingly, has reflected the
results of operations of such businesses as discontinued operations. No
specific transaction has been approved and no assurance can be given that any
such transaction will be completed. Any divestiture of the assets of such
businesses would require the approval of the Company's lender, certain
equipment lessors and other third parties; no assurance can be given that such
approvals will be provided. A provision of $350,000 has been made as of June
30, 1996 to reflect the anticipated loss from operations until the time of
disposal. The Company has estimated that the proceeds from divestiture will
approximate the net assets held for sale as of June 30, 1996. However, if the
proceeds from the divestiture are insufficient to cover the costs of the
divestiture, or if the costs of the divestiture are significant, such events
could have a material adverse effect on the Company's results of operations
and financial condition. See Note 2 of the Notes to Consolidated Financial
Statements.
25
<PAGE>
The following table sets forth, for the periods indicated, a summary statement
of operations of the database and documents services business:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED JUNE
YEAR ENDED MARCH 31, 30,
------------------------ --------------
1994 1995 1996 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues............................. $12,282 $12,010 $11,149 $3,084 $2,316
Cost of revenues..................... 7,496 9,061 9,110 2,404 1,956
------- ------- ------- ------ ------
Gross margin......................... 4,786 2,949 2,039 680 360
------- ------- ------- ------ ------
Operating expenses
Selling and marketing............... 1,843 1,474 1,277 316 278
General and administrative.......... 2,022 2,116 1,741 379 320
------- ------- ------- ------ ------
Total operating expenses......... 3,865 3,590 3,018 695 598
------- ------- ------- ------ ------
Operating income (loss).............. 921 (641) (979) (15) (238)
Other expense, net................... 139 40 73 48 22
------- ------- ------- ------ ------
Earnings (loss) from operations...... 782 (681) (1,052) (63) (260)
Income tax expense (benefit)......... 308 (271) (349) (25) (96)
------- ------- ------- ------ ------
Net earnings (loss) from operations. 474 (410) (703) (38) (164)
------- ------- ------- ------ ------
Loss on disposal..................... -- -- -- -- (500)
Income tax benefit................... -- -- -- -- (150)
------- ------- ------- ------ ------
Loss on disposal, net................ -- -- -- -- (350)
------- ------- ------- ------ ------
Net earnings (loss).................. $ 474 $ (410) $ (703) $ (38) $ (514)
======= ======= ======= ====== ======
</TABLE>
Revenues. Database and document services revenues decreased by 24.9%, from
$3.1 million for the three months ended June 30, 1995 to $2.3 million for the
three months ended June 30, 1996. The decrease was attributable primarily to
the loss of AT&T 800 Directories as a customer in the third quarter of fiscal
1996. Database and document services revenues decreased by 7.2%, from $12.0
million in fiscal 1995 to $11.1 million in fiscal 1996. The decrease was
attributable to the loss of AT&T 800 Directories as a customer during the
third quarter of fiscal 1996, which more than offset increases in revenues due
to market penetration. Revenues from AT&T 800 Directories amounted to
approximately $930,000 in fiscal 1996 and $2.0 million in fiscal 1995.
Database and document services revenues decreased by 2.2%, from $12.3 million
in fiscal 1994 to $12.0 million in fiscal 1995. The decrease was attributable
to the decrease in business from several significant customers, including AT&T
800 Directories.
Cost of Revenues. Database and document services cost of revenues decreased
18.6%, from $2.4 million for the three months ended June 30, 1995 to $2.0
million for the three months ended June 30, 1996. Total cost of revenues for
database and document services increased as a percentage of database and
document services revenues from 78.0% for the three months ended June 30, 1995
to 84.5% for the three months ended June 30, 1996. This is due principally to
the loss of AT&T 800 Directories as noted above, which had a higher than
average profitability coupled with relatively fixed labor costs. Database and
document services cost of revenues remained substantially unchanged at $9.1
million in both fiscal 1995 and fiscal 1996. Total cost of revenues for
database and document services increased as a percentage of database and
document services revenues from 75.4% in fiscal 1995 to 81.7% in fiscal 1996.
The fluctuations are due principally to the loss of AT&T 800 Directories noted
above, which had a higher than average profitability, offset by cost
efficiency gains within database and document services. Database and document
services cost of revenues increased 20.9%, from $7.5 million in fiscal 1994 to
$9.1 million in fiscal 1995. Total cost of revenues for database and document
services increased as a percentage of database and document services revenues
from 61.0% in fiscal 1994 to 75.4% in fiscal 1995. This is principally due to
the decline in business from several significant customers, which had higher
than average margins, coupled with a relatively high level of fixed costs.
Selling and Marketing Expenses. Selling and marketing expenses decreased 12.0%
from $316,000 for the three months ended June 30, 1995 to $278,000 for the
three months ended June 30, 1996. As a percentage of revenues, such expenses
increased from 10.2% for the three months ended June 30, 1995 to 12.0% for the
three months ended June 30, 1996. Selling and marketing expense decreased
13.4% from $1.5 million in fiscal 1995 to $1.3 million in fiscal 1996. As a
percentage of revenues, such expenses decreased from 12.3% in fiscal 1995 to
11.5%
26
<PAGE>
in fiscal 1996. Selling and marketing expenses decreased 20.0% from $1.8
million in fiscal 1994 to $1.5 million in fiscal 1995. As a percentage of
revenues, such expenses decreased from 15.0% in fiscal 1994 to 12.3% in fiscal
1995. The decrease in dollar amount for all periods reflects a reduced level
of incentive compensation due to a lower level of revenues, as well as a
reduction of discretionary expenditures as revenue levels declined.
General and Administrative Expenses. General and administrative expenses
decreased 15.5% from $379,000 for the three months ended June 30, 1995 to
$320,000 for the three months ended June 30, 1996. As a percentage of
revenues, such expenses increased from 12.3% for the three months ended June
30, 1995 to 13.8% for the three months ended June 30, 1996. General and
administrative expenses decreased 17.7% from $2.1 million in fiscal 1995 to
$1.7 million in fiscal 1996. As a percentage of revenues, such expenses
decreased from 17.6% in fiscal 1995 to 15.6% in fiscal 1996. General and
administrative expenses increased 4.6% from $2.0 million in fiscal 1994 to
$2.1 million in fiscal 1995. The fluctuations in dollar amounts reflect cost
control efforts implemented by the Company as revenue levels declined.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data
for each of the four quarters in fiscal 1995 and 1996 and the first quarter of
fiscal 1997, as well as the percentage of the Company's total revenues
represented by each item. The unaudited financial statements have been
prepared on the same basis as the audited financial statements contained
herein and include all adjustments (consisting only of normal recurring
adjustments) that the Company considers necessary for a fair presentation of
such information when read in conjunction with the Company's financial
statements and notes thereto appearing elsewhere in the Prospectus. The
Company believes that quarter-to-quarter comparisons of its financial results
are not necessarily meaningful and should not be relied upon as an indication
of future performance.
<TABLE>
<CAPTION>
QUARTER ENDED
------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
The Work Number........ $ 6 $ 15 $ 21 $ 32 $ 42 $ 51 $ 75 $ 285 $ 251
Outsourced services.... 90 121 220 84 105 254 419 220 330
Customer premises
systems............... 2,461 2,293 1,687 516 2,125 2,637 2,086 2,594 2,844
Maintenance and
support............... 588 505 582 635 640 634 653 697 868
------- ------ ------ ------- ------ ------ ------ ------ ------
Total revenues....... 3,145 2,934 2,510 1,267 2,912 3,576 3,233 3,796 4,293
------- ------ ------ ------- ------ ------ ------ ------ ------
Cost of revenues
The Work Number........ 4 9 14 21 99 104 122 104 111
Outsourced services.... 53 54 61 92 106 121 180 86 128
Customer premises
systems............... 1,222 1,084 894 943 984 1,173 966 1,366 1,447
Maintenance and
support............... 185 167 182 259 166 144 176 133 237
------- ------ ------ ------- ------ ------ ------ ------ ------
Total cost of
revenues............ 1,464 1,314 1,151 1,315 1,355 1,542 1,444 1,689 1,923
------- ------ ------ ------- ------ ------ ------ ------ ------
Gross margin........... 1,681 1,620 1,359 (48) 1,557 2,034 1,789 2,107 2,370
------- ------ ------ ------- ------ ------ ------ ------ ------
Operating expenses
Selling and marketing.. 683 802 773 596 884 937 1,010 1,253 1,369
General and
administrative........ 720 646 688 502 659 821 735 613 637
------- ------ ------ ------- ------ ------ ------ ------ ------
Total operating
expenses............ 1,403 1,448 1,461 1,098 1,543 1,758 1,745 1,866 2,006
------- ------ ------ ------- ------ ------ ------ ------ ------
Operating income
(loss)................ 278 172 (102) (1,146) 14 276 44 241 364
======= ====== ====== ======= ====== ====== ====== ====== ======
Earnings (loss) from
discontinued
operations, net....... 230 142 (114) (668) (38) 55 (538) (182) (514)
======= ====== ====== ======= ====== ====== ====== ====== ======
Net earnings (loss).... $ 360 $ 215 $ (227) $(1,512) $ (83) $ 164 $ (582) $ (79) $ (373)
======= ====== ====== ======= ====== ====== ====== ====== ======
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
QUARTER ENDED
----------------------------------------------------------------------------------------
JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30, SEPT. 30, DEC. 31, MARCH 31, JUNE 30,
1994 1994 1994 1995 1995 1995 1995 1996 1996
-------- --------- -------- --------- -------- --------- -------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Revenues
The Work Number........ 0.2% 0.5% 0.8% 2.5% 1.4% 1.4% 2.3% 7.5% 5.8%
Outsourced services.... 2.8 4.1 8.8 6.6 3.6 7.1 13.0 5.8 7.7
Customer premises
systems............... 78.3 78.2 67.2 40.7 73.0 73.8 64.5 68.3 66.3
Maintenance and
support............... 18.7 17.2 23.2 50.2 22.0 17.7 20.2 18.4 20.2
----- ----- ----- ------ ----- ----- ----- ----- -----
Total revenues....... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
----- ----- ----- ------ ----- ----- ----- ----- -----
Cost of revenues
The Work Number........ 0.1 0.3 0.5 1.6 3.4 2.9 3.8 2.7 2.6
Outsourced services.... 1.7 1.9 2.4 7.3 3.7 3.4 5.6 2.3 3.0
Customer premises
systems............... 38.9 36.9 35.7 74.4 33.8 32.8 29.9 36.0 33.7
Maintenance and
support............... 5.9 5.7 7.2 20.5 5.7 4.0 5.4 3.5 5.5
----- ----- ----- ------ ----- ----- ----- ----- -----
Total cost of
revenues............ 46.6 44.8 45.8 103.8 46.6 43.1 44.7 44.5 44.8
----- ----- ----- ------ ----- ----- ----- ----- -----
Gross margin........... 53.4 55.2 54.2 (3.8) 53.4 56.9 55.3 55.5 55.2
----- ----- ----- ------ ----- ----- ----- ----- -----
Operating expenses
Selling and marketing.. 21.7 27.3 30.8 47.0 30.4 26.2 31.2 33.0 31.9
General and
administrative........ 22.9 22.0 27.4 39.6 22.6 23.0 22.7 16.1 14.8
----- ----- ----- ------ ----- ----- ----- ----- -----
Total operating
expenses............ 44.6 49.3 58.2 86.6 53.0 49.2 53.9 49.1 46.7
----- ----- ----- ------ ----- ----- ----- ----- -----
Operating income
(loss)................ 8.8 5.9 (4.0) (90.4) 0.4 7.7 1.4 6.4 8.5
===== ===== ===== ====== ===== ===== ===== ===== =====
Earnings (loss) from
discontinued
operations, net....... 7.3 4.8 (4.5) (52.7) (1.3) 1.5 (16.6) (4.8) (12.0)
===== ===== ===== ====== ===== ===== ===== ===== =====
Net earnings (loss).... 11.4% 7.3% (9.0)% (119.4)% (2.9)% 4.6% (18.0)% (2.1)% (8.7)%
===== ===== ===== ====== ===== ===== ===== ===== =====
</TABLE>
Revenues from The Work Number have increased as the service has moved from the
pilot phase to a national service. However, as noted above, this service is
early in its life cycle and the relatively large percentage of conversion fees
recognized early in the service's life cycle, particularly in the fourth
quarter of fiscal 1996, compared to fees from verifications can distort normal
quarter to quarter revenue comparisons. Revenues from outsourced services are
seasonally higher during the second and third quarters of the Company's fiscal
year due to the nature of the services being provided. The revenues have
increased on a quarter by quarter comparison in fiscal 1996 over fiscal 1995
due to the Company capitalizing on an increased trend by some corporations to
outsource these services. Revenues from customer premises systems decreased
during the third and fourth quarters of fiscal 1995 due to the departure of a
regional sales manager and associated staff in one of the Company's key sales
territories. Additional sales and marketing resources were added during the
fourth quarter of fiscal 1995 and the first two quarters of fiscal 1996, and
revenues increased accordingly during fiscal 1996. Revenues from maintenance
and support have generally increased over time due to such services being
provided to an increasing installed customer premises systems base. Revenues
from customer premises systems decreased during the third quarter of fiscal
1996 due to the Company's sales force committing a large part of its effort to
establishing initial sales of The Work Number. Similarly, in the first quarter
of 1997, notwithstanding the continued increase in verification revenues, the
redirecting of the sales force to customer premises systems sales resulted in
a lower rate of new employer contracts for The Work Number and a modest
decline in total revenues from The Work Number. The Company is in the process
of hiring and establishing a sales force dedicated to The Work Number.
The Company's revenues, margins, and operating results have fluctuated in the
past, and are expected to continue to fluctuate in the future, on an annual
and quarterly basis, as a result of a number of factors. These factors include
the length of the sales cycle, the timing of orders from and shipments to
customers, delays in development and customer acceptance of custom software
applications, new product introductions or
28
<PAGE>
announcements by the Company or its competitors, levels of market acceptance
for new products and the hiring and training of additional staff, as well as
general economic conditions. The size and timing of the Company's customer
premises systems transactions have historically varied substantially from
quarter to quarter, and the Company expects such variations to continue in
future periods. The Company is typically able to deliver a customer premises
system within several months of when the order is received and, therefore,
does not customarily have a significant long-term backlog. Because a
significant portion of the Company's overhead is fixed in the short-term, the
Company's results of operations may be adversely affected if revenues fall
below the Company's expectations.
LIQUIDITY AND CAPITAL RESOURCES
Prior to this offering, the Company has had limited liquidity, due in part to
net losses in the prior two fiscal years. The Company has financed its
operations primarily through cash flow from operations, private placements of
equity and debt securities and bank lines of credit. The Company had a current
ratio of 1.02 to 1, 0.87 to 1, and 1.03 to 1 at March 31, 1995, March 31, 1996
and June 30, 1996, respectively. The Company's working capital was $183,000,
$(1,261,000) and $186,000 at March 31, 1995, March 31, 1996 and June 30, 1996,
respectively. Working capital at June 30, 1996 reflects the reclassification
of the working capital of the discontinued operations to net assets of
businesses held for sale. Total working capital decreased in fiscal 1996
principally due to current year operating losses and discontinued operations.
Working capital increased during the three months ended June 30, 1996, due to
the issuance of a long-term subordinated note payable.
The Company currently maintains bank lines of credit of up to $4,000,000 for
working capital purposes. Amounts outstanding under available lines of credit,
which mature in December 1996, were $2,396,000 and $4,243,000 at June 30, 1996
and March 31, 1996, respectively. The decrease is principally the result of
the issuance in June 1996 of a subordinated note payable and the application
of the proceeds therefrom to repay a portion of the outstanding lines of
credit. See "Use of Proceeds" and "Certain Relationships and Related
Transactions."
The Company's accounts receivable increased from $5,022,000 at March 31, 1995
to $5,918,000 at March 31, 1996. The increase is due principally to total
revenues in the fourth quarter of fiscal 1996, including revenues from
discontinued operations, being $2,370,000 greater than revenues in the fourth
quarter of fiscal 1995, offset by improved collections of accounts receivable.
As a percentage of the Company's total revenues for the fourth quarter of each
fiscal year, including revenues from discontinued operations, the accounts
receivable at fiscal year-end decreased from 127% at March 31, 1995 to 94% at
March 31, 1996. At June 30, 1996, accounts receivable decreased to $4,938,000
which represented 115% of revenues for the quarter then ended. This decrease
is attributable principally due to the reclassification of the working capital
of the discontinued operations to net assets of businesses held for sale.
The Company's capital expenditures were $852,000 in fiscal 1996. The Company
currently has no specific commitments with regard to capital expenditures, but
anticipates spending approximately $1,500,000 in fiscal 1997 for capital
requirements.
The Company's net increase to capitalized software development costs was
$528,000 in fiscal 1996. See Notes 1 and 5 of Notes to Consolidated Financial
Statements. The Company intends to continue to make investments in software
solutions at comparable or increasing levels in fiscal 1997.
The Company will repay its outstanding indebtedness represented by (i) the
Subordinated Note in the aggregate principal amount of $4.0 million as of
August 15, 1996, which is due and payable in July 2001 and accrues interest at
an annual rate of 13.25% (see "Certain Relationships and Related
Transactions"), (ii) a promissory note in the principal amount of
approximately $542,000 as of June 30, 1996, and which is due and payable
through August 1997 and accrues interest at the bank's prime rate (8.25% as of
June 30, 1996) plus 0.75%, and (iii) a demand note representing borrowings
under a revolving line of credit (approximately $2.4 million as of June 30,
1996) which accrues interest at the bank's prime rate (8.25% as of June 30,
1996) plus 0.875%.
29
<PAGE>
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In October 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, Accounting for Stock-Based
Compensation, which establishes a fair value based method for financial
accounting and reporting for stock-based employee compensation plans. However,
the new standard allows compensation to continue to be measured by using the
intrinsic value based method of accounting prescribed by Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees, but requires
expanded disclosures. SFAS No. 123 is effective in fiscal 1997.
While the Company does not know precisely the impact that will result from
adopting SFAS No. 123, the Company does not expect the adoption of SFAS No.
123 to have a material effect on the Company's consolidated financial position
or results of operations.
30
<PAGE>
BUSINESS
GENERAL
TALX designs and implements interactive communications solutions, primarily
for Fortune 500 organizations other than telephone service providers, using
computer telephony (previously defined as "CT") to integrate technologies such
as interactive voice response (previously defined as "IVR"), facsimile, e-
mail, Internet and corporate Intranet. The Company's interactive
communications solutions enable an organization's employees, customers,
vendors and business partners (previously defined as "Users") to access, input
and update information without human assistance. The Company's solutions
enhance service levels, improve productivity and reduce costs by enabling
Users to perform self-service transactions using interactive communications
technologies. Historically, the Company has designed and implemented
"tailored" systems that provide an organization's Users with access to
databases of information relating to that organization.
In early 1995, the Company introduced a "branded" service, The Work Number for
Everyone(R) (previously defined as "The Work Number"), which is a national
service providing automated access to information from multiple organizations.
The Work Number provides automated employment verification to mortgage lenders
and other verifiers. Using The Work Number, verifiers are able to confirm
employment information regarding participating employers' current and former
employees, including their past three years of salary history. The Work Number
reduces an employer's cost of providing this information and at the same time
increases the timeliness and accuracy of the delivery of such information to
mortgage lenders and other verifiers.
Tailored interactive communications solutions are offered by TALX to its
customers either as systems for installation on customers' premises or on an
outsourced services basis. The Company has provided tailored interactive
communications systems for installation at customers' premises since the early
1980s and has shipped over 575 systems to approximately 350 customers during
the last five years. In 1993, the Company introduced its outsourced services
business which allows a customer to realize the benefits of an interactive
communications system without incurring the administrative or maintenance
burdens of operating such a system. For outsourced services customers, the
Company maintains the customer's database on a system at the Company's
facilities, where incoming requests for access to the information are
received.
In addition to providing interactive communications systems, the Company has
historically provided database and document services. In August 1996, the
Company determined to pursue the divestiture of the database and document
services businesses and, accordingly, has reflected the results of operations
of such businesses as discontinued operations. Database services include
providing sales leads and pre-press services for directory publishers, and
document services include the preparation and mailing of invoices, statements
and confirmation letters for organizations with high volume requirements.
The Company was incorporated under Missouri law in 1973. Following the
purchase of an interest in the Company by Intech Group Inc. ("Intech Group")
in 1988, the Company became primarily involved in designing and implementing
interactive communications solutions. In fiscal 1994, the Company acquired
from Intech Group and its affiliates, on a pooling-of-interests basis, EKI,
Incorporated, which was engaged in the business of providing database and
document services. These operations have recently been identified for
divestiture and the results of these operations are reflected as discontinued
operations. In July 1996, at which time Intech Group's only asset was TALX
capital stock, the Company acquired Intech Group in a merger transaction, the
practical effect of which was a tax-free distribution of Intech Group's
holding of TALX capital stock to Intech Group's shareholders.
INDUSTRY BACKGROUND
Businesses and government entities have traditionally used trained service
representatives to administer the flow of information to and from Users.
Service representatives perform multiple functions, including receiving
inquiries, processing transaction requests and using enterprise software
applications to extract relevant
31
<PAGE>
information. However, managing labor costs and maintaining the quality of
service become more difficult as an entity grows in size and complexity.
In recent years, organizations have strived to reengineer their business
processes to further reduce costs and increase service levels. One of the key
technologies critical to this reengineering process is client/server
architecture, which is becoming major corporations' architecture of choice for
business applications. Client/server architecture has facilitated the movement
of information from mainframes accessed by terminals to relational databases
accessed through personal computers ("PCs"). As a result, vital business
information is more readily accessible for integration with interactive
communications technologies, allowing Users to benefit more fully from the
reengineered business process.
Driven by demand for higher levels of service at lower costs and enabled by
the proliferation of client/server architecture, businesses are increasingly
relying on interactive communications technology to allow Users to serve
themselves through automated applications providing direct and interactive
access to enterprise-wide information and services. Without human
intervention, interactive communications solutions capture information given
by a User, retrieve and/or update selected database information, and respond
with selected information. Interactive communications solutions enable
companies to contain labor costs through increased productivity while
simultaneously improving the level of service by providing Users with quick
and convenient access to needed information 24 hours a day, seven days a week.
Traditional IVR systems, which enable routine information retrieval and
transactions via the touch-tone telephone, have made significant strides in
reducing costs, increasing productivity and improving customer satisfaction.
Since its widespread acceptance, the market for IVR systems has grown
substantially. Dataquest Incorporated, a leading consultant to the voice
processing industry, estimated that the total U.S. market for IVR products was
approximately $1 billion in 1995 and is expected to grow at a rate of over 20%
per year through the year 2000.
IVR has laid a strong foundation for the progression of interactive
communications solutions. Today's interactive solutions are using a broader
mix of access devices and technologies and allowing for an increase in the
amount of information that can be retrieved or exchanged. For example, with
voice recognition technology, information that was difficult to enter into an
IVR system can now be spoken by the User and reliably recognized. Facsimile
and e-mail capabilities enable Users to receive confirmations of transactions
or copies of requested information. PC-based self-service access, including
through the Internet and corporate Intranets, offers Users improved access to
information over traditional IVR systems, since Users can now receive
graphical, text and audio information in addition to other information.
The dramatic increase in use of computer telephony, facsimile, e-mail,
Internet, corporate Intranet and other interactive communications technologies
to exchange information has resulted in substantial growth in the use of
interactive communications solutions. These solutions enable organizations to
automate the exchange of information cost-effectively and provide a gateway to
new and enhanced customer services.
STRATEGY
TALX's objective is to be a leader in several targeted markets of interactive
communications solutions that enable Users to access, input and update
information and perform other self-service transactions without human
assistance. The Company believes that the following strategies are significant
elements to the successful implementation of this objective:
Establish a Dominant Position in the Market for Automated Employment
Verification
The Company believes that, to meet the demand for electronic, timely, accurate
and secure employment verifications, it must establish a dedicated sales force
focused on rapidly adding employers to The Work Number for Everyone(R). The
Company expects increasing numbers of employers and mortgage lenders and other
verifiers
32
<PAGE>
to utilize interactive communications to provide and receive employment
information regarding current and former employees. The Company's objective is
to aggressively expand its existing database of employment records by
marketing to the approximately 860 private sector employers with 10,000 or
more employees (based on Hunt-Scanlon's Select Guide to Human Resource
Executives). These employers have an aggregate of over 30 million current
employees (representing an estimated 50 million total employment records
including those of former employees). Four out of the five largest mortgage
lenders currently utilize The Work Number to facilitate their underwriting
process. The Company plans to aggressively market The Work Number to
subscribing lenders and other verifiers. Through these efforts, the Company
intends to establish a market for a national employment verification service
and become the market leader.
Identify Additional Markets for Automated Verification and Create Related
Branded Services
The Company believes that opportunities may exist to utilize its technology
and experience with The Work Number to create additional "branded" national
services. The Company has identified several areas that could benefit from a
similar national service. The Company plans to explore the feasibility and
market potential for these additional opportunities.
Capitalize on Existing Strategic Marketing Alliances With Client/Server Market
Leaders
The Company has established a strategic marketing alliance with PeopleSoft, a
leading provider of enterprise-wide client/server business application
software. Pursuant to this alliance, the Company has developed interactive
communications software suites that tie directly to PeopleSoft's human
resource applications. The Company plans to introduce financial and
distribution suites to complement PeopleSoft's recently introduced products in
those areas. The Company believes that this relationship results in increased
customer referrals and introductions, increased market exposure and reduced
delivery time and costs. The Company has recently established similar
alliances with Oracle and SAP, also leading providers of client/server
business application software. The Company intends to develop software suites
which complement their products.
Provide "Best-of-Class" Integration in Windows NT, Open Systems, Standards-
based Environments
The Company realizes that in order to fully capitalize on the market potential
offered by the scope and quality of TALX systems, it must provide these
capabilities in non-proprietary systems. To achieve this objective, the
Company has chosen to develop a version of TALXWare based on the standards
being established by Microsoft, specifically the Windows NT operating system
and ActiveX OLE controls environment. This development effort is being
undertaken so that TALXWare can provide the proven, powerful front-end
development environment of EasyScript to generate, at the developer's option,
software in languages such as Visual Basic, Power Builder, Visual C++ or
Delphi. Such software will be designed to run on either TALX VP/2000 or the
NMS platforms.
Expand International Sales
The Company believes a significant opportunity exists to expand sales in
international markets. Since PeopleSoft, Oracle and SAP have already
established a significant international presence, the Company believes it will
receive customer referrals and introductions in these international markets
from these alliances. The Company intends to establish a direct sales force to
complement its relationship with these companies. In addition, the Company has
entered into a distribution agreement with ChannelVox, a distributor of CT
processing products, based in the United Kingdom, in order to effect sales
outside of its strategic marketing alliances.
Target Middle Market Customers Through New Strategic Marketing Alliances
The Company has identified several leading providers of client/server business
application software for middle market customers. The Company plans to
approach these providers with a view to establishing strategic marketing
alliances. The Company believes these additional relationships, if
established, and the availability of its new lower cost NMS-based product
would provide the Company with the opportunity to increase its business with
these middle market customers.
No assurance can be given that the Company's objectives will be achieved. See
"Risk Factors."
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SERVICES AND PRODUCTS
The Work Number
In early 1995, the Company introduced a "branded" service, The Work Number for
Everyone(R) (previously defined as "The Work Number"), which is a national
service providing automated access to information from multiple organizations.
The Work Number provides automated employment verification to mortgage lenders
and other verifiers. Using The Work Number, verifiers are able to confirm
employment information regarding participating employers' current and former
employees, including their past three years of salary history. The Work Number
reduces an employer's cost of providing this information and at the same time
increases the timeliness and accuracy of the delivery of such information to
mortgage lenders and other verifiers. For most organizations, the process of
handling these requests is cumbersome and requires implementation of
procedures unrelated to an employer's line of business. In addition, requests
can be disruptive and divert employer resources in order to respond to
telephone calls and written requests for employment information. The Work
Number reduces an employer's cost of providing this information.
[GRAPHIC]
[Description of Art Work Contained in the Registration Statement]
In "Business--Services Products--The Work Number" Section
- ---------------------------------------------------------
Schematic diagram captioned "Fast and Accurate Employment Verification."
The diagram illustrates schematically how employers, employees and verifiers
(reference check, mortgage lender, property manager, credit manager) use the
TALX Multi-Employer Database. The diagram states the three levels of
verification: Basic (Dates of Employment), Basic Plus (Basic & Base Pay) and
Full (Basic Puls & salary history).
----------------
For mortgage lenders and other verifiers, The Work Number represents a fast
and accurate way to verify both employment and salary information in one
telephone call, thereby accelerating their underwriting process and reducing
their verification cost. Additionally, The Work Number reduces the opportunity
for fraud in the loan
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application process, as the applicant's employment and salary information is
provided to verifiers by a source less susceptible to fraud. Due to the
national scope of The Work Number, mortgage lenders can obtain employment
information from a standard source as opposed to a number of different
sources, with respect to employees of participating employers. Four out of the
five largest mortgage lenders in the U.S., including Countrywide Home Loans,
Inc., the country's leading independent mortgage lender, currently utilize The
Work Number to facilitate their underwriting process. Verification of
employment and salary history via The Work Number is accepted by Fannie Mae
and Freddie Mac for the securitization and resale of residential mortgages, as
well as by the VA and FHA for home loan guarantee purposes.
Utilizing a 1-800 telephone number, subscribing verifiers can choose to hear
the verification information voiced back immediately, have the complete set of
information faxed directly to them at their office or have an electronic data
interchange ("EDI") transaction sent. For non-subscribing verifiers,
verification information is available through an AT&T business 1-900 telephone
number. An employee's salary information is designed to be available for
access only to those who have been preauthorized by such employee.
The Work Number provides revenues primarily from fees charged to mortgage
lenders and other verifiers for verification of employment history and salary
information and, to a lesser extent, from employer conversion and ongoing
maintenance fees.
As of June 30, 1996, 69 employers had contracted for specified terms,
generally three years, to provide approximately 5.7 million employment records
of current and former employees. Contracting employers include Hewlett Packard
Company, J.C. Penney Company, Inc., McDonnell Douglas Corporation, Motorola,
Inc., The Procter and Gamble Company and The Quaker Oats Company. The
Company's objective is to aggressively expand its existing database of
employment records by marketing to the approximately 860 private sector
employers with 10,000 or more employees (based on Hunt-Scanlon's Select Guide
to Human Resource Executives). These employers have an aggregate of over 30
million current employees (representing an estimated 50 million total
employment records, including those of former employees). See "Risk Factors--
Certain Risks Associated With The Work Number."
The following table reflects the approximate total number of employment
records which employers have contracted to provide for The Work Number as of
the end of each fiscal quarter since its introduction.
<TABLE>
<CAPTION>
TOTAL NUMBER OF
EMPLOYMENT RECORDS(1)
(000'S)
------------------------
TOTAL
NUMBER OF
FISCAL QUARTER EMPLOYERS ON-LINE BACKLOG(2)
-------------- --------- ---------- ------------
<S> <C> <C> <C>
1st Quarter 1996...................... 5 273 181
2nd Quarter 1996...................... 15 348 2,621
3rd Quarter 1996...................... 40 2,378 1,486
4th Quarter 1996...................... 61 3,237 2,130
1st Quarter 1997...................... 69 4,034 1,705
</TABLE>
- --------
(1) Employment records include records of current and former employees
(covering the past three years of employment history).
(2) Represents employment records under contract but not yet on-line.
35
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Tailored Solutions
Tailored solutions are offered by TALX to its customers, primarily Fortune 500
organizations, either as systems for installation on customers' premises or on
an outsourced services basis. The Company has established the broad utility of
its interactive communications solutions for complex business problems in a
wide variety of industries. The Company believes it is the leader in providing
such solutions for human resource applications, which include 401(k) plan
administration, benefit plan enrollment and modification, staffing, scheduling
and payroll. The Company has targeted two additional horizontal application
segments: financial applications (e.g., status inquiry for accounts payable or
accounts receivable) and distribution/logistics applications (e.g., order
entry and inventory status). The Company is pursuing each of these horizontal
marketing initiatives both through direct sales and through strategic
marketing alliances with providers of enterprise software applications. TALX
entered into such an alliance with PeopleSoft in 1993. More recently, it has
entered into similar alliances with Oracle and SAP. All three are leading
providers of enterprise-wide client/server business applications, with
PeopleSoft, similarly to the Company, being particularly well established in
human resource applications. The Company has also developed and markets its
value added expertise in certain vertical market segments such as health care
(e.g., prescription refill and appointment scheduling and cancellation) and
financial services (e.g., account balance inquiry, funds transfer and credit
card balance inquiry).
Outsourced Services. The Company's outsourced services business provides
tailored offsite interactive communications services to Fortune 500
organizations. In 1993, the Company introduced its outsourced services
business, which allows a customer to realize the benefits of an interactive
communications system without incurring the administrative or maintenance
burdens of operating such a system. Using a 1-800 telephone number, Users are
able to perform self-service transactions, access information and manipulate
data stored in the Company's interactive communications systems located at the
Company's headquarters in St. Louis. Customers are charged a one-time set up
fee as well as transaction-based fees.
Examples of the applications provided by the outsourced services business, and
representative customers of such applications, include: benefit plan
enrollment (BJC Health Systems), receipt and validation of voting with respect
to employee benefit plan amendments (Motorola, Inc.), job posting and self-
nomination process (GE Capital Services) and collection of time, attendance
and labor data (a major regional HMO).
Customer Premises Systems. The Company has provided tailored interactive
communications solutions for installation at customers' premises since the
early 1980s, and has shipped over 575 systems to approximately 350 customers
during the last five years. TALXWare is the Company's integrated visual
development environment and software system that has been designed to support
the creation and management of self-service interactive communications
solutions. TALXWare runs on Intel-based hardware platforms using IBM's OS/2
operating system. The software supports both Natural MicroSystems and TALX
processing hardware. See "--Technology and Product Development."
CASE STUDIES
Set forth below are descriptions of applications of the Company's interactive
communication solutions for selected customers:
Kaiser Permanente
Kaiser Permanente ("Kaiser") is one of the country's largest health
maintenance organizations. As a longtime TALX client, Kaiser has purchased
over 30 customer premises systems and implemented interactive solutions across
its operations by employing a variety of TALX technologies.
The first application implemented by Kaiser completely automated prescription
refill requests. Members call the TALX interactive solution and are guided
through entering an identification code and the desired prescription number
for refill. All entries are validated and the order is automatically passed to
a Kaiser prescription processing system. This enables Kaiser to reduce the
costs of handling routine refill requests and provide better service to its
members.
Kaiser's medical offices also receive calls throughout the day from members
canceling appointments. Previously, members were asked to leave voice mail
messages to cancel appointments during the evening hours, weekends,
36
<PAGE>
and busy times of the day. Often messages could not be reviewed and acted upon
in a timely fashion. As a result, doctors were unaware of a cancellation and
lost time while walk-ins or same-day appointments were turned away because the
cancellation was not registered. Several Kaiser medical offices have
incorporated full-featured call center services through the TALX interactive
communications solution. Members are greeted by the TALX system, prompted for
a language preference and then transferred to the appropriate agent. When the
medical office is closed, callers can leave a message to cancel an
appointment, be transferred to an emergency room or receive directions to any
Kaiser office. In the future, members needing a same-day appointment can
immediately be scheduled for the opening. Members will also be able to rebook
their appointment for another time or call any time to schedule a new
appointment.
Expanding the use of TALX interactive solutions to its finance and accounting
functions, Kaiser has put in place a vendor information line. Kaiser vendors
can inquire into invoice status and learn when an invoice will be paid or
receive the details of the invoices covered by a Kaiser check. Kaiser also
uses the TALX interactive solution to collect employee time and attendance
information, which eliminates time card handling. Instead of using a
traditional time clock, Kaiser employees call a TALX System from designated
locations to "clock in" and "clock out".
Kaiser uses a variety of computer telephony integration (CTI) features
provided by TALX, including dialed number identification services (DNIS) to
route incoming calls automatically to the desired application. Further,
applications which require the routing of a call to a customer service agent
utilize advanced call transfer (screen pop) capabilities which can reduce
Kaiser's costs and improve the service to their members.
Motorola
Motorola, Inc. ("Motorola") is one of the world's leading providers of
wireless communications, semiconductors and advanced electronic systems,
components and services. To improve service and reduce costs, Motorola
consolidated and centralized its benefits processing in Scottsdale, Arizona.
At this center, Motorola administers its 401(k) plan, handles employee
inquiries and supports a network of health care providers with up-to-date
employee eligibility and basic health plan information. Subsequently, Motorola
began incorporating TALX interactive solutions when it faced a critical need
to accommodate an increase in annual benefits enrollments from 3,000 to over
57,000. Using a TALX interactive benefits enrollment solution, Motorola was
able to handle the surge of enrollments with no increase in staff.
Motorola extended the use of interactive communications by implementing a
defined contribution application that gave all eligible employees direct self-
service access to up-to-date plan and employee specific account information.
The TALX interactive solution quickly handled routine employee inquiries and
simple transactions, thus eliminating the need for a benefit specialist to
become involved in those instances. The TALX interactive solution was enhanced
to handle health care provider inquiries for employee eligibility
automatically, and is scheduled to be expanded to answer employee requests for
claim status.
When changes to the profit-sharing plan required an employee vote, Motorola
utilized TALX outsourced services to receive and validate employee votes.
Employees were able to use telephone input, voice recognition or a telephone
device for the deaf ("TDD") to cast their votes.
In addition, Motorola has also contracted to participate in The Work Number
and has added approximately 68,000 employment records to The Work Number
database.
GE Capital Services
With 28 business units worldwide, GE Capital Services selected TALX outsourced
services to make its job postings widely available to employees. Using the
newly designed process, managers worldwide post job openings to a central
database. As jobs are posted, they are forwarded to an 800 fax on demand
system operated by TALX outsourced services for access by any domestic GE
Capital Services employee.
Employees calling a TALX 1-800 number specify jobs of interest by functional
category or job location. The TALX system then accepts the employee's fax
number and immediately faxes a list of job opportunities that match the
criteria given by the employee. After reviewing the job list, interested
employees can call the TALX system back and use the job number to request
additional information on the specific job opportunities.
37
<PAGE>
PeopleSoft
In addition to entering into a strategic marketing alliance with TALX (see "--
Strategic Marketing Alliances"), PeopleSoft has implemented several TALX
interactive solutions internally to improve its own workflow. For example,
PeopleSoft employees make their annual benefits selections using a TALX
solution. As employee enrollments are received and validated, the TALX
interactive solution automatically sends a Lotus Notes electronic mail message
back to the employee confirming the successful enrollment. Other TALX employee
self-service applications include employee stock purchase and job posting.
PeopleSoft has expanded the TALX self-service concept to PeopleSoft vendors
who can now access a TALX interactive application to determine invoice status
and detailed payment information.
TECHNOLOGY AND PRODUCT DEVELOPMENT
Fundamental to all of the Company's solutions is the integration of "best-of-
class" technologies as such technologies become available. This open
architecture approach enables TALXWare to include popular interactive features
such as voice recognition, text-to-speech, facsimile, e-mail and client/server
database interfaces to be used in creating interactive communications
solutions. The most recent TALXWare release received the Editors' Choice Award
from Call Center Magazine in 1996. The Company's interactive communications
strategy emphasizes the development of software rather than hardware.
TALXWare
TALXWare is an integrated visual development environment and software system
that has been designed to support the creation and management of self-service
interactive communications solutions. TALXWare currently runs on IBM's OS/2
operating system. The two main components of TALXWare are EasyScript and
TALXWare Runtime.
EasyScript. EasyScript is the object-oriented visual development environment
used by the Company and its licensed customers to create, modify and maintain
interactive communications applications. With the introduction of EasyScript
to its TALXWare software platform in 1989, the Company became the first among
its competitors to offer a powerful graphical user interface ("GUI")
application development environment to simplify and expedite the development
of tailored interactive solutions. In 1992, EasyScript received Voice
Processing Magazine's Editors' Choice Award. EasyScript's object-oriented
approach to software development allows application designers to position
icons on the workspace grid to define application logic, business rules,
computational functions, telephony integration, database access, and host
application screens, and then automatically generate the underlying computer
code. EasyScript incorporates advanced editing, self-documenting, testing, and
code-sharing capabilities to expedite the development of tailored interactive
communications solutions. By providing developers the ability to cut and paste
sections of one application into another application or copy an application so
it can be modified to create a new application, EasyScript facilitates the use
of reusable software modules. The self-documenting features of EasyScript
automatically create specifications, documentation, and test plans from the
applications themselves. Included with EasyScript is the EasySim testing tool,
which enables developers to test EasyScript applications from a PC keyboard.
Another key feature of EasyScript is that it permits a single application to
provide database access to users with multiple types of self-service access
devices such as the telephone, facsimile, e-mail, TDD, Internet, corporate
Intranet and other interactive communications technologies. Allowing all
devices to share a common set of centralized business rules can leverage
software development across the enterprise, reduce development time and
simplify making changes or adding enhancements. EasyScript is optional and
licensed on a per server basis.
TALXWare Runtime. The TALXWare Runtime software is licensed on a concurrent
user basis and is a required component of each TALX interactive communications
solution. The functions incorporated into the TALXWare Runtime software
include the management of interactive communications applications, physical
resources and network connections, as well as tracking and compiling operating
statistics, facilitating operations and storing configuration settings. These
features simplify the development of interactive communications solutions by
eliminating the need to include such functions within each application and
allow system administrators to effect changes without modifying the
application software.
38
<PAGE>
Hardware
In addition to software, the Company provides a hardware platform as part of a
total interactive communications solution. TALXWare runs on open, standard
Intel-based PCs and uses both Natural MicroSystems ("NMS") and TALX
proprietary CT processing hardware (VP/2000). The VP/2000 uses industry
standard components such as Intel processors and Texas Instrument digital
signal processors ("DSPs") and is capable of supporting 48 simultaneous users
("ports") in a single system and being networked to support over 240 ports.
The NMS hardware is capable of supporting 24 ports in a single system.
The Company does not manufacture or perform significant modifications on any
hardware components. Rather, the Company's hardware production consists
primarily of final assembly and quality-control testing of materials,
components, subassemblies and systems.
Product Development
The Company's current development efforts are directed with a view to
enhancing its current products, providing a Microsoft Windows NT version of
its TALXWare software and developing new products. The new products are
directed at the markets served by the Company's strategic marketing allies as
well as offering enhanced functionality to its existing human resources,
benefits and payroll markets. Anticipated future enhancements include an
extended scope for the Company's TALX Online feature to include a full-
featured Internet and corporate Intranet capability and the addition of voice
print recognition algorithms for enhanced security in interactive
transactions. For the markets served by the Company's strategic marketing
allies who offer enterprise-wide client/server applications, the Company plans
to introduce complementary product suites to more tightly integrate and
facilitate interaction between the TALX solution and the allies' business
applications. More specifically, for distribution to PeopleSoft customers, the
Company is currently developing financial applications (e.g., accounts
payable, accounts receivable and billing) and intends to develop
distribution/logistic applications (e.g., order entry, order status and
product information). The Company intends to develop similar offerings for
distribution to Oracle and SAP customers. Further, the Company is expanding
its product line for the human resources, benefits and payroll horizontal
market with a complete call center solution that combines the Company's
interactive solutions with a comprehensive desktop call tracking and software
system. There can be no assurance that these new enhancements or products will
progress beyond their current state of development or be successfully
marketed. See "Risk Factors--Risks Associated with Technological Change" and
"Risk Factors--Risks of Product Defects; Product Liability."
The Company licenses and integrates complementary enhancement technologies
into the products it develops and seeks to provide "best-of-class"
technologies to its customers. Some of the interactive features which are
licensed from third party suppliers by the Company pursuant to non-exclusive
license or resale agreements (previously defined as "Supplier Agreements") and
integrated into the Company's products are voice recognition, text-to-speech,
facsimile, e-mail and client/server database interfaces to be used in creating
interactive communications solutions. See "Risk Factors--Risks Associated with
Technological Change" for additional risks associated with the Supplier
Agreements.
Product development costs incurred were $1.2 million in fiscal 1994, $1.5
million in fiscal 1995, $1.9 million in fiscal 1996 and $415,000 in the first
quarter of fiscal 1997. The total product development staff consisted of 18
full-time employees as of June 30, 1996. The Company believes that significant
investments in product development are required to remain competitive.
MARKETING
The Company's marketing strategy is to focus on targeted markets through a
direct sales force in conjunction with strategic marketing alliances. See "--
Strategy." The Company's direct sales force is based in St. Louis with
representatives also located in Atlanta, Chicago, Massachusetts, New Jersey
and Phoenix, and is organized into two sales regions. The sales force for each
region is comprised of account managers who are supported by sales engineers,
client service representatives and sales representatives. The direct sales
force is responsible for selling all of the Company's interactive
communications product lines. Each of the Company's interactive communications
product lines (The Work Number, outsourced services and customer premises
systems) are directed by a product manager who identifies and develops target
markets, manages product direction, directs marketing efforts and provides
sales assistance.
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To complement its direct sales efforts, the Company has established a
distributor relationship with Kronos Incorporated ("Kronos"). Kronos
engineers, manufactures and distributes integrated hardware and software
systems that process information designed to increase productivity in the
workplace. Kronos products that are applicable to the Company are centered on
the capturing and processing of time and attendance information. The Company
provides a packaged interactive communications solution to Kronos for resale.
The Company believes a significant opportunity exists to expand sales and
marketing efforts in certain international markets. The Company has
established strategic marketing alliances with worldwide providers of
client/server business application software, which include PeopleSoft, Oracle
and SAP. See "--Strategic Marketing Alliances." Further, the Company recently
introduced its new TALXWare platform (NMS-based) to include support for an
internationally available CT board. In addition, the Company has entered into
a distribution agreement with ChannelVox, a distributor of CT processing
products, based in the United Kingdom, in order to effect sales outside of its
strategic marketing alliances. This agreement led to initial sales in the
United Kingdom in fiscal 1996.
STRATEGIC MARKETING ALLIANCES
An integral part of the Company's interactive communications strategy is to
develop and maintain alliances with companies producing complementary software
products in order to obtain customer referrals and introductions, increase
market exposure and reduce delivery time and costs. These companies generally
represent major software suppliers that offer enterprise-wide business
application software to the Company's markets. The Company's most established
enterprise-wide alliance is with PeopleSoft. Recently the Company has entered
into similar relationships with Oracle and SAP.
PeopleSoft, Inc. As one of the leading companies that has designed
enterprise-wide client/server business applications, PeopleSoft markets
worldwide client/server applications for human resources, payroll,
financials, manufacturing and distribution as well as vertical solutions
for health care, federal government, public sector and higher education.
Focusing on the human resources, benefits and payroll markets, TALX entered
into a cooperative marketing relationship with PeopleSoft. TALX creates
interactive application suites that tie directly to PeopleSoft's core
business applications. The first suite focused on the PeopleSoft human
resources, benefits and payroll applications. PeopleSoft has followed with
client/server applications for other areas of the enterprise. Similar to
the human resources suite, TALX plans to introduce a financial and
distribution suite for implementation at PeopleSoft clients.
Oracle Corporation: One of the world's largest suppliers of database
software, Oracle offers a multimedia relational database and client/server
application products for financial accounting, human resources and
manufacturing.
SAP AG: As a leading global provider of client/server business application
solutions, SAP is one of the largest and fastest growing enterprise-wide
software application suppliers of products for financial accounting, human
resources and manufacturing.
TALX has also established strategic marketing alliances with certain companies
that provide software products for specific horizontal or vertical markets. An
example is the Company's relationship with Automatic Data Processing, Inc.
("ADP"), which provides computerized transaction processing, data
communications and information services worldwide. ADP's services that are
applicable to the Company's marketing alliance include: payroll, payroll tax
and human resource information management including client/server human
resources, benefits and payroll software product.
Future customer premises systems revenues will be dependent to a significant
extent on the market success of companies with which the Company maintains
strategic market alliances and the effectiveness of the alliances. These
strategic marketing alliances are generally reflected by non-exclusive
contractual arrangements that are terminable at will. The success of the
Company is dependent on the interest and commitment of these companies to
promote and coordinate product development and marketing efforts with the
Company, which is entirely at the discretion of these companies. These
companies maintain similar relationships with certain of the Company's
competitors. See "Risk Factors--Dependence on Strategic Marketing Alliances."
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CUSTOMERS
Application solutions are tailored to meet specific customer needs for
interactive communications services. The Company's strategy focuses on
specific interactive applications within large corporations and institutions.
Since 1992, the Company has installed over 575 systems for approximately 350
customers, the majority of which are Fortune 500 firms. No single customer of
the interactive communications business represented 10% or more of the
Company's revenues in fiscal 1994, 1995 or 1996, except that one customer
represented approximately 14% in fiscal 1996.
- -------------------------------------------------------------------------------
THE WORK NUMBER FOR EVERYONE(R)
- -------------------------------------------------------------------------------
Boatmen's National Bank of St. Louis Motorola, Inc.
Circuit City Stores, Inc. Norfolk Southern Railroad Company
Hewlett Packard Company Pathmark Stores, Inc.
Huntington Bancshares, Incorporated The Procter and Gamble Company
J.C. Penney Company, Inc. The Quaker Oats Company
Kmart Corporation Sears, Roebuck and Co.
Monsanto Company Walgreen Company
McDonnell Douglas Corporation Wisconsin Electric Power Co.
- -------------------------------------------------------------------------------
OUTSOURCED SERVICES
- -------------------------------------------------------------------------------
Aetna G.E. Capital Services
AT&T Capital Corp. Motorola, Inc.
BJC Health System Ryder System, Inc.
- -------------------------------------------------------------------------------
CUSTOMER PREMISES SYSTEMS
- -------------------------------------------------------------------------------
Aetna Kmart Corporation
Barnett Bank Kwasha Lipton, L.L.C.
Boatmen's National Bank of St. Louis Mercantile Bank
Bridgestone/Firestone, Inc. Mid-America Federal Savings Bank
Burlington Northern Santa Fe Monsanto Company
CareMark International, Inc. Motorola, Inc.
Case Corporation Occidental Petroleum Corporation
The Chicago Trust Company PeopleSoft, Incorporated
EDS, in support of Saturn The Principal Financial Group
G.E. Aircraft Engines Putnam Investments, Inc.
Harris Savings Bank Sears, Roebuck and Co.
Huntington Bancshares, Incorporated Texaco, Inc.
ICMA Retirement Corp. TransWorld Airlines, Inc.
Johnson & Higgins/Kirk-Van Orsdel, Inc. Webster Bank
Kaiser Permanente W.F. Corroon
The Kansas City Southern Railway Company Wisconsin Electric Power Co.
PROFESSIONAL SERVICES AND SUPPORT
The Company believes that achieving a high level of customer satisfaction is
critical to its long-term success. The Company delivers its interactive
communications solutions, both outsourced services and customer premises
systems, through an organization comprised of trained professionals who define
specific customer requirements and, utilizing EasyScript, tailor a solution
for each customer. In addition, the Company offers training and education for
customers, representatives of its strategic marketing allies and distributors.
The Company also maintains a comprehensive maintenance and support program,
providing 7-day, 24-hour per day support through a toll-free hotline.
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COMPETITION
The markets in which the Company sells its interactive communications
solutions are rapidly evolving, extremely competitive and subject to rapid
technological change. The Company expects competition to increase in the
future from existing competitors and from companies that may enter the
Company's existing or future markets with similar or substitute solutions that
may be less costly or provide better performance or functionality than the
Company's products. Many of the Company's current and potential competitors
have greater name recognition, larger installed customer bases and
significantly greater financial, technical, marketing and other resources than
the Company. To be successful in the future, the Company must continue to
respond promptly and effectively to the challenges of changing customer
requirements, technological change and competitors' innovations. Increased
competition may result in price reductions, reduced gross margins and loss of
market share, any of which could materially adversely affect the Company's
business, financial condition, results of operations and business prospects.
Additionally, the Company may be required to reduce prices or increase
spending in response to competition in order to pursue new market
opportunities or to invest in research and development efforts and, as a
result, the Company's operating results in the future may be adversely
affected. There can be no assurance that the Company will be able to compete
successfully against current and future competitors or that competitive
pressures faced by the Company will not materially adversely affect the
Company's business, financial condition, results of operations and business
prospects.
The Company competes in its markets with CT system hardware suppliers and
systems integrators assembling systems from available components. Companies
offering competing CT systems include Computer Communications Specialists,
Inc., Edify Corporation, InterVoice, Inc., Lucent Technologies, Inc. and
Periphonics Corporation. The Company's interactive communications business is
heavily dependent on sales to the human resources departments of large
organizations. In fiscal 1996 and the first quarter of fiscal 1997, sales to
human resources departments represented 56.7% and 77.2%, respectively, of
customer premises systems revenues. In response to customers' desires to
outsource certain aspects of database access functionality, the Company
provides interactive communications services to organizations which choose not
to purchase customer premises systems. This outsourced service business
competes with employee benefit plan consulting firms and accounting firms,
including Coopers & Lybrand LLP, Hewitt Associates LLC, Towers, Perrin,
Forster & Crosby, Inc., William M. Mercer Companies, Inc., and Watson Wyatt &
Company, which provide comprehensive packages of plan design, administration
and consulting services, including automated access services.
At present there are no significant competitors of the service provided by The
Work Number. However, there are no significant barriers to entry in this area
and, thus, there can be no assurance that other companies will not choose to
create similar employee database verification systems. The Company is aware of
one other company which is marketing a similar service. Additionally, the
Company is aware of a number of employers who have established similar systems
for their internal use. The Company anticipates that additional competitors
will emerge, but is unable to predict what its relative competitive position
will be in a more mature market. See "Risk Factors--Certain Risks Associated
with The Work Number."
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary technology.
Although the Company copyrights certain elements of its products, the primary
means of protecting its interactive communications products and services is
through non-disclosure agreements, which provide only limited protection. As
part of its confidentiality procedures, the Company generally enters into non-
disclosure agreements with its employees, distributors and allies, and limits
access to and distribution of its software, documentation and other
proprietary information. The Company also seeks to protect its software,
documentation and other written materials through trade secret and copyright
laws. Despite the Company's efforts to protect its proprietary rights,
unauthorized parties may attempt to copy or otherwise obtain and use the
Company's products or technology that the Company considers proprietary, and
third parties may attempt to develop similar technology independently. In
particular, the Company provides its existing and potential distribution
partners with access to its product architecture and other proprietary
information underlying the Company's licensed software. In addition, effective
protection of
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<PAGE>
intellectual property rights may be unavailable or limited in certain
countries. Accordingly, there can be no assurance that the Company's means of
protecting its proprietary rights will be adequate or that the Company's
competitors will not independently develop similar technology.
In the past, the Company has received and may in the future receive
communications from third parties asserting that the Company's products,
trademarks or other proprietary rights require a license of intellectual
property rights or infringe, or may infringe, on their proprietary rights.
Based on the information currently available, the Company does not believe
there are any valid claims of which it is aware which it is infringing or
which, if infringed, would result in any material adverse effect to the
Company's financial condition or results of operations. On August 16, 1996,
Elk filed an action in the United States District Court for the Southern
District of Florida against the Company. The action alleges patent
infringement by the Company in connection with the Company's making, selling
and using an audio storage and distribution system allegedly covered under a
patent held by Elk. The complaint seeks unspecified damages. The Company
believes the lawsuit to be without merit and intends to defend itself
vigorously. As the number of software products in the industry increases, and
the functionality of these products further overlaps, the Company believes
that software developers may become increasingly subject to infringement
claims. Any such claims, with or without merit, could be time consuming,
result in costly litigation, cause product shipment delays or require the
Company to enter into royalty or licensing agreements. Such royalty or
licensing agreements, if required, may not be available on terms acceptable to
the Company, or at all, which could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects. In addition, the Company may initiate claims or litigation against
third parties for infringement of the Company's proprietary rights or to
establish the validity of the Company's proprietary rights. Litigation to
determine the validity of any claims could result in significant expense to
the Company and divert the efforts of the Company's technical and management
personnel from productive tasks, whether or not such litigation is determined
in favor of the Company. In the event of an adverse ruling in any such
litigation, the Company may be required to pay substantial damages,
discontinue the use and sale of infringing products, expend significant
resources to develop non-infringing technology or obtain licenses to
infringing technology. The failure of the Company to develop or license a
substitute technology could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
The Company has obtained trademark registrations for the names TALX and
EasyScript and a service mark registration for The Work Number For Everyone(R)
with the United States Patent and Trademark Office. TALXWare is a trademark of
the Company. The Company regards its trademarks, as well as its other
intellectual property, as having significant value and being an important
factor in the development and marketing of its products.
DATABASE AND DOCUMENT SERVICES BUSINESSES
In addition to providing interactive communications solutions, the Company, in
1994, acquired its database and document services businesses. These businesses
have been operated on a stand-alone basis. Further, the majority of the
operations of such businesses are located in a building which is separate from
the interactive communications operations of the Company. See "--Facilities."
In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses and, accordingly, has reflected the
results of operations of such businesses as discontinued operations. One of
the factors the Company considered in making its decision was the operating
losses incurred subsequent to the discontinuation of the relationship with a
large telephone directory customer (AT&T 800 Directories), which began in
fiscal 1991 and ended in November 1995. Services provided to such customer
represented approximately $3.5 million, $2.0 million and $930,000 in fiscal
years 1994, 1995 and 1996, respectively. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations--Discontinued
Operations." Although the Company has subsequently begun to rebuild the
revenue base of the database and document services businesses, it believes
that its financial and management resources are better allocated towards the
continued expansion of its the interactive communications business.
43
<PAGE>
Database services include providing sales leads and pre-press services for
directory publishers, and document services include the preparation and
mailing of invoices, statements and confirmation letters for organizations
with high volume requirements. The database services business offers a broad
range of services to franchise and independent directory publishers, with an
emphasis on publishers who seek to use a single service supplier for both
yellow and white pages. These services include providing sales leads, sales
campaign organization and sales management tools for use during the
advertising sales process. Additionally, the database services business offers
pre-press production capabilities that aid in constructing a telephone
directory. The database services business also provides to university and
private libraries and library automation vendors, specialized database
services including review and correction of automated library files, text
conversion, database design, construction and maintenance. In performing these
services, the database services business utilizes internally developed
proprietary software. The document services business offers a "database to
mailbox" service that produces and prepares for mailing invoices, statements,
benefit confirmation letters, direct mail letters and enclosures, benefit
enrollment worksheets, response letters and voter registration forms. The
document services business maintains the CASS Certification, which is the
United States Postal Services' accreditation of the software and databases
used in document preparation and mailing.
The database and document services businesses operate in highly competitive
markets and any of their competitors could use its superior financial
resources, market power and installed base of customers to compete effectively
against them. Further, competition for the customers of the database and
document services businesses may increase as a result of the Company's
determination to pursue the divestiture of such businesses. There can be no
assurance that the database and document services businesses can maintain
their competitive position against current and potential competitors,
especially those with significantly greater financial, marketing, service,
support, technical and other resources. Such competition could materially
adversely affect their ability to sustain current pricing levels and could
have a material adverse effect on the Company's business, financial condition,
results of operations and business prospects.
FACILITIES
The Company's headquarters and executive offices are located in a 38,000
square foot office building located at 1850 Borman Court, St. Louis, Missouri
63146 pursuant to a lease expiring in 2002 with annual base rental of
$412,848, subject to increases for taxes, insurance and operating expenses.
The Company also leases office space in Massachusetts, Chicago, Atlanta, New
Jersey and Phoenix for sales representatives. The Company believes its
facilities have been generally well maintained, are in good operating
condition and are adequate for its current requirements.
The Company's database and document services businesses currently occupy
approximately 38,000 square feet of an office facility located at 1633 Des
Peres Road, St. Louis, Missouri 63131 pursuant to a lease (the "Des Peres
Lease") expiring in 2002 with annual base rental of $453,870, with periodic
increases up to $573,610, subject to certain increases for operating expenses.
In connection with the divestiture of such businesses, the Company may desire
to sublease its rights and obligations under the Des Peres Lease. Although the
Company believes it will not be difficult to enter into a favorable sublease
with respect to the Des Peres Lease, there can be no assurance that the
Company will be able to enter into such sublease.
Significant portions of the Company's operations are dependent on the
Company's ability to protect its computer equipment and the information stored
in its data processing centers against damage that may be caused by fire,
power loss, telecommunications failures, unauthorized intrusion and other
events. The Company's data processing centers are located in St. Louis,
Missouri. Software and related data files are backed-up regularly and stored
off-site. There can be no assurance that these measures are sufficient to
eliminate the risk of extended interruption in the Company's operation. The
Company also relies on local and long-distance telephone companies to provide
dial-up access and Internet and corporate Intranet access to the Company's
services. The Company is currently in the process of creating an alternate
disaster recovery facility. Any damage or failure that interrupts the
Company's operations could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
44
<PAGE>
EMPLOYEES
As of June 30, 1996, the Company employed 123 full-time and 10 part-time
employees in addition to the 111 full-time and 59 part-time employees which
are employed by the database and document services businesses. The Company has
never had a work stoppage and no employees are represented by a labor
organization. The Company considers its employee relations to be good.
The Company's future performance depends to a significant degree upon the
continued contributions of its officers and key management, sales and
technical personnel, many of whom would be difficult to replace. The loss of
any of these individuals could have a material adverse effect on the Company's
business, financial condition, results of operations and business prospects.
In addition, the Company's future success and ability to manage growth will be
dependent upon its ability to hire additional highly skilled employees for a
variety of management, engineering, technical and sales and marketing
positions. The competition for such personnel is intense, however, and there
can be no assurance that the Company will be able to attract, assimilate or
retain sufficient qualified personnel to achieve its future business
objectives. The failure to do so could have a material adverse effect on the
Company's business, financial conditions, results of operations and business
prospects.
LEGAL PROCEEDINGS
The Company is a defendant from time to time in routine lawsuits incidental to
its business. Based on the information currently available, the Company
believes that none of such current proceedings, individually or in the
aggregate, will have a material adverse effect upon the Company. See also
"Risk Factors--Limited Intellectual Property Protection" and "Business--
Proprietary Rights."
45
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MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
William W. Canfield............ 57 Chairman, President, Chief Executive Officer
and Director
John E. Tubbesing.............. 44 Executive Vice President
Michael E. Smith............... 52 Vice President
Craig N. Cohen................. 38 Chief Financial Officer
Richard F. Ford................ 60 Director
Craig E. LaBarge............... 45 Director
Eugene M. Toombs............... 53 Director
M. Steve Yoakum................ 43 Director
</TABLE>
Following is certain additional information concerning each director and
executive officer of the Company. Each such individual has served in his
present capacity as his principal occupation for the last five years, unless
otherwise indicated.
MR. CANFIELD has been President and Chief Executive Officer and director of
the Company since 1986 and has been Chairman of the Board of Directors since
1988. He had earlier become Chairman of the Board of EKI, which was acquired
by the Company in fiscal 1994. See "Certain Relationships and Related
Transactions." For approximately 10 years, Mr. Canfield was President of
Intech Group, until its acquisition by the Company in 1996 (see "Certain
Relationships and Related Transactions") and from 1985 through 1989, Mr.
Canfield was Chairman, and a principal shareholder of Noetic Technologies
Corp., an engineering software company which was purchased by MacNeal-
Schwendler Corporation in 1989. Prior to that, Mr. Canfield was one of two
founders of Financial Data Systems, Inc. which was started in 1968. In 1980,
the company, which provided services and turnkey systems to savings banks, was
purchased by Citicorp. Mr. Canfield is a director of Jefferson Savings
Bancorp, Inc. Mr. Canfield holds a Bachelor of Science degree in Electrical
Engineering from Purdue University and an MBA degree from Washington
University.
MR. TUBBESING has been a Vice President of the Company since 1988 and the
Executive Vice President of the Company since 1992 and is currently
responsible for all Sales and Marketing. His experience prior to joining the
Company in 1988 was as Vice President, Marketing for LDXNet, a predecessor to
Wiltel, a national fiber optic-based telecommunications carrier, and as a
Sales Manager for McDonnell Douglas Corporation's computer company, a major
worldwide supplier of information systems to the manufacturing and
telecommunications industries. Mr. Tubbesing holds a Bachelor of Science
degree in Marketing and an MBA degree from the University of Missouri--
Columbia.
MR. SMITH has been Vice President of Business Development of the Company since
1994, and Mr. Smith's primary responsibility is managing the Company's
relationships with its strategic marketing alliances. Previously, from 1989 to
1994, Mr. Smith had product responsibility for the Company's minicomputer-
based voice response system. Before joining the Company, Mr. Smith served six
years with Monsanto Company's MIS Systems corporate department and two years
with the Digital Systems Group at General Motors' AC Electronics. Mr. Smith
holds a Bachelor of Science degree in Mathematics from Southeast Missouri
State University.
MR. COHEN has been Chief Financial Officer of the Company since 1994. Prior to
that, Mr. Cohen spent twelve years with KPMG Peat Marwick LLP in a variety of
positions, most recently as a Senior Manager in the Audit Department. Mr.
Cohen also managed the information systems consulting practice of KPMG Peat
Marwick LLP's St. Louis office. Mr. Cohen holds a Bachelor of Science in
Accountancy and a Masters of Accountancy from the University of Missouri--
Columbia.
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<PAGE>
MR. FORD has served as a director of the Company since 1987. He is Managing
General Partner of Gateway Associates L.P., a venture capital management firm
he formed in 1984. From 1976-1983, he was President and Chief Operating
Officer of Centerre Bancorporation (now Boatmen's Bancshares, Inc.). He joined
the lead bank of Centerre Bancorporation in 1971 as Vice President of
Corporate Lending before becoming President. Mr. Ford has served as Chairman
of the American Bankers Association Commercial Lending Division and is a
director of CompuCom Systems, Inc., D&K Wholesale Drug, Inc. and Stifel
Financial Corp. Mr. Ford holds a Bachelor of Arts degree in Economics from
Princeton University.
MR. LABARGE has served as a director of the Company since 1994. He is Chief
Executive Officer and President and a director of LaBarge, Inc., a publicly
held company which is listed on the American Stock Exchange. LaBarge, Inc. is
engaged in the contract engineering and manufacture of sophisticated
electronic systems and devices and complex interconnect systems. Mr. LaBarge
has held the position of Chief Executive Officer and President since 1991.
Prior to that, Mr. LaBarge held the position of Chief Operating Officer and
President from 1986-1991 and President of the Electronics Division from 1979-
1986. Mr. LaBarge holds a Bachelor of Science degree from St. Louis
University.
MR. TOOMBS has served as a director of the Company since 1994. He is President
and Chief Executive Officer and a director of MiTek, Inc. ("MiTek"), a wholly
owned subsidiary of Rexam PLC. MiTek is an international building components
corporation with operations in eighteen countries around the world. Mr. Toombs
has held the position of Chief Executive Officer since January 1, 1993. Prior
to that, Mr. Toombs was President and Chief Operating Officer since 1991 and a
Corporate Vice President from 1989 when he joined MiTek. Other professional
services includes five years with Sonoco Products Co. as a Vice President and
President of a joint-venture company and thirteen years at Boise Cascade
Corporation where he held a variety of general management positions, including
the presidency of a joint-venture packaging company. Mr. Toombs holds a
Bachelor of Science Degree from Fairleigh Dickinson University and an
Executive Education Degree from Harvard Business School.
MR. YOAKUM has served as a director of the Company since 1991. He is Executive
Director of The Public School Retirement System of Missouri, a position held
since 1994. Prior to his role at Public School, Mr. Yoakum held the position
of Executive Director of the Missouri State Employee's Retirement System
("MOSERS") from 1987 to 1994. Additionally, Mr. Yoakum served two years as
Executive Director of the Joint Committee on Public Employee Retirement
Systems ("JCPERS") and eight years as Assistant Executive Director of the
Missouri Local Government Employees' Retirement System. Mr. Yoakum holds a
Bachelor of Science degree in Public Administration from the University of
Missouri--Columbia.
All of the current directors were elected at the 1996 annual meeting and have
been divided into three classes with terms expiring, respectively, at the
annual meetings of shareholders in 1997 (Messrs. Toombs and Yoakum), 1998 (Mr.
LaBarge), and 1999 (Messrs. Canfield and Ford). Commencing with the next
annual meeting of shareholders in 1997, directors then standing for election
will be elected for three-year terms, with one class of directors being
elected at each annual meeting of shareholders. See "Certain Charter and Bylaw
Provisions." Officers are elected annually and serve at the discretion of the
Board of Directors. See "--Employment Agreements."
DIRECTORS' COMPENSATION
The Board pays each director a $500 fee for each Board meeting attended and a
$250 fee for each Committee meeting attended, plus expenses. Officers of the
Company do not receive any additional compensation for serving the Company as
members of the Board of Directors or any of its Committees.
Pursuant to the Company's Outside Directors' Stock Option Plan (the "Outside
Directors' Plan"), adopted in July 1996, each non-employee director will
receive on April 1 each year an option to purchase 1,500 shares of Common
Stock at an exercise price equal to the fair market value of the Common Stock
on the grant date. The options have a term of six years and become exercisable
one year after date of grant, provided, that no option
47
<PAGE>
may be exercised at any time unless the participant is then an outside
director and has been so continuously since the granting of the option (except
as described below), and provided further that upon a Change in Control (as
defined in the Outside Directors' Plan), the options will become immediately
exercisable. Unexercised options will expire upon the termination of a
participant's service as a director of the Company, unless such termination
was by reason of death or disability or subsequent to a Change in Control, in
which case the personal representative of the participant may exercise any or
all of the participant's unexercised unexpired options (provided such exercise
occurs within 12 months of the date of the participants' death or termination)
or, in the case of a Change in Control, the participant may exercise any or
all of the participant's unexercised unexpired options but not after the term
of such options. A total of 80,000 shares of Common Stock have been authorized
for issuance under the Outside Directors' Plan. Unless earlier terminated by
the Board of Directors, the Plan will terminate on July 15, 2006.
EXECUTIVE COMPENSATION
Compensation Summary. The following table sets forth the compensation paid to
the Chief Executive Officer and the three other executive officers whose
annual salary and bonus exceeded $100,000 for services rendered in all
capacities to the Company and its subsidiaries for fiscal year 1996.
SUMMARY COMPENSATION TABLE
ANNUAL COMPENSATION
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
------------
SECURITIES
NAME AND OTHER ANNUAL UNDERLYING
PRINCIPAL FISCAL SALARY BONUS COMPENSATION OPTIONS ALL OTHER
POSITION YEAR ($) ($) (1) (#SHS) COMPENSATION(3)
--------- ------ -------- ------ ------------ ------------ ---------------
<S> <C> <C> <C> <C> <C> <C>
William W. Canfield..... 1996 $200,000 $5,000 -- -- $20,072
President and Chief
Executive Officer
John E. Tubbesing....... 1996 129,433 33,927 -- -- 2,979
Executive Vice
President
Michael E. Smith........ 1996 92,500 29,777(2) -- -- 2,325
Vice President
Craig N. Cohen.......... 1996 82,913 18,504 -- -- 1,715
Chief Financial Officer
</TABLE>
- --------
(1) Does not exceed 10% of combined salary and bonus.
(2) Includes $19,777 of commissions.
(3) Represents Company 401(k) plan contributions and $16,284 for Mr.
Canfield's premiums paid by the Company on his life insurance policies.
Stock Option Awards. The following table shows information regarding the
number and value of unexercised options held by the named executive officers
at the end of fiscal 1996. The value of unexercised options is based on a
value of $10.00 for the Company's Common Stock, which is the assumed initial
offering price. No stock options were awarded to or exercised by the named
executives in fiscal 1996.
48
<PAGE>
AGGREGATED OPTION AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING VALUE OF UNEXERCISED
UNEXERCISED OPTIONS IN-THE-MONEY OPTIONS
AT FISCAL YEAR-END(1) AT FISCAL YEAR-END(2)
------------------------- -------------------------
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
----------- ------------- ----------- -------------
NAME
- ----
<S> <C> <C> <C> <C>
William W. Canfield......... -- -- -- --
John E. Tubbesing........... 39,714 23,143 $246,493 $142,329
Michael E. Smith............ 15,143 8,571 93,179 52,714
Craig N. Cohen.............. 10,000 8,571 59,250 52,714
</TABLE>
- --------
(1) Adjusted to reflect the Reverse Stock Split.
(2) Represents the estimated fair value of the shares of Common Stock subject
to outstanding options, based on the assumed initial offering price, less
the aggregate exercise price of the options.
BENEFIT PLANS
1988 Stock Option Plan. In 1988, the Company adopted a stock option plan (the
"1988 Stock Option Plan"). Under the 1988 Stock Option Plan, the Board of
Directors may from time to time grant stock options to purchase up to 187,109
shares of Common Stock to various key employees who may be designated by the
Executive Committee in its discretion; 98,787 shares are available for future
grants under this plan, although the Board of Directors has determined that no
future grants will be made pursuant to this plan. The purchase price for
options granted pursuant to the 1988 Stock Option Plan are not less than the
fair market value of the Common Stock at the time of the award. The term of
the options granted under the plan is not more than six years.
1994 Stock Option Plan. On August 31, 1994, the Company adopted an incentive
stock option plan which was amended and restated in July 1996 (the "1994 Stock
Option Plan"). Under the 1994 Stock Option Plan, the Board of Directors may
from time to time grant options to purchase up to 430,000 shares of Common
Stock to certain key employees, who will be designated by a committee selected
to administer the Plan; 160,114 shares are available for future grants. The
purchase price of stock options will not be less than fair market value (110%
of fair market value in the case of 10% shareholders), in the case of
incentive stock options, or as determined by the committee in the case of non-
qualified stock options. The purchase price may be paid in cash or, in the
discretion of the committee, shares of Common Stock. Option terms will not be
more than ten years (five years in the case of incentive stock options awarded
to 10% shareholders). Options vest ratably over five years from the date of
grant; provided, that except in the case of death, disability or termination
of employment, no option may be exercised at any time unless the optionee is
then an employee or an officer or director of the Company or a subsidiary and
has been so continuously since the granting of the option. Notwithstanding the
foregoing limitations, in the event of a Change in Control (as defined in the
1994 Stock Option Plan), options will become immediately exercisable and
remain exercisable during the term thereof, notwithstanding a subsequent
termination within twelve months of the date of the Change in Control. Unless
earlier terminated by the Board, the 1994 Stock Option Plan will terminate on
July 15, 2006.
1996 Employee Stock Purchase Plan. In July 1996, the Company established the
1996 Employee Stock Purchase Plan (the "1996 Employee Stock Purchase Plan" or
"ESPP") to provide employees of the Company with an opportunity to purchase
Common Stock through payroll deductions through periodic offerings to be made
during the period from the later of January 1, 1997 or the beginning of the
fiscal quarter after completion of this offering and end of December 31, 2001.
Under the ESPP, a total of 80,000 shares of Common Stock have been reserved
for issuance. The ESPP is intended to qualify as an employee stock purchase
plan within the meaning of Section 423 of the Internal Revenue Code.
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<PAGE>
The Company will make one or more periodic offerings, each offering to last
three months, provided that a committee of the Board of Directors will have
the power to change the duration without shareholder approval, to
participating employees to purchase stock under the ESPP. Employees will
participate in the ESPP through authorized payroll deductions, which may not
exceed 15% of the compensation such employee receives during each offering
period, but not more than $25,000 in value of stock per year. Amounts withheld
from payroll are applied at the end of each offering period to purchase shares
of Common Stock. Participants may withdraw their contributions at any time
before stock is purchased, and in the event of withdrawal such contributions
will be returned to the participants without interest. The purchase price of
the Common Stock is equal to 85% of the lower of (i) the market price of
Common Stock at the beginning of the applicable offering period or (ii) the
market price of Common Stock at the end of each offering period. All expenses
incurred in connection with the implementation and administration of the ESPP
will be paid by the Company.
In addition, the Company has established a stock option plan for its outside
directors. See "--Directors' Compensation."
EMPLOYMENT AGREEMENTS
Prior to completion of this offering, the Company will enter into employment
agreements with William W. Canfield (36 months; $215,000 per year), John E.
Tubbesing (12 months; $146,500 per year), Michael E. Smith (12 months;
$100,000 per year) and Craig N. Cohen (12 months; $93,000 per year). The term
of each agreement, which is also the length of time the Company would be
obligated to pay salary to such individual after termination of employment by
the Company without cause, or by the employee with good reason (as such terms
are defined in the agreements), as well as each individual's annual base
salary, is as noted in parenthesis next to each individual's name. Such
individuals are also eligible for a performance bonus based on a formula
approved by a committee of the Board of Directors. Each employment agreement
contains confidentiality provisions as well as non-solicitation and non-
competition provisions that extend for a period of time after termination of
employment equal to the term of the individual's employment agreement.
Additionally, each employment agreement will automatically renew annually for
a term equal to the original term unless prior written notice is delivered to
the employee or the Company by the other 90 days prior to the anniversary date
of such employment agreement. Additionally, if following a change of control
of the Company the individual is terminated or resigns under certain
circumstances, the individual will be entitled to a lump-sum cash payment
equal to 100% of his annual base salary and the continuation of certain
benefits for a length of time equal to the term of the individual's employment
agreement.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Compensation Committee of the Board of Directors are
Messrs. Canfield, Ford and Toombs. See "Certain Relationships and Related
Transactions" for a description of certain transactions involving Messrs.
Canfield, Ford and Toombs.
INDEMNIFICATION
As permitted by The General and Business Corporation Law of Missouri (the
"GBCL"), the Articles of Incorporation of the Company provide (i) that the
Company is required to indemnify its directors and officers to the fullest
extent permitted by Missouri law, (ii) the Company is permitted to indemnify
employees or agents as set forth in the GBCL, (iii) to the fullest extent
permitted by the GBCL, the Company is required to advance expenses, as
incurred, to its directors and officers in connection with a legal proceeding
(subject to certain exceptions), (iv) the rights conferred in the GBCL are not
exclusive, and (v) the Company is authorized to enter into indemnification
agreements with its directors, officers, employees and agents.
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<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Recent Financing. In June through August 1996, Petra Capital, LLC (as
previously defined, "Lender") made a loan to the Company in an amount of $4.0
million (the "Loan"), $100,000 of which was purchased by Eugene M. Toombs, a
director of the Company, $250,000 by the William W. Canfield Revocable Trust,
an affiliate of William W. Canfield, Chairman, President and Chief Executive
Officer of the Company, and $650,000 of which was acquired by Gateway
Partners, L.P., an affiliate of Richard F. Ford, a director of the Company
("Participants"). The Loan, which is due and payable on July 1, 2001 and bears
interest at 13.25% per annum, is evidenced by a $4.0 million Subordinated
Promissory Note (as previously defined, the "Subordinated Note") and a Loan
and Security Agreement (the "Loan Agreement"). Pursuant to the Loan Agreement,
the Company has agreed to substantial operating restrictions. The Company will
repay the Loan upon the closing of this offering. See "Use of Proceeds."
In connection with the Loan, the Company (i) has issued to the Lender and the
Participants warrants (the "Initial Warrants") which are exercisable for
125,584 shares (representing 3.5% of the total shares) of TALX Common Stock
outstanding on the date of issuance of such Initial Warrants, calculated on a
fully-diluted basis (which was 3,588,101 shares); and (ii) as payment for
financial advisory services rendered by an unaffiliated financial advisor (the
"Advisor") to the Company in connection with the Loan, (1) has issued a
warrant to the Advisor (the "Advisor Warrant," collectively with the Initial
Warrants, the "Warrants") exercisable for 12,558 shares of TALX Common Stock
(representing 10% of the total shares to be issued upon exercise of the
Initial Warrants) and (2) has paid the Advisor $207,500. The Warrants are each
outstanding for a ten-year period from the date of the issuance of such
Warrants and are exercisable for an exercise price of $0.01 per share (the
"Exercise Price") at any time during the period beginning as of the date 18
months following the effective date of the Company's initial public offering
and ending on June 28, 2006. Additionally, the Company is required to grant to
the Lender and the Participants (collectively, the "Syndicate Holders"), as
well as to the Advisor, additional warrants to purchase shares of Common Stock
if any debt evidenced by the Subordinated Note is outstanding on specified
future dates. Since the Company intends to repay the Loan using the proceeds
of this offering, no additional warrants will be issued pursuant to the Loan
Agreement.
The Warrants are governed by certain Stock Purchase Warrant agreements which
set forth a number of rights and restrictions related to the Warrants. The
number of shares issuable upon exercise of the Warrants are subject to certain
anti-dilution provisions upon the occurrence of certain events. Additionally,
the holders of the Warrants are entitled to the same dividends (other than
dividends of the Company's capital stock) and rights to purchase securities of
the Company which are given to holders of TALX Common Stock that they would
have received if they had exercised their Warrants for TALX Common Stock prior
to the distribution of such dividends or rights. Further, the holders of the
Warrants are entitled to certain registration rights. The holders of the
Warrants may, but not earlier than eighteen months after the Company's initial
public offering, demand registration of the shares of TALX Common Stock issued
or issuable upon exercise of the Warrants, provided, however, that the Company
is required to effectuate only one such registration. Additionally, the
holders of the Warrants have the right to be included in any secondary
offering of shares of TALX Common Stock by the Company, provided that such
holders must request to be included in such secondary offering at least 30
days prior to the related registration statement filing. Also, William W.
Canfield and The William W. Canfield Revocable Trust (the "Selling
Shareholders") have agreed that they will not sell any of their TALX Common
Stock, now or hereafter owned, unless prior to such sale the Selling
Shareholders give notice of the terms of such sale to the holders of the
Warrants and such holders will then have the opportunity to participate in
such sale on a pro rata basis.
Transactions with Intech Group and Intech Partners. The Company has been
involved in a series of transactions involving Intech Group, Intech Partners,
L.P. ("Intech Partners") and EKI, a company which was formerly owned by Intech
Group and Intech Partners. William W. Canfield, the President, Chief Executive
Officer and a director of the Company, was the President and a director and a
principal shareholder of Intech Group and Managing General Partner of Intech
Partners. A former officer of the Company was a limited partner of Intech
Partners and President and a director of EKI. Walter L. Metcalfe, Jr., a
partner of Bryan Cave LLP and a direct
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and indirect 6.2% shareholder of the Company, was a director and principal
shareholder of Intech Group and a general partner of Intech Partners. Derick
L. Driemeyer and Dr. Roger L. Mell, greater-than-5% shareholders of the
Company, were shareholders of Intech Group and partners of Intech Partners.
Several principal shareholders, directors and executive officers of the
Company were directors and executive officers of EKI.
Initially, TALX was a party to a Management Services Agreement dated September
1, 1986 with Intech Group. Under the agreement, Intech Group provided
management and related services to the Company. Compensation under the
agreement was $118,000 in fiscal 1994. The parties terminated the agreement
effective as of January 1, 1994, and all former employees of Intech Group
became employed by the Company. Additionally, pursuant to such termination,
TALX paid Intech Group the sum of $29,500, representing the charge for ninety
days of management services. Effective March 1994, the Company acquired TALX
Information Services Corporation, formerly known as EKI, pursuant to a tax-
free merger (the "EKI Merger"). EKI was engaged in the business of providing
database and document services. As a result of the EKI Merger, EKI became a
wholly owned subsidiary of the Company resulting in the Company entering into
the database and document services businesses. In connection with the EKI
Merger, Intech Group and Intech Partners (the holders of EKI Class A Common
Stock) received 1,493,039 shares of TALX Common Stock (as adjusted to reflect
the Reverse Stock Split) in exchange for their shares of EKI Class A Common
Stock. See "Shares Available for Future Sale" for a description of
registration rights granted in connection with the EKI Merger. Prior to the
EKI Merger, EKI paid Intech Partners $60,000 in fiscal 1994 in return for
certain services and, pursuant to a Management Services Agreement, paid Intech
Group $160,000 in fiscal 1994 in return for management and related services.
As a result of the EKI Merger, EKI terminated the Management Services
Agreement effective as of March 31, 1994 and paid to Intech Group the sum of
$39,900. Finally, in July 1996, the Company acquired Intech Group pursuant to
a tax-free merger (the "Intech Merger"). At the time of the Intech Merger, the
assets of Intech Group consisted exclusively of 1,015,812 shares of Common
Stock of the Company (including shares of Class A, B and C Preferred Stock
automatically convertible into Common Stock effective as of the closing of
this offering). As a result of the Intech Merger, each outstanding share of
common stock of Intech Group was converted into a proportionate number of
shares of TALX Common Stock (and TALX convertible preferred stock) plus cash
in lieu of fractional shares. The effect of the Intech Merger was a tax-free
distribution of TALX Common Stock (and TALX convertible preferred stock) to
the shareholders of Intech Group.
Building Lease. Since 1990, the Company has occupied office facilities at 1850
Borman Court in St. Louis County, which currently encompass 38,000 square
feet. The Company made rental payments of $270,000, $391,000 and $423,000 in
fiscal 1994, 1995 and 1996, respectively, which amounts the Board of
Directors, independent of Mr. Canfield, determined to be its fair rental value
at the time of execution of the lease. The space was leased until March 1996
from a limited partnership in which William W. Canfield was one of two general
partners. On March 28, 1996, the facilities were sold by the partnership to an
unrelated party.
Issue of Warrants to Mr. Canfield. Mr. Canfield has provided certain
collateral and guarantees under financing agreements with the Company's
principal bank. During 1993, warrants to purchase 54,000 shares of Common
Stock were awarded to Mr. Canfield in respect of collateral and personal
guarantees. The exercise price of such warrants was $1.90 per share,
representing the highest price at which third party investors had most
recently purchased Common Stock at any time within the previous five years.
Such warrants expired unexercised during 1995. Commencing on November 1, 1993,
the Company ceased this arrangement and instead determined that, rather than
warrants, Mr. Canfield would receive a cash payment for each six-month period
that the collateral is pledged and personal guarantees were given representing
1% of the guaranteed amount for each six-month period. Guarantee fees related
to this arrangement of $7,500, $27,666 and $46,834 were expensed in fiscal
1994, 1995 and 1996, respectively.
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PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of August 28, 1996 giving effect to the
Reverse Stock Split and the Preferred Stock Conversions, and as adjusted to
reflect the sale of shares offered hereby, for (i) each person known to the
Company to own beneficially 5% or more of the outstanding shares of Common
Stock, (ii) the Company's directors and named executive officers and (iii) all
the Company's directors and executive officers as a group. Except as otherwise
noted in the footnotes to this table, the named beneficial owner has sole
voting and investment power. As of August 28, 1996, there were approximately
48 shareholders of record.
<TABLE>
<CAPTION>
SHARES SHARES
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
OFFERING OFFERING(1)
----------------- -----------------
NAME OF BENEFICIAL OWNER NUMBER PERCENT NUMBER PERCENT
------------------------ --------- ------- --------- -------
<S> <C> <C> <C> <C>
Gateway Venture Partners II, L.P.(2)....... 660,826 20.5 660,826 12.6
MiTek, Inc.(3)............................. 471,630 14.6 471,630 9.0
William W. Canfield(4)..................... 533,375 16.4 533,375 10.2
Craig N. Cohen(5).......................... 10,000 * 10,000 *
Derick L. Driemeyer(6)..................... 205,571 6.4 205,571 3.9
Richard F. Ford(7)......................... 681,233 20.9 681,233 13.0
Craig E. LaBarge........................... -- -- -- --
Roger L. Mell, M.D.(8)..................... 178,503 5.5 178,503 3.4
Walter L. Metcalfe, Jr.(9)................. 199,967 6.2 199,967 3.8
Michael E. Smith(10)....................... 15,873 * 15,873 *
Eugene M. Toombs(11)....................... 474,769 14.7 474,769 9.1
John E. Tubbesing(12)...................... 38,906 1.2 38,906 *
M. Steve Yoakum............................ -- -- -- --
All directors and executive officers as a
group(13)................................. 1,754,156 52.7 1,754,156 32.9
</TABLE>
- --------
* Less than 1%
(1) Assumes no exercise of the Underwriters' over-allotment option.
(2) The address of Gateway Venture Partners II, L.P. is 8000 Maryland Avenue,
St. Louis, MO 63105. Mr. Ford is managing general partner of Gateway
Associates, which is the manager of Gateway Venture Partners II, L.P.
(3) The address of MiTek, Inc. is 14515 N. Outer Forty Rd., St. Louis, MO
63017. Mr. Toombs is President and Chief Executive Officer and a director
of MiTek, Inc.
(4) Mr. Canfield's address is c/o TALX Corporation, 1850 Borman Court, St.
Louis, MO 63146. Includes 63,170 shares held in trust for Mr. Canfield's
children for which Mr. Canfield's spouse is trustee, and 7,849 shares
which Mr. Canfield may acquire upon the exercise of common stock purchase
warrants.
(5) Represents shares which Mr. Cohen may acquire upon exercise of options
within 60 days after August 15, 1996.
(6) The address of Mr. Driemeyer is 524 High Hampton Road, St. Louis, MO
63124.
(7) The address of Mr. Ford is 8000 Maryland Avenue, St. Louis, MO 63105.
Includes 660,826 shares beneficially owned by Gateway Venture Partners
II, L.P., the manager of which is Gateway Associates, of which Mr. Ford
is the managing general partner, and 20,407 shares which Gateway
Partners, L.P. (of which Mr. Ford is the managing general partner), may
acquire upon exercise of common stock purchase warrants.
(8) The address of Dr. Mell is 27 Log Cabin Dr., St. Louis, MO 63124.
(9) The address of Mr. Metcalfe is 211 North Broadway, Suite 3600, St. Louis,
MO 63102. Includes 137,954 shares owned by his spouse. Mr. Metcalfe is a
partner with Bryan Cave LLP.
(10) Includes 12,858 shares which Mr. Smith may acquire upon the exercise of
options within 60 days after August 15, 1996.
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(11) The address of Mr. Toombs is 14515 N. Outer Forty Rd., St. Louis, MO
63017. Includes 471,630 shares owned by MiTek, Inc. of which Mr. Toombs
is President and Chief Executive Officer and a director, and 3,139 shares
which Mr. Toombs may acquire upon the exercise of common stock purchase
warrants.
(12) Includes 36,857 shares which Mr. Tubbesing may acquire upon the exercise
of options within 60 days after August 15, 1996.
(13) Includes 91,111 shares which may be acquired upon exercise of options or
warrants within 60 days after August 15, 1996.
SHARES ELIGIBLE FOR FUTURE SALE
Restriction on Sales. Upon completion of this offering and assuming no
exercise of outstanding warrants and options, the Company will have
outstanding 5,239,022 shares of Common Stock (5,539,022 shares if the
Underwriters' over allotment option is exercised in full). Of these shares,
the 2,000,000 shares sold in the offering will be immediately eligible for
resale in the public market without restriction under the Securities Act,
except for any shares purchased by an "Affiliate" (as that term is defined
under the Securities Act) of the Company, which will be subject to the resale
limitations of Rule 144 under the Securities Act. The remaining 3,239,022
shares outstanding following this offering (the "Previously Issued Shares")
were issued by the Company in private transactions not involving a public
offering and are thus treated as "restricted securities" within the meaning of
Rule 144 under the Securities Act. Of these shares, 2,911 will be available
under Rule 144(k) for immediate sale in the public market without restriction
following this offering and an additional 454,127 shares will be eligible for
sale under Rule 144(k) without restriction but will be subject to the Lock-up
Agreements described below. Subject to the Lock-up Agreements described below,
the remaining Previously Issued Shares may be sold in the public market only
if registered or pursuant to an exemption from registration such as those
afforded by Rules 144, 144A, 701 and Regulation S under the Securities Act.
Officers, directors and other shareholders holding in the aggregate 3,222,972
of the 3,239,022 Previously Issued Shares of Common Stock have entered into
agreements with the Company ("Lock-up Agreements") pursuant to which they have
agreed that, during the 180-day period after the date of this prospectus, they
will not, except with the prior consent of First Albany Corporation or in
certain limited circumstances, offer, sell, contract to sell or grant an
option to purchase any of such 3,222,972 Previously Issued Shares. In
addition, the Company has agreed that during such period it will not, without
the prior consent of First Albany Corporation or in certain limited
circumstances, offer, sell, contract to sell or grant an option to purchase
any shares of Common Stock. See "Underwriting." At the expiration of such
lock-up period, the Previously Issued Shares will either (i) in the case of
1,716,358 "affiliate" shares held by officers, directors and other affiliates,
be eligible for sale, subject to the volume and other limitations of Rule 144,
(ii) in the case of shares issued less than three years prior but more than
two years prior and held by non-affiliates, be eligible for sale, but also
subject to such volume and other limitations, and (iii) in the case of shares
issued more than three years prior, be eligible for sale without restriction.
Outstanding options to purchase 175,429 shares of Common Stock are currently
exercisable. Upon completion of the offering, certain shareholders of the
Company have the right to require the Company in certain circumstances to
register shares of Common Stock for sale under the Securities Act. See
"Certain Relationships and Related Transactions."
In general, under Rule 144 as currently in effect, beginning 90 days after the
date of this Prospectus, an Affiliate of the Company or other person (or
persons whose shares are aggregated) who has beneficially owned Previously
Issued Shares for at least two years, will be entitled to sell in any three-
month period a number of shares that does not exceed the greater of (i) 1% of
the then outstanding shares of the Company's Common Stock (approximately
52,390 shares immediately after the offering, if the Underwriters' over-
allotment option is
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<PAGE>
exercised in full) or (ii) the average weekly trading volume of the Company's
Common Stock on the Nasdaq National Market during the four calendar weeks
immediately preceding the date on which notice of the sale is filed with the
Securities and Exchange Commission. Sales pursuant to Rule 144 are subject to
certain requirements relating to manner of sale, notice and availability of
current public information about the Company. A person (or persons whose
shares are aggregated) who is not deemed to have been an Affiliate of the
Company at any time during the 90 days immediately preceding the sale and who
has beneficially owned Restricted Shares for at least three years is entitled
to sell such shares pursuant to Rule 144(k) without regard to the limitations
described above.
Previously Issued Shares may also be resold (1) to a person whom the seller
reasonably believes is a qualified institutional buyer within the meaning of
Rule 144A under the Securities Act purchasing for its own account or for the
account of a qualified institutional buyer in a transaction meeting the
requirements of Rule 144A and (2) in an off-shore transaction complying with
Rules 903 or 904 of Regulation S under the Securities Act.
An employee of the Company who purchased shares or was awarded options to
purchase shares pursuant to a written compensatory plan or contract meeting
the requirements of Rule 701 under the Securities Act is entitled to rely on
the resale provisions of Rule 701 under the Securities Act which permits
Affiliates and non-Affiliates to sell their Rule 701 shares without having to
comply with the holding period restrictions of Rule 144, in each case
commencing 90 days after the date of this Prospectus. In addition, non-
Affiliates may sell Rule 701 shares without complying with the public
information, volume and notice provisions of Rule 144.
Following the effectiveness of the registration statement covering the shares
of Common Stock offered hereby, the Company will register under the Securities
Act the shares of Common Stock reserved for issuance under the Company's 1988
Stock Option Plan, the 1994 Stock Option Plan, the 1996 Employee Stock
Purchase Plan and the Outside Directors' Plan, covering 187,109 shares,
430,000 shares, 80,000 shares and 80,000 shares, respectively. The Company
expects that these registrations will automatically become effective upon
filing. Accordingly, shares registered under such registration statements and
acquired pursuant to such Plans will be available for sale in the open market
upon the expiration of the public sale restrictions described below (see
"Underwriting"), subject to Rule 144 volume limitations applicable to
Affiliates, except to the extent such shares are subject to vesting
restrictions with the Company.
Registration Rights. Pursuant to rights granted in connection with a number of
financing and other agreements, including the acquisition of EKI and the
Intech Merger, following this offering the holders of 2,717,335 shares of
Common Stock, and the holders of warrants to purchase 163,142 shares of Common
Stock with respect to the shares issuable upon the exercise of such warrants,
will have certain rights to have those shares (the "Registrable Shares")
registered for sale under the Securities Act. Such holders will, subject to
certain conditions, have the right (a "Demand Right") to demand the
registration of all or a portion of the Registrable Shares, and the right (a
"Piggy-Back Right") to demand that all or a portion of the Registrable Shares
be included in a registration statement filed by the Company with respect to
the sale of shares by it. In addition to such rights, certain of such holders
have the right to require the Company, subject to certain conditions, to
register all or a portion of the Registrable Shares on Form S-3 under the
Securities Act when such form becomes available to TALX. The Demand Rights
generally cannot be exercised during the six month period following the
effective date of a registration statement pertaining to an underwritten
public offering of securities for the account of the Company (such as the
registration statement of which this prospectus is a part). The Piggy-Back
Rights can generally be limited at the discretion of the underwriter in the
case of an underwritten offering of securities by the Company. Generally, all
registration expenses incurred in connection with a registration will be borne
by TALX, except for underwriting discounts and commissions and costs of
counsel for the selling shareholders, which will be borne ratably by the
holders of Registrable Shares participating in such registration.
55
<PAGE>
Prior to this offering, there has been no public market for the Common Stock
of the Company. Future sales of substantial amounts of Common Stock in the
public market could adversely affect market prices prevailing from time to
time. Sales of substantial amounts of Common Stock of the Company in the
public market after the restrictions lapse could adversely affect the
prevailing market price and the ability of the Company to raise equity capital
in the future.
DESCRIPTION OF CAPITAL STOCK
AUTHORIZED CAPITAL STOCK
Under the Company's Restated Articles of Incorporation (the "Articles"), the
Company's authorized capital stock consists of 30,000,000 shares of Common
Stock, par value $.01 per share, and 13,700,000 shares of preferred stock, par
value $.01 per share. Upon the closing of this offering, the Company intends
to file an amendment to its Articles to reduce the number of authorized shares
of preferred stock to 5,000,000. The Company will have outstanding,
immediately prior to the issuance and sale of shares of Common Stock pursuant
to the offering and after giving effect to the Reverse Stock Split and the
Preferred Stock Conversions, 3,239,022 shares of Common Stock. Upon the
closing of this offering, assuming no exercise of the Underwriters' over-
allotment option and no exercise of outstanding stock options or warrants, the
Company will have outstanding 5,239,022 shares of Common Stock and no shares
of Preferred Stock.
COMMON STOCK
All of the outstanding shares of Common Stock are, and the shares offered
hereby will be, fully paid and nonassessable. Subject to the prior rights of
the holders of any shares of preferred stock which subsequently may be issued
and outstanding, the holders of Common Stock are entitled to receive dividends
as and when declared by the Board of Directors out of funds legally available
therefor, and, in the event of liquidation, dissolution, or winding up of the
Company, to share ratably in all assets remaining after payment of
liabilities. Each holder of Common Stock is entitled to one vote for each
share held of record on all matters presented to a vote of shareholders,
including the election of directors. Holders of Common Stock do not have
cumulative voting rights in the election of directors or preemptive rights to
purchase or subscribe for any stock or other securities and there are no
conversion rights or redemption or sinking fund provisions with respect to
such stock. Additional shares of authorized Common Stock may be issued without
shareholder approval.
PREFERRED STOCK
As of June 30, 1996, there were outstanding 1,776,441 shares of Series A
Convertible Preferred Stock, 236,873 shares of Series B Convertible Preferred
Stock, and 615,745 shares of Series C Convertible Preferred Stock. Upon the
closing of this offering, all issued and outstanding shares of Convertible
Preferred Stock will be converted into an aggregate of 751,160 shares of
Common Stock and the Company intends to file an amendment to its Articles to
eliminate the Series A, B and C Convertible Preferred Stock.
Following the closing of this offering, the Board will have the authority to
issue up to an aggregate of 5,000,000 shares of preferred stock from time to
time in one or more series without shareholder approval. The Board of
Directors has the authority to prescribe for each series of preferred stock it
establishes the number of shares in that series, the dividend rate, and the
voting rights, conversion privileges, redemption and liquidation rights, if
any, and any other rights, preferences and limitations of the particular
series. Depending upon the rights of such preferred stock, the issuance of
preferred stock could have an adverse effect on the holders of Common Stock by
delaying or preventing a change of control of the Company, making removal of
the present management of the Company more difficult, or resulting in
restrictions upon the payment of dividends and other distributions to the
holders of Common Stock. The Company has no plans to issue any preferred
stock.
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<PAGE>
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon the completion of this offering, there will be 24,760,978 shares of
Common Stock and 5,000,000 shares of preferred stock available for future
issuance without shareholder approval, taking into consideration the 535,885
shares of Common Stock reserved for issuance upon exercise of outstanding
options and warrants. These additional shares may be issued for a variety of
proper corporate purposes, including raising additional capital, corporate
acquisitions, and employee benefit plans. Except as contemplated by the 1994
Stock Option Plan, the 1996 Employee Stock Purchase Plan, the Outside
Directors' Plan and other possible employee benefit or stock purchase plans,
the Company does not currently have any plans to issue additional shares of
Common Stock or preferred stock.
One of the effects of the existence of unissued and unreserved Common Stock
and preferred stock may be to enable the Board of Directors to issue shares to
persons friendly to current management, which could render more difficult or
discourage an attempt to obtain control of the Company by means of a merger,
tender offer, proxy contest, or otherwise, and thereby protect the continuity
of the Company's management and possibly deprive the shareholders of
opportunities to sell their shares of Common Stock at prices higher than the
prevailing market prices. Such additional shares also could be used to dilute
the stock ownership of persons seeking to obtain control of the Company
pursuant to the operation of the 1994 Stock Option Plan, the 1996 Employee
Stock Purchase Plan, the Outside Directors' Plan, or otherwise. See also
"Certain Charter and Bylaw Provisions."
TRANSFER AGENT
The transfer agent and registrar for the Common Stock is Boatmen's Trust
Company, St. Louis, Missouri.
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<PAGE>
CERTAIN CHARTER AND BYLAW PROVISIONS
The Company's Articles and Bylaws provide for a classified Board of Directors,
limit the right of shareholders to remove directors or change the size of the
Board of Directors, to fill vacancies on the Board of Directors, to act by
written consent and to call a special meeting of shareholders, and require a
higher percentage of shareholders than would otherwise be required to amend,
alter, change, or repeal the provisions of the Articles and Bylaws discussed
in this section, as well as those described under "Management--
Indemnification." The Articles also provide that the Bylaws may be amended
only by the majority vote of the Board of Directors; thus shareholders will
not be able to amend the Bylaws without first amending the Articles. These
provisions, which are summarized below, may have the effect of discouraging
certain types of transactions that involve an actual or threatened change of
control of the Company. Reference is made to the full text of the Articles and
Bylaws, which are included as exhibits to the Registration Statement of which
this Prospectus is a part. The following summary is qualified in its entirety
by such reference.
SIZE OF BOARD, ELECTION OF DIRECTORS, CLASSIFIED BOARD, REMOVAL OF DIRECTORS
AND FILLING VACANCIES
The Articles provide that the number of directors to constitute the board of
directors shall be five and thereafter the number of directors shall be fixed
from time to time as provided in the Bylaws. The Bylaws provide for a Board of
Directors of five directors, but in no event less than three, and permit the
Board of Directors to change the number of Directors with a majority vote. The
Articles further provide that the Bylaws may be amended only by majority vote
of the Board of Directors.
In order for a shareholder to nominate a candidate for director, the Bylaws
require that timely notice be given to the Company in advance of the meeting.
Ordinarily, such notice must be given not less than 60 days nor more than 90
days before the first anniversary of the preceding year's annual meeting, or
not less than 60 days nor more than 90 days before August 20, 1997, in the
case of the next annual meeting; provided, however, that if the date of the
annual meeting is advanced by more than 30 days or delayed by more than 60
days from such anniversary date, then the shareholder must give such notice
not earlier than 90 days nor later than 60 days prior to such meeting or 10
days after notice of the meeting is mailed or other public disclosure of the
meeting is made. In certain cases, notice may be delivered later if the number
of directors to be elected is increased. The shareholder filing the notice of
nomination must describe various matters regarding the nominee, including,
without limitation, such information as name, address, occupation, and shares
held. The Articles do not permit cumulative voting in the election of
directors, and the Bylaws provide that the majority of the votes cast in the
election of directors shall elect those directors. Accordingly, the holders of
a majority of the then outstanding shares of voting stock can elect all the
directors then being elected at that meeting of shareholders.
The Articles and Bylaws provide that the Board shall be divided into three
classes, with the classes to be as nearly equal in number as possible, and
that one class shall be elected each year and serve for a three-year term.
Missouri law provides that, unless a corporation's articles of incorporation
provide otherwise, the holders of a majority of the corporation's voting stock
may remove any director from office. The Articles provide that, except as
described below, a director may be removed by shareholders only "for cause"
and with the approval of the holders of 85% of the Company's voting stock.
Missouri law further provides that, unless a corporation's articles of
incorporation or bylaws provide otherwise, all vacancies on a corporation's
board of directors, including any vacancies resulting from an increase in the
number of directors, may be filled by the vote of a majority of the remaining
directors even if that number is less than a quorum. The Articles provide
that, subject to the rights, if any, of the holders of any class of preferred
stock then outstanding and except as described below, vacancies may be filled
only by the vote of a majority of the remaining directors.
The classification of directors, the inability to vote shares cumulatively,
the advance notice requirements for nominations, and the provisions in the
Articles that limit the ability of shareholders to increase the size of the
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Board or to remove directors and that permit the remaining directors to fill
any vacancies on the Board will have the effect of making it more difficult
for shareholders to change the composition of the Board. As a result, at least
two annual meetings of shareholders may be required for the shareholders to
change a majority of the directors, whether or not a change in the Board would
be beneficial to the Company and its shareholders and whether or not a
majority of the Company's shareholders believes that such change would be
desirable.
LIMITATIONS ON SHAREHOLDER ACTION BY WRITTEN CONSENT; LIMITATIONS ON CALLING
SHAREHOLDER MEETINGS
As required by Missouri law, the Bylaws provide that any action by written
consent of shareholders in lieu of a meeting must be unanimous. Under the
Bylaws, except as described below, shareholders are not permitted to call
special meetings of shareholders or to require the Board to call a special
meeting of shareholders and a special meeting of shareholders may be called
only by a majority of the entire Board of Directors, the Chairman of the
Board, or the President. In order for a shareholder to bring a proposal before
a shareholder meeting, the Bylaws require that timely notice be given to the
Company in advance of the meeting. Ordinarily, such notice must be given not
less than 60 days nor more than 90 days before the first anniversary of the
preceding year's annual meeting, or not less than 60 days nor more than 90
days before August 20, 1997 in the case of the next annual meeting; provided,
however, that if the date of the annual meeting is advanced by more than 30
days or delayed by more than 60 days from such anniversary date, then the
shareholder must give such notice not earlier than 90 days nor later than 60
days prior to such meeting or 10 days after notice of the meeting is mailed or
other public disclosure of the meeting is made. Such notice must include a
description of the proposal, the reasons therefor, and other specified
matters. The Board may reject any such proposals that are not made in
accordance with these procedures or that are not a proper subject for
shareholder action in accordance with the provisions of applicable law.
The provision of the Bylaws requiring unanimity for shareholder action by
written consent gives all the shareholders of the Company entitled to vote on
a proposed action the opportunity to participate in such action and will
prevent the holders of a majority of the voting power of the Company from
using the written consent procedure to take shareholder action. Moreover, a
shareholder cannot force a shareholder consideration of a proposal over the
opposition of the Board of Directors by calling a special meeting of
shareholders or forcing consideration of such a proposal.
These provisions are designed in part to make it more difficult and time-
consuming to obtain majority control of the Board of Directors of the Company
or otherwise bring a matter before shareholders without the Board's consent,
and thus reduce the vulnerability of the Company to an unsolicited takeover
proposal. These provisions are designed to enable the Company to develop its
business in a manner which will foster its long-term growth, with the threat
of a takeover not deemed by the Board to be in the best interests of the
Company and its shareholders and the potential disruption entailed by such a
threat reduced to the extent practicable. On the other hand, these provisions
may have an adverse effect on the ability of shareholders to influence the
governance of the Company and the possibility of shareholders receiving a
premium above market price for their securities from a potential acquiror who
is unfriendly to management.
The General and Business Corporation Law of Missouri also contains certain
provisions which may have such an effect, including control share acquisition
and business combination statutes.
CERTAIN UNITED STATES FEDERAL INCOME TAX CONSIDERATIONS
FOR NON-U.S. HOLDERS
The following is a general discussion of certain United States Federal tax
consequences of the purchase, ownership and disposition of TALX Common Stock
by a holder that, for United States Federal income tax purposes, is not a
"United States person" (a "Non-United States Holder"). For purposes of this
discussion, a "United States person" means a citizen or resident of the United
States; a corporation, partnership, or other entity created or organized in
the United States or under the laws of the United States or of any political
59
<PAGE>
subdivision thereof; or an estate or trust whose income is includible in gross
income for United States Federal income tax purposes regardless of its source.
This discussion does not purport to be a complete analysis of the purchase,
ownership and disposition of the TALX Common Stock, and does not address all
of the tax considerations that may be relevant to particular investors in
light of their individual circumstances or to holders subject to special
treatment under United States Federal income tax laws, including financial
institutions, tax-exempt organizations and insurance companies. In addition,
this discussion does not address the application or effect of any state,
local, foreign or other tax laws. This discussion is based upon the United
States Federal income tax law now in effect, all of which is subject to
change, possibly with retroactive effect. PROSPECTIVE INVESTORS SHOULD CONSULT
THEIR TAX ADVISORS CONCERNING THE UNITED STATES FEDERAL INCOME TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND DISPOSITION OF THE TALX COMMON
STOCK.
Dividends. Dividends, if any, paid on the TALX Common Stock to a Non-United
States Holder will generally be subject to withholding of United States
Federal income tax at the rate of 30% unless the dividend is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder, in which case the dividend will be subject to
the United States Federal income tax on net income that applies to United
States persons generally (and, with respect to corporate holders and under
certain circumstances, the branch profits tax). Non-United States Holders
should consult any applicable income tax treaties, which may provide for a
lower rate of withholding or other rules different from those described above.
A Non-United States Holder may be required to satisfy certain certification
requirements in order to claim treaty benefits or otherwise claim a reduction
of, or exemption from, the withholding obligations pursuant to the above
described rules.
Gain on Disposition. A Non-United States Holder will generally not be subject
to the United States Federal income tax on gain recognized on a sale or other
disposition of TALX Common Stock unless (i) the gain is effectively connected
with the conduct of a trade or business within the United States by the Non-
United States Holder or (ii) in the case of a Non-United States Holder who is
a nonresident alien individual and holds the TALX Common Stock as a capital
asset, such holder is present in the United States for 183 or more days in the
taxable year and certain other requirements are met. Gain that is effectively
connected with the conduct of a trade or business within the United States by
the Non-United States Holder will be subject to the United States Federal
income tax on net income that applies to United States persons generally (and,
with respect to corporate holders and under certain circumstances, the branch
profits tax) but will not be subject to withholding. Non-United States Holders
should consult applicable treaties, which may provide for different rules.
Federal Estate Taxes. TALX Common Stock owned or treated as owned by an
individual who is not a citizen or resident (as specially defined for United
States Federal estate tax purposes) of the United States at the date of death
will be included in such individual's estate for United States Federal estate
tax purposes, unless an applicable estate tax treaty provides otherwise.
Information Reporting and Backup Withholding. Under temporary United States
Treasury regulations, United States information reporting requirements and
backup withholding tax will generally not apply to dividends paid on the TALX
Common Stock to a Non-United States Holder at an address outside the United
States. Payments by a United States office of a broker of the proceeds of a
sale of the TALX Common Stock are subject to both backup withholding at a rate
of 31% and information reporting unless the holder certifies its Non-United
States Holder status under penalties of perjury or otherwise establishes an
exemption. Information reporting requirements (but not backup withholding)
will also apply to payments of the proceeds of sales of the TALX Common Stock
by foreign offices of United States brokers, or foreign brokers with certain
types of relationships to the United States, unless the broker has documentary
evidence in its records that the holder is a Non-United States Holder and
certain other conditions are met, or the holder otherwise establishes an
exemption.
Backup withholding is not an additional tax. Any amounts withheld under the
backup withholding rules will be refunded or credited against the Non-United
States Holder's United States Federal income tax liability, provided that the
required information is furnished to the Internal Revenue Service.
60
<PAGE>
UNDERWRITING
The underwriters of this offering of Common Stock (the "Underwriters"), for
whom First Albany Corporation ("First Albany") and Principal Financial
Securities, Inc. are serving as representatives (the "Representatives"), have
agreed, subject to the terms and conditions of the Underwriting Agreement (the
form of which is filed as an exhibit to the Registration Statement of which
this Prospectus is a part) to purchase, and the Company has agreed to sell to
them severally, the number of shares of Common Stock set forth opposite their
respective names below:
<TABLE>
<CAPTION>
NUMBER OF
SHARES OF
UNDERWRITER COMMON STOCK
----------- ------------
<S> <C>
First Albany Corporation........................................
Principal Financial Securities, Inc.............................
---------
Total....................................................... 2,000,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the Underwriters
to purchase shares of Common Stock are subject to certain conditions, and that
if any of the shares of Common Stock are purchased by the Underwriters
pursuant to the Underwriting Agreement, all shares of Common Stock agreed to
be purchased by the Underwriters pursuant to the Underwriting Agreement must
be so purchased.
The Company has been advised that the Underwriters propose to offer the shares
of Common Stock directly to the public initially at the public offering price
set forth on the cover page of this Prospectus, and to certain selected
dealers (who may include the Underwriters) at such public offering price less
a concession not in excess of $ per share. The Underwriters may allow, and
the selected dealers may reallow, a concession not in excess of $ per share
to certain other brokers and dealers. After the public offering, the public
offering price, the concession to selected dealers and the reallowance to
other dealers may be changed by the Underwriters.
Purchasers of the shares offered pursuant to this offering may be required to
pay stamp taxes and other charges in accordance with the laws and practices of
the country of purchase in addition to the offering price set forth on the
cover page hereof.
The Company has granted to the Underwriters an option to purchase up to an
additional 300,000 shares of Common Stock, at the public offering price, less
the underwriting discounts and commissions shown on the cover page of this
Prospectus, solely to cover over-allotments, if any, made in connection with
this offering. The option may be exercised at any time up to 30 days after the
date of this Prospectus. To the extent that the Underwriters exercise such
option, each of the Underwriters will be committed, subject to certain
conditions, to purchase a number of option shares proportionate to such
Underwriter's initial commitment.
The Company has agreed to reimburse the Representatives for non-accountable
expenses incurred by them in connection with this offering up to a maximum of
$100,000.
On the closing of the offering, the Company will sell to the Representatives,
individually and not as representatives of the Underwriters, for nominal
consideration, the Representatives Warrants entitling the Representatives to
purchase an aggregate of 100,000 shares of Common Stock at an initial exercise
price per share equal to 120% of the initial public offering price hereunder.
The Representatives Warrants will be exercisable for a period of four years
commencing one year after the date of this Prospectus and will contain certain
demand and "piggyback" registration rights relating to the underlying Common
Stock. The Representatives Warrants cannot be transferred, assigned or
hypothecated, in whole or in part, for a period of twelve months from the date
of their issuance, except that they may be assigned to any officer or partner
of either of the Representatives. The Representatives Warrants will contain
anti-dilution provisions providing for
61
<PAGE>
appropriate adjustment of the exercise price and the number of shares issuable
upon exercise thereof upon the occurrence of certain events.
For the life of the Representatives Warrants, their holders have, at nominal
cost, the opportunity to profit from a rise in the market price for the Common
Stock without assuming the risk of ownership, with a resulting dilution in the
interest of other security holders. As long as the Representatives Warrants
remain unexercised, the terms under which the Company could obtain additional
capital may be adversely affected. Moreover, the holders of the
Representatives Warrants might be expected to exercise them at a time when the
Company would, in all likelihood, be able to obtain any needed capital by a
new offering of its securities on terms more favorable than those provided by
the Representatives Warrants. Additionally, if the Representatives should
exercise their registration rights to effect a distribution of the underlying
shares of Common Stock, the Representatives, prior to and during such
distribution, would be unable to make a market in the Common Stock. If the
Representatives must cease making a market, the market and market price for
the Common Stock may be adversely affected and holders of the Common Stock may
be unable to sell the Common Stock.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act of 1933, or to
contribute to payments that the Underwriters may be required to make in
respect thereof.
All of the executive officers and directors of the Company have agreed not to
offer, sell, contract to sell or grant any option to purchase or otherwise
dispose of any shares of Common Stock during the period of 180 days after the
date of this Prospectus without the prior written consent of First Albany,
except in certain non-public transactions in which the acquiror or acquirors
of such shares agree(s) to such restrictions. The Company has also agreed not
to offer, sell, contract to sell or otherwise dispose of any share of Common
Stock or any securities convertible into or exchangeable for Common Stock or
any rights to acquire Common Stock (except in certain cases, pursuant to the
exercise of outstanding options or other rights to acquire Common Stock or
with respect to options granted under or shares acquired pursuant to the
Company's employee benefit plans or options or shares issued in acquisitions
in which the acquiror or acquirors of such shares agree(s) to such
restrictions) for a period of 180 days after the date of this Prospectus
without the prior written consent of First Albany.
The Underwriters have informed the Company that the Underwriters do not intend
to confirm sales to any accounts over which they exercise discretionary
authority.
The Underwriters have reserved approximately 100,000 shares of Common Stock
for sale, at the initial public offering price, to employees of the Company.
The number of shares available for sale to the general public will be reduced
to the extent such persons purchase such reserved shares. Any reserved shares
not so purchased will be offered by the Underwriters to the general public on
the same basis as the other shares offered hereby.
Prior to the offering, there has been no public market for the Company's
Common Stock. The initial public offering price for the Common Stock was
determined by negotiation among the Company and the Representatives of the
Underwriters and does not necessarily bear any direct relationship to the
Company's assets, current earnings or book value or to any other established
criteria of value, although these factors were considered in establishing the
initial public offering price. Among the other factors considered in
determining the initial public offering price were prevailing market
conditions, the industry in which the Company operates, an assessment of the
Company's management, its operating results, its capital structure, the
business potential of the Company and the demand for similar securities of
comparable companies.
LEGAL MATTERS
The validity of the shares of Common Stock offered hereby has been passed upon
for the Company by Bryan Cave LLP, St. Louis, Missouri. As of the date of this
Prospectus, Walter L. Metcalfe, Jr., a partner of Bryan Cave LLP, beneficially
owns 199,967 shares of Common Stock and is Assistant Secretary of the Company
and its subsidiaries. Certain legal matters will be passed upon for the
Underwriters by Goodwin, Procter & Hoar LLP, Boston, Massachusetts.
62
<PAGE>
EXPERTS
The Consolidated Financial Statements and related schedules of the Company at
March 31, 1995 and 1996, and for each of the three years in the period ended
March 31, 1996, appearing in this Prospectus and elsewhere in the Registration
Statement have been included herein and elsewhere in the Registration
Statement in reliance on the report of KPMG Peat Marwick LLP, independent
certified public accountants, and the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
The Company has filed with the Securities and Exchange Commission, Washington,
D.C. (the "Commission"), a Registration Statement (the "Registration
Statement") on Form S-1 under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus, which constitutes part of the
Registration Statement, omits certain of the information contained in the
Registration Statement and the exhibits and schedules thereto on file with the
Commission pursuant to the Act and the rules and regulations of the Commission
thereunder. The Registration Statement, including exhibits and schedules
thereto, may be inspected at the principal offices of the Commission at 450
Fifth Street, N.W., Washington, D.C. 20549, and at its regional offices at
Citicorp Center, 500 W. Madison Street, Suite 1400, Chicago, Illinois 60661,
and at Seven World Trade Center, Suite 1300, New York, New York 10048, and
copies may be obtained at the prescribed rates from the Public Reference
Section of the Commission at its principal office in Washington, D.C. The
Commission maintains an Internet Web site (http://www.sec.gov.) that contains
such documents filed electronically by the Company with the Commission through
its Electronic Data Gathering, Analysis and Retrieval System (EDGAR) filing
system. Statements contained in this Prospectus as to the contents of any
contract, agreement or other document referred to herein are not necessarily
complete and in each instance reference is made to the copy of such contract,
agreement or other document filed as an exhibit to the Registration Statement,
each such statement being qualified in all respects by such reference.
63
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report.............................................. F-2
Consolidated Balance Sheets as of March 31, 1995 and 1996 and June 30,
1996 (unaudited)......................................................... F-3
Consolidated Statements of Operations for the years ended March 31, 1994,
1995 and 1996 and the three months ended June 30, 1995 (unaudited) and
1996 (unaudited)......................................................... F-4
Consolidated Statements of Stockholders' Equity for the years ended March
31, 1994, 1995 and 1996 and the three months ended June 30, 1996
(unaudited).............................................................. F-5
Consolidated Statements of Cash Flows for the years ended March 31, 1994,
1995 and 1996 and the three months ended June 30, 1995 (unaudited) and
1996 (unaudited)......................................................... F-6
Notes to Consolidated Financial Statements................................ F-7
</TABLE>
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
TALX Corporation:
We have audited the accompanying consolidated balance sheets of TALX
Corporation and subsidiaries as of March 31, 1995 and 1996, and the related
consolidated statements of operations, stockholders' equity, and cash flows
for each of the years in the three-year period ended March 31, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of TALX
Corporation and subsidiaries as of March 31, 1995 and 1996, and the results of
their operations and their cash flows for each of the years in the three-year
period ended March 31, 1996, in conformity with generally accepted accounting
principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
May 17, 1996, except for Note 2 and Note 15
which are as of August 20, 1996
F-2
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1995 AND 1996 AND
JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31,
---------------- JUNE 30,
1995 1996 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 27 $ 56 $ 287
Trade receivables, net.......................... 5,022 5,918 4,938
Inventories..................................... 1,204 1,389 1,200
Work in progress, less progress billings........ 547 761 -
Prepaid expenses and other current assets....... 445 306 231
Income tax refund receivable.................... 293 260 -
Deferred tax assets, net........................ 193 225 133
------- ------- -------
Total current assets......................... 7,731 8,915 6,789
Property and equipment, net...................... 3,944 3,579 1,870
Capitalized software development costs, net of
amortization of $2,776 in 1995, $3,817 in 1996,
and $4,053 at June 30, 1996..................... 2,093 2,621 2,716
Net assets of business held for sale............. - - 2,505
Deferred tax assets, net......................... 459 466 414
Other assets..................................... 249 263 392
------- ------- -------
$14,476 $15,844 $14,686
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank........................... $ 2,655 $ 4,243 $ 2,396
Current installments of obligations under
capital leases................................. 222 226 33
Current installments of long-term debt.......... 500 500 500
Accounts payable................................ 1,958 2,250 1,698
Accrued expenses and other liabilities.......... 1,401 1,742 1,250
Progress billings in excess of work in progress. 138 226 138
Deferred maintenance revenue.................... 674 989 588
------- ------- -------
Total current liabilities.................... 7,548 10,176 6,603
Obligations under capital leases, less current
installments.................................... 651 463 27
Long-term debt, less current installments........ 667 167 42
Subordinated note payable, net of discount....... - - 2,614
------- ------- -------
Total liabilities............................ 8,866 10,806 9,286
------- ------- -------
Commitments and contingencies
Stockholders' equity:
Series A convertible preferred stock, $.01 par
value; authorized 2,373,000 shares, issued and
outstanding 1,776,479 at March 31, 1995 and
1996, and 1,776,441 shares at June 30, 1996.... 18 18 18
Series B convertible preferred stock, $.01 par
value; authorized 327,000 shares, issued and
outstanding 236,873 shares..................... 2 2 2
Series C convertible preferred stock, $.01 par
value; authorized 6,000,000 shares, issued and
outstanding 615,745 shares..................... 6 6 6
Common stock, $.01 par value; authorized
30,000,000 shares, issued and outstanding
2,476,500 at March 31, 1995, 2,478,214 at March
31, 1996, and 2,478,070 shares at June 30,
1996........................................... 25 25 25
Additional paid-in capital...................... 6,423 6,431 7,166
Accumulated deficit............................. (864) (1,444) (1,817)
------- ------- -------
Total stockholders' equity................... 5,610 5,038 5,400
------- ------- -------
$14,476 $15,844 $14,686
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1994, 1995, AND 1996
AND THREE-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------------------- ------------
1994 1995 1996 1995 1996
------ ------- ------ ----- -----
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
The Work Number........................ $ - $ 74 $ 453 $ 42 $ 251
Outsourced services.................... 776 515 998 105 330
Customer premises systems.............. 8,497 6,957 9,442 2,125 2,844
Maintenance and support................ 1,949 2,310 2,624 640 868
------ ------- ------ ----- -----
Total revenues...................... 11,222 9,856 13,517 2,912 4,293
------ ------- ------ ----- -----
Cost of revenues:
The Work Number........................ - 48 429 99 111
Outsourced services.................... 190 260 493 106 128
Customer premises systems.............. 3,902 4,143 4,489 985 1,447
Maintenance and support................ 767 793 619 166 237
------ ------- ------ ----- -----
Total cost of revenues.............. 4,859 5,244 6,030 1,356 1,923
------ ------- ------ ----- -----
Gross margin........................ 6,363 4,612 7,487 1,556 2,370
------ ------- ------ ----- -----
Operating expenses:
Selling and marketing.................. 2,700 2,854 4,084 884 1,369
General and administrative............. 2,268 2,556 2,828 659 637
------ ------- ------ ----- -----
Total operating expenses............ 4,968 5,410 6,912 1,543 2,006
------ ------- ------ ----- -----
Operating income (loss)............. 1,395 (798) 575 13 364
------ ------- ------ ----- -----
Other income (expense):
Interest income........................ 1 5 - - -
Interest expense....................... (131) (212) (343) (71) (116)
Other, net............................. (23) (77) (52) (17) (24)
------ ------- ------ ----- -----
Total other expense................. (153) (284) (395) (88) (140)
------ ------- ------ ----- -----
Earnings (loss) from continuing
operations before income tax
expense (benefit).................. 1,242 (1,082) 180 (75) 224
Income tax expense (benefit)............ 7 (328) 57 (30) 83
------ ------- ------ ----- -----
Earnings (loss) from continuing
operations......................... 1,235 (754) 123 (45) 141
------ ------- ------ ----- -----
Discontinued operations:
Earnings (loss) from operations of
discontinued operations, net of income
taxes................................. 474 (410) (703) (38) (164)
Loss on disposal of discontinued
operations, net of income taxes....... - - - - (350)
------ ------- ------ ----- -----
Earnings (loss) from discontinued
operations, net of income taxes.... 474 (410) (703) (38) (514)
------ ------- ------ ----- -----
Net earnings (loss)................. $1,709 $(1,164) $ (580) $ (83) $(373)
====== ======= ====== ===== =====
Pro forma net earnings (loss) per share:
Earnings from continuing operations.... $ .04 $ .04
Loss from discontinued operations...... (.21) (.15)
------ -----
Net loss............................ $ (.17) $(.11)
====== =====
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1994, 1995, AND 1996
AND THREE-MONTH PERIOD ENDED JUNE 30, 1996
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<TABLE>
<CAPTION>
CONVERTIBLE PREFERRED RETAINED
STOCK ADDITIONAL EARNINGS TOTAL
-------------------------- COMMON PAID-IN (ACCUMULATED STOCKHOLDERS'
SERIES A SERIES B SERIES C STOCK CAPITAL DEFICIT) EQUITY
-------- -------- -------- ------ ---------- ------------ -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31,
1993................... $20 $ 2 $28 $17 $5,707 $(1,409) $ 4,365
Conversion of 207,948
shares of Series A
convertible preferred
stock to common stock.. (2) -- -- 1 1 -- --
Conversion of 2,721,879
shares of Series C
convertible preferred
stock to common stock.. -- -- (27) 7 20 -- --
Issuance of 237 shares
of Series A preferred
stock upon exercise of
stock warrants......... -- -- -- -- 1 -- 1
Issuance of 559,184
shares of Series C
preferred stock upon
exercise of stock
warrants............... -- -- 5 -- 694 -- 699
Net earnings............ -- -- -- -- -- 1,709 1,709
--- --- --- --- ------ ------- -------
Balance at March 31,
1994................... 18 2 6 25 6,423 300 6,774
Net loss................ -- -- -- -- -- (1,164) (1,164)
--- --- --- --- ------ ------- -------
Balance at March 31,
1995................... 18 2 6 25 6,423 (864) 5,610
Issuance of 1,714 shares
of common stock upon
exercise of stock
options................ -- -- -- -- 8 -- 8
Net loss................ -- -- -- -- -- (580) (580)
--- --- --- --- ------ ------- -------
Balance at March 31,
1996................... 18 2 6 25 6,431 (1,444) 5,038
Repurchase and
retirement of 144
shares of common stock
and 38 shares of Series
A preferred stock
(unaudited)............ -- -- -- -- (1) -- (1)
Issuance of common stock
warrants (unaudited)... -- -- -- -- 736 -- 736
Net loss (unaudited).... -- -- -- -- -- (373) (373)
--- --- --- --- ------ ------- -------
Balance at June 30, 1996
(unaudited)............ $18 $ 2 $ 6 $25 $7,166 $(1,817) $ 5,400
=== === === === ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1994, 1995, AND 1996
AND THREE-MONTH PERIODS ENDED JUNE 30, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
----------------------- ------------
1994 1995 1996 1995 1996
------ ------- ------ ---- ------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating activities:
Net earnings (loss).................... $1,709 $(1,164) $ (580) $(83) $ (373)
Adjustments to reconcile net earnings
(loss) to net cash provided by
operating activities:
Depreciation and amortization......... 1,430 1,979 2,449 551 568
Loss on disposal of discontinued
operations, net...................... - - - - 350
Loss (gain) on sale of assets......... 12 3 (7) - -
Gain on sale of marketable securities. - - (106) - -
Deferred taxes........................ (28) (306) (39) (54) (13)
Change in assets and liabilities:
Trade receivables.................... (1,848) 863 (896) (94) (558)
Inventories.......................... 197 (182) (185) 95 120
Work in progress, less progress
billings, net....................... (14) (287) (126) (16) (178)
Prepaid expenses and other current
assets.............................. (156) 4 59 24 (57)
Income tax refund receivable......... - (293) 33 - -
Other assets......................... (107) 119 (14) 9 (293)
Accounts payable..................... 247 (16) 293 333 134
Accrued expenses and other
liabilities......................... 279 (118) 341 (170) 266
Deferred maintenance revenue......... - 674 315 (328) (401)
Income taxes payable................. (67) (68) - - -
------ ------- ------ ---- ------
Net cash provided by (used in)
operating activities............... 1,654 1,208 1,537 267 (435)
------ ------- ------ ---- ------
Cash flows from investing activities:
Proceeds from sale of property and
equipment............................. 29 - 9 - -
Additions to property and equipment.... (1,402) (1,701) (852) (206) (146)
Capitalized software development costs. (810) (1,429) (1,712) (403) (477)
Proceeds from sale of marketable
securities............................ - - 187 - -
Other.................................. (109) - - - -
------ ------- ------ ---- ------
Net cash used in investing
activities......................... (2,292) (3,130) (2,368) (609) (623)
------ ------- ------ ---- ------
Cash flows from financing activities:
Change in notes payable to bank........ 343 1,554 1,588 655 (1,847)
Borrowings of long-term debt........... - 1,500 - - -
Borrowings of subordinated notes
payable and issuance of warrants...... - - - - 3,350
Repayments on long-term debt........... (380) (1,042) (500) (125) (125)
Payments on capitalized lease
obligations........................... (138) (208) (235) (55) (57)
Issuance of preferred stock............ 700 - - - -
Issuance of common stock............... - - 7 - -
Repurchase of common and preferred
stock................................. - - - - (1)
------ ------- ------ ---- ------
Net cash provided by financing
activities......................... 525 1,804 860 475 1,320
------ ------- ------ ---- ------
Net increase (decrease) in cash and
cash equivalents................... (113) (118) 29 133 262
Cash and cash equivalents at beginning
of year................................ 258 145 27 27 56
------ ------- ------ ---- ------
Cash and cash equivalents at end of
year................................... $ 145 $ 27 $ 56 $160 $ 318
====== ======= ====== ==== ======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1995 AND 1996 AND JUNE 30, 1996
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED
JUNE 30, 1995 AND 1996 IS UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Description of Business
TALX Corporation and its subsidiaries ("the Company") design and implement
interactive communications solutions using technology such as interactive
voice response, primarily for Fortune 500 organizations. The Company's
interactive communications solutions enable an organization's employees,
customers, vendors, and business partners ("Users") to access, input, and
update information without human assistance. The Company's solutions enhance
service levels, improve productivity, and reduce costs by enabling Users to
perform self-service transactions that employ computer telephony technology,
as well as facsimile, e-mail, Internet/Intranet, and other interactive
communications technologies.
In early 1995, the Company introduced The Work Number for Everyone(R) ("The
Work Number"). The Work Number, which is a national service providing
automated access to information from multiple organizations, provides
automated responses to requests by mortgage lenders or other verifiers for
confirmation of employment information about a participating employer's
current and former employees.
The Company also designs and implements tailored interactive communications
solutions and either sells a system for installation on a customer's premises
or provides access to a system on an outsourced services basis. The Company
has provided tailored interactive communications systems for installation at
customers' premises since the early 1980s. In 1993, the Company introduced its
outsourced services business, which allows a customer to realize the benefits
of an interactive communications system without incurring the administrative
or maintenance burden of operating a system. For outsourced services
customers, the Company maintains the customer's database on a system at the
Company's facilities, where incoming requests are received for access to the
information.
In addition to providing interactive communications systems, the Company has
historically provided database and document services. Database services
include providing sales leads and prepress services for directory publishers.
Document services include the preparation and mailing of invoices, statements,
and confirmation letters for organizations with high-volume requirements. See
note 2.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of TALX Corporation
and its subsidiaries. All significant intercompany balances and transactions
have been eliminated in consolidation.
(c) Cash and Cash Equivalents
The Company considers all highly liquid investments with an original maturity
of three months or less to be cash and cash equivalents.
(d) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist primarily of hardware, spare parts, and printing supplies.
F-7
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(e) Property and Equipment
Property and equipment is recorded at cost less accumulated depreciation and
amortization. Depreciation is computed using straight-line and accelerated
methods over the estimated useful lives of the assets. Amortization of
leasehold improvements and assets recorded under capital leases is computed
using the straight-line method over the lesser of the useful life of the asset
or lease term.
(f) Product Development and Capitalized Software Development Costs
Product development costs are charged to operations as incurred. Software
development costs are expensed as incurred until technological feasibility is
achieved, after which they are capitalized. Capitalized software development
costs are amortized using the straight-line method over the estimated product
life of three years.
(g) Revenue Recognition, Work in Progress, and Progress Billings
Revenues from The Work Number are recognized from fees charged to Users for
verifications of employment history and salary and from employer conversion
and maintenance fees. Customer premises systems revenue is generally
recognized upon shipment of the system. Outsourced services revenue is
recognized as the services are provided. Revenue from maintenance contracts is
deferred and recognized ratably over the maintenance period. Deferred
maintenance revenue represents the unearned portion of maintenance fees.
Work in progress represents accumulated project costs and related earnings,
less progress billings. Progress billings in excess of accumulated project
costs are shown as a current liability. Progress billings are made in
accordance with individual customer contract terms.
(h) Concentration of Credit Risk
The Company sells its interactive communications services in a variety of
industries. No single customer represented 10% or more of the Company's
revenues in fiscal 1994, 1995 or 1996, except that one customer represented
approximately 14% in fiscal 1996. The Company performs periodic credit
evaluations of its customers' financial condition and generally does not
require collateral, however it maintains a security interest in hardware until
payment is received. Credit losses from customers have been within
management's expectations, and management believes the allowance for doubtful
accounts adequately provides for any expected losses.
(i) Income Taxes
The Company records income taxes under the asset and liability method.
Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that includes the
enactment date.
(j) Fair Value of Financial Instruments
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that both imposes on one
entity a contractual obligation to deliver cash or another financial
instrument to a second entity and conveys to that second entity a contractual
right to receive cash or another financial instrument from the first entity.
(k) Management's Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements, and
the reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
F-8
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(l) Effect of New Accounting Standards
In October 1995, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for
Stock-based Compensation, which establishes a fair value-based method for
financial accounting and reporting for stock-based employee compensation
plans. However, the new standard allows compensation to continue to be
measured by using the intrinsic value-based method of accounting prescribed by
Accounting Principles Board No. 25, Accounting for Stock Issued to Employees,
but requires expanded disclosure. SFAS No. 123 is effective in fiscal year
1997.
While the Company does not know precisely the impact that will result from
adopting SFAS No. 123, the Company does not expect the adoption to have a
material effect on the Company's consolidated financial position or results of
operations.
(m) Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
(n) Pro Forma Net Earnings (Loss) Per Share
Pro forma net earnings (loss) per share has been computed using the number of
shares of common stock and common stock equivalents outstanding, assuming
conversion of all outstanding preferred stock to 751,160 shares of common
stock. The number of shares used in computing pro forma loss per share was
3,400,439. Pursuant to Securities and Exchange Commission Staff Accounting
Bulletin No. 83, shares issued and stock options and warrants granted at
prices below the assumed initial public offering price of $10 per share during
the 12-month period preceding the date of the initial filing of the Company's
registration statement have been included in the calculation of common stock
equivalent shares, using the treasury stock method, as if they were
outstanding for all of 1996 and the first quarter of 1997.
(o) Interim Financial Statements
The accompanying unaudited consolidated financial statements as of and for the
three months ended June 30, 1995 and 1996 have been prepared on substantially
the same basis as the audited consolidated financial statements and include
all adjustments, consisting only of normal recurring adjustments, necessary
for a fair presentation of the consolidated financial information set forth
therein.
(2) DISCONTINUED OPERATIONS
In August 1996, the Company determined to pursue the divestiture of the
database and document services businesses. It is anticipated that the
divestiture will be by a sale of assets within the next year. A provision of
$350,000 has been made to reflect the estimated losses from operations until
the time of disposal net of income tax benefits of $150,000. Management
anticipates the proceeds from the sale will approximate the value of net
assets held for sale.
The Company has classified the database and document services businesses as a
discontinued operation and has reclassified the prior periods financial
statements to reflect this change.
The database and document services businesses had one customer which accounted
for $3,500,000, $2,000,000, and $930,000 of net revenues for the years ended
March 31, 1994, 1995, and 1996, respectively. The Company ceased business with
this customer in November 1995.
F-9
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Summary balance sheet data as of June 30, 1996 is as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
Current assets............................................. $2,972
Property and equipment, net................................ 1,523
Other assets............................................... 376
------
Total assets........................................... 4,871
------
Current liabilities........................................ 1,989
Noncurrent liabilities..................................... 377
------
Total liabilities...................................... 2,366
------
Net assets of business held for sale................... $2,505
======
</TABLE>
The results of operations for the discontinued businesses for the years ended
March 31, 1994, 1995, and 1996 and the three-month periods ended June 30, 1995
and 1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------ --------------
1994 1995 1996 1995 1996
------- ------- ------- ------ ------
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Revenues............................. $12,282 $12,010 $11,149 $3,084 $2,316
======= ======= ======= ====== ======
Earnings (loss) from discontinued
operations.......................... 782 (681) (1,052) (63) (260)
Income tax expense (benefit)......... 308 (271) (349) (25) (96)
------- ------- ------- ------ ------
Earnings (loss) from operations of
discontinued operations............ 474 (410) (703) (38) (164)
------- ------- ------- ------ ------
Loss on disposal..................... - - - - (500)
Income tax benefit................... - - - - (150)
------- ------- ------- ------ ------
Loss on disposal, net............... - - - - (350)
------- ------- ------- ------ ------
Net earnings (loss).................. $ 474 $ (410) $ (703) $ (38) $ (514)
======= ======= ======= ====== ======
</TABLE>
(3) TRADE RECEIVABLES
Trade receivables consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------- JUNE 30,
1995 1996 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Billed receivables................................. $4,385 $5,211 $3,632
Unbilled receivables............................... 808 951 1,328
------ ------ ------
5,193 6,162 4,960
Less allowance for doubtful accounts............... 171 244 22
------ ------ ------
$5,022 $5,918 $4,938
====== ====== ======
</TABLE>
All amounts are due within one year. Billings to customers are made in
accordance with the terms of the individual contracts.
F-10
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(4) PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
RANGE OF ESTIMATED MARCH 31,
USEFUL LIVES ------------- JUNE 30,
(IN YEARS) 1995 1996 1996
------------------ ------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C> <C>
Computer equipment................... 3-5 $6,551 $7,092 $3,113
Office furniture and equipment....... 5-7 1,384 1,552 592
Leasehold improvements............... 3-10 567 665 585
Automobile........................... 3 8 8 -
==== ------ ------ ------
8,510 9,317 4,290
Less accumulated depreciation and
amortization........................ 4,566 5,738 2,420
------ ------ ------
$3,944 $3,579 $1,870
====== ====== ======
</TABLE>
(5) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development and capitalized software development costs for the years
ended March 31, 1994, 1995, and 1996 and three months ended June 30, 1995 and
1996 were as follows:
<TABLE>
<CAPTION>
MARCH 31, JUNE 30,
------------------------ ------------
1994 1995 1996 1995 1996
------ ------- ------- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Product development costs incurred..... $1,178 $ 1,477 $ 1,894 $ 473 $ 415
Additions to capitalized software
development costs..................... (810) (1,429) (1,712) (404) (385)
------ ------- ------- ----- -----
Product development costs charged to
general and administrative expenses... $ 368 $ 48 $ 182 $ 69 $ 30
====== ======= ======= ===== =====
Amortization of capitalized software
development costs..................... $ 639 $ 876 $ 1,184 $ 235 $ 236
====== ======= ======= ===== =====
</TABLE>
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities for the years ended March 31, 1995 and
1996 and three months ended June 30, 1995 and 1996 consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------- JUNE 30,
1995 1996 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Accrued compensation and benefits.................. $ 815 $ 855 $ 618
Other.............................................. 586 887 632
------ ------ ------
$1,401 $1,742 $1,250
====== ====== ======
</TABLE>
(7) BANK FINANCING ARRANGEMENTS
Notes payable to bank represent the amounts outstanding under five financing
agreements with a bank. The agreements allowed borrowings up to $4,500,000,
with interest ranging from 0.5% to 1.25% over the prime rate (prime at March
31, 1996 was 8.25%). The agreements were scheduled to expire on June 1, 1996.
On May 1, 1996, the Company negotiated a restructuring and extension of the
financing agreements through December 31, 1996. Under the restructured and
extended financing agreements, the Company has a $4,000,000 line of credit
F-11
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
bearing interest at 0.875% over the prime rate. Additionally, a $1,500,000
line of credit was established bearing interest at 12% through August 31, 1996
and 16% from September 1, 1996 through December 31, 1996 (see Note 15).
Long-term debt consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
----------- JUNE 30,
1995 1996 1996
------ ---- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Note payable to bank, payable in monthly principal
installments of $41,667, maturing August 1997,
bearing interest at a variable rate of prime
(8.25% at March 31, 1996) plus 0.75%............. $1,167 $667 $542
Less current installments......................... 500 500 500
------ ---- ----
$ 667 $167 $ 42
====== ==== ====
</TABLE>
These agreements are secured by accounts receivable, inventory, office
furniture and equipment, an insurance policy on the president of the Company,
and limited personal guarantees of the president of the Company.
(8) LEASES
The Company is obligated for certain equipment under capital leases which
expire in 1995 through 2000. Assets capitalized under capital lease
obligations and included in property and equipment at March 31, 1995 and 1996
and June 30, 1996 are as follows:
<TABLE>
<CAPTION>
MARCH 31,
------------- JUNE 30,
1995 1996 1996
------ ------ --------
(IN THOUSANDS)
<S> <C> <C> <C>
Computer equipment................................. $1,170 $1,163 $168
Less accumulated amortization...................... 248 567 99
------ ------ ----
$ 922 $ 596 $ 69
====== ====== ====
</TABLE>
The Company has noncancellable operating leases, primarily for office space
and computer equipment, that expire over the next eight years and provide for
purchase or renewal options. During 1991, a partnership, which includes the
president of the Company, acquired the building where the Company's
headquarters are housed. Rent paid to the partnership amounted to $270,073,
$391,484, and $422,600 in 1994, 1995, and 1996, respectively. The partnership
sold the building to an unrelated party in March 1996.
Total rent expense for operating leases, including contingent rentals, was
$276,000 in 1994, $520,000 in 1995, and $595,000 in 1996.
F-12
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Future minimum lease payments under capital leases and noncancellable
operating leases as of March 31, 1996 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
------- ---------
(IN THOUSANDS)
<S> <C> <C>
Year ending March 31:
1997.................................................. $302 $1,128
1998.................................................. 295 1,016
1999.................................................. 171 981
2000.................................................. 70 967
2001.................................................. - 986
Thereafter............................................ - 1,241
---- ------
Total minimum lease payments....................... 838 $6,319
======
Less amount representing interest...................... 149
----
Present value of net minimum capital lease
payments.......................................... 689
Less current installments of obligations under capital
leases................................................ 226
----
Obligations under capital leases, less current
installments...................................... $463
====
</TABLE>
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
<TABLE>
<CAPTION>
MARCH 31,
------------------
1994 1995 1996
---- ----- -----
(IN THOUSANDS)
<S> <C> <C> <C>
Current--federal..................................... $ 14 $ - $ -
Deferred:
Federal............................................. (4) (283) 52
State and local..................................... (3) (45) 5
---- ----- -----
Income tax expense (benefit) before discontinued
operations...................................... 7 (328) 57
Discontinued operations.............................. 308 (271) (349)
---- ----- -----
Total income tax expense (benefit)............... $315 $(599) $(292)
==== ===== =====
</TABLE>
Income tax expense (benefit) differed from the amounts computed by applying
the federal income tax rate of 34% to earnings (loss) from continuing
operations before income tax expense (benefit) as a result of the following:
<TABLE>
<CAPTION>
MARCH 31, 1994
------------------
1994 1995 1996
----- ----- ----
(IN THOUSANDS)
<S> <C> <C> <C>
Computed "expected" tax expense (benefit)............. $ 422 $(389) $61
Increase in income taxes resulting from:
Change in the valuation allowance for deferred tax
assets.............................................. (461) - -
Alternative minimum tax.............................. 14 - -
State and local income taxes, net of federal income
tax benefit......................................... (2) (30) 3
Other, net........................................... 34 91 (7)
----- ----- ---
$ 7 $(328) $57
===== ===== ===
</TABLE>
F-13
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at March 31,
1995 and 1996 are presented below:
<TABLE>
<CAPTION>
MARCH 31,
-------------
1995 1996
------ ------
(IN
THOUSANDS)
<S> <C> <C>
Deferred tax assets:
Allowance for doubtful accounts.............................. $ 64 $ 90
Valuation allowance on inventory............................. 51 44
Accrual for compensated absences............................. 52 61
Differences in revenue recognition methods................... 43 -
Differences in depreciation.................................. 46 91
Differences in expense recognition methods................... - 85
Net operating loss and tax credit carryforwards.............. 1,214 1,374
------ ------
Total deferred tax assets................................. 1,470 1,745
------ ------
Deferred tax liabilities:
Differences in capitalized software development cost methods. 717 905
Differences in revenue recognition methods................... 9 9
Differences in depreciation and amortization................. 92 140
------ ------
Total deferred tax liabilities............................ 818 1,054
------ ------
Net deferred tax assets................................... $ 652 $ 691
====== ======
</TABLE>
During 1994, the Company reduced its valuation allowance from $461,000 to
zero, resulting in a deferred tax benefit. In assessing the realizability of
deferred tax assets, management considers whether it is more likely than not
that some portion or all of the deferred tax assets will not be realized. The
ultimate realization of deferred tax assets is dependent upon the generation
of future taxable income during the periods in which those temporary
differences become deductible. Management considers the scheduled reversal of
deferred tax liabilities, projected future taxable income, and tax planning
strategies in making this assessment. TALX Corporation (TALX) and its
subsidiaries carry separate tax histories and, as a result, certain net
operating loss carryforwards are available to offset future taxable income of
TALX. In order to fully realize the deferred tax assets, TALX will need to
generate future taxable income of approximately $3,700,000 prior to the
expiration of the net operating loss carryforwards in 2011. Taxable income
(loss) of TALX for the years ended March 31, 1994, 1995, and 1996 was
$1,034,000, $(1,914,000), and $(1,076,000), respectively. Based upon the level
of historical taxable income and projections for future taxable income over
the periods which the deferred tax assets are deductible, management believes
it is more likely than not the Company will realize the benefits of these
deductible differences at March 31, 1996.
At March 31, 1996, the Company has net operating loss carryforwards for
federal income tax purposes of $3,470,000, which are available to offset
future federal taxable income, if any, through 2011. In addition, the Company
has alternative minimum tax credit carryforwards of approximately $18,000,
which are available to reduce future federal regular income taxes, if any,
over an indefinite period.
(10) STOCKHOLDERS' EQUITY
All series of convertible preferred stock are convertible into shares of
common stock as follows:
-At the option of the stockholder, at any time after the date of issuance of
the shares, the stockholder may convert each such share into one fully paid
and nonaccessible share of common stock, adjusted for any stock splits (see
Note 15), stock dividends, or similar adjustments in the Company's capital
stock.
F-14
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
-Each share of preferred stock shall automatically be converted into one
share of common stock in the event the Company completes a firm commitment
underwritten public offering covering the offer and sale of common stock
with proceeds to the Company of not less than $5,000,000. Each share of
preferred stock shall also automatically be converted into one share of
common stock upon the approval of 66 2/3% of all outstanding shares of
preferred stock.
All series of convertible preferred stock have the same voting rights as their
convertible equivalent common stock units. The priority ranking of the classes
of stock from highest to lowest seniority is Series C preferred, Series B
preferred, Series A preferred, and common. No dividends were declared in 1994,
1995, or 1996.
TALX has adopted two incentive stock option plans for employees which provide
for the issuance of a maximum of 384,857 shares of common stock. Options are
granted by the Board of Directors at prices not less than fair market value as
of the date of the grant. Certain options are 100% vested upon grant. The
remaining options vest 20% per year and expire six years after the date of the
grant. Total shares exercisable at March 31, 1996 were 125,543. Activity under
the plan for the three years ended March 31, 1996 is as follows:
<TABLE>
<CAPTION>
SHARES PRICE
------- ---------
<S> <C> <C>
Outstanding at March 31, 1993......................... 35,571 $.88-4.38
Granted--1994......................................... 83,429 4.38
-------
Outstanding at March 31, 1994......................... 119,000 .88-4.38
Granted--1995......................................... 210,429 3.85
Cancelled--1995....................................... (6,715) .88-4.38
-------
Outstanding at March 31, 1995......................... 322,714 .88-4.38
Cancelled--1996....................................... (22,714) .88-4.38
Exercised--1996....................................... (1,714) 4.38
-------
Outstanding at March 31, 1996......................... 298,286 .88-4.38
Granted............................................... 88,171 7.00
Cancelled--1996....................................... (1,714) 3.85
-------
Outstanding at June 30, 1996.......................... 384,743 $.88-7.00
======= =========
</TABLE>
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash and cash equivalents, trade
receivables, income tax refund receivable, accounts payable and accrued
expenses approximate fair value because of the short-term maturity of these
instruments.
The carrying amounts of notes payable to bank, long-term debt, and capital
lease obligations approximate fair value because the interest rates vary with
or approximate market rates.
(12) EMPLOYEE BENEFIT PLANS
The Company sponsors profit-sharing/401(k) plans. The plans cover
substantially all of the Company's employees. The Company makes contributions
to the plans, subject to ERISA limitations, up to 2% of employees' earnings.
Total expense under the plans for the years ended March 31, 1994, 1995, and
1996 was $69,710, $81,558, and $90,960, respectively.
F-15
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(13) COMMITMENTS AND CONTINGENCIES
The Company is involved in certain litigation matters arising in the normal
course of business. In the opinion of Company management, these matters will
not have a material adverse effect on the accompanying consolidated financial
statements.
(14) SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION
Cash paid during the year for interest totaled $197,795, $319,868, and
$503,109 for the years ended March 31, 1994, 1995, and 1996, respectively.
Cash paid during the year for income taxes totaled $395,479, $53,050, and $279
for the years ended March 31, 1994, 1995, and 1996, respectively.
Additions to assets recorded under capital leases for the years ended March
31, 1994, 1995, and 1996 were $461,035, $568,367, and $51,000, respectively.
(15) EVENT SUBSEQUENT TO INDEPENDENT AUDITORS' REPORT
Subsequent to year-end, the Company entered into a loan agreement to secure
additional debt of $4,000,000, $3,350,000 of which was funded as of June 30,
1996 and $650,000 of which was funded August 15, 1996. The loan, which is due
and payable on July 1, 2001, bears interest at 13.25% and required the
granting of a security interest in the Company's tangible and intangible
assets. In connection with this loan, the Company has issued warrants as of
June 30, 1996 for 115,694 shares of common stock, exercisable at $.01 per
share, for which approximately $736,000 of value was ascribed. In addition,
the Company has issued warrants for an additional 22,448 shares of common
stock, exercisable at $.01 per share, as of August 15, 1996 for which $143,000
of value was ascribed. In connection with this transaction, the $1,500,000
line of credit with a bank (see Note 7) was terminated.
Also subsequent to year-end, the Company's Board of Directors authorized and
amended the Company's articles of incorporation to effect a 1-for-3.5 reverse
stock split for each share of common stock and adjusted all outstanding common
stock option and warrants accordingly. The Board of Directors has also
authorized and amended the Company's articles of incorporation to effect a
reduction in all series of preferred stock and common stock par value to $.01.
All share data presented within the March 31, 1996 consolidated financial
statements have been revised to effect for the reverse stock split and changes
in par value.
Also subsequent to year-end, the Company amended its articles of incorporation
to provide that the aggregate number of shares of common stock the Company
shall have the authority to issue shall be 30,000,000 shares of Common Stock,
par value $.01 per share, and 13,700,000 shares of preferred stock, par value
$.01 per share, 8,700,000 shares of which represent the previously designated
Series A, B and C convertible preferred stock.
F-16
<PAGE>
[Description of Art Work Contained in the Registration Statement]
Inside Back Cover
- -----------------
This page has illustrations of the development environment and run time
environment of TALXWare. In the left and right hand margins are lists of Easy
Script Features, Database Connectivity, Telephone Interfaces, Operating Systems
and Platforms.
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY IN-
FORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS OFFERING
OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH IN-
FORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED
BY THE COMPANY, OR ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTI-
TUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY SECURITIES
OTHER THAN THE SECURITIES TO WHICH IT RELATES OR AN OFFER TO SELL OR THE SO-
LICITATION OF AN OFFER TO BUY SUCH SECURITIES IN ANY JURISDICTION WHERE, OR TO
ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AF-
FAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION HEREIN IS
CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 7
Use of Proceeds........................................................... 16
Dividend Policy........................................................... 16
Capitalization............................................................ 17
Dilution.................................................................. 18
Selected Consolidated Financial Data...................................... 19
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 21
Business.................................................................. 31
Management................................................................ 46
Certain Relationships and Related Transactions............................ 51
Principal Shareholders.................................................... 53
Shares Eligible for Future Sale........................................... 54
Description of Capital Stock.............................................. 56
Certain Charter and Bylaw Provisions...................................... 58
Certain United States Federal Income Tax Considerations for Non-U.S.
Holders.................................................................. 59
Underwriting.............................................................. 61
Legal Matters............................................................. 62
Experts................................................................... 63
Additional Information.................................................... 63
Index to Consolidated Financial Statements................................ F-1
</TABLE>
--------------
UNTIL , 1996 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS) ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK, WHETHER OR NOT PARTICIPATING IN
THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDI-
TION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UN-
DERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
2,000,000 SHARES
LOGO
COMMON STOCK
-------------
PROSPECTUS
-------------
FIRST ALBANY CORPORATION
PRINCIPAL FINANCIAL SECURITIES, INC.
----------------
, 1996
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the estimated expenses (other than underwriting
discounts and commissions), all of which are payable by the Company, in
connection with the issuance and distribution of the securities offered
hereby.
<TABLE>
<S> <C>
SEC Registration Fee.............................................. $ 8,726
NASD Filing Fee................................................... 3,030
Nasdaq National Market Listing Fee................................ *
Printing and Engraving Expenses................................... *
Blue Sky Fees and Expenses........................................ 20,000
Registrar and Transfer Agent Fees................................. *
Legal Fees and Expenses........................................... *
Accounting Fees and Expenses...................................... *
D&O Insurance..................................................... *
Miscellaneous .................................................... *
-------
Total......................................................... $ *
=======
</TABLE>
- --------
*To be provided by Amendment
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 351.355(1) of the Revised Statutes of Missouri provides that a
corporation may indemnify a director, officer, employee or agent of the
corporation in any action, suit or proceeding other than an action by or in
the right of the corporation, against expenses (including attorney's fees),
judgments, fines and settlement amounts actually and reasonably incurred by
him in connection with such action, suit or proceeding if he acted in good
faith and in a manner he reasonably believed to be in or not opposed to the
best interests of the corporation and, with respect to any criminal action,
had no reasonable cause to believe his conduct was unlawful. Section
351.355(2) provides that the corporation may indemnify any such person in any
action or suit by or in the right of the corporation against expenses
(including attorneys' fees) and settlement amounts actually and reasonably
incurred by him in connection with the defense or settlement of the action or
suit if he acted in good faith and in a manner he reasonably believed to be in
or not opposed to the best interests of the corporation, except that he may
not be indemnified in respect of any matter in which he has been adjudged
liable for negligence or misconduct in the performance of his duty to the
corporation, unless authorized by the court. Section 351.355(3) provides that
a corporation shall indemnify any such person against expenses (including
attorney's fees) actually and reasonably incurred by him in connection with
the action, suit or proceeding if he has been successful in defense of such
action, suit or proceeding and if such action, suit or proceeding is one for
which the corporation may indemnify him under Section 351.355(1) or (2).
Section 351.355(7) provides that a corporation shall have the power to give
any further indemnity to any such person, in addition to the indemnity
otherwise authorized under Section 351.355, provided such further indemnity is
either (i) authorized, directed or provided for in the articles of
incorporation of the corporation or any duly adopted amendment thereof or (ii)
is authorized, directed or provided for in any by-law or agreement of the
corporation which has been adopted by a vote of the shareholders of the
corporation, provided that no such indemnity shall indemnify any person from
or on account of such person's conduct which was finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct.
The Restated Articles of Incorporation of the Company filed as Exhibit 3.1 to
this Registration Statement contain provisions indemnifying its directors and
officers to the extent authorized specifically by Sections 351.355(1), (2),
(3) and (7).
II-1
<PAGE>
The form of Underwriting Agreement filed as Exhibit 1.1 to this Registration
Statement provides for the mutual indemnification of the Company and any
Underwriters, their respective controlling persons, directors and certain of
their officers, against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
In December 1993, holders of preferred stock purchase warrants paid $698,980
in the aggregate upon exercise of such warrants, receiving 559,184 shares of
Series C Convertible Preferred Stock, and a holder of preferred stock purchase
warrants paid $450 upon exercise of such warrants, receiving 237 shares of
Series A Convertible Preferred Stock. In connection with this transaction, the
Company relied on the exemption from registration contained in Section 4(2) of
the Securities Act and Rule 506 of Regulation D promulgated thereunder.
In December 1993, holders of 2,929,827 shares of Series A and Series C
Convertible Preferred Stock exercised their conversion privileges in exchange
for an equal number of shares of Common Stock (837,093 shares as adjusted for
the Reverse Stock Split). In connection with this transaction, the Company
relied on the exemptions from registration contained in Sections 3(a)(9) and
4(2) of the Securities Act and Rule 506 of Regulation D promulgated
thereunder.
In March 1994, the Company issued 1,493,039 shares of Common Stock to
shareholders of EKI Incorporated pursuant to an Agreement and Plan of Merger
dated as of March 14, 1994 by and among the Company, Acquisition Sub, Inc.,
and EKI. In connection with this transaction, the Company relied on the
exemptions from registration contained in Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder.
In June through August 1996, the Company issued to an institutional investor
and certain directors or their affiliates a $4 million Subordinated Note and
warrants to purchase 138,142 shares of Common Stock at an exercise price of
$.01 per share. In connection with this transaction, the Company relied on the
exemptions from registration contained in Section 4(2) of the Securities Act
and Rule 506 of Regulation D promulgated thereunder.
In July 1996, the Company issued 981,794 shares of Common Stock, 52,117 shares
of Series A Convertible Preferred Stock, 7,168 shares of Series B Convertible
Preferred Stock and 59,778 shares of Series C Convertible Preferred Stock to
shareholders of Intech Group pursuant to an Agreement and Plan of Merger dated
as of July 15, 1996 by and between the Company and Intech Group. In connection
with this transaction, the Company relied on the exemptions from registration
contained in Section 4(2) of the Securities Act and Rule 506 of Regulation D
promulgated thereunder.
In August 1996, the Company issued a warrant to purchase 25,000 shares at
$7.00 per share which expire August 6, 2002 to an individual in consideration
for the settlement of certain alleged contract rights. The issuance of the
foregoing securities was not registered under the Securities Act in reliance
on the exemption for nonpublic offerings provided by Section 4(2) of the
Securities Act and Rule 506 of Regulation D thereunder.
From April 1, 1993 to August 28, 1996, the Company awarded employee stock
purchase options exercisable for 371,462 shares of Common Stock to employees
of the Company, of which options for 9,223 shares have been exercised. In
connection with these transactions, the Company relied on exemptions from
registration contained in Section 4(2) and Rule 701 of the Securities Act.
In August 1996, the Company issued 2,285 shares to a former employee of the
Company pursuant to stock purchase options previously awarded to such
individuals. In connection with these transactions, the Company relied on
exemptions from registration contained in Section 4(2) and Regulation D and
Rule 701 of the Securities Act.
The numbers of shares of Common Stock described above have been adjusted to
reflect one for three and one-half reverse stock split effected as of August
2, 1996.
II-2
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
The exhibits and financial statements schedules filed as part of this
Registration Statement are as follows:
(a)Exhibits.
See Index to Exhibits.
(b)Financial Statement Schedules.
None.
ITEM 17. UNDERTAKINGS
(a) The undersigned registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement,
certificates in such denominations and registered in such names as required by
the Underwriters to permit prompt delivery to each purchaser.
(b) Insofar as indemnification for liabilities under the Securities Act of
1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions of Item 14, or otherwise, the registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim for
indemnification against such liabilities (other than the payment by the
registrant of expenses incurred or paid by a director, officer or controlling
person of the registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling person in
connection with the securities being registered, the registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in
the Act and will be governed by the final adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance on Rule 430A and contained in the
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant has
duly caused this Amendment No. 1 to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized, in the City of
Maryland Heights, State of Missouri, on September 6, 1996.
TALX CORPORATION
/s/ William W. Canfield
By: _________________________________
William W. Canfield, Chairman,
President,
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, this Amendment No.
1 to the Registration Statement has been signed by the following persons in
the capacities indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ William W. Canfield Chairman, President, Chief September 6, 1996
____________________________________ Executive Officer and
William W. Canfield Director (Principal
Executive Officer)
* Director September 6, 1996
____________________________________
Richard F. Ford
* Director September 6, 1996
____________________________________
Craig E. LaBarge
* Director September 6, 1996
____________________________________
Eugene M. Toombs
* Director September 6, 1996
____________________________________
M. Steve Yoakum
* Chief Financial Officer September 6, 1996
____________________________________ (Principal Financial
Craig N. Cohen Officer and Principal
Accounting Officer)
</TABLE>
*By: /s/ William W.
Canfield
---------------------------
William W. Canfield,
Attorney-In-Fact
II-4
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
1.1+ Form of Underwriting Agreement between TALX Corporation (the
"Company") and First Albany Corporation and Principal
Financial Securities, Inc., as Representatives of the Several
Underwriters
1.2+ Form of Warrant Agreement with the Representatives
2.1* Agreement and Plan of Merger, dated as of July 15, 1996, by
and between the Company and Intech Group Inc.
3.1* Restated Articles of Incorporation of the Company
3.2* Form of Amendment to Restated Articles of Incorporation of the
Company (to be filed subsequent to completion of this offer-
ing)
3.3* Bylaws of the Company
4.1* See Exhibits 3.1 and 3.2
4.2* See Exhibit 3.3
5.1+ Opinion of Bryan Cave LLP
10.1* TALX Corporation 1988 Incentive Stock Option Plan
10.2* Form of Incentive Stock Option Agreement
10.3* TALX Corporation Amended and Restated 1994 Stock Option Plan
10.4* Form of Non-Qualified Stock Option Agreement
10.5* TALX Corporation 1996 Employee Stock Purchase Plan
10.6* TALX Corporation Outside Directors' Stock Option Plan
10.7 Loan and Security Agreement, dated June 28, 1996, by and among
TALX Corporation, TALX Information Services Corporation and
TALX Document Services Corporation, as borrowers, and Petra
Capital, LLC, as lender
10.8* Form of 13.25% $4.0 million Subordinated Promissory Note,
dated June 28, 1996
10.9 Form of Stock Purchase Warrant issued to Petra Capital, LLC
and other participants
10.10* Lease dated March 28, 1996 by and between the Company and Ste-
phen C. Murphy, Thomas W. Holley, Arthur S. Margulis and
Samuel B. Murphy, Trustee of the Samuel B. Murphy Revocable
Living Trust UTA 1/9/91, dba "Adie Road Partnership"
10.11 Lease dated August 23, 1993 by and between the Prudential In-
surance Company of America, a New Jersey corporation and EKI
Incorporated
10.12* Registration Rights Agreement dated March 15, 1994 among the
Company, Intech Group Inc. and Intech Partners, L.P.
10.13 Amended and Restated Preferred Stock Purchase Agreement dated
December 23, 1988 among the Company, Mitek Industries, Inc.,
Intech Group Inc., Gateway Venture, Zinsmeyer Trusts Partner-
ship, and Missouri Venture Partners, L.P.
10.14 Securities Purchase Agreement dated November 28, 1990 among
the Company, Mitek Industries, Inc., Intech Group Inc.,
Gateway Venture Partners II, L.P., and Zinsmeyer Trusts
Partnership
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
------- -----------
<C> <S> <C>
10.15* Amendment and Waiver Agreement dated as of July 28, 1996 be-
tween the Company, Intech Group, Inc., Intech Partners, L.P.,
MiTek Industries, Inc., Gateway Venture Partners II, L.P.,
Zinsmeyer Trusts Partnership and the Missouri State Employee's
Retirement System.
10.16+ Form of Employment Agreement between TALX Corporation and each
of Messrs. Canfield, Tubbesing, Smith and Cohen
10.17* Variable Rate Note in the principal amount of $1,500,000 dated
August 2, 1994 between the Company and Southwest Bank of St.
Louis due August 1, 1997
10.18* Line of Credit Note in the principal amount of $4,000,000
dated May 1, 1996 between the Company and Southwest Bank of
St. Louis due December 31, 1996
10.19* Debenture Purchase Agreement dated May 11, 1990 among the
Company, Intech Group, Inc., MiTek Industries, Inc., Gateway
Venture Partners II, L.P., Zinsmeyer Trusts Partnership, H.
Richard and Gloria Grodsky, W. Gary and Debra Lowe, Michael
and Della Smith and John E. and Janet B. Tubbesing
10.20 Form of First Amendment to the Stock Purchase Warrant issued
to Petra Capital, LLC and other participants
11.1* Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
23.1+ Consent of Bryan Cave LLP (included in Exhibit 5.1)
23.2 Consent of KPMG Peat Marwick LLP
24.1* Power of Attorney (included on signature page hereof)
27.1* Financial Data Schedule
27.2 Financial Data Schedule
</TABLE>
- --------
*Previously filed
+To be filed by amendment
II-6
<PAGE>
EXHIBIT 10.7
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT (the "Agreement"), dated as of the 28th
day of June, 1996, is made and entered into on the terms and conditions
hereinafter set forth, by and between TALX CORPORATION, a Missouri corporation
("TALX"), TALX INFORMATION SERVICES CORPORATION, a Missouri corporation
("TISC"), TALX DOCUMENT SERVICES CORPORATION, a Missouri corporation ("TDSC")
and PETRA CAPITAL, LLC, a Georgia limited liability company ("Lender"). (TDSC
and TISC are sometimes referred to herein individually as a "Subsidiary" and
collectively as the "Subsidiaries"; TALX, TDSC and TISC are sometimes referred
to herein individually as a "Borrower" and collectively as the "Borrowers").
RECITALS:
Borrowers have requested that Lender make available to Borrowers a loan in
the amount of up to Four Million and No/100 Dollars ($4,000,000.00), subject to
reduction as set forth herein, upon the terms and conditions hereinafter set
forth, and for the purposes hereinafter set forth (the "Loan").
NOW, THEREFORE, in consideration of the agreement of Lender to make the
Loan, the mutual covenants and agreements hereinafter set forth, and other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, Borrowers and Lender hereby agree as follows:
ARTICLE 1 - THE LOAN
1.1 Evidence of Loan Indebtedness and Repayment. The Loan shall be
evidenced by a Secured Promissory Note substantially in the form attached hereto
as Exhibit A (the "Note"), executed by Borrowers in favor of Lender. The Loan
shall be in the original principal amount indicated in the Note, shall be
payable in accordance with the terms of the Note, and shall be prepayable at any
time without penalty or premium.
1.2 Participation. Lender will sell a participation in the Loan to each of
Eugene M. Toombs ("Toombs") and The William W. Canfield Revocable Trust
("Canfield" and, together with Toombs, the "Participants"), pursuant to the
Participation Agreement in the form attached hereto as Exhibit B (the
"Participation Agreement"). Gateway Partners, L.P. ("Gateway") intends to
purchase a participation in the Loan also by assuming obligations under the
Participation Agreement on or prior to August 15, 1996.
1.3 Advances. Subject to the terms and conditions of this Agreement, the
Loan shall be funded in two advances. On the first business day following the
full execution of this Agreement, Lender shall fund $3,000,000 (net of the
remainder of the Origination Fee (as defined in Section 1.4) and net of fees and
expenses of Lender, including, without limitation, the fees and expenses of
counsel to Lender), Toombs shall fund $100,000 and Canfield shall fund $250,000,
each directly to TALX, for the benefit of all Borrowers. On or prior to August
15, 1996, Gateway shall fund $650,000 directly to TALX, for the benefit of all
Borrowers. Borrowers hereby agree that if Gateway does not fund such amount for
any reason whatever, neither Lender nor any other Participant shall have any
obligation to fund any portion of Gateway's participation, and, notwithstanding
anything to the contrary in this Agreement, the Note or any other documents
executed in connection with the Loan, the amount of the Loan shall be reduced by
the portion of Gateway's participation that is not funded.
1.4 Origination Fee. In connection with the making of the Loan, Borrowers
shall pay to Lender an origination fee in the amount of $60,000.00 (the
"Origination Fee"). Lender hereby acknowledges that Borrowers have prepaid
$30,000.00 of the Origination Fee.
1.5 Stock Purchase Warrants.
(a) Initial Warrants. In consideration for Lender's entering into this
Agreement and for the Lender and the Participants making (and Gateway when it
participates), or purchasing an interest in, the Loan contemplated herein, TALX
shall deliver Stock Purchase Warrants substantially in the forms attached hereto
as Exhibits C-1, C-2, C-3 and (when Gateway participates) C-4 (collectively, the
"Warrants"), executed by TALX in favor of Lender or the applicable Participant,
pursuant to which the holders thereof shall be granted the right to purchase, in
the aggregate, 3.50% (or proportionately less if Gateway does not participate)
of the outstanding capital stock of TALX (calculated on a fully diluted basis,
before issuance of the Warrants).
(b) Additional Warrants. In the event that any indebtedness evidenced by
the Note or any other Secured Obligations (as defined in Section 2.2) are
outstanding on any of the following dates, TALX shall issue to Lender and to the
Participants (and Gateway when it participates), in each case in proportion to
their respective interests in the Loan, additional warrants (the "Additional
Warrants") to purchase additional shares of common stock of the TALX on the
terms and conditions set forth below:
(i) If on December 28, 1996, any indebtedness evidenced by the Note or
<PAGE>
any other Secured Obligations are outstanding, TALX shall issue on such date,
for no additional consideration, Additional Warrants to purchase, in the
aggregate, an additional 2.5% (or proportionately less if Gateway does not
participate) of the outstanding capital stock of TALX.
(ii) If on December 28, 1997, any indebtedness evidenced by the Note
or any other Secured Obligations are outstanding, TALX shall issue on such date,
for no additional consideration, Additional Warrants to purchase, in the
aggregate, an additional 2.0% (or proportionately less if Gateway does not
participate) of the outstanding capital stock of TALX.
(iii) If on June 28, 1998, any indebtedness evidenced by the Note or
any other Secured Obligations are outstanding, TALX shall issue on such date,
for no additional consideration, Additional Warrants to purchase, in the
aggregate, an additional 1.0% (or proportionately less if Gateway does not
participate) of the outstanding capital stock of TALX.
(iv) If on June 28, 1999, any indebtedness evidenced by the Note or
any other Secured Obligations are outstanding, TALX shall issue on such date,
for no additional consideration, Additional Warrants to purchase, in the
aggregate, an additional 1.0% (or proportionately less if Gateway does not
participate) of the outstanding capital stock of TALX.
(v) If on June 28, 2000, any indebtedness evidenced by the Note or any
other Secured Obligations are outstanding, TALX shall issue on such date, for no
additional consideration, Additional Warrants to purchase, in the aggregate, an
additional 1.0% (or proportionately less if Gateway does not participate) of the
outstanding capital stock of TALX.
The number of shares to which such Additional Warrants apply shall be calculated
on a fully diluted basis before issuance of the Warrants. If TALX shall be
required pursuant to the terms hereof to issue any Additional Warrants, TALX
shall issue a warrant certificate to Lender and the Participants covering the
number of shares of common stock of TALX in respect of which such Additional
Warrant is exercisable, and such warrant certificate in all other respects
(including the exercise price thereof) shall be identical to the Warrants.
Borrowers shall pay when due any and all state and federal stamp, documentary,
or other securities issuance taxes, if any, which are imposed in respect of the
issuance of Additional Warrants or the issuance of any shares of common stock of
TALX upon exercise of Additional Warrants; provided, however, such obligation
shall not include any taxes imposed on the income of the Lender or arising from
the ownership or transfer of any Additional Warrants or shares of common stock
issuable upon exercise of any Additional Warrant.
(c) Adjustment in Number of Shares Issuable and Exercise Price. The number
of shares of common stock (or other securities or property) issuable upon
exercise of the Additional Warrants set forth above and the exercise price per
share set forth in the Additional Warrants shall be subject to adjustment on the
same terms as any such adjustments required to be made under the terms of the
Warrants, notwithstanding that such Additional Warrants are not issued and
outstanding at the time of the occurrence giving rise to any such adjustments
required to be made pursuant to the terms of the Warrants.
(d) McFarland Warrants. The Stock Purchase Warrant issued to McFarland,
Grossman & Company, Inc. on the date hereof (the "McFarland Warrant") shall not
give rise to any anti- dilutive adjustments in the Warrants or the Additional
Warrants. Neither the McFarland Warrant nor the letter agreement dated January
31, 1996, between TALX and McFarland, Grossman & Company, Inc. ("MGC Agreement")
shall not be deemed to breach any representation, warranty or covenant
hereunder.
1.6 Subordination. The obligations evidenced by the Note shall be
subordinate to obligations owed to Southwest Bank of St. Louis (the "Senior
Lender"), as provided in the Intercreditor Agreement in the form attached hereto
as Exhibit D (the "Intercreditor Agreement").
1.7 Certain Representations. Lender represents and warrants that (i) it is
an "accredited investor", as defined in Rule 501 under the Securities Act of
1933, (ii), without limiting or affecting the full extent of Borrowers'
liability under any of the Note or any of the Loan Documents, it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the risks inherent in making the Loan, and (iii) during the course of
the transaction prior to the making of the Loan, it has had access to
information about the Borrowers, their business and financial condition, and it
has had the opportunity to ask questions of and receive answers from the
Borrowers concerning the terms and conditions of the making of the Loan and to
obtain additional information (to the extent the Borrowers possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it, (iv) the
Note has been acquired for the purposes of holding it for an indefinite period
of time and not with the intent of participating directly or indirectly in a
distribution of the Note or any portion thereof, and (v) the Lender's principal
place of business is located in Tennessee.
ARTICLE 2 - SECURITY
2.1 Security. As security for the Secured Obligations (as defined in
Section 2.2), each Borrower hereby grants to Lender a security interest in the
<PAGE>
following described property, and any and all proceeds and products thereof
(collectively, the "Collateral"):
(a) Equipment. All machinery and equipment, all data processing and office
equipment, all computer equipment, hardware, firmware and software, all
furniture, fixtures, appliances and all other goods of every type and
description, whether now owned or hereafter acquired and wherever located,
together with all parts, accessories and attachments and all replacements
thereof and additions thereto; and
(b) Inventory. All inventory and goods, whether held for lease, sale or
furnishing under contracts of service, all agreements for lease of same and
rentals therefrom, whether now in existence or owned or hereafter acquired and
wherever located; and
(c) General Intangibles. All rights, interests, causes in action, causes of
action, claims and all other intangible property of every kind and nature, in
each instance whether now owned or hereafter acquired but not limited to, all
corporate and business records; all loans, royalties, and other obligations
receivable; all trade secrets, inventions, designs, patents, patent
applications, registered or unregistered service marks, trade names, trademarks,
copyrights and the goodwill associated therewith and incorporated therein, and
all registrations and applications for registration related thereto; all
goodwill, licenses, permits, franchises, customer lists and credit files; all
customer and supplier contracts, firm sale orders, rights under license and
franchise agreements, and other contracts and contract rights; all right, title
and interest under leases, subleases, licenses and concessions and other
agreements relating to real or personal property and any security agreements
relating thereto; all rights to indemnification; all proceeds of insurance of
which such Borrower is beneficiary; all letters of credit, guarantees, liens,
security interests and other security held by or granted to such Borrower; and
all other intangible property, whether or not similar to the foregoing; and
(d) Accounts, Chattel Paper, Instruments and Documents. All accounts,
accounts receivable, chattel paper, instruments and documents, whether now in
existence or owned or hereafter acquired, entered into, created or arising, and
wherever located; and
(e) Other Property. All other personal property or interests in property
now owned or hereafter acquired.
2.2 Secured Obligations. Without limiting any of the provisions thereof,
the Security Instruments (as defined in Section 2.3) shall secure the following
indebtedness and other obligations (the "Secured Obligations"):
(a) the full and timely payment of the indebtedness evidenced by the Note,
together with interest thereon, and any extensions, modifications,
consolidations or renewals thereof, and any notes given in payment thereof;
(b) the full and prompt performance of all of the obligations of Borrowers
to Lender under the Loan Documents (as defined in Section 2.3) to which a
Borrower is a party;
(c) the full and prompt payment of all court costs and other costs and
expenses of whatever kind incident to the collection of the indebtedness
evidenced by the Note, the enforcement or protection of the security interests
of the Security Instruments or the exercise of any rights or remedies of Lender
with respect to the indebtedness evidenced by the Note, including without
limitation reasonable attorney and paralegal fees and costs incurred by Lender,
all of which Borrowers agree to pay to Lender upon demand; and
(d) the full and prompt payment and performance of any and all other
indebtedness and other obligations of any Borrower to Lender (other than
obligations arising under the Warrants), direct or contingent, however evidenced
or denominated, and however and whenever incurred, including but not limited to
indebtedness incurred pursuant to any present or future commitment of Lender to
any Borrower, together with interest thereon, and any extensions, modifications,
consolidations and/or renewals thereof and any notes given in payment thereof.
2.3 Security Instruments. The Secured Obligations shall be further secured
by the Trademark and Patent Security Agreement in substantially the form
attached hereto as Exhibit E (the "Trademark and Patent Security Agreement").
This Agreement, the Trademark and Patent Security Agreement and any other
instruments, documents or agreements now or hereafter securing the Secured
Obligations are herein collectively referred to as the "Security Instruments".
The Security Instruments, together with the Note and any other instruments and
documents now or hereafter evidencing, securing or in any way related to the
indebtedness evidenced by the Note are herein individually referred to as a
"Loan Document" and collectively referred to as the "Loan Documents".
ARTICLE 3 - REPRESENTATIONS AND WARRANTIES OF BORROWERS
Borrowers hereby, jointly and severally, represent and warrant to Lender as
follows:
3.1 Corporate Status.
(a) Each Borrower is a corporation duly organized, validly existing and in
<PAGE>
good standing under the laws of the State of Missouri, and has the corporate
power to own and operate its properties, to carry on its business as now
conducted and to enter into and to perform its obligations under this Agreement
and the other Loan Documents to which it is a party. Each Borrower is duly
qualified to do business and is in good standing in each state or other
jurisdiction in which a failure to be so qualified could give rise to a Material
Adverse Event, as hereinafter defined. The states or other jurisdictions in
which each Borrower is qualified to do business are set forth on Schedule
3.1(a). For purposes of this Agreement, "Material Adverse Event" means any event
or circumstance, or set of events or circumstances, individually or
collectively, that reasonably could be expected to result in any (i) adverse
effect upon the validity or enforceability of any Loan Document, or (ii)
material and adverse effect on the condition (financial or otherwise), business,
operations, properties or prospects of any Borrower, or (iii) Event of Default
hereunder.
(b) No Borrower owns, directly or indirectly, any capital stock or other
equity interest of any corporation, partnership, joint venture, limited
liability company or other business organization, except that TALX owns all of
the outstanding capital stock of TISC and TISC owns all of the outstanding
capital stock of TDSC.
(c) The following information is set forth on Schedule 3.1(c) for each
Borrower: the number of shares of authorized capital stock, the par value of
such stock, the number of shares of such stock that are outstanding and the
identity of the holders of the shares of such stock (such shares are referred to
herein as the "Shares"). Except as set forth on Schedule 3.1(c), there are no
shares of capital stock or other securities of any Borrower issued or
outstanding. There are sufficient shares of the common stock of TALX reserved
for issuance upon exercise of the Warrants.
(d) Except as disclosed on Schedule 3.1(d), there are no outstanding
options, warrants or rights to purchase or acquire from any Borrower any
securities of such Borrower, and there are no contracts, commitments,
agreements, understandings, arrangements or restrictions relating to any shares
of capital stock or other securities of any Borrower, whether or not
outstanding, to which any Borrower is a party or by which it is bound or, to the
best knowledge of any Borrower, to which any of its shareholders is a party or
by which any such shareholder is bound. All of the outstanding Shares of capital
stock of each Borrower are validly issued, fully paid and non-assessable and
were not issued in violation of any preemptive rights, rights of first refusal,
anti-dilution rights or any similar rights held by any party. No Borrower has
violated any federal or state securities laws in connection with the issuance of
any securities.
(e) The issuance of the Warrants has been duly authorized and, upon
delivery to Lender or the Participants, as applicable, will be validly issued,
fully paid and nonassessable, free and clear of all liens and other
encumbrances. There are no statutory or contractual preemptive rights, rights of
first refusal, anti-dilution rights or any similar rights held by any party with
respect to the issuance of the Warrants or the issuance of common stock upon
exercise of the Warrants, except where such rights have been waived. Except as
set forth on Schedule 3.1(e), there are no anti-dilution rights held by any
Shareholder of any Borrower. The issuance of shares of common stock upon
exercise of the Warrants has been duly authorized and, when issued upon exercise
of the Warrants in accordance with the terms thereof, such shares of common
stock will be validly issued, fully paid and nonassessable. Assuming the
accuracy of the representations by each recipient of the Warrants in Section
4(a) thereof, the offer, sale and issuance of the Warrants do not require
registration under the Securities Act of 1933, as amended, or any applicable
state securities laws, except to the extent that the sale and issuance of any
particular Warrant requires registration because the representations made by the
initial holder of such Warranty in such Warrant are untrue, inaccurate or
incomplete.
3.2 Authorization. Each Borrower has full legal right, power and authority
to enter into and perform its obligations under the Loan Documents, without the
consent or approval of any other person, firm, governmental agency or other
legal entity, other than consents listed on Schedule 3.2, which consents have
previously been obtained. Each Borrower has all necessary right, power and
authority to grant to Lender a valid and enforceable security interest in the
Collateral. The execution and delivery of this Agreement, the borrowing
hereunder, the execution and delivery of each Loan Document to which any
Borrower is a party, and the performance by each Borrower of any of its
respective obligations hereunder and thereunder are within the corporate powers
of such Borrower and have been duly authorized by all necessary corporate action
properly taken. The officer(s) executing this Agreement, the Note and all of the
other Loan Documents to which any Borrower is a party, are duly authorized to
act on behalf of such Borrower.
3.3 Validity and Binding Effect. This Agreement and the other Loan
Documents are the legal, valid and binding obligations of each Borrower,
enforceable against each Borrower in accordance with their respective terms,
subject to limitations imposed by bankruptcy, insolvency, moratorium, or similar
laws or provisions affecting the rights of creditors generally.
3.4 Priority of Liens; Title to Property. Except as disclosed on Schedule
3.4 or as may be permitted pursuant to Section 4.1 hereof, there are no
outstanding loans, liens, pledges, security interests, agreements or other
<PAGE>
financings which provide any third person with a lien against any of the
collateral securing the Secured Obligations, whether such collateral is pledged
pursuant to this Agreement or any other Security Instruments. Each Borrower has
good and marketable title to, or valid leasehold interests in, all of its real
and personal property, free and clear of any and all claims, liens,
encumbrances, equities and restrictions of every kind and nature whatsoever,
except as disclosed on Schedule 3.4 and except for such claims, liens,
encumbrances, equities and restrictions which would not, in the aggregate, cause
a Material Adverse Event.
3.5 Location of Collateral. The records with respect to all intangible
personal property comprising the Collateral are maintained at the executive
offices of each Borrower at the address set forth on Schedule 3.5(i). All of the
Collateral comprised of tangible personal property is located at one of the
addresses set forth on Schedule 3.5(ii).
3.6 Litigation. Except as set forth on Schedule 3.6, there are no actions,
suits or proceedings pending, or, to the knowledge of any Borrower, threatened,
against or affecting any Borrower, at law or in equity, or before any
governmental or administrative agency, except actions, suits and proceedings
that are fully covered by insurance and that, if adversely determined, would not
impair materially the ability of any Borrower to perform each and every one of
its obligations under and by virtue of the Loan Documents; and to any Borrower's
knowledge, no Borrower is in default with respect to any order, writ,
injunction, decree or demand of any court or any governmental authority. There
are no actions, suits or proceedings pending, or, to the knowledge of any
Borrower, threatened, which affect the validity or enforceability of any of the
Loan Documents or the priority of the liens thereof.
3.7 Financial Statements. The financial statements of Borrowers heretofore
delivered to Lender are true and correct in all material respects, have been
prepared on the basis of generally accepted accounting principles ("GAAP")
consistently applied, and fairly present the financial condition of the subjects
thereof as of the date(s) thereof. Except as disclosed on Schedule 3.7, no
material adverse change has occurred in the condition (financial or otherwise),
business, operations, properties or prospects of any Borrower since the date(s)
thereof, and no additional indebtedness or obligations have been incurred by any
Borrower since the date(s) thereof, other than trade payables and other
liabilities incurred or arising in the ordinary course of business, and other
than TALX's obligations to compensate McFarland, Grossman & Company, Inc. as set
forth in the MGC Agreement.
3.8 No Defaults. Consummation of the transactions hereby contemplated and
the performance of the obligations of Borrowers under and by virtue of the Loan
Documents will not result in any breach of, contravene, conflict with, or
constitute a default under, the charter documents or bylaws of any Borrower, any
provision of law, any applicable judgment, ordinance, regulation, or order of
any court or governmental agency, or any mortgage, security deed or agreement,
deed of trust, lease, loan or credit agreement, partnership agreement, license,
franchise or any other material instrument or agreement to which any Borrower is
a party or by which any Borrower or its properties may be bound or, to the
knowledge of any Borrower, affected.
3.9 Compliance With Law. Except where failure to do so does not and would
not constitute a Material Adverse Event, each Borrower has obtained all
licenses, permits and governmental approvals and authorizations necessary or
proper in order to conduct its business and affairs as heretofore conducted and
as hereafter intended to be conducted. Each Borrower is in compliance with all
laws, regulations, decrees and orders applicable to it (including but not
limited to laws, regulations, decrees and orders relating to environmental,
occupational and health standards and controls, antitrust, monopoly, restraint
of trade or unfair competition) to the extent that noncompliance, in the
aggregate, could not give rise to a Material Adverse Event.
3.10 Environmental Matters. No Borrower has actual knowledge of (i) the
presence of any Hazardous Substances (as defined below) on any property owned,
leased or otherwise controlled by any Borrower (collectively, the "Property");
(ii) any spills, releases, discharges, or disposal of Hazardous Substances that
have occurred or are presently occurring on or onto any of the Property; (iii)
the presence on any of the Property of underground or above-ground storage tanks
or pipelines which are required to be licensed by any local, state or federal
agency; (iv) any spills or disposal of Hazardous Substances that have occurred
or are occurring off the Property as a result of any construction on or
operation and use of the Property; (v) any failure by any Borrower to comply
with any Applicable Environmental Laws (as defined below); (vi) any notices
related to any Borrower or any of the Property claiming a violation of any
Applicable Environmental Laws, or the commencement of any action or proceeding
against any Borrower or related to any of the Property alleging a violation of
Applicable Environmental Laws; (vii) any notices related to any Borrower or any
of the Property requiring compliance with Applicable Environmental Laws, or
demanding payment or contribution for injury to the environment or human health;
or (viii) any outstanding notices or citations relating to violations by any
former owner or operator of any of the Property. For the purposes of this
Agreement, "Hazardous Substances" means any substance or material defined or
designated as a hazardous or toxic waste, material or substance, or other
similar term, by any federal, state, or local environmental statute, regulation,
or ordinance presently in effect, including, without limitation, asbestos in any
form, urea formaldehyde foam insulation, petroleum products, and polychlorinated
biphenyls. For the purposes of this Agreement, "Applicable Environmental Laws"
<PAGE>
means any and all applicable local, state, and federal environmental laws,
regulations, ordinances, and administrative and judicial orders relating to the
generation, recycling, reuse, sale, storage, handling, transport, or disposal of
any Hazardous Substances.
3.11 Taxes. Each Borrower has filed or caused to be filed all tax returns
required to be filed (except for returns that have been appropriately extended),
and has paid all taxes shown to be due and payable on said returns and all other
taxes, impositions, assessments, fees or other charges imposed on it by any
governmental authority, agency or instrumentality, prior to any delinquency with
respect thereto (other than taxes, impositions, assessments, fees and charges
currently being contested in good faith by appropriate proceedings, for which
appropriate amounts have been reserved). No tax liens have been filed against
any Borrower or any of their respective properties.
3.12 Certain Transactions. Except as set forth on Schedule 3.12(i), (i) no
Borrower is indebted, directly or indirectly, to any of its respective officers
or directors, or to their respective spouses or children, and (ii) none of said
officers or directors or any members of their immediate families are indebted to
any Borrower or have any direct or indirect ownership interest in any firm or
corporation with which any Borrower is affiliated or with which any Borrower has
a business relationship, or any firm or corporation which competes with any
Borrower, except that officers and directors of a Borrower may own no more than
1% of the outstanding stock of any publicly traded company which competes
directly with any Borrower. Except as set forth on Schedule 3.12(ii), no officer
or director or any member of their immediate families is, directly or
indirectly, interested in any material contract with any Borrower, and each such
contract has been fully disclosed to and approved by the Board of Directors of
such Borrower and is on arm's length terms. Except as set forth on Schedule
3.12(iii), no Borrower is a guarantor or indemnitor of any indebtedness of any
other person, firm or corporation.
3.13 Corporate or Trade Names. Except as set forth on Schedule 3.13, in the
preceding five (5) years, no Borrower has been known as or conducted business
under any name other than the name used in executing this Agreement.
3.14 Intellectual Property. Except as set forth on Schedule 3.14(i), each
Borrower is the lawful owner of its proprietary information free and clear of
any claim, right, trademark, patent or copyright protection of any third party.
As used herein, "proprietary information" includes without limitation (i) any
computer software and related documentation, inventions, technical data and
nontechnical data related thereto, and (ii) other documentation, inventions and
data related to patterns, plans, methods, techniques, drawings, finances,
customer lists, suppliers, products, special pricing and cost information,
designs, processes, procedures, formulas, research data owned by any Borrower or
marketing studies conducted by any Borrower. Except as set forth on Schedule
3.14(ii), each Borrower has good and marketable title to, or is otherwise
entitled to use, all patents, trademarks, trade names, service marks, copyrights
or other intangible property rights, and registrations or applications for
registration thereof, owned by such Borrower or used or required by such
Borrower in the operation of its business as presently being conducted. Except
as set forth on Schedule 3.14(iii), there is no infringement or conflict with
asserted rights of others with respect to copyrights, patents, trademarks,
service marks, trade names, trade secrets or other intangible property rights or
know-how utilized by any Borrower which could result in any Material Adverse
Event and no products or processes of any Borrower infringe or conflict with any
rights of patent or copyright, or any discovery, invention, product or process,
that is the subject of a patent or copyright registration. Each Borrower follows
such procedures as are necessary or appropriate to provide reasonable protection
of such Borrower's trade secrets and proprietary rights in intellectual property
of all kinds. To the knowledge of any Borrower, no person employed by or
affiliated with any Borrower has employed or proposes to employ any trade secret
or any information or documentation proprietary to any former employer and, to
the knowledge of any Borrower, no person employed by or affiliated with any
Borrower has violated any confidential relationship that such person may have
had with any third person, in connection with the development, manufacture, sale
or lease of any product or proposed product or the development or sale of any
service or proposed service of any Borrower.
3.15 Regulatory Compliance. Except as set forth on Schedule 3.15, the
conduct of the business of no Borrower is dependent on any license, permit or
other authorization of any federal, state or local regulatory body, and except
as set forth on Schedule 3.15, such business is not subject to the regulation of
any federal, state or local government regulatory body by reason of the nature
of the business being conducted. All licenses, permits and authorizations set
forth on Schedule 3.15 are in full force and effect.
3.16 ERISA. With respect to the Employee Retirement Income Security Act of
1974, as amended from time to time, and the regulations promulgated and rulings
issued thereunder ("ERISA"):
(a) Plans. Schedule 3.16 sets forth any and all "employee benefit plans"
maintained by or on behalf of any Borrower or any ERISA Affiliate as defined in
Section 3(3) of ERISA (a "Plan"), including, but not limited to, any defined
benefit pension plan, profit sharing plan, money purchase pension plan, savings
or thrift plan, stock bonus plan, employee stock ownership plan, Multiemployer
Plan, or any plan, fund, program, arrangement or practice providing for medical
(including post-retirement medical), hospitalization, accident, sickness,
disability, or life insurance benefits. For purposes of this Agreement, "ERISA
Affiliate" shall mean each trade or business (whether or not incorporated)
which, together with any Borrower, is treated as a single employer under Section
414(b), (c), (m) or (o) of the Internal Revenue Code of 1986, as amended from
time to time, and the regulations promulgated and the rulings issued thereunder
(the "Code"); and "Multiemployer Plan" shall mean a "multiemployer plan" as
defined in Section 4001(a)(3) of ERISA. Neither any Borrower nor any ERISA
<PAGE>
Affiliate maintains or contributes to, or has maintained or contributed to, any
defined benefit pension plan or Multiemployer Plan.
(b) Compliance. Each Plan has at all times been maintained, by its terms
and in operation, in accordance in all material respects with all applicable
laws.
(c) Liabilities. Except for liabilities and expenses which become payable
and are timely paid pursuant to the terms and usual operations of the Plans, no
Borrower is currently and will not become subject to any material liability
(including withdrawal liability), tax or penalty whatsoever to any person
whomsoever with respect to any Plan including, but not limited to, any material
tax, penalty or liability arising under Title I or Title IV of ERISA or Chapter
43 of the Code.
(d) Funding. Each Borrower and each ERISA Affiliate has made full and
timely payment of all amounts (i) required to be contributed under the terms of
each Plan and applicable law and (ii) required to be paid as expenses of each
Plan. No Plan or Plans have an "amount of unfunded benefit liabilities" (as
defined in Section 4001(a)(18) of ERISA) which, in the aggregate, exceed
$100,000.
3.17 Regulations G, T, U and X. No Borrower is engaged in the business of
extending credit for the purposes of purchasing or carrying margin stock, and no
proceeds of the Loan will be used for a purpose which violates, or would be
inconsistent with, Regulations G, T, U or X of the Board of Governors of the
Federal Reserve System.
3.18 Government Regulation. No Borrower is an "investment company" within
the meaning of the Investment Company Act of 1940, as amended, or a "holding
company" or a "subsidiary company" of a "holding company" or an "affiliate" of a
"holding company" within the meaning of the Public Utility Holding Company Act
of 1935, as amended, or subject to regulation under the Federal Power Act, the
Interstate Commerce Act or any other federal law or laws of the State of
Missouri limiting its ability to incur indebtedness or to execute, deliver or
perform the Loan Documents.
3.19 Statements Not False or Misleading. No representation or warranty
given as of the date hereof by any Borrower contained in this Agreement or any
schedule attached hereto or any statement in any document, certificate or other
instrument furnished or to be furnished to Lender pursuant hereto, taken as a
whole, contains or will (as of the time so furnished) contain any untrue
statement of a material fact, or omits or will (as of the time so furnished)
omit to state any material fact which is necessary in order to make the
statements contained therein not misleading.
3.20 SEC Reports. [RESERVED]
3.21 Survival. The representations and warranties of Borrowers contained in
this Agreement or any schedule attached hereto or any statement in any document,
certificate or other instrument furnished or to be furnished to Lender pursuant
hereto, shall survive until this Agreement terminates in accordance with Article
7 hereof.
ARTICLE 4 - COVENANTS AND AGREEMENTS OF BORROWERS
Each Borrower, jointly and severally, covenants and agrees as follows:
4.1 Sales of and Encumbrances on Collateral. No Borrower will sell,
exchange, lease (other than in the ordinary course of such Borrower's business),
negotiate, pledge, assign or grant any security interest in or otherwise dispose
of any Collateral (other than the sale or other disposal of obsolete or retired
equipment in the ordinary course of business) to anyone other than Lender, nor
permit any other lien of any kind to attach thereto without Lender's prior
written consent, except for the following:
(i) liens for taxes and assessments or governmental charges or levies not
at the time due or in respect of which the validity thereof shall currently be
contested in good faith by appropriate proceedings conducted with due diligence
if appropriate reserves are being maintained with respect thereto,
(ii) liens in respect of pledges or deposits under workers' compensation
laws or similar liens, if the obligations secured by such liens are not then
delinquent or are being contested in good faith by appropriate proceedings
conducted with due diligence if appropriate reserves are being maintained with
respect thereto,
(iii) statutory liens incidental to the conduct of the business of
Borrowers which were not incurred in connection with the borrowing of money or
the obtaining of advances or credits and the imposition of which do not in the
aggregate constitute a Material Adverse Event,
<PAGE>
(iv) sale or other disposition of tangible assets which are replaced by
assets of similar character where the replacement of such assets is necessary or
appropriate for the continued conduct of such Borrower's business; and
(v) liens associated with indebtedness for borrowed money permitted under
Section 4.4 hereof.
4.2 Use of Proceeds. Borrowers shall use the proceeds of the Loan solely
for additional working capital.
4.3 Further Assurances. Borrowers will take all actions reasonably
requested by Lender to create and maintain in Lender's favor valid liens upon
and perfected security interests in any Collateral secured pursuant to this
Agreement or the other Security Instruments and all other security for the
Secured Obligations now or hereafter held by or for Lender. Without limiting the
foregoing, Borrowers agree to execute such further instruments (including
financing statements and continuation statements) as may be required or
permitted by any law relating to notices of, or affidavits in connection with,
the perfection of Lender's liens and security interests with respect to the
Collateral, and to cooperate with Lender in the filing or recording and renewal
thereof.
4.4 Limitations on Debt and Obligations. Borrowers shall not incur
additional aggregate indebtedness in excess of $25,000 annually, except as to
(i) indebtedness reflected on the balance sheet of TALX dated as of March 31,
1996, and delivered to Lender in connection with the making of the Loan, (ii)
the indebtedness incurred pursuant to the Note, (iii) accounts payable, other
trade payables and current operating liabilities (other than for borrowed money)
incurred in the ordinary course of business, (iv) obligations among the
Borrowers, (v) Permitted Funded Indebtedness (as defined below) and (vi)
Permitted Purchase Money Indebtedness (as defined below). Notwithstanding the
foregoing, Borrowers may continue to borrow under their current arrangements
with Senior Lender and any renewals thereof (provided such borrowings or
renewals do not exceed, in the aggregate, the principal amount of $7,000,000),
and Borrowers may continue to lease property pursuant to existing capitalized
leases.
For purposes of this Section 4.4, the following terms have the meanings set
forth opposite each such term below:
"EBIT" shall mean, with respect to each Borrower, earnings before interest
and taxes, as calculated in accordance with GAAP.
"Funded Debt" shall mean, with respect to each Borrower, all indebtedness
of such Borrower for borrowed money, any capitalized lease obligation of such
Borrower and any guaranty of such Borrower with respect to Funded Debt of any
other person or entity.
"Leverage Ratio" means the quotient resulting from dividing (A) the
aggregate of the Funded Debt (calculated on a consolidated basis) of the
Borrowers, by (B) the aggregate of the EBIT (calculated on a consolidated basis)
of the Borrowers for the twelve month period ending on the last of the calendar
month that is two (2) months prior to the calendar month of calculation.
"Permitted Purchase Money Indebtedness" means indebtedness incurred within
30 days of the purchase of any property for the purpose of financing the
purchase of such property (and renewals, extensions or modifications thereof
other than increases in the principal balance), provided the aggregate principal
amount of such indebtedness does not exceed an amount equal to 80% of the lesser
of (vii) the cost of the property purchased, and (viii) the fair value of such
property at the time of its acquisition, and further provided that the aggregate
of all such purchase money indebtedness of the Borrowers at such time does not
exceed $25,000.
"Permitted Funded Indebtedness" means Funded Debt incurred or outstanding
at any time when the Leverage Ratio of TALX is less than:
4.4 to 1 at any time between the date hereof and the fiscal year
ending May 31, 1997;
3.5 to 1 at any time between April 1, 1997, and the fiscal year ending
March 31, 1998;
3.25 to 1 at any time thereafter.
4.5 Financial Statements and Reports. Borrowers shall furnish to Lender the
following financial information:
(i) within ninety (90) days after the end of each fiscal year of TALX, (A)
audited consolidated financial statements of TALX, including a balance sheet as
of the close of such fiscal year, an income statement and statements of changes
in stockholders' equity, and of cash flows for such fiscal year, all in
reasonable detail, prepared in accordance with GAAP consistently applied, and
with the report thereon of independent public accountants, acceptable to Lender,
and (B) unaudited consolidating financial statements, including a balance sheet
as of the close of such fiscal year, an income statement and statements of
changes in stockholders' equity, and of cash flows for such fiscal year;
(ii) within ninety (90) days after the end of each fiscal year of TALX, a
<PAGE>
certificate of the chief executive or chief financial officer of TALX stating
that to the best knowledge of such officer, (A) each Borrower has kept,
observed, performed and fulfilled each covenant, term and condition of this
Agreement and the other Loan Documents during the preceding fiscal year and (B)
no Event of Default hereunder has occurred and is continuing (or if such officer
has knowledge that an Event of Default has occurred and is continuing,
specifying the nature of same, the period of existence of same and the action
Borrowers propose to take in connection therewith);
(iii) within thirty (30) days after the end of each calendar month, a
consolidated balance sheet of TALX as of the close of such month and
consolidated statements of earnings and retained earnings of TALX for such month
and for the prior months of the current fiscal year (on a year to date basis),
each compared to the same period in the previous fiscal year, all in reasonable
detail, and unaudited but prepared on the basis of GAAP consistently applied
(except for the absence of footnotes and subject to year-end adjustments),
together with a narrative status report of management of TALX; and
(iv) with reasonable promptness, such other financial data as Lender may
reasonably request.
4.6 Maintenance of Books and Records; Inspection. Each Borrower shall
maintain its books, accounts and records on the basis of GAAP consistently
applied, and permit a representative of Lender to visit and inspect any of its
properties (including but not limited to the Collateral and the other items of
collateral described in the Security Instruments), corporate books and financial
records, and to discuss its accounts, affairs and finances with Borrowers or the
principal officers of Borrowers during reasonable business hours, all at such
times as Lender may reasonably request and upon reasonable notice.
4.7 Insurance. Without limiting any of the requirements of any of the other
Loan Documents, each Borrower shall maintain, in amounts and with deductibles
customary for entities engaged in comparable business activities, fire,
liability and other forms of insurance on its properties (including but not
limited to the collateral now or hereafter securing payment and performance of
the Secured Obligations), against such hazards and in at least such amounts as
is customary in such Borrower's business. Lender shall be named as an additional
insured with respect to liability insurance and loss payee with respect to
hazard insurance (subject to the interests of the Senior Lender). Each such
insurance policy shall require the insurer to notify Lender in writing at least
thirty (30) days prior to any cancellation or material alteration of such
policy. At the request of Lender, each Borrower will deliver forthwith a
certificate specifying the details of such insurance in effect.
4.8 Taxes and Assessments. Each Borrower shall (i) file all tax returns and
appropriate schedules thereto that are required to be filed under applicable
law, prior to the date of delinquency, (ii) pay and discharge all taxes,
assessments and governmental charges or levies imposed upon such Borrower upon
its income and profits or upon any properties belonging to it, prior to the date
on which penalties attach thereto, and (iii) pay all taxes, assessments and
governmental charges or levies that, if unpaid, might become a lien or charge
upon any of its properties.
4.9 Corporate Existence. Each Borrower shall maintain its corporate
existence and good standing in the state indicated in Section 3.1 hereof, and
its qualification and good standing as a foreign corporation in each
jurisdiction in which the failure to be so qualified would constitute a Material
Adverse Event; provided, however, that nothing herein shall prevent any merger
or consolidation permitted by Section 4.17 hereof.
4.10 Compliance with Law and Agreements. Except where failure to do so does
not and would not constitute a Material Adverse Event, each Borrower shall
maintain its business operations and property owned or used in connection
therewith in compliance with (i) all applicable federal, state and local laws,
regulations and ordinances, and such laws, regulations and ordinances of foreign
jurisdictions, governing such business operations and the use and ownership of
such property, and (ii) all agreements, licenses, franchises, indentures and
mortgages to which any Borrower is a party or by which any Borrower or any of
its properties is bound. Without limiting the foregoing, each Borrower shall pay
all of its indebtedness promptly and substantially in accordance with the terms
thereof, except where being contested in good faith and by proper proceedings if
appropriate reserves are being maintained with respect thereto.
4.11 Environmental Requirements. In addition to, and not in derogation of,
the requirements of Section 4.10, each Borrower will comply with all laws,
governmental standards and regulations applicable to such Borrower or to
properties owned or leased by such Borrower, in respect of occupational health
and safety and Applicable Environmental Laws (unless such laws, standards or
regulations are being contested in good faith by appropriate proceedings and
adequate reserves therefor have been established), promptly notify Lender of its
receipt of any notice of a violation of any such law, standard or regulation,
and indemnify and hold Lender harmless from all loss, cost, damage, liability,
claim and expense incurred by or imposed upon Lender on account of any
Borrower's failure to perform its obligations under this Section 4.11.
4.12 Notice of Default. Borrowers shall give written notice to Lender of
the occurrence of any default or Event of Default under this Agreement or
default or event of default under any other Loan Document promptly upon
knowledge of the occurrence thereof. Borrowers shall give written notice to
<PAGE>
Lender of the occurrence of any default under any of the documents between
Borrower and the Senior Lender (the "Senior Lender Documents").
4.13 Notice of Litigation. Borrowers shall give notice, in writing, to
Lender of (i) any actions, suits or proceedings instituted by any persons
whomsoever against any Borrower or the property of any Borrower, and (ii) any
dispute between any Borrower on the one hand and any governmental regulatory
body on the other hand, which dispute might interfere with the normal operations
of any Borrower, except where such actions, suits, proceedings and disputes do
not and would not constitute a Material Adverse Event.
4.14 ERISA. If any Borrower has in effect, or hereafter institutes, a Plan,
then the following warranty and covenants shall be applicable during such period
as any such Plan shall be in effect: (i) each Borrower hereby warrants that no
fact that might constitute grounds for the involuntary termination of the Plan,
or for the appointment by the appropriate United States District Court of a
trustee to administer the Plan, exists at the time of execution of this
Agreement; (ii) each Borrower hereby covenants that throughout the existence of
the Plan, each Borrower's contributions under the Plan will meet the minimum
funding standards required by ERISA and no Borrower will institute a distress
termination of the Plan; and (iii) each Borrower hereby covenants that it will
send to Lender a copy of any notice of a reportable event (as defined in ERISA)
required by ERISA to be filed with the Labor Department or the Pension Benefit
Guaranty Corporation, at the time that such notice is so filed.
4.15 Key Man Insurance. Within sixty (60) days from the date hereof,
Borrowers will obtain and thereafter maintain in full force and effect, at all
times during the term of this Agreement and at their sole cost and expense, an
insurance policy or policies in the amount of at least $3,000,000, insuring the
life of William W. Canfield, the proceeds of which policy or policies shall be
assigned to Lender.
4.16 Name Change. No Borrower will change its name without giving Lender at
least thirty (30) days prior written notice.
4.17 Merger, Consolidation and Sale of Assets. No Borrower will acquire the
business of, any interest in, or a substantial portion of the assets of, or
merge or consolidate with any other entity or sell, lease or transfer or
otherwise dispose of all or a substantial portion of its assets to any person or
entity, except (i) sales or leases of inventory in the ordinary course of
business, (ii) Intech Group, Inc., a Missouri corporation ("Intech"), may merge
into TALX (provided TALX is the surviving corporation), (iii) either Subsidiary
may merge into, consolidate with or transfer assets with or to the other
Subsidiary or with or to TALX, and (iv) sales or dispositions of obsolete or
otherwise retired equipment.
4.18 Liability for Other Parties. No Borrower will become liable, directly
or indirectly, for any obligation of any other person, by guaranty, endorsement,
or otherwise, except (i) by endorsement in the ordinary course of business of
negotiable instruments payable at sight for deposit or collection (or similar
transactions in the ordinary course of business), or (ii) guaranties by one
Borrower of another Borrower's obligations.
4.19 Dividends. No Borrower will declare, set aside, or pay any dividend or
make any other distribution, whether in cash, in kind, or otherwise, on account
of or with respect to its stock, except (i) that TALX may declare and deliver
dividends payable solely in common stock of TALX, and (ii) for payment of
appraisal rights to shareholders of Intech holding, in the aggregate, less than
10% of the stock of Intech, who dissent from the merger of Intech and TALX.
Lender agrees that a reverse stock split by Borrower will not violate this
covenant.
4.20 Liquidation; Redemption. No Borrower will permit dissolution or
liquidation of such Borrower or the retirement or redemption of any shares of
such Borrower's stock, except (i) with respect to shares of common stock of TALX
which are held by its employees, TALX may redeem, in the aggregate as to all
shareholder-employees, up to 5,000 shares held by such shareholder-employees as
an incident to termination of the employment of such shareholder-employees, and
(ii) for payment of appraisal rights to shareholders of Intech holding, in the
aggregate, less than 10% of the stock of Intech, who dissent from the merger of
Intech and TALX. Lender agrees that a reverse stock split by Borrower will not
violate this covenant.
4.21 Loans and Investments. No Borrower will (i) make any loans other than
deposits required by government agencies or public utilities, or (ii) make any
investments (which term shall include the purchase of any ownership or similar
interest in any corporation, partnership, joint venture, limited liability
company or other business organization or the purchase of any debt or equity
securities or instruments issued by any such entity), except for (iii) cash
equivalent investments, (iv) loans and advances between Borrowers.
4.22 Notice of Issuance of Stock. Other than upon the exercise of currently
outstanding stock options, upon the issuance of additional shares of stock in
any Borrower, such Borrower shall promptly disclose to Lender, in writing, the
number of shares issued, the price therefor, and such other information as
Lender may from time to time request.
4.23 Change in Control. TALX will not permit a transfer or series of
transfers, which, individually, or in the aggregate, results in a change in the
<PAGE>
controlling ownership interest in TALX. For purposes hereof, a "change in the
controlling ownership interest" in TALX shall mean the sale, transfer or other
disposition by William W. Canfield (or entities controlled by him) of record or
beneficial ownership of shares of common stock of TALX constituting, in the
aggregate, five percent (5%) or more of the shares of common stock of TALX held
by Mr. Canfield and such entities on the date hereof. Neither of the
Subsidiaries will issue any stock. Notwithstanding the foregoing, a merger of
TALX with Intech will not violate this covenant provided that, immediately
subsequent to such merger, Mr. Canfield acquires a number of shares of TALX
stock in the merger equal to his proportionate share ownership of Intech.
4.24 Change in Business. Borrowers will not engage in any line of business
other than the business conducted by each Borrower as of the date of this
Agreement.
4.25 Location of Business and Collateral. Borrowers shall give written
notice to Lender (i) thirty (30) days prior to the opening of any new business
office, setting forth the address (including county) of such new location, (ii)
thirty (30) days prior to changing the location of records with respect to
intangible personal property constituting collateral security for the Secured
Obligations, and (iii) whenever any Collateral comprised of tangible personal
property will be located in a county or state that is not set forth on Schedule
3.5(ii) hereof for a period of four months or longer.
4.26 Information; Post-Closing Review. Borrowers will furnish to Lender
such financial data and other information relating to the business of Borrowers
as Lender may from time to time reasonably request. In addition to the
foregoing, at Lender's request, no later than ninety (90) days after the Loan is
advanced, Borrower shall furnish Lender a certificate executed by the president
itemizing the use of proceeds from the Loan, and, at Lender's request, Borrower
shall cooperate with Lender in connection with a post-closing review.
4.27 Share for Exercise of Warrants. TALX will at all times have the number
of shares as to which the Warrants or Additional Warrants are then exercisable
authorized, reserved and otherwise available for issuance upon exercise of the
Warrants or Additional Warrants.
4.28 Board of Directors Meetings; Observer Rights. Lender shall receive
notice of and be entitled to attend or may send a representative to attend all
meetings of the Company's Board of Directors in a non-voting observation
capacity and shall receive a copy of all correspondence and information
delivered to the Company's Board of Directors, from the date hereof until such
time as the indebtedness evidenced by the Note has been paid in full.
4.29 IBM Lien. Within thirty (30) days from the date hereof, Borrower shall
cause the description of collateral set forth on the financing statement bearing
file number 1768176, filed with the Missouri Secretary of State on August 18,
1989, as amended and/or continued (the "IBM Financing Statement"), to be amended
to substantially the form set forth on Schedule 4.29 hereto. Until the IBM
Financing Statement has been so amended, Borrowers will not permit the aggregate
outstanding indebtedness of Borrowers secured by the IBM Financing Statement to
exceed $30,000.
ARTICLE 5 - CONDITIONS TO CLOSING
5.1 Conditions of Lender's Obligations. The obligation of Lender to make
the Loan is subject to the receipt by Lender of the following documents, each of
which shall be satisfactory to Lender in form and substance:
(a) Corporate Documents. A copy of the Articles of Incorporation of each
Borrower, as certified by the Secretary of State of Missouri, and a certificate
of good standing from the Secretary of State in each state which any Borrower is
legally required to qualify to transact business as a foreign corporation, each
as of a recent date.
(b) Security Instruments. Each of the Security Instruments, duly executed
by Borrowers.
(c) Officer's Certificate. Certificates of the President of each Borrower
in the form attached as Exhibit F.
(d) Opinion of Counsel. The favorable written opinion of Bryan Cave LLP,
counsel to Borrowers, in form satisfactory to Sherrard & Roe, PLC, counsel to
Lender, and substantially in the form of Exhibit G hereto.
(e) The Note. The Note, duly completed and executed by Borrowers.
(f) UCC-1 Financing Statements. Financing statements on Form UCC-1, duly
completed and executed by Borrowers, perfecting the security interest of Lender
in the Collateral.
(g) Stock Purchase Warrant. The Warrants duly completed and executed by
TALX.
(h) Intercreditor Agreement. The Intercreditor Agreement, duly executed by
Borrowers and the Senior Lender.
(i) Participation Agreement. The Participation Agreement, duly executed by
<PAGE>
the Participants.
(j) Governmental Consents and Approvals. True copies of all consents and
required governmental approvals, if any, necessary to the execution, delivery
and performance of the Loan Documents and the transactions contemplated hereby
and thereby.
(k) Additional Conditions. Such additional conditions as deemed reasonably
necessary by Lender.
ARTICLE 6 - DEFAULT AND REMEDIES
6.1 Events of Default. The occurrence of any of the following shall
constitute an Event of Default hereunder:
(a) Default in the punctual payment of any portion of the principal amount
of the indebtedness evidenced by the Note, or default in the payment of any
interest on the indebtedness evidenced by the Note which is not cured within
five (5) days.
(b) Any representation by Borrower hereunder or under any of the other Loan
Documents, or delivery by Borrower of any schedule, statement, resolution,
report, certificate, notice or writing to Lender, is untrue in any material
respect on the date as of which made, stated or certified.
(c) Failure of Borrowers to perform any of their obligations under this
Agreement, any of the Security Instruments or any of the other Loan Documents,
which is not cured within ten (10) days if such failure can be cured by the
payment of money, and within thirty (30) days otherwise, except that no cure
period shall be granted with respect to the provisions of Sections 4.12, 4.13,
4.15 or 4.22.
(d) Any Borrower (i) shall admit in writing its inability to pay its debts
generally as they become due; or (ii) shall make an assignment for the benefit
of creditors or petition or apply to any tribunal for the appointment of a
custodian, receiver or trustee for it or a substantial part of its assets; or
(iii) shall commence any proceeding under any bankruptcy, reorganization,
arrangement, readjustment of debt, dissolution or liquidation law or statute of
any jurisdiction, whether now or hereafter in effect; or (iv) shall have had any
such petition or application filed or any such proceeding commenced against it
in which an order for relief is entered or an adjudication or appointment is
made; or (v) shall indicate, by any act or omission, its consent to, approval
of, or acquiescence in any such petition, application, proceeding or order for
relief or the appointment of a custodian, receiver or trustee for it or a
substantial part of its assets; or (vi) shall suffer any such custodianship,
receivership or trusteeship to continue undischarged for a period of thirty (30)
days or more.
(e) Any Borrower shall be liquidated, dissolved, partitioned or terminated,
or the articles or certificate of incorporation of any Borrower shall expire or
be revoked.
(f) Any Borrower shall default in the timely payment or performance of any
obligation now or hereafter owed to Lender in connection with any indebtedness
of any Borrower now or hereafter owed to Lender, other than the Loan.
(g) (i) Any Borrower shall fail to pay any principal of or premium or
interest on any indebtedness owed by any Borrower (other than the Loan), which
is outstanding in a principal amount of at least $100,000 in the aggregate, when
the same becomes due and payable (whether by scheduled maturity, acceleration,
demand or otherwise), and such failure shall continue after any cure period
applicable thereto; or (ii) any other event shall occur or condition shall exist
under any agreement or instrument relating to any such indebtedness and shall
continue after any applicable cure period, if the effect of such event or
condition is to accelerate or permit the acceleration of such indebtedness; or
(iii) any such indebtedness shall be accelerated or otherwise declared to be due
and payable prior to the stated maturity thereof; or (iv) any such indebtedness
shall be required to be prepaid, redeemed, purchased or defeased, or an offer to
repay, redeem, purchase or defease such indebtedness shall be required to be
made, in each case prior to the stated maturity thereof.
(h) The occurrence of any default or event of default under the Senior
Lender Documents.
(i) William W. Canfield shall cease to hold the offices of President and
chief executive officer of TALX.
6.2 Acceleration of Maturity; Remedies. Upon the occurrence of any Event of
Default described in Section 6.1(d), the indebtedness evidenced by the Note as
well as any and all other indebtedness of any Borrower to Lender shall be
immediately due and payable in full; and upon the occurrence of any other Event
of Default described in Section 6.1, Lender at any time thereafter may at its
option accelerate the maturity of the indebtedness evidenced by the Note as well
as any and all other indebtedness of any Borrower to Lender, whereupon such
indebtedness shall be and become immediately due and payable; all without notice
of any kind. Upon the occurrence of any such Event of Default and the
acceleration of the maturity of the indebtedness evidenced by the Note:
<PAGE>
(a) Lender shall be immediately entitled to exercise any and all rights and
remedies possessed by Lender pursuant to the terms of the Security Instruments
and all of the other Loan Documents.
(b) Lender shall have all of the rights and remedies of a secured party
under the Uniform Commercial Code as adopted in the respective states pursuant
to which security interests in the Collateral are governed. Without limiting the
generality of the foregoing, Lender without demand of performance or other
demand, presentment, protest, advertisement or notice of any kind (except any
notice required by law referred to below) to or upon Borrowers or any other
person (all and each of which demands, defenses, advertisements and notices are
hereby waived), may in such circumstances forthwith collect, receive,
appropriate and realize upon the Collateral, or any part thereof, and/or may
forthwith sell, lease, assign, give an option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any office of Lender or elsewhere upon such terms and conditions as it
may deem advisable and at such prices as it may deem best, for cash or on credit
or on future delivery without assumption of any credit risk. Lender shall have
the right upon any such public sale or sales, to the extent permitted by law, to
purchase the whole or any part of the Collateral so sold, free of any right or
equity of redemption, which right or equity is hereby waived or released. Each
Borrower further agrees, at Lender's request, to assemble the Collateral and
make it available to Lender at places which Lender shall reasonably select,
whether at any Borrower's premises or elsewhere. To the extent permitted by
applicable law, each Borrower waives all claims, damages and demands it may
acquire against Lender arising out of the exercise by Lender of any rights
hereunder. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 5 days before such sale or other disposition.
(c) Lender shall have any and all other rights and remedies that Lender may
now or hereafter possess at law, in equity or by statute.
6.3 Remedies Cumulative; No Waiver. No right, power or remedy conferred
upon or reserved to Lender by this Agreement or any of the other Loan Documents
is intended to be exclusive of any other right, power or remedy, but each and
every such right, power and remedy shall be cumulative and concurrent and shall
be in addition to any other right, power and remedy given hereunder, under any
of the other Loan Documents or now or hereafter existing at law, in equity or by
statute. No delay or omission by Lender to exercise any right, power or remedy
accruing upon the occurrence of any Event of Default shall exhaust or impair any
such right, power or remedy or shall be construed to be a waiver of any such
Event of Default or an acquiescence therein, and every right, power and remedy
given by this Agreement and the other Loan Documents to Lender may be exercised
from time to time and as often as may be deemed expedient by Lender.
6.4 Proceeds of Remedies. Any or all proceeds resulting from the exercise
of any or all of the foregoing remedies shall be applied as set forth in the
Loan Document(s) providing the remedy or remedies exercised; if none is
specified, or if the remedy is provided by this Agreement, then as follows:
(a) First, to the costs and expenses, including reasonable attorney and
paralegal fees and costs, incurred by Lender in connection with the exercise of
its remedies;
(b) Second, to the expenses of curing the default that has occurred, in the
event that Lender elects, in its sole discretion, to cure the default that has
occurred;
(c) Third, to the payment of accrued and unpaid interest on the
indebtedness evidenced by the Note;
(d) Fourth, to the payment of the unpaid principal of the Note;
(e) Fifth, to the payment of all other Secured Obligations; and
(f) Sixth, the remainder, if any, to Borrowers or to any other person
lawfully thereunto entitled.
ARTICLE 7 - TERMINATION
This Agreement shall remain in full force and effect until the payment in
full by Borrowers of all amounts owed to Lender under the Loan Documents and the
termination of any obligations of Lender to fund any portion of the Loan, within
a reasonable time after which Lender shall take such actions as necessary to
release its security interests in the Collateral, including the filing of
appropriate UCC-3 termination statements.
ARTICLE 8 - MISCELLANEOUS
8.1 Performance By Lender. If Borrowers shall default in the payment,
performance or observance of any covenant, term or condition of this Agreement,
Lender may, at its option, pay, perform or observe the same, and all payments
made or costs or expenses incurred by Lender in connection therewith (including
but not limited to reasonable attorney and paralegal fees and costs), with
interest thereon at the highest default rate provided in the Note (if none, then
<PAGE>
at the maximum rate from time to time allowed by applicable law), shall be
immediately repaid to Lender by Borrowers and shall constitute a part of the
Secured Obligations and be secured hereby until fully repaid. Lender, in its
sole and complete discretion and without any liability therefor, shall determine
the necessity for any such actions and of the amounts, if any, to be paid.
8.2 Successors and Assigns Included in Parties. Whenever in this Agreement
one of the parties hereto is named or referred to, the heirs, legal
representatives, successors, successors-in-title and assigns of such parties
shall be included, and all covenants and agreements contained in this Agreement
by or on behalf of Borrowers or by or on behalf of Lender shall bind and inure
to the benefit of their respective heirs, legal representatives,
successors-in-title and assigns, whether so expressed or not.
8.3 Costs and Expenses. Borrowers agree to pay all costs and expenses
incurred by Lender in connection with the making of the Loan, including but not
limited to filing fees, recording taxes and reasonable attorney and paralegal
fees and costs, promptly upon demand of Lender. Borrowers further agree to pay
all premiums for insurance required to be maintained pursuant to the terms of
the Loan Documents and all of the out-of-pocket costs and expenses incurred by
Lender in connection with the maintenance of its security interest in the
Collateral, protection of the Collateral, and collection of the Loan, including
but not limited to reasonable attorney and paralegal fees and costs related
thereto, promptly upon demand of Lender.
8.4 Assignment. The Note, this Agreement and the other Loan Documents may
be endorsed, assigned and transferred in whole or in part by Lender, and any
such holder or assignee of the same shall succeed to and be possessed of the
rights and powers of Lender under all of the same to the extent transferred and
assigned. Lender shall notify TALX in writing of any such endorsement,
assignment or transfer by Lender. Lender may grant participations in all or any
portion of its interest in the indebtedness evidenced by the Note. No Borrower
shall assign any of its rights nor delegate any of its duties hereunder or under
any of the other Loan Documents without the prior express written consent of
Lender.
8.5 Time of the Essence. Time is of the essence with respect to each and
every covenant, agreement and obligation of Borrowers hereunder and under all of
the other Loan Documents.
8.6 Severability. If any provisions of this Agreement or the application
thereof to any person or circumstance shall be invalid or unenforceable to any
extent, the remainder of this Agreement and the application of such provisions
to other persons or circumstances shall not be affected thereby nor shall the
validity and enforceability thereof be affected.
8.7 Interest and Loan Charges Not to Exceed Maximum Allowed by Law.
Anything in this Agreement, the Note, the Security Instruments or any of the
other Loan Documents to the contrary notwithstanding, in no event whatsoever,
whether by reason of advancement of proceeds of the Loan, acceleration of the
maturity of the unpaid balance of the Loan or otherwise, shall the interest and
other consideration agreed to be paid to Lender for the use of the money
advanced or to be advanced hereunder exceed the maximum amounts collectible
under applicable laws in effect from time to time. It is understood and agreed
by the parties that, if for any reason whatsoever the interest or other
consideration paid or contracted to be paid by Borrowers in respect of the
indebtedness evidenced by the Note shall exceed the maximum amounts collectible
under applicable laws in effect from time to time, then ipso facto, the
obligation to pay such interest and other consideration shall be reduced to the
maximum amounts collectible under applicable laws in effect from time to time,
and any amounts collected by Lender that exceed such maximum amounts shall be
applied to the reduction of the principal balance of the indebtedness evidenced
by the Note or refunded to Borrowers, in Lender's sole discretion, so that at no
time shall the interest and other consideration paid or payable in respect of
the indebtedness evidenced by the Note exceed the maximum amounts permitted from
time to time by applicable law.
8.8 Article and Section Headings; Defined Terms. Numbered and titled
article and section headings and defined terms are for convenience only and
shall not be construed as amplifying or limiting any of the provisions of this
Agreement.
8.9 Notices. Any and all notices, elections or demands permitted or
required to be made under this Agreement shall be in writing, signed by the
party giving such notice, election or demand and shall be delivered personally,
faxed (provided that such notice is mailed to the other party promptly
thereafter), or sent by certified mail or nationally recognized overnight
courier service (such as Federal Express) to the other party at the address set
forth below, or at such other address as may be supplied in writing and of which
receipt has been acknowledged in writing. The date of personal delivery, the
date of successful fax transmission, the third day after the date of mailing, or
the business day after the date of delivery to such courier service, as the case
may be, shall be the date of such notice, election or demand. For the purposes
of this Agreement, notices, elections or demands made pursuant hereto shall be
made to the following addresses:
If to Lender: Petra Capital, LLC
150 Fourth Avenue North, Suite 1050
Nashville, Tennessee 37219
<PAGE>
Attention: John S. Stein
Fax: 615-313-5990
with a copy to: Sherrard & Roe, PLC
424 Church Street, Suite 2000
Nashville, Tennessee 37219-3304
Attention: Michael D. Roberts
Fax: 615-742-4539
If to Borrowers: TALX Corporation
1850 Borman Court
St. Louis, Missouri 63146
Attention: William W. Canfield
Fax: 314-434-5176
with a copy to: Bryan Cave LLP
One Metropolitan Square
211 North Broadway, Suite 3600
St. Louis, Missouri 63102-2750
Attn: Walter L. Metcalfe, Jr.
Fax: 314-259-2020
8.10 Warrant Valuation. The parties hereto hereby agree that the value to
be attributed to the Warrants for federal and state income tax purposes shall be
$.46 per share. The parties hereto agree to use such value consistently for
federal and state income tax purposes.
8.11 Entire Agreement. This Agreement and the other written agreements
between any Borrower and Lender executed contemporaneously herewith represent
the entire agreement between the parties concerning the subject matter hereof,
and all oral discussions and prior agreements are merged herein; provided,
however, if there is a conflict between this Agreement and any other document
executed contemporaneously herewith with respect to the Secured Indebtedness,
the provision most favorable to Lender shall control.
8.12 Counterparts. This Agreement may be executed in multiple originals or
counterparts, each of which shall be deemed an original and all or which when
taken together shall constitute but one and the same instrument.
8.13 Governing Law; Submission to Jurisdiction. This Agreement shall be
construed and enforced under the internal laws of the State of Georgia, without
reference to the conflict of laws principles thereof. All actions indirectly or
directly arising out of this Agreement shall be brought in and resolved by the
courts of the State of Georgia.
8.14 Amendments; Incorporation. No amendment or modification hereof shall
be effective except in a writing executed by each of the parties hereto. All
schedules, exhibits, riders, and other documents and instruments referenced
herein shall be deemed to be incorporated herein and made a part hereof.
8.15 Waiver of Jury Trial. LENDER AND EACH BORROWER HEREBY KNOWINGLY,
VOLUNTARILY AND INTENTIONALLY WAIVE (TO THE EXTENT PERMITTED BY APPLICABLE LAW)
ANY RIGHT TO A TRIAL BY JURY OF ANY DISPUTE ARISING UNDER, RELATING TO, OR
CONNECTED WITH THIS AGREEMENT, THE COLLATERAL OR ANY OTHER AGREEMENT, INSTRUMENT
OR DOCUMENT CONTEMPLATED HEREBY OR DELIVERED IN CONNECTION HEREWITH AND AGREE
THAT ANY SUCH DISPUTE SHALL BE TRIED BEFORE A JUDGE SITTING WITHOUT A JURY. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE PARTIES TO ENTER INTO THIS AGREEMENT.
[SIGNATURE PAGE TO LOAN AND SECURITY AGREEMENT]
IN WITNESS WHEREOF, the parties hereto have executed this Loan and
Security Agreement, or have caused this Agreement to be executed by their
duly authorized officers, as of the day and year first above written.
LENDER: BORROWERS:
PETRA CAPITAL, LLC TALX CORPORATION
By: Petra Capital Management, LLC,
Manager
By: By:
--------------------------- -------------------------------------
Name: Name:
------------------------- -----------------------------------
Title: Title:
------------------------ ----------------------------------
[CORPORATE SEAL]
TALX INFORMATION SERVICES
CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
<PAGE>
Attest:
Name:
-----------------------------------
Title:
----------------------------------
[CORPORATE SEAL]
TALX DOCUMENT SERVICES CORPORATION
By:
-------------------------------------
Name:
-----------------------------------
Title:
----------------------------------
Attest:
Name:
-----------------------------------
Title:
----------------------------------
[CORPORATE SEAL]
<PAGE>
LIST OF EXHIBITS
----------------
EXHIBIT A - Note
EXHIBIT B - Participation Agreement
EXHIBIT C-1, C-2, C-3 and C-4 - Warrants
EXHIBIT D - Intercreditor Agreement
EXHIBIT E - Trademark and Patent Security Agreement
The Registrant hereby undertakes to furnish supplementally a copy of any
omitted exhibit to the Commission upon request.
<PAGE>
LIST OF SCHEDULES
-----------------
3.1 (a) Foreign Corporations
3.1 (c) Capitalization
3.1 (d) Options, Warrants or Other Rights
3.1 (e) Anti-dilution Rights
3.2 Consents
3.4 Liens
3.5 (i) Intangible Property Locations
3.5 (ii) Tangible Property Locations
3.6 Litigation
3.7 Financial Statements
3.12 (i) and 3.12 (ii) Certain Transactions
3.13 Corporate or Trade Names
3.14 (i), 3.14 (ii) and 3.14 (iii) Intellectual Property
3.15 Regulatory Compliance
3.16 Employee Benefit Plans
4.29 LBM Lien
The Registrant hereby undertakes to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
<PAGE>
EXHIBIT 10.9
THIS WARRANT HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH APPLICABLE
STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH REGARD THERETO, OR (II)
IN THE OPINION OF COUNSEL ACCEPTABLE TO THE COMPANY, REGISTRATION UNDER SUCH
SECURITIES ACTS OR SUCH APPLICABLE STATE SECURITIES LAWS IS NOT REQUIRED IN
CONNECTION WITH SUCH PROPOSED TRANSFER.
STOCK PURCHASE WARRANT
This Warrant is issued as of this 28th day of June, 1996, by TALX
Corporation, a Missouri corporation (the "Company"), to PETRA CAPITAL, LLC, a
Georgia limited liability company (Petra Capital, LLC and any subsequent
assignee or transferee hereof are hereinafter referred to collectively as
"Holder" or "Holders").
AGREEMENT:
1. Issuance of Warrant; Term.
(a) Petra Capital, LLC is making a loan to the Company, TALX
Information Services Corporation and TALX Document Services Corporation
(collectively, the "Borrowers") in an amount of $3,350,000.00 (the "Initial
Loan"), $350,000.00 of which has been purchased by Eugene M. Toombs("Toombs"),
and the William W. Canfield Revocable Trust ("Canfield") pursuant to a
Participation Agreement of even date herewith. Subsequently, the Lender will
make an additional loan to the Borrowers (the "Additional Loan", together with
the Initial Loan, the "Loan") of $650,000 to the Borrower, all of which will be
purchased by Gateway Partners, L.P. ("Gateway") in August 1996 (the "Gateway
Closing"). The Loan is evidenced by a Secured Promissory Note of even date
herewith (together with all extensions, replacements and renewals thereof, the
"Note") and a Loan and Security Agreement of even date herewith (as amended,
supplemented or otherwise modified from time to time, the "Loan Agreement"). For
and in consideration of the Loan and pursuant to applicable Missouri corporation
law, the Company hereby grants to Holder the right to purchase the number of
shares of the Company's common stock, par value $.0625 per share (the "Common
Stock"), which is equal to 2.625% of the shares of capital stock outstanding on
the date hereof, calculated on a Fully Diluted Basis (as hereinafter defined).
The Company has also granted (and will grant, after the Gateway Closing, to
Gateway) warrants in substantially similar terms to this Warrant, warrants to
Toombs, Canfield, Gateway and McFarland, Grossman & Company, Inc. to purchase,
initially in the aggregate, the number of shares of Common Stock which is equal
to 1.225% of the Company's capital stock outstanding on the date hereof on a
Fully Diluted Basis (collectively, the"Petra Warrants"). For purposes of this
Warrant, "Fully Diluted Basis" means at any time, without duplication, (x) all
shares of Common Stock actually outstanding at the time of determination, (y)
all shares of Common Stock issuable upon the exercise of any option, warrant
(but not including this Warrant and the Petra Warrants) or similar right
outstanding at the time of determination, and (z) all shares of Common Stock
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issuable upon the exercise of any conversion or exchange right contained in any
security convertible into or exchangeable for shares of Common Stock.
(b) The shares of Common Stock issuable upon exercise of this
Warrant are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time from the date hereof until ten
(10) years from the date hereof.
2. Exercise Price. The exercise price (the "Exercise Price") per share
for which all or any of the Shares may be purchased pursuant to the terms of
this Warrant shall be equal to the par value of the Common Stock at the date of
exercise, but in no case shall it be less than $.01 per share.
3. Exercise. (a) This Warrant may be exercised by the Holder hereof (but
only on the conditions hereafter set forth) as to all or any increment or
increments of one hundred (100) Shares (or the balance of the Shares if less
than such number), upon delivery of written notice of intent to exercise to the
Company at the following address: TALX Corporation, 1850 Borman Court, St.
Louis, MO 63146, Attention: Chief Executive Officer, or such other address as
the Company shall designate in a written notice to the Holder hereof, together
with this Warrant and payment to the Company of the aggregate Exercise Price of
the Shares so purchased; provided, however, that exercise of this Warrant shall
be in compliance with applicable antitrust laws, if any. The Exercise Price
shall be payable, at the option of the Holder, (i) by certified or bank check,
(ii) by the surrender of the Note or portion thereof having an outstanding
principal balance equal to the aggregate Exercise Price or (iii) by the
surrender of a portion of this Warrant having a fair market value equal to the
aggregate Exercise Price. Upon exercise of this Warrant as aforesaid, the
Company shall as promptly as practicable, and in any event within fifteen (15)
days thereafter, execute and deliver to the Holder of this Warrant a certificate
or certificates for the total number of whole Shares for which this Warrant is
being exercised in such names and denominations as are requested by such Holder.
If this Warrant shall be exercised with respect to less than all of the Shares,
the Holder shall be entitled to receive a new Warrant covering the number of
Shares in respect of which this Warrant shall not have been exercised, which new
Warrant shall in all other respects be identical to this Warrant. The Company
covenants and agrees that it will pay when due any and all federal and state
stamp, documentary or other securities issuance taxes, if any, which are imposed
solely in respect of the issuance of this Warrant or the issuance of any Shares
upon exercise of this Warrant; provided, however, such obligation shall not
include any taxes imposed on the income of the Holder or arising from the
ownership or transfer of this Warrant or the Shares issued upon exercise of this
Warrant.
(b) In lieu of exercising this Warrant pursuant to Section 3(a) above,
the Holder shall have the right to require the Company to convert this Warrant,
in whole or in part and at any time or times into Shares (the "Conversion
Right") by surrendering to the Company this Warrant, accompanied by the form of
conversion notice on Annex A hereto which has been duly completed and signed.
Upon exercise of the Conversion Right, the Company shall deliver to the Holder
(without payment by the Holder of any Exercise Price) that number of Shares
which is equal to the quotient obtained by dividing (x) the value of the number
of Shares into which this Warrant is being converted at the time the Conversion
Right is exercised (determined by subtracting the aggregate Exercise Price for
the Shares into which this Warrant is being converted immediately prior to the
exercise of the Conversion Right from the aggregate current market price (which
(i) prior to the Company's IPO (as defined below), if any, shall be as
determined by the Board of Directors of the Company and (i) after the Company's
IPO, if any, shall equal the average closing price of a share of Common Stock
for the ten consecutive trading days prior to one business day prior to the date
of conversion as reported in The Wall Street Journal (the "Current Market
Price")) of that number of Shares purchasable upon exercise of such Warrants
immediately prior to the exercise of the Conversion Right (taking into account
all applicable adjustments pursuant to Section 5)), by (y) the Current Market
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<PAGE>
Price per share of one share of Common Stock immediately prior to the exercise
of the Conversion Right. Any references in this Warrant to the "exercise" of any
Warrants, and the use of the term exercise herein, shall be deemed to include
(without limitation) any exercise of the Conversion Right.
4. Representations,Covenants and Conditions. The above provisions
are subject to the following:
(a) Neither this Warrant nor the Shares have been registered under
the Securities Act of 1933, as amended ("Securities Act") or any state
securities laws ("Blue Sky Laws"). By its acceptance of this Warrant, the
initial Holder represents to the Company that (i) it is an "accredited
investor," as defined in Rule 501(a) under the Securities Act, (ii) it has such
knowledge and experience in financial and business matters as to be capable of
evaluating the merits and risks of its investment in the Warrant and has the
ability to bear the economic risk of its investment, (iii) during the course of
the transaction prior to the receipt of the Warrant, it has had access to
information about the Company, its business and financial condition, and it has
had the opportunity to ask questions of and receive answers from the Company
concerning the terms and conditions of the offering of the Warrant and the Petra
Warrants and to obtain additional information (to the extent the Company
possessed such information or could acquire it without unreasonable effort or
expense) necessary to verify the accuracy of any information furnished to it,
and (iv) this Warrant has been acquired for investment purposes and not with a
view to distribution or resale in violation of the Securities Act or any Blue
Sky Laws.
(b) The Holder of the Warrant understands that this Warrant may
not be assigned, pledged, hypothecated, sold, made subject to a security
interest, or otherwise transferred without (i) an effective registration
statement for such Warrant under the Securities Act and such applicable Blue Sky
Laws, or (ii) delivery to the Company of an opinion of counsel prepared at the
expense of the Holder or transferee, which form of opinion and counsel shall be
reasonably satisfactory to the Company and its counsel, that an exemption from
registration is available under the Securities Act or under any applicable Blue
Sky Laws (the Company hereby acknowledges that Sherrard & Roe, PLC is acceptable
counsel). Transfer of Shares issued upon the exercise of this Warrant shall be
restricted in the same manner and to the same extent as the restrictions on the
Warrant as set forth in this Section 4(b) and the certificates representing such
Shares shall bear substantially the following legend as well as any legend
required by any applicable state securities law:
THE SHARES OF COMMON STOCK REPRESENTED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY APPLICABLE STATE SECURITIES LAW AND MAY NOT BE
TRANSFERRED UNTIL (I) A REGISTRATION STATEMENT UNDER THE ACT OR SUCH
APPLICABLE STATE SECURITIES LAWS SHALL HAVE BECOME EFFECTIVE WITH
REGARD THERETO, OR (II) IN THE OPINION OF COUNSEL ACCEPTABLE TO THE
COMPANY, REGISTRATION UNDER SUCH SECURITIES ACTS OR SUCH APPLICABLE
STATE SECURITIES LAWS IS NOT REQUIRED IN CONNECTION WITH SUCH PROPOSED
TRANSFER.
The Holder hereof and the Company agree to execute such other documents and
instruments as counsel for the Company reasonably deems necessary to effect the
compliance of the issuance of this Warrant and any shares of Common Stock issued
upon exercise hereof with applicable federal and state securities laws.
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<PAGE>
(c) If the Shares to be issued upon the exercise of the Warrant
have not been registered under the Securities Act, prior to exercise of the
Warrant, the holder of the Shares is required to deliver to the Company written
representations regarding the Shares which are substantially similar to those
given the Holder of this Warrant set forth in Sections 4(a) herein.
(d) The Company covenants and agrees that all Shares which may be
issued upon exercise of this Warrant will, upon issuance and payment therefor,
be legally and validly issued and outstanding, fully paid and nonassessable,
free from all taxes, liens, charges and preemptive rights, if any, with respect
thereto or to the issuance thereof. The Company shall at all times reserve and
keep available for issuance upon the exercise of this Warrant such number of
authorized but unissued shares of Common Stock as will be sufficient to permit
the exercise in full of this Warrant. The Company covenants that, so long as
this Warrant remains outstanding, the par value per share of its Common Stock
shall not be increased.
5. Adjustment of Exercise Price and Number of Shares Issuable. The
Exercise Price and the number of Shares (or other securities or property)
issuable upon exercise of this Warrant shall be subject to adjustment from time
to time upon the occurrence of any of the events enumerated in this Section 5.
(a) Common Stock Reorganization. If (i) the Company shall
subdivide or consolidate its outstanding shares of Common Stock (or any class
thereof) into a greater or smaller number of shares, (ii) pay a dividend or make
a distribution on its Common Stock (or any class thereof) in shares of its
capital stock, or (iii) issue by reclassification of its Common Stock (or any
class thereof) any shares of its capital stock (any such event described in
clauses (i), (ii) or (iii) being called a "Common Stock Reorganization"), then
the Exercise Price and the type of securities for which this Warrant is
exercisable shall be adjusted immediately such that the Holder thereafter shall
be entitled to receive upon exercise of this Warrant the aggregate number and
type of securities that it would have received if this Warrant had been
exercised immediately prior to such Common Stock Reorganization.
(b) Common Stock Distribution. If the Company shall issue, sell,
distribute or otherwise grant any shares of Common Stock or Convertible
Securities or Option Securities (as defined below), other than pursuant to a
Common Stock Reorganization or other than any issuance upon conversion or
exercise of any Convertible Securities or Option Securities (any such issuance,
sale, distribution or grant being herein called a "Common Stock Distribution"),
for a consideration per share less than the Fair Market Value per Share
immediately prior to such Common Stock Distribution (other than the Company's
IPO), then the Exercise Price shall be reduced to the price determined by
multiplying such Exercise Price by a fraction, the numerator of which shall be
the sum of (A) the number of shares of Common Stock outstanding immediately
prior to such Common Stock Distribution plus (B) the quotient resulting from
dividing (i) the consideration, if any, received by the Company upon such Common
Stock Distribution, by (ii) such Fair Market Value per Share, and the
denominator of which shall be the total number of shares of Common Stock
outstanding immediately after such Common Stock Distribution. "Fair Market Value
per Share" means the fair market value of the Company (as determined per Section
5(g) herein) divided by the number of outstanding shares of Common Stock, on a
Fully Diluted Basis, after giving effect to the payment of the lowest aggregate
consideration payable upon exercise, conversion and exchange of all Convertible
Securities and Option Securities included in such number of outstanding shares
of Common Stock on a Fully Diluted Basis.
(c) Convertible Securities and Option Securities. If the
Company shall issue, sell, distribute or otherwise grant (including by
assumption):
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(i) any stock or other securities convertible into or
exchangeable for Common Stock, whether or not the rights to exchange or convert
thereunder are immediately exercisable (such convertible or exchangeable stock
or securities being herein called "Convertible Securities"), or
(ii) any rights to subscribe for or to purchase, or any
warrants or options for the purchase of, Common Stock or Convertible Securities,
whether or not immediately exercisable (such rights, warrants or options being
herein called "Option Securities"),
and the lowest aggregate consideration per share for which Common Stock is
issuable upon the exercise of such Convertible Securities or Option Securities
(and, if applicable, upon conversion or exchange of Convertible Securities
issuable upon exercise of Option Securities) shall be less than the Fair Market
Value per Share immediately prior to such issuance, sale, distribution or grant,
then for purposes of subsection (b) above, the total maximum number of shares of
Common Stock issuable upon the exercise of such Convertible Securities or Option
Securities and, in the case of Option Securities to acquire Convertible
Securities, upon conversion or exchange of the total maximum amount of such
Convertible Securities issuable upon the exercise of such Option Securities,
shall be deemed to have been issued and thereafter shall be deemed to be
outstanding and the Company shall be deemed to have received as consideration
therefor such lowest aggregate consideration per share.
(d) Adjustment in Number of Shares. Upon each adjustment to the
Exercise Price pursuant to subsections (a), (b) or (c) of this Section 5, this
Warrant shall thereafter evidence the right to receive upon payment of the
adjusted Exercise Price that number of Shares obtained by multiplying the number
of Shares previously issuable upon exercise of this Warrant by a fraction the
numerator of which is the adjusted Exercise Price and the denominator of which
is the Exercise Price prior to adjustment.
(e) Non-Cash Consideration. If any shares of Common Stock, Option
Securities or Convertible Securities shall be issued, sold, distributed or
granted for a consideration other than cash, the amount of the consideration
received by the Company shall be deemed to be the fair market value (as
determined by Section 5(g) herein) of such consideration. If any shares of
Common Stock, Option Securities or Convertible Securities shall be issued in
connection with any merger in which the Company is the surviving corporation,
the amount of consideration therefor shall be deemed to be the fair market value
(as determined by Section 5(g) herein) of such portion of the assets and
business of the non-surviving corporation as shall be attributable to such
Common Stock, Option Securities or Convertible Securities, as the case may be.
(f) Capital Reorganizations. If there shall be any consolidation,
merger or amalgamation of the Company with another person or entity or any
acquisition of capital stock of the Company by means of a share exchange, other
than the merger of Intech Group, Inc. with and into the Company (the "Intech
Merger") or any other consolidation, merger or share exchange in which the
Company is the surviving corporation), or any sale or conveyance of the property
of the Company as an entirety or substantially as an entirety, or any
reorganization or recapitalization of the Company (any such event being called a
"Capital Reorganization"), then the Holder of this Warrant shall no longer have
the right to purchase Common Stock, but shall have instead the right to
purchase, upon exercise of this Warrant, the kind and amount of shares of stock
and other securities and property (including cash) which the Holder would have
owned or have been entitled to receive pursuant to such Capital Reorganization
if this Warrant had been exercised immediately prior to the effective date of
such Capital Reorganization. As a condition to effecting any Capital
Reorganization, the Company or the successor or surviving corporation, as the
case may be, shall assume by a supplemental agreement, reasonably satisfactory
in form, scope and substance to the Holder (which shall be mailed or delivered
to the Holder of this Warrant at the last address of such Holder appearing on
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the books of the Company) the obligation to deliver to such Holder such shares
of stock, securities, cash or property as, in accordance with the foregoing
provisions, such Holder may be entitled to purchase, and all other obligations
of the Company set forth in this Warrant.
(g) Determination of Fair Market Value Per Share. Subject to the
provisions set forth below, the fair market value of the Company or of any
non-cash consideration received by the Company upon any Common Stock
Distribution shall be determined in good faith by the Board of Directors of the
Company. Upon each such determination, the Company shall promptly give notice
thereof to Holder, setting forth in reasonable detail the calculation of such
fair market value and the method and basis of determination thereof (the
"Company Determination"). If the Holder shall disagree with the Company
Determination and shall, by notice to the Company given within thirty (30) days
after the Company's notice of the Company Determination, elect to dispute the
Company Determination, the Company shall, within thirty (30) days after such
notice, engage an investment bank or other qualified appraisal firm reasonably
acceptable to the Holder and the Company to make an independent determination of
the fair market value of the Company (the "Appraiser Determination"). If the
Appraiser Determination is not more than one hundred and ten percent (110%) and
not less than ninety percent (90%) of the Company Determination, then the cost
of conducting the appraisal shall be borne equally by the Company and the
Holder; if the Appraiser Determination is more than one hundred and ten percent
(110%) of the Company Determination, then the cost of conducting the appraisal
shall be borne entirely by the Company; if the Appraiser Determination is less
than ninety percent (90%) of the Company Determination, the cost of conducting
such appraisal shall be borne entirely by the Holder.
(h) Adjustment Rules. Any adjustments pursuant to this Section 5
shall be made successively whenever an event referred to herein shall occur. No
adjustment shall be made pursuant to this Section 5 in respect of the issuance
from time to time of shares of Common Stock upon the exercise of this Warrant or
upon the exercise or conversion of any other Option Securities or Convertible
Securities.
(i) Proceedings Prior to Any Action Requiring Adjustment. As a
condition precedent to the taking of any action which would require an
adjustment pursuant to this Section 5, the Company shall take any action which
may be necessary, including obtaining regulatory approvals or exemptions, in
order that the Company may thereafter validly and legally issue as fully paid
and nonassessable all shares of Common Stock which the Holder of this Warrant is
entitled to receive upon exercise thereof.
(j) Notice of Adjustment. Not less than 10 nor more than 50 days
prior to the record date or effective date, as the case may be, of any action
which requires or might require an adjustment or readjustment pursuant to this
Section 5, the Company shall give notice to the Holder of such event, describing
such event in reasonable detail and specifying the record date or effective
date, as the case may be, and, if determinable, the required adjustment and the
computation thereof. If the required adjustment is not determinable at the time
of such notice, the Company shall give notice to the Holder of such adjustment
and computation promptly after such adjustment becomes determinable.
6. Transfer of Warrant. Subject to the provisions of Section 4 hereof,
this Warrant may be transferred, in whole or in part, to any person or business
entity, by presentation of the Warrant to the Company with written instructions
for such transfer, provided that, until the Company's IPO (as defined in Section
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10 below) no such transfer shall be made without the Company's prior written
consent, which consent shall not be unreasonably withheld. After receipt of such
written consent (if presented prior to the Company's IPO), and upon presentation
of the Warrant to the Company with written instructions for such transfer, the
Company shall promptly execute and deliver a new Warrant or Warrants in the form
hereof (except that the second sentence of Section 4(a) shall be deleted) in the
name of the assignee or assignees and in the denominations specified in such
instructions. The Company shall pay all expenses incurred by it in connection
with the preparation, issuance and delivery of Warrants under this Section.
7. Warrant Holder Not Shareholder; Rights Offering; Preemptive Rights.
Except as otherwise provided herein, this Warrant does not confer upon the
Holder, as such, any right whatsoever as a shareholder of the Company.
Notwithstanding the foregoing until the Company's IPO, if the Company should
offer to all of the Company's shareholders the right to purchase any securities
of the Company, then all shares of Common Stock that are subject to this Warrant
shall be deemed to be outstanding and owned by the Holder and the Holder shall
be entitled to participate in such offer. Until the earlier of the date the Note
is paid in full or the Company's IPO, the Company shall not grant any preemptive
rights with respect to any of its capital stock without granting substantially
similar preemptive rights to Petra Capital LLC along with any corresponding
obligations.
8. Interim Dividends. If the Company pays a dividend or makes a
distribution to the holders of its capital stock of any securities (other than
capital stock) or property (including cash and securities of other companies) of
the Company, or any rights, options or warrants to purchase securities (other
than capital stock) or property (including securities of other companies) of the
Company, then, simultaneously with the payment of such dividend or the making of
such distribution, and as a condition precedent to its right to do so, it will
pay or distribute to the Holder of this Warrant an amount of property (including
without limitation cash) and/or securities (including without limitation
securities of other companies) of the Company as would have been received by
such Holder had it exercised this Warrant and received all of the Shares of
Common Stock issuable upon the exercise of this Warrant immediately prior to the
record date (or other applicable date) used for determining stockholders of the
Company entitled to receive such dividend or distribution. Anything in Section 5
to the contrary notwithstanding, no adjustment to the Exercise Price shall be
made for any distribution pursuant to the provisions of this Section 8.
9. Financial Statements and Reports. Unless the Company is otherwise
furnishing such information to the Holder hereof, from the date hereof until the
earlier to occur of (i) the exercise in full of this Warrant or (ii) its
termination, the Company shall deliver to the Holder the following financial
information:
(a) within ninety (90) days after the end of each fiscal year of Company,
(A) audited consolidated financial statements of Company, including a balance
sheet as of the close of such fiscal year, an income statement, statements of
changes in stockholders equity, and of cash flows for such fiscal year, all in
reasonable detail, prepared in accordance with generally accepted accounting
principles consistently applied, and with the report thereon of independent
public accountants, acceptable to the Holder, and (B) unaudited consolidating
financial statements, including a balance sheet as of the close of such fiscal
year, an income statement, statements of changes in stockholders' equity, and of
cash flows for such fiscal year;
(b) within forty-five (45) days after the end of each of the first three
fiscal quarters, a consolidated balance sheet of Company as of the close of such
quarter and consolidated statements of earnings and retained earnings of Company
for such quarter and for the prior quarters of the current fiscal year (on a
year to date basis), each compared to the same period in the previous fiscal
year, all in reasonable detail, and unaudited but prepared on the basis of
generally accepted accounting principles consistently applied (except for the
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absence of footnotes and subject to year-end adjustments), together with a
narrative status report of Company's management.
(c) at such time as the Company is subject to the reporting requirements
of Sections 13 or 15(d) of the Securities Exchange Act of 1934, as soon as
reasonably practicable (i) upon filing with the Securities and Exchange
Commission, each annual report on Form 10-K, each quarterly report on Form 10-Q,
and each periodic report on Form 8-K, and (ii) upon mailing to shareholders,
each proxy statement and annual statement to shareholders. Delivery of
Forms 10-K and 10-Q shall satisfy the provisions of Section 9(a) and (b) above.
10. Registration.
(a) If the Company shall receive at any time from the holders of
at least fifty percent (50%) of the total number of shares of Common Stock
issuable (or issued) upon exercise of this Warrant and the Petra Warrants, (the
"Initiating Holders"), but in no event earlier than eighteen months (18 months)
after the Company's initial public offering of Common Stock pursuant to a firm
commitment underwriting (the "Company's IPO"), a written request that the
Company effect any registration with respect to the shares, in an offering to be
firmly underwritten by underwriters selected by the Initiating Holders (subject
to the consent of the Company, which consent will not be unreasonably withheld),
the Company will as soon as practicable, use reasonable efforts to effect such
registration (including, without limitation, filing post-effective amendments,
appropriate qualifications under applicable blue sky or other state securities
laws, and appropriate compliance with the Securities Act) and as would permit or
facilitate the sale and distribution of all or such portion of such Shares as
are specified in such request. The Company shall only be required to effect, one
(1) registration of shares pursuant to this Section 10(a) and the provisions of
Section 10(c) and 10(h) below shall apply.
(b) The Company and the holders of the Shares agree that if at any
time after the date hereof the Company shall propose to file a registration
statement with respect to any of its Common Stock on a form suitable for a
secondary offering (not including the Company's IPO), it will give notice in
writing to such effect to the registered holder(s) of the Shares at least thirty
(30) days prior to such filing, and, at the written request of any such
registered holder, made within ten (10) days after the receipt of such notice,
will include therein at the Company's cost and expense (including the reasonable
fees and expenses of one counsel to such holder(s), but excluding underwriting
discounts, commissions and filing fees attributable to the Shares included
therein) such of the Shares as such holder(s) shall request; provided, however,
that if the offering being registered by the Company is underwritten and if the
representative of the underwriters certifies in writing that, in its opinion,
the inclusion therein of the Shares would adversely affect the marketing and
sale of the securities to be sold by the Company thereunder, then the Company
shall be required to include in the offering only that number of securities,
including the Shares, which the underwriters determine in their sole discretion
will not jeopardize the success of the offering (the securities so included to
be apportioned pro rata among all selling shareholders according to the total
amount of securities entitled to be included therein owned by each selling
shareholder, but in no event shall the total amount of Shares included in the
offering be less than the number of securities included in the offering by any
other single selling shareholder). The Holder shall grant a power of attorney to
a person mutually agreeable to the Company and the underwriters (who may be an
executive officer of the Company), in customary form for a similar offering,
with respect to timing, pricing and other matters related to the offering.
(c) Whenever required under this Agreement to use its reasonable
best efforts to effect the registration of any of the Shares, the Company shall,
as expeditiously as reasonably possible:
-8-
<PAGE>
(i) Prepare and file with the Securities and Exchange Commission (the
"Commission") a registration statement covering such Shares and use its
reasonable best efforts to cause such registration statement to be declared
effective by the Commission as expeditiously as possible and to keep such
registration effective until the earlier of (A) the date when all Shares covered
by the registration statement have been sold or (B) sixty (60) days from the
effective date of the registration statement; provided, that before filing a
registration statement or prospectus or any amendment or supplements thereto,
the Company will furnish to each holder of Shares covered by such registration
statement and the underwriters, if any, copies of all such documents proposed to
be filed (excluding exhibits, unless any such person shall specifically request
exhibits), which documents will be subject to the review of such holders and
underwriters, and the Company will not file such registration statement or any
amendment thereto or any prospectus or any supplement thereto (including any
documents incorporated by reference therein) with the Commission if (A) the
underwriters, if any, shall reasonably object to such filing or (B) if
information in such registration statement or prospectus concerning a particular
selling holder has changed and any holder of shares or the underwriters, if any,
shall reasonably object.
(ii) Prepare and file with the Commission such amendments and
post-effective amendments to such registration statement as may be necessary to
keep such registration statement effective during the period referred to in
Section 10(c)(i) and to comply with the provisions of the Securities Act with
respect to the disposition of all securities covered by such registration
statement, and cause the prospectus to be supplemented by any required
prospectus supplement, and as so supplemented to be filed with the Commission
pursuant to Rule 424 under the Securities Act.
(iii) Furnish to the selling holder(s) of Shares such numbers of copies of
such registration statement, each amendment thereto, the prospectus included in
such registration statement (including each preliminary prospectus), each
supplement thereto and such other documents as they may reasonably request in
order to facilitate the disposition of the Shares owned by them.
(iv) Use its reasonable best efforts to register and qualify under such
other securities laws of such U.S. jurisdictions as shall be reasonably
requested by any selling holder of Shares and do any and all other acts and
things which may be reasonably necessary or advisable to enable such selling
holder to consummate the disposition of the Shares owned by such holder, in such
jurisdictions; provided, however, that the Company shall not be required in
connection therewith or as a condition thereto to qualify to transact business
or to file a general consent to service of process in any such states or
jurisdictions.
(v) Promptly notify each selling holder of Shares of the happening of any
event as a result of which the prospectus included in such registration
statement contains an untrue statement of a material fact or omits any fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading and, at the request of any such holder, the
Company will prepare a supplement or amendment to such prospectus so that, as
thereafter delivered to the purchasers of such Shares, such prospectus will not
contain an untrue statement of a material fact or omit to state any fact
necessary to make the statements therein in light of the circumstances under
which they were made not misleading.
-9-
<PAGE>
(vi) Provide a transfer agent and registrar for all such Shares not later
than the effective date of such registration statement.
(vii) Enter into such customary agreements (including underwriting
agreements in customary form for an offering of the type to be affected) and
take all such other actions as the underwriters, if any, reasonably request in
order to expedite or facilitate the disposition of such Shares.
(viii) Make available for inspection by any selling holder of Shares or
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by any such
selling holder or underwriter, all financial and other records, pertinent
corporate documents and properties of the Company, and cause the officers,
directors, employees and independent accountants of the Company to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration statement.
(ix) Promptly notify the selling holder(s) of Shares and the underwriters,
if any, of the following events and (if requested by any such person) confirm
such notification in writing: (A) the filing of the prospectus or any prospectus
supplement and the registration statement and any amendment or post-effective
amendment thereto and, with respect to the registration statement or any
post-effective amendment thereto, the declaration of the effectiveness of such
documents, (B) any requests by the Commission for amendments or supplements to
the registration statement or the prospectus or for additional information, (C)
the issuance or threat of issuance by the Commission of any stop order
suspending the effectiveness of the registration statement or the initiation of
any proceedings for that purpose and (D) the receipt by the Company of any
notification with respect to the suspension of the qualification of the Shares
for sale in any jurisdiction or the initiation or threat of initiation of any
proceeding for such purposes.
(x) Make every reasonable effort to prevent the entry of any order
suspending the effectiveness of the registration statement and obtain at the
earliest possible moment the withdrawal of any such order, if entered.
(xi) Cooperate with the selling holder(s) of Shares and the underwriters,
if any, to facilitate the timely preparation and delivery of certificates
representing the Shares to be sold and not bearing any restrictive legends, and
enable such Shares to be in such lots and registered in such names as the
underwriters may request at least two (2) business days prior to any delivery of
the Shares to the underwriters.
(xii) Provide a CUSIP number for all the Shares not later than the
effective date of the registration statement.
(xiii) Prior to the effectiveness of the registration statement and any
post-effective amendment thereto and at each closing of an underwritten
offering, (A) make such representations and warranties to the selling holder(s)
of Shares and the underwriters, if any, with respect to the Shares and the
registration statement as are customarily made by issuers in primary
underwritten offerings; (B) use its best efforts to obtain "cold comfort"
letters and updates thereof from the Company's independent certified public
accountants addressed to the selling holders of Shares and the underwriters, if
any, such letters to be in customary form and covering matters of the type
customarily covered in "cold comfort" letters by underwriters in connection with
-10-
<PAGE>
primary underwritten offerings; (C) deliver such documents and certificates as
may be reasonably requested (1) by the holders of a majority of the Shares being
sold, and (2) by the underwriters, if any, to evidence compliance with clause
(A) above and with any customary conditions contained in the underwriting
agreement or other agreement entered into by the Company; and (D) obtain
opinions of counsel to the Company and updates thereof (which counsel and which
opinions shall be reasonably satisfactory to the underwriters, if any), covering
the matters customarily covered in opinions requested in underwritten offerings
and such other matters as may be reasonably requested by the selling holders of
Shares and underwriters or their counsel. Such counsel shall also state in the
letter containing such opinions, during such counsel's participation in the
preparation of the registration statement such counsel participated in
conferences with officers and representatives of the Company and representatives
of the independent accountants of the Company at which the contents of the
registration statement and related matters were discussed and, although such
counsel is not passing upon, and does not assume responsibility for the
accuracy, completeness or fairness of the statements contained in the
registration statement, as amended or supplemented, and make no representation
that we have independently verified the accuracy, completeness or fairness of
such statements, nothing has come to the attention of such counsel during the
course of such conferences that causes such counsel to believe that, as of its
date the registration statement (other than the financial statements, other
tabular financial information, other financial and statistical data and
information, and related schedules therein, as to which such counsel does not
express any opinion) contained an untrue statement of a material fact or omitted
to state a material fact necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading. If for any reason
the Company's counsel is unable to give such opinion, the Company shall so
notify the holders of the Shares and shall use its reasonable best efforts to
remove expeditiously all impediments to the rendering of such opinion.
(xiv) Otherwise use its reasonable best efforts to comply with all
applicable rules and regulations of the Commission, and agrees that it shall
make generally available to its security holders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act, no later than forty-five
(45) days after the end of any twelve-month period (or ninety (90) days, if such
period is a fiscal year) (A) commencing at the end of any fiscal quarter in
which the Shares are sold to underwriters in a firm or best efforts underwritten
offering, or (B) if not sold to underwriters in such an offering, beginning with
the first month of the first fiscal quarter of the Company commencing after the
effective date of the registration statement, which statements shall cover such
twelve-month periods.
(d) After the date hereof, the Company shall not grant to any
holder of securities of the Company any registration rights which have a
priority greater than or equal to those granted to Holder(s) pursuant to this
Warrant without the prior written consent of the Holder(s), which consent shall
not be unreasonably withheld.
(e) The Company's obligations under Sections 10(a) and (b) above
with respect to each holder of Shares are expressly conditioned upon such
holder's furnishing to the Company in writing such information concerning such
holder and the terms of such holder's proposed offering as the Company shall
reasonably request for inclusion in the registration statement. If any
registration statement including any of the Shares is filed, then the Company
shall indemnify each holder thereof (and each underwriter for such holder and
each person, if any, who controls such underwriter within the meaning of the
Securities Act) from any loss, claim, damage or liability arising out of, based
upon or in any way relating to any untrue statement of a material fact contained
in such registration statement or any omission to state therein a material fact
-11
<PAGE>
required to be stated therein or necessary to make the statements therein in
light of the circumstances under which they were made not misleading, except for
any such statement or omission based on information furnished in writing by such
holder of the Shares (or underwriter for such holder) expressly for use in
connection with such registration statement; and such holder (and each such
underwriter for such holder) shall indemnify the Company (and each of its
officers and directors who has signed such registration statement, each
director, each person, if any, who controls the Company within the meaning of
the Securities Act, each underwriter for the Company and each person, if any,
who controls such underwriter within the meaning of the Securities Act) and each
other such holder against any loss, claim, damage or liability arising from any
such statement or omission which was made in reliance upon information furnished
in writing to the Company by such holder of the Shares expressly for use in
connection with such registration statement.
(f) For purposes of this Section 10, all of the Shares shall be
deemed to be issued and outstanding.
(g) Each Holder agrees in connection with any registration of the
Company's securities (i) in the Company's IPO and (ii) in which such Holder
participates as a selling shareholder, that, upon the request of the Company of
the Company or underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any Shares (other than those in the
registration) without the prior written consent of the Company or such
underwriters, as the case may be, for a period of time, not to exceed (x) in the
Company's IPO, such number of days, from the effective date of such registration
as the Company or the underwriters may specify for shareholders who agree to
such a lock-up and (y) in any other such registration the period agreed to by
the other selling shareholders and each officer and director of the Company.
(h) The Company may delay, suspend or withdraw any registration or
qualification of Shares required pursuant to this Section 10 for a period not
exceeding one hundred twenty (120) days if the Company shall in good faith
determine that any such registration would adversely affect an offering or
contemplated offering of other securities by the Company or another contemplated
material corporate event or such registration is otherwise impracticable due to
material disclosure issues. In addition, the Company shall not be required to
register Shares on a date which, under the General Rules and Regulations of the
Securities and Exchange Commission, the inclusion therein (to the extent such
inclusion is required or permitted under said Rules and Regulations), whether or
not by incorporation by reference, of financial statements of the Company other
than those contained in the most recently filed report of the Company on Forms
10-K and 10-Q would be required provided that this exception shall not permit
delay or suspension after filing of the next required quarterly filing under the
Exchange Act.
11. Certain Notices. In case at any time the Company shall propose to:
(a) declare any cash dividend upon its Common Stock;
(b) declare any dividend upon its Common Stock payable in stock or
make any special dividend or other distribution to the holders of its Common
Stock;
(c) offer for subscription to the holders of any of its Common
Stock any additional shares of stock in any class or other rights;
-12-
<PAGE>
(d) reorganize, or reclassify the capital stock of the Company, or
consolidate, merge or otherwise combine with, or sell all or substantially all
of its assets to, another corporation, other than the merger of Intech Group,
Inc. with and into the Company; or
(e) voluntarily or involuntarily dissolve, liquidate or wind up
of the affairs of the Company;
then, in any one or more of said cases, the Company shall give to the Holder, by
certified or registered mail, (1) at least ten (10) days' prior written notice
of the date on which the books of the Company shall close or a record shall be
taken for such dividend, distribution or subscription rights or for determining
rights to vote in respect of any such reorganization, reclassification,
consolidation, merger, sale, dissolution, liquidation or winding up, and (ii) in
the case of such reorganization, reclassification, consolidation, merger, sale,
dissolution, liquidation or winding up, at least twenty (20) days' prior written
notice of the date when the same shall take place. Any notice required by clause
(i) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Common Stock shall be
entitled thereto, and any notice required by clause (ii) shall specify the date
on which the holders of Common Stock shall be entitled to exchange their Common
Stock for securities or other property deliverable upon such reorganization,
reclassification, consolidation, merger, sale, dissolution, liquidation or
winding up, as the case may be.
12. Co-Sale Rights.
(a) Co-Sale Right. None of the shareholders of the Company on the
date hereof as set forth on Annex B hereto (the "Selling Shareholders") shall
enter into any transaction that would result in the sale by it of any Common
Stock now or hereafter owned by it, unless prior to such sale the Selling
Shareholder shall give notice to the Holder of its intention to effect such sale
in order that Holder may exercise its rights under this Section 12 as
hereinafter described. Such notice shall set forth (i) the number of shares to
be sold by the Selling Shareholder, (ii) the principal terms of the sale,
including the price at which the shares are intended to be sold, and (iii) an
offer by the Selling Shareholder to cause to be included with the shares to be
sold by it in the sale, on a share-by-share basis and on the same terms and
conditions, the Shares issuable or issued to the Holder pursuant to this
Warrant.
(b) Rejection of Co-Sale Offer. If the Holder has not accepted
such offer in writing within a period of ten (10) days from the date of receipt
of the notice specified in subsection (a) of this Section, then the Selling
Shareholder shall thereafter be free for a period of ninety (90) days to sell
the number of shares specified in such notice, at a price no greater than the
price set forth in such notice and on otherwise no more favorable terms to the
Selling Shareholder than as set forth in such notice, without any further
obligation to Holder in connection with such sale. In the event that the Selling
Shareholder fails to consummate such sale within such ninety-day period, the
shares specified in such notice shall continue to be subject to this Section.
(c) Acceptance of Co-Sale Offer. If the Holder accepts such offer
in writing delivered to the selling shareholder within a period of ten (10) days
from the date of receipt of the notice specified in subsection (a) of this
Section, such acceptance shall be irrevocable unless the Selling Shareholder
shall be unable to cause to be included in his sale the number of Shares of
stock held by the Holder and set forth in the written acceptance. In that event,
the Selling Shareholder and the Holder shall participate in the sale on a pro
rata basis.
-13-
<PAGE>
(d) Certain Exceptions; Termination of Co-Sale Rights. The Co-Sale
Rights hereunder shall not apply to (i) the Intech Merger (but will apply to all
shares of Common Stock received by the Selling Shareholders as a result of the
Intech Merger), or (ii) transfers for estate planning purposes, provided that
each transferee thereunder agrees in writing to comply with this Section 12 as
to such securities. All co-sale rights set forth under this Section 12 shall
terminate upon the effective date of the Company's IPO.
-14-
<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE WARRANT]
IN WITNESS WHEREOF, the parties hereto have set their hands as of the
date first above written.
TALX CORPORATION, a Missouri
corporation
By:_______________________________________
Name:__________________________________
Title:_________________________________
Attest:___________________________________
Name:__________________________________
Title:_________________________________
[CORPORATE SEAL]
PETRA CAPITAL, LLC, a Georgia limited
liability company
By: Petra Capital Management, LLC,
Manager
By:_________________________________
Name:____________________________
Title:___________________________
-15-
<PAGE>
Section 12 of this Warrant is hereby acknowledged and agreed to by the
undersigned shareholders of the Company as of the date first above written.
_____________________________________
Name: William W. Canfield
William W. Canfield Revocable Trust
By: ________________________________
Title: _____________________________
-16-
<PAGE>
ANNEX A
NOTICE OF EXERCISE
To: TALX Corporation
(1) The undersigned hereby elects to purchase _____ shares of the Common
Stock of TALX Corporation, pursuant to the terms of the attached Warrant and
tenders herewith payment of the purchase price for such shares in full.
(2) Please issue a certificate representing such shares in the name of
the undersigned or in such other name as specified below:
(3) Please issue a new Warrant for the unexercised portion of the
attached Warrant in the name of the undersigned or in such other name as is
specified below:
Date:_______________________
Signature:__________________
-17-
<PAGE>
ANNEX B
SELLING SHAREHOLDERS
William W. Canfield
William W. Canfield Revocable Trust
-18-
<PAGE>
EXHIBIT 10.11
PROPERTY # 499-002
OFFICE LEASE
TABLE OF CONTENTS
PAGE
1. Basic Terms.................................................... 1
2. Rent........................................................... 3
3. Service Charge, Interest....................................... 6
4. Security Deposit............................................... 6
5. Tenant Finish Improvements..................................... 7
6. Delivery of Possession; Adjustment of Term..................... 8
7. Use of the Premises............................................ 10
8. Utilities and Other Building Services.......................... 12
9. Parking........................................................ 15
10. Signs.......................................................... 15
11. Repairs, Maintenance, Alterations, Improvements
and Fixtures................................................ 15
12. Fire or Other Casualty; Casualty Insurance..................... 17
13. General Public Liability, Indemnification and
Insurance.................................................. 19
14. Eminent Domain................................................. 20
15. Liens.......................................................... 21
16. Rental, Personal Property and Other Taxes...................... 21
17. Assignment and Subletting...................................... 22
18. Subordination of Lease to Mortgages............................ 22
19. Defaults and Remedies.......................................... 23
20. Bankruptcy or Insolvency....................................... 25
21. Access to Premises............................................. 28
22. Surrender of Premises.......................................... 29
23. Holding Over................................................... 29
24. Quiet Enjoyment................................................ 29
25. Notices........................................................ 30
26. Miscellaneous General Provisions............................... 30
27. Additional Provisions.......................................... 32
EXHIBIT A FLOOR PLAN - PREMISES...............................33
EXHIBIT A-1 FLOOR PLAN - CANCELLATION OPTION SPACE..............34
EXHIBIT B LEGAL DESCRIPTION.................................. 35
EXHIBIT C RULES AND REGULATIONS.............................. 36
EXHIBIT D PLANS AND SPECIFICATIONS........................... 40
EXHIBIT D-1 BUILDING STANDARD FINISHES......................... 41
EXHIBIT E EQUIPMENT/MACHINERY LIST........................... 42
ADDENDUM TO LEASE.................................. 43
<PAGE>
PROPERTY NO. # 449-002
OFFICE LEASE
THIS LEASE is entered into and made as of the 23rd day of August, 1993, by
and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a New Jersey
corporation, hereinafter called "Landlord", and EKI Incorporated, a Missouri
corporation, hereinafter called "Tenant".
WITNESSETH:
Landlord, in consideration of the rents and covenants hereinafter set
forth, does hereby demise, let and lease to Tenant, and Tenant does hereby hire,
take and lease from Landlord, on the terms and conditions hereinafter set forth,
the following described space, hereinafter called the "Premises", to have and to
hold the same, with all appurtenances, unto the Tenant for the Term hereinafter
specified.
1. Basic Terms.
(A) Address of Landlord: The Prudential Insurance Company
of America,
c/o: PM Realty Group
1655 Des Peres Road
St. Louis, MO 63105
or such other address as may from time to time be designated by
Landlord in writing.
(B) Address of Tenant: EKI Incorporated
1633 Des Peres Road
St. Louis, MO 63131
or such other address as may from time to time be designated by Tenant in
writing.
(C) Premises: Landlord and Tenant hereby stipulate the Premises contains
35,984 usable square feet of space in the area of the Building described below,
known as Suite 100, consisting of 29,877 square feet, and Suite 200, consisting
of 6,107 square feet, pursuant to BOMA standards as shown on the floor plan
attached hereto, marked Exhibit "A" and made a part hereof.
(D) Building: The building in which the Premises is located, the common
address of which is 1633 Des Peres Rd., St. Louis, MO 63131, together with the
land, and any parking areas, walkways, landscaped areas and other improvements
appurtenant thereto. The legal description of the parcel of real estate on which
the Building is situated is attached hereto, marked Exhibit "B" and made a part
hereof.
(E) Guarantor(s): None
(F) Term: The period of time commencing December 1, 1993, (the
"Commencement Date") and expiring March 31, 2002, (the "Expiration Date"),
subject to adjustment as provided in Paragraph 6 hereof, unless this Lease is
sooner terminated as set forth herein.
(G) Rent: All sums, moneys or payments required to be paid by Tenant to
Landlord pursuant to this Lease.
(H) Base Rent: $3,895,268 for the Term, payable as follows:
1. $413,816 per annum ($34,484.67 per month) for the period from
April 1, 1994, through March 31, 1995;
2. $467,792 per annum ($38,982.67 per month) for the period from
April 1, 1995, through March 31, 1997;
3. $487,583.20 per annum ($40,631,93 per month) for the period
from April 1, 1997, through March 31, 1998;
4. $505,575.20 per annum ($42,131.27 per month) for the period
from April 1, 1998, through March 31, 2000; and
5. $523,567.20 per annum ($43,630.60 per month) for the period
from April 1, 2000, through March 31, 2002.
(I) Security Deposit: $34,484.67
(J) Tenant's Proportionate Share: 39.7% (35,984 s.f./90,752 s.f.)
(K) Permitted Uses: General Office Use
(L) Broker(s): Turley Martin Company
(M) Tenant's Contribution: $0.00
(N) Base Year: Calendar year 1994
<PAGE>
(O) Exhibits: A. Description of Premises
B. Legal Description of Real Estate
C. Rules and Regulations
D. Plans and Specifications
2. Rent.
(A) Base Rent. Tenant shall pay to Landlord as Base Rent for the Premises
the sums set forth at Section 1(H) above, in advance, on or before the first day
of each and every month throughout the Term; provided, however, that if the
Commencement Date shall be a day other than the first day of a calendar month or
the Expiration Date shall be a day other than the last day of a calendar month,
the Base Rent installment for such first or last fractional month shall be
pro-rated accordingly.
All Rent and other payments required to be made by Tenant to Landlord
shall be delivered or mailed to Landlord's management agent at the address set
forth at Section 1(A) above or to such other person and/or address Landlord may
specify from time to time by written notice given to Tenant.
(B) Annual Rental Adjustment. In addition to the Base Rent specified in
Paragraph l(H) hereof, Tenant shall pay to Landlord as Additional Rent for the
Premises a sum equal to Tenant's Proportionate Share, set forth at Section 1(J)
above, of the aggregate positive difference between Landlord's Cost of Operation
(as hereinafter defined) of the Building for such calendar year and Landlord's
Cost of Operation of the Building for the Base Year. Landlord and Tenant agree
that no Annual Rental Adjustment, as defined in this paragraph, shall be payable
by Tenant during the Base Year. The amount of Tenant's Proportionate Share of
Landlord's Cost of Operation of the Building for such calendar year (sometimes
hereinafter referred to as the "Annual Rental Adjustment") shall be estimated
from time to time by Landlord, and written notice thereof shall be given to
Tenant at least thirty (30) days prior to the beginning of the Term and to any
change therein. Tenant shall pay each month, at the same time the monthly
installment of Base Rent is due, an amount equal to one-twelfth (1/12th) of the
estimated Annual Rental Adjustment. Within ninety (90) days after the end of
each calendar year, Landlord shall prepare and deliver to Tenant a statement
showing in reasonable detail the actual amount of Landlord's Cost of Operation
of the Building for the preceding calendar year and the actual amount of
Tenant's Annual Rental Adjustment. Within thirty (30) days after receipt of the
aforementioned statement, Tenant shall pay to Landlord, or Landlord shall credit
against the next-due installment(s) of Base Rent as the case may be, the
difference between the actual amount of Tenant's Annual Rental Adjustment for
the preceding calendar year and the estimated amount paid by Tenant during such
year. If this Lease shall commence, expire or be terminated on any date other
than the last day of a calendar year, the actual amount of Tenant's Annual
Rental Adjustment for such partial year shall be pro-rated accordingly.
(C) Landlord's Cost of Operation. "Landlord's Cost of Operation" shall
mean all of Landlord's direct costs and expenses of operation and maintenance of
the Building and the surrounding walks, driveways, parking lot and landscaped
areas (within the area described in "Exhibit B") as determined by Landlord in
accordance with generally accepted accounting principles, consistently applied,
plus all additional direct costs and expenses of operation and maintenance which
Landlord determines that it would have paid or incurred if the Building had been
one-hundred percent (100%) occupied, including by way of illustration and not
limitation: real estate taxes (other than penalties for late payment) including
reasonable attorneys' fees and costs for good faith contests thereof; insurance
premiums; personal property taxes on personal property used in the Building;
water, electrical and other utility charges other than the separately billed
electrical and other charges described in Paragraph 8 hereof; service and other
charges incurred in the operation and maintenance of the elevators and the
heating, ventilation and air conditioning system; cleaning services; tools and
supplies; landscape maintenance costs; building security services; license and
permit fees; building management fees; wages and related employee benefits
payable to the on-site employees of Landlord or its building management agent;
and in general all other costs and expenses which would, under generally
accepted accounting principles, be regarded as operating and maintenance costs
and expenses, including those which would normally be amortized over a period
not exceeding five (5) years.
Operating Expenses shall not include any of the following:
(1) depreciation and amortization on the Building or equipment therein,
except as specifically provided herein;
(2) interest on amortization of mortgages and other debts;
(3) the cost of tenant improvements made for tenants of the Building,
including permit, license and inspection fees;
(4) brokerage commissions;
(5) financing or refinancing costs;
(6) Landlord's costs of electricity and other services that are sold to
tenants and for which Landlord is entitled to be reimbursed by tenants as an
additional charge or rental over and above the Base Rent payable under the lease
with such tenant;
(7) costs and expenses incurred in connection with procuring tenants,
<PAGE>
including lease concessions, lease takeover or rental assumptions and legal fees
in connection with lease negotiations;
(8) attorney's fees and disbursements and other costs in connection with
any judgment, settlement or arbitration award resulting from any tort liability
of Landlord;
(9) any costs, fines or penalties incurred due to violations by Landlord
of any governmental rule or authority;
(10) costs incurred by Landlord for the repair of damage to the Building
to the extent that Landlord is reimbursed by insurance carried by Landlord;
(11) advertising and promotional expenses; and
(12) management fees in excess of amounts customarily charged by property
managers for comparable Class A Buildings in the St. Louis area.
If Landlord shall, at any time after the Commencement Date, contract for
or install a labor saving device or other equipment intended to improve the
operating efficiency of any system within the Building (such as an energy
management computer system) then Landlord may, in determining the amount of
Tenant's Annual Rental Adjustment, add to Landlord's Cost of Operation of the
Building, in each year during the useful life of such installed device or
equipment, an amount equal to the annual depreciation or amortization allowance
of the cost of such installed device or equipment as determined in accordance
with applicable regulations of the Internal Revenue Service or generally
accepted accounting principles; provided, however, that the amount of such
allowance shall not exceed the annual cost or expense reduction reasonably
attributed by Landlord to such installed device or equipment. Tenant or its
accountants shall have the right to inspect and copy, at reasonable times and in
a reasonable manner, during the ninety (90) day period following the delivery of
any such statement, such of Landlord's books and records as pertain to and
contain information concerning such costs and expenses in order to verify the
amounts thereof.
If Tenant shall dispute any item or items included in the determination of
Landlord's Cost of Operation for a given calendar year, and such dispute is not
resolved by the parties hereto within ninety (90) days after the statement for
such year was delivered to Tenant, then either party may, within thirty (30)
days thereafter, request that such matter be arbitrated. Each party shall select
a certified public accountant to render an opinion as to whether or not the
disputed item or items may properly be included in the determination of
Landlord's Cost of Operation of the Building for such year. In the event the
arbitrators cannot agree, they shall select a third certified public accountant
and the opinion of such arbitrator on the matter shall be conclusive and binding
upon the parties hereto. The fees and expenses incurred in obtaining such an
opinion shall be borne by the party adversely affected thereby; and if more than
one item is disputed and the opinion adversely affects both parties, the fees
and expenses shall be apportioned accordingly. Arbitration shall be conducted
pursuant to the rules of the American Arbitration Association. If Tenant shall
not dispute any item or items included in the determination of Landlord's Cost
of Operation of the Building for a given calendar year within ninety (90) days
after the statement for such year was delivered to it, Tenant shall be deemed to
have approved such statement.
3. Service Charge, Interest.
In recognition of the extra costs to Landlord resulting from Tenant's
failure to make timely payments thereof, if any installment of Base Rent or
additional rent provided for herein, including the Annual Rental Adjustment, or
any part thereof, is not paid within five (5) days after its due date, it shall
be subject to a service charge of ten percent (10%) of the unpaid amount, or
such lesser amount as may be the maximum amount permitted by law. In addition,
any such sum not paid within thirty (30) days of its due date shall bear
interest at the rate of fifteen percent (15%) per annum or such lesser rate as
may be the maximum rate permitted by law, from such due date until paid. Tenant
shall be entitled one (1) time during any twelve (12) month period to a period
of ten (10) days from written notice of Landlord to cure a monetary default
without incurring any service charge.
4. Security Deposit.
(A) As security for the performance and observance by Tenant of all of its
obligations under the terms, conditions and covenants of this Lease, Tenant
shall deposit with Landlord, simultaneously with the execution of this Lease,
the sum set forth at Section 1(I) above, which sum shall be held by Landlord as
a security deposit throughout the term of this Lease. If Tenant performs and
observes all of the terms, conditions and covenants of this Lease which are
required to be performed and observed by it, Landlord shall return the security
deposit, or the balance thereof then held by Landlord, without interest, to
Tenant [within thirty (30) days] after the Expiration Date or after Tenant
surrenders possession of the Premises, whichever is later. In the event of a
default by Tenant in the payment of rent or the performance or observance of any
of the other terms, conditions or covenants of this Lease, then Landlord may, at
its option and without notice, apply all or any part of the security deposit in
payment of such rent or to cure any other such default; and if Landlord does so,
Tenant shall, upon request, deposit with Landlord the amount so applied so that
Landlord will have on hand at all times throughout the Term of this Lease the
<PAGE>
full amount of the security deposit. Landlord shall not be required to hold the
security deposit as a separate account, but may commingle it with Landlord's
other funds.
(B) In the event of a sale of the Building, Landlord shall have the right
to transfer the security deposit to its purchaser and Landlord shall thereupon
be released by Tenant from all responsibility for the return of such deposit;
and Tenant agrees to look solely to such purchaser for the return of such
deposit. In the event of an assignment of this Lease, the security deposit shall
be deemed to be held by Landlord as a deposit made by the assignee, and Landlord
shall have no further responsibility for the return of such deposit to the
assignor.
5. Tenant Finish Improvements.
(A) Construction. Landlord shall construct certain tenant finish
improvements to the Premises in accordance with the schematic drawings and
specifications prepared by Landlord's architect in consultation with Tenant.
Such drawings and specifications shall provide for the use of Building Standard
materials as designated on Exhibit D-1 hereto. Landlord acknowledges that the
Tenant Finish Improvements will provide for (i) raised floor computer room of
approximately 3,000 square feet, equipped with one (1) seven (7) ton and one (1)
ten (10) ton Leibert air conditioner units and necessary electrical supply, (ii)
vinyl wall covering in reception area, conference room, and executive office,
(iii) necessary plumbing and cabinetry in lunch room, and (iv) custom reception
desk. It shall be a condition to the effectiveness of this Lease that such
drawings and specifications be in form and substance mutually satisfactory to
Landlord and Tenant. Upon Landlord's approval of such drawings and
specifications, such drawings and specifications shall be attached to and become
a part of this Lease. Plans and specifications for such tenant finish
improvements (the "Tenant Finish Improvements") shall be prepared by Landlord on
the basis of Exhibit "D". If Tenant requests that any changes be made to Exhibit
"D" or the plans and specifications prepared therefrom, Tenant shall pay
Landlord for all costs and expenses, including architectural and engineering
fees, resulting from such changes. No such changes shall be made without the
prior written approval of Landlord. The Tenant Finish Improvements shall be
completed by a contractor satisfactory to Tenant in its reasonable discretion.
The Tenant Finish Improvements shall be constructed by Landlord in a good and
workmanlike manner, using appropriate materials and shall be free from material
defects.
(B) Tenant's Contribution. In order to contribute to and reimburse
Landlord for all or part of the cost of the Tenant Finish Improvements, Tenant
shall pay Landlord as Additional Rent the sum set forth at Section 1(M) above,
on or before the Commencement Date or the date upon which Landlord delivers
possession of the Premises to Tenant, whichever is earlier.
(C) Tenant's Right to Inspect. Tenant shall, at all reasonable times and
during business hours, have the right to inspect the progress of the
construction of the Tenant Finish Improvements by Tenant's representatives, and
if Tenant shall give Landlord notice of faulty construction or of any other
material deviation from Exhibit D, Landlord agrees to cause its contractors or
subcontractors to make the necessary corrections. However, neither the privilege
herein granted to Tenant to make such inspections nor the making of such
inspections by Tenant, shall operate as a waiver of any right of Tenant to
require good and workmanlike construction of the improvements erected in
accordance with said plans.
(D) Access During Construction of Tenant Finish Improvements. Tenant and
Tenant's representatives shall have access to the Premises prior to the
Commencement Date to install Tenant's equipment, such as telephone and computer
equipment, on a schedule mutually satisfactory to Landlord and Tenant, and which
will allow Tenant to be completely moved in by the Commencement Date; provided,
however, that such work shall not interfere or cause delays with Landlord's
construction of the Tenant Finish Improvements. Landlord will cooperate to
notify Tenant or Tenant's representative of times during which Tenant can
install telephone and computer lines at costs advantageous to Tenant. Tenant
agrees that it shall not utilize non-union labor in the performance of such
work.
6. Delivery of Possession; Adjustment of Term.
(A) Completion and Delivery of Possession. Landlord will deliver
possession of the Premises on the Commencement Date, provided that the drawings
and specifications to be attached hereto as Exhibit D are completed and approved
by Landlord and Tenant no later than August 31, 1993, at which time, Landlord
expects that the Tenant Finish improvements will be substantially completed and
the Premises ready for occupancy. The Premises shall not be deemed to be unready
for Tenant's occupancy or incomplete if: (a) only minor insubstantial details of
construction, decoration or mechanical adjustments remain to be done in the
Premises or any part thereof, (b) the delay in the availability of the Premises
for occupancy shall be due to special work, changes, alterations or additions
required or made by Tenant in the layout or finish of the Premises, or otherwise
caused in whole or in part by delay and/or default on the part of Tenant and/or
its subtenant or subtenants. In the event of any dispute as to whether the
Premises are ready for occupancy, a certificate signed by Landlord's architect
stating that the Tenant Finish Improvements were substantially competed in
accordance with the plans and specifications for such improvements shall be
conclusive and binding upon Tenant.
<PAGE>
(B) Early Delivery of Possession. Landlord expects that it will have the
Tenant Finish Improvements substantially completed and the Premises ready for
occupancy on or before the Commencement Date. If the Premises are ready for
occupancy prior to the Commencement Date, Landlord may, at Tenant's request,
deliver possession of the Premises to Tenant at such time, and Tenant may then
occupy the Premises as a tenant from month-to-month, subject to all of the
terms, conditions and covenants of this Lease other than the Term and the
obligation to pay rent as provided in Paragraphs 2 and 3 hereof. In such event,
Tenant shall pay Base Rent and the Annual Rental Adjustment for the period
between such date and the Commencement Date, commencing on the date Landlord
delivers possession of the Premises and ending on the Commencement Date.
(C) Late Delivery of Possession. If Landlord determines that it will be
unable substantially to complete the Tenant Finish Improvements and have the
Premises ready for occupancy by the Commencement Date, Landlord shall give
Tenant written notice to that effect, and thereafter the Commencement Date shall
be postponed to the earlier of (i) the date upon which Tenant takes possession
of the Premises or (ii) the thirtieth (30th) day after Landlord shall have
notified Tenant in writing that the Premises are ready for occupancy. In the
event of such postponement, the Term of this Lease shall remain the same, but
the Expiration Date shall be extended for the same number of days the
Commencement Date was postponed; Tenant's obligation to pay rent shall be
postponed for a like number of days, and Landlord shall not be liable to Tenant
for any loss or damage resulting from Landlord's delay in delivering possession
of the Premises to Tenant. If, on or before the date which is two (2) months
prior to the Commencement Date, the contractor retained by Landlord to construct
the Tenant Finish Improvements provides notice to Landlord that such contractor
will be unable to substantially complete such Tenant Finish Improvements on or
before the Commencement Date, Landlord shall endeavor to provide Tenant with
notice of late delivery of the Premises on or before the date which is two (2)
months prior to the Commencement Date; provided, however, that, in the event of
any late delivery of the Premises, Landlord's failure to give such notice shall
not be deemed a default by Landlord under this Lease. Notwithstanding anything
herein to the contrary, Tenant shall have the right to terminate this Lease at
any time after April 1, 1994, if Landlord has not substantially completed
construction of the Tenant Finish Improvements, unless Landlord's delay was
caused by Tenant's failure to deliver drawings and specifications as required by
paragraph 6(A) hereof in time for them to be approved by Landlord on or before
August 31, 1993. In order to exercise such right, Tenant must give to Landlord
written notice of termination after April 1, 1994, and prior to substantial
completion of the Tenant Finish Improvements. Substantial completion of the
Tenant Finish Improvements shall be reasonably determined by Landlord's
architect in his sole discretion.
(D) Tenant's Acceptance of the Premises. Upon delivery of possession of
the Premises to Tenant as hereinbefore provided, Tenant shall give Landlord a
letter signed by an officer or principal of Tenant acknowledging (i) the
original or revised Commencement Date and Expiration Date of this Lease, and
(ii) that Tenant has accepted the Premises for occupancy and that the condition
of the Premises, including the Tenant Finish Improvements constructed thereon,
was at the time satisfactory and in conformity with the provisions of this Lease
in all respects, except for any defects as to which Tenant shall give written
notice to Landlord within thirty (30) days after Landlord has delivered
possession of the Premises. Landlord shall promptly thereafter correct all such
defects. Tenant's letter shall be attached to and made a part of this Lease.
7. Use of the Premises.
(A) Specific Use. The Premises shall be occupied and used exclusively for
the purposes set forth at Section 1(K) above and for purposes incidental
thereto, and shall not be used for any other purpose.
(B) Covenants Regarding Use. In connection with its use of the Premises,
Tenant agrees to do the following:
(i) Tenant shall use the Premises and conduct its business thereon in
a safe, careful, reputable and lawful manner; shall keep and maintain the
Premises in as good a condition as they were when Tenant first took possession
thereof and shall make all necessary repairs to the Premises other than those
which Landlord is obligated to make as provided elsewhere herein.
(ii) Tenant shall not commit, nor allow to be committed, in, on or
about the Premises or the Building, any act of waste, including any act which
might deface, damage or destroy the Building or any part thereof; use or permit
to be used on the Premises any hazardous substance, equipment or other thing
which might cause injury to person or property or increase the danger of fire or
other casualty in, on or about the Premises; permit any objectionable or
offensive noise or odors to be emitted from the Premises; or do anything, or
permit anything to be done, which would, in Landlord's opinion, disturb or tend
to disturb other tenants occupying leased space in the Building.
(iii) Tenant shall not overload the floors of the Premises beyond
their designed weight-bearing capacity. Landlord reserves the right to direct
the positioning of all heavy equipment, furniture and fixtures which Tenant
desires to place in the Premises so as to distribute properly the weight
thereof, and to require the removal of any equipment or furniture which exceeds
the weight limit specified herein. Landlord has reviewed Tenant's preliminary
plans dated June 11, 1993, for computer room equipment and forms storage, and
<PAGE>
represents that the Premises can accommodate Tenant's intended uses.
(iv) Tenant shall not use the Premises, nor allow the Premises to be
used, for any purpose or in any manner which would, in Landlord's opinion,
invalidate any policy of insurance now or hereafter carried on the Building or
increase the rate of premiums payable on any such insurance policy. Should
Tenant fail to comply with this covenant, Landlord may, at its option, require
Tenant to stop engaging in such activity or to reimburse Landlord as additional
rent for any increase in premiums charged during the term of this Lease on the
insurance carried by Landlord on the Premises and attributable to the use being
made of the Premises by Tenant.
(C) Compliance with Laws. Tenant shall conduct its operations so as to
comply with all laws, statutes, ordinances, rules, regulations and orders of any
federal, state, municipal or other government or agency thereof having
jurisdiction over and relating to the use, condition and occupancy of the
Premises, except that Tenant shall not be responsible for or required to make
structural repairs to the Building or the Premises unless, in the case of the
latter, they are occasioned by Tenant's particular use of the Premises or
Tenant's negligence. Except as set forth in paragraph 10 of the Addendum, and
except as required of Tenant by this paragraph (C), Landlord shall make all
repairs and replacements to the Premises required to cause the Premises to
comply with laws. Landlord will obtain necessary permits required for Tenant
Finish Improvements and Tenant's occupancy, including construction and occupancy
permits.
(D) Compliance with Building Rules and Regulations. Rules and regulations
governing the use and occupancy of the Premises and all other leased space in
the Building have been adopted by Landlord for the mutual benefit and protection
of all the tenants in the Building. Tenant shall comply with and conform to the
rules and regulations currently in effect, which are set forth on a schedule
attached hereto, made a part hereof and marked "Exhibit C". Landlord shall have
the right to change such rules and regulations or to make reasonable new rules
and regulations from time to time in any manner that it deems necessary or
desirable in order to insure the safety, care and cleanliness of the Building
and the preservation of order therein. Any such amendments to the rules and
regulations shall be set forth in writing and shall be given to Tenant, who
shall thereafter comply with and conform to the same.
(E) Compliance with Zoning. It being understood that applicable zoning
ordinances and regulations are of public record and that Tenant knows the
character of its operation in the Premises, Tenant shall have sole
responsibility for its compliance therewith, and Tenant's inability so to comply
shall not be cause for Tenant to terminate this Lease.
8. Utilities and Other Building Services.
(A) Services to be Provided. Landlord shall furnish Tenant, between the
hours of 8:00 a.m. and 6:00 p.m. on Monday through Friday and between 8:00 a.m.
and 3:00 p.m. on Saturday of each week except on legal holidays and except as
noted below, with the following utilities and other building services to the
extent considered by Landlord to be reasonably necessary for Tenant's
comfortable use and occupancy of the Premises for general office use or as may
be required by law or directed by governmental authority:
(i) Heating, ventilation and air conditioning;
(ii) Electricity for lighting and operating business machines and
equipment in the Premises and the common areas and facilities of the Building
(available twenty-four (24) hours a day, subject to interruption due to
maintenance, repair, and renovation or remodeling);
(iii) Water for lavatory and drinking purposes (available
twenty-four (24) hours a day, subject to interruption due to maintenance,
repair, and renovation or remodeling);
(iv) Automatic elevator service, where applicable (available
twenty-four (24) hours a day, subject to interruption due to maintenance,
repair, and renovation or remodeling);
(v) Cleaning and janitorial service (including the supplying and
installing of paper towels, toilet tissue and soap in common washrooms) on
Monday through Friday of each week except legal holidays;
(vi) The washing of exterior windows at intervals established by
Landlord;
(vii) Replacement of all building standard lamps, bulbs, starters
and ballasts used in the Premises and common areas of the Building;
(viii) Cleaning and maintenance of the common areas and facilities
of the Building and the walks, driveways, parking lot and landscaped areas
adjacent to the Building, including the removal of rubbish and snow; and
(ix) Repair and maintenance of the Building and certain systems
within the Premises to the extent specified in Paragraph 11 hereof.
(B) Additional Services. If Tenant requests any other utilities or
building services in addition to those identified above or any of the above
<PAGE>
utilities or building services in frequency, scope, quality or quantities
greater than that which Landlord determines are normally required by other
tenants in the Building for general office use, then Landlord shall use
reasonable efforts to attempt to furnish Tenant with such additional utilities
or building services. In the event Landlord is able to and does furnish such
additional utilities or building services, the cost thereof shall be borne by
Tenant, who shall reimburse Landlord monthly for the same as provided in
Paragraph 8(D) hereof. Heating and air conditioning during extended business
hours will be available by a key switch installed in the Premises and such usage
(if accessed) will be monitored and billed monthly by the Building's energy
management system.
If any lights, machines or equipment (including but not limited to
computers) used by Tenant in the Premises materially affect the temperature
otherwise maintained by the Building's air conditioning system or generate
substantially more heat in the Premises than that which would normally be
generated by the lights and business machines and equipment typically used by
other tenants in the Building or by tenants in comparable office buildings, then
Landlord shall have the right to install any machinery or equipment which
Landlord considers reasonably necessary in order to restore the temperature
balance between the Premises and rest of the Building, including that which
modifies the Building's air conditioning system. All costs expended by Landlord
to install any such machinery and equipment and any additional cost of operation
and maintenance occasioned thereby shall be borne by Tenant, who shall reimburse
Landlord for the same as provided in Paragraph 8(D) hereof.
Tenant shall not install nor connect any electrical machinery or equipment
other than the business machines, personal computers, and equipment typically
used for general office use by tenants in office buildings comparable to the
Building (a mainframe computer being an example of such atypical electrical
equipment) nor any water-cooled machinery or equipment without Landlord's prior
written consent. If Landlord determines that the machinery, computers, or
equipment to be so installed or connected exceeds the designed load capacity of
the Building's electrical system or is in any way incompatible therewith or will
materially affect utility costs, then Landlord shall have the right, as a
condition to granting its consent, to make such modifications to any utility
system or other parts of the Building or the Premises, or to require Tenant to
make such modifications to the equipment to be installed or connected, as
Landlord considers to be reasonably necessary, or to require that such equipment
be separately metered, before such equipment may be so installed or connected.
The cost of any such metering or modifications shall be borne by Tenant, who
shall reimburse Landlord for the same (or any portion thereof paid by Landlord)
as provided in Paragraph 8(D) hereof. Attached hereto and marked Exhibit E is a
list of Tenant's equipment to be installed in computer room, and Landlord has
reviewed the list of such equipment and represents that the use of such
equipment in the computer room (i) will not require additional machinery or
equipment for temperature regulation, except as provided for in the Tenant
Finish Improvements provided by Landlord pursuant to Exhibit D; and (ii) will
not exceed the load capacity of the Building's electrical system. Landlord shall
not require Tenant to make modifications to equipment listed on Exhibit E
hereto, in conjunction with the construction of the Tenant Finish Improvements.
Landlord shall install a separate meter in Tenant's computer room at
Landlord's cost and as part of Landlord's Tenant Finish Improvements, and Tenant
shall pay to Landlord on a monthly basis, as additional rent, and within ten
(10) days of receipt of Landlord's invoice therefor, the direct costs of utility
charges as monitored by such separate meter.
(C) Interruption of Services. Tenant understands, acknowledges and agrees
that any one or more of the utilities or other building services identified
above may be interrupted by reason of accident, emergency or other causes beyond
Landlord's control, or may be discontinued or diminished temporarily by Landlord
or other persons until certain repairs, alterations or improvements can be made;
that Landlord does not represent or warrant the uninterrupted availability of
such utilities or building services; and that any such interruption shall not be
deemed an eviction or disturbance of Tenant's right to possession, occupancy and
use of the Premises or any part thereof, or render Landlord liable to Tenant in
damages by abatement of rent or otherwise, or relieve Tenant from the obligation
to perform its covenants under this Lease.
(D) Payment for Utilities and Building Services. The cost of additional
utilities and other building services furnished by Landlord at the request of
Tenant or as a result of Tenant's activities as provided in Paragraph 8(B)
hereof shall be borne by Tenant, who shall be separately billed therefor and who
shall reimburse and pay Landlord monthly for the same as additional rent, at the
same time the next monthly installment of Base Rent and other additional rent is
due.
9. Parking.
Landlord hereby gives to Tenant, its employees, agents, customers and
invitees and in common with other tenants in the Building and to their
employees, agents, customers and invitees, the privilege of unallocated parking
in the parking lot appurtenant to the Building, subject to the Rules and
Regulations from time to time promulgated by Landlord.
10. Signs.
Tenant shall not inscribe, paint, affix or display any signs,
<PAGE>
advertisements or notices on or in the Building or in the Premises and visible
from outside, except for such tenant identification information as Landlord
permits to be included or shown on the directory board in the main lobby and on
the tenant access doors to the Premises.
11. Repairs, Maintenance, Alterations, Improvements and Fixtures.
(A) Repair and Maintenance of Building. Landlord shall keep and maintain
in good order, condition and repair the roof, exterior and interior load-bearing
walls (including any plate glass windows comprising a part thereof), foundation,
basement, the common areas and facilities of the Building and the electrical,
plumbing, heating, ventilation and air conditioning systems serving the Premises
and other parts of the Building, except that the repair and maintenance of any
electrical, plumbing, heating, ventilation and air conditioning components which
have been installed in the Premises pursuant to the provisions of Paragraph 8(B)
hereof, shall be the responsibility of Tenant. The cost of all repairs required
to be made by Landlord shall be borne by Landlord unless made necessary by the
negligence, misuse or default of Tenant, its employees, agents, customers or
invitees, in which event they shall be borne by Tenant, who shall be separately
billed and shall reimburse Landlord for the same as additional rent.
(B) Repair and Maintenance of Premises. Except as provided in Paragraph
12(A) hereof, Tenant shall, at its own expense, keep and maintain the Premises
in good order, condition and repair.
(C) Alterations or Improvements. Tenant shall not make, nor permit to be
made, alterations or improvements to the Premises, unless Tenant obtains the
prior written consent of Landlord thereto, which consent shall not be
unreasonably withheld. If Landlord permits Tenant to make any such alterations
or improvements, Tenant shall make the same in accordance with all applicable
laws and building codes, in a good and workmanlike manner and in quality equal
to or better than the original construction of the Building and shall comply
with such requirements as Landlord considers necessary or desirable, including
without limitation requirements as to the manner in which and the times at which
such work shall be done and the contractor or subcontractors to be selected to
perform such work. Tenant shall promptly pay all costs attributable to such
alterations and improvements and shall indemnify, defend and hold harmless
Landlord from and against any mechanic's liens or other liens or claims filed or
asserted as a result thereof and against any costs or expenses which may be
incurred as a result of building code violations attributable to such work.
Tenant shall promptly repair any damage to the Premises or the Building caused
by any such alterations or improvements. Any alterations or improvements to the
Premises, except movable office furniture and equipment and trade fixtures,
shall at Landlord's election, either (i) become a part of the realty and the
property of Landlord, and shall not be removed by Tenant, or (ii) be removed by
Tenant upon the expiration or earlier termination hereof and any damage caused
thereby repaired at Tenants cost and expense. In the event Tenant so fails to
remove same, Landlord may have same removed and the Premises so repaired at
Tenant's expense.
(D) Trade Fixtures. Any trade fixtures installed on the Premises by Tenant
at its own expense, such as movable partitions, counters, shelving, showcases,
mirrors and the like, may, and, at the request of Landlord, shall be removed on
the Expiration Date or earlier termination of this Lease, provided that Tenant
is not then in default, that Tenant bears the cost of such removal, and further
that Tenant repair at its own expense any and all damage to the Premises
resulting from such removal. If Tenant fails so to remove any and all such trade
fixtures from the Premises on the Expiration Date or earlier termination of this
Lease, all such trade fixtures shall become the property of Landlord unless
Landlord elects to require their removal, in which case Tenant shall promptly
remove same and restore the Premises to their prior condition. In the event
Tenant so fails to remove same, Landlord may have same removed and the Premises
so repaired at Tenant's expense.
12. Fire or Other Casualty; Casualty Insurance.
(A) Substantial Destruction of the Building. If the Building should be
substantially destroyed (which, as used herein, means destruction or damage to
at least 75% of the Building) by fire or other casualty, either party hereto
may, at its option, terminate this Lease by giving written notice thereof to the
other party within thirty (30) days of such casualty. In such event, the rent
shall be apportioned to and shall cease as of the date of such casualty. In the
event neither party exercises this option, then the Premises shall be
reconstructed and restored, at Landlord's expense, to substantially the same
condition as they were prior to the casualty.
(B) Substantial Destruction of the Premises. If the Premises should be
substantially destroyed, or rendered wholly untenantable for the purpose for
which they were leased, by fire or other casualty, but the Building is not
substantially destroyed as provided above, then the parties hereto shall have
the following options:
(i) If such destruction is not the result of the acts or negligence of
Tenant, its employees or agents, Tenant may elect to terminate this Lease or
require that the Premises be reconstructed and restored, at Landlord's expense,
to substantially the same condition as they were prior to the casualty. This
option shall be exercised by Tenant by giving written notice to Landlord within
thirty (30) days after the date of the casualty, and upon the exercise thereof
rent shall be abated from the date of the casualty until substantial completion
<PAGE>
of the reconstruction of the Premises, whereupon this Lease shall continue in
full force and effect for the balance of the term, upon the same terms,
conditions and covenants as are contained herein. If such destruction is the
result of the acts or negligence of Tenant, its employees or agents, or if this
option is not so exercised by Tenant, Landlord shall then have the right and
option, to be exercised within thirty (30) days following the destruction or
expiration of Tenant's option period, by giving written notice to Tenant, to
reconstruct and restore the Premises to substantially the same condition as they
were prior to the casualty. In such event, this Lease shall continue in full
force and effect for the balance of the term, upon the same terms, conditions
and covenants as are contained herein; provided, however, that the rent shall be
abated from the date of the casualty until substantial completion of the
reconstruction of the Premises. If Landlord fails to exercise the last mentioned
option, this Lease shall be terminated as of the date of the casualty, to which
date rent shall be apportioned and shall thereafter cease.
(ii) Notwithstanding the above, if the casualty occurs during the last
twelve (12) months of the term of this Lease, either party hereto shall have the
right and option to terminate this Lease as of the date of the casualty, which
option shall be exercised by written notice to be given by either party to the
other party within thirty (30) days therefrom. If this option is exercised, rent
shall be apportioned to and shall cease as of the date of the casualty.
(C) Partial Destruction of the Premises. If the Premises should be
rendered partially untenantable for the purpose for which they were leased
(which, as used herein, means such destruction or damage as would prevent Tenant
from carrying on its business on the Premises to an extent exceeding 40% of its
normal business activity) by fire or other casualty which is not the result of
the acts or negligence of Tenant, its employees or agents, then such damaged
part of the Premises shall be reconstructed and restored, at Landlord's expense,
to substantially the same condition as it was prior to the casualty; rent shall
be abated in the proportion which the approximate area of the damaged part bears
to the total area in the Premises from the date of the casualty until
substantial completion of the reconstruction repairs; and this Lease shall
continue in full force and effect for the balance of the term. Landlord shall
use reasonable diligence in completing such reconstruction repairs, but in the
event Landlord fails to complete the same within one hundred eighty (180) days
from the date of the casualty, Tenant may, at its option, terminate this Lease
upon giving Landlord written notice to that effect, whereupon both parties shall
be released from all further obligations and liability hereunder.
(D) Casualty Insurance. Landlord shall be responsible for insuring and
shall at all times during the term of this Lease carry, at its own expense, such
policies of insurance which insures the Building, including the Premises,
against loss or damage by fire or other casualty as Landlord shall reasonably
deem necessary; provided, however, that Landlord shall not be responsible for,
and shall not be obligated to insure against, any loss or damage to personal
property (including, but not limited to, any furniture, machinery, equipment,
goods or supplies) of Tenant or which Tenant may have on the Premises or any
trade fixtures installed by or paid for by Tenant on the Premises or any
additional improvements which Tenant may construct on the Premises. If Tenant's
operation or the Tenant Finish Improvements installed by Landlord pursuant to
the provisions of Paragraph 5(A) hereof or any alterations or improvements made
by Tenant pursuant to the provisions of Paragraph 11(C) hereof are substantially
different from the Standard Building Improvements offered by Landlord as of the
date hereof and result in an increase in the premiums charged during the Term of
this Lease on the casualty insurance carried by Landlord on the Building, then
the cost of such increase in insurance premiums shall be borne by Tenant, who
shall reimburse Landlord for the same as Additional Rent upon being separately
billed therefor.
(E) Waiver of Subrogation. To the extent permitted by applicable policies
of insurance, Landlord and Tenant hereby release each other and each other's
employees, agents, customers and invitees from any and all liability for any
loss, damage or injury to person or property occurring in, on or about or to the
Premises, improvements to the Building or personal property within the Building,
by reason of fire or other casualty which are covered by applicable standard
fire and extended coverage insurance policies. Because the provisions of this
paragraph may preclude the assignment of any claim mentioned herein by way of
subrogation or otherwise to an insurance company or any other person, each party
to this Lease shall give to each insurance company which has issued to it one or
more policies of fire and extended coverage insurance notice of the terms of the
mutual releases contained in this paragraph, and have such insurance policies
properly endorsed, if necessary, to prevent the invalidation of insurance
coverages by reason of the mutual releases contained in this paragraph.
13. General Public Liability, Indemnification and Insurance.
(A) Tenant shall be responsible for, shall insure against, and shall
indemnify Landlord, its employees and agents and hold them harmless from any and
all liability for any loss, damage or injury to person or property occurring in,
on or about the Premises and Tenant hereby releases Landlord, its employees and
agents from any and all liability for the same. Tenant's obligation to indemnify
Landlord, its employees and agents hereunder shall include the duty to pay all
costs of defense against any claims asserted by reason of such loss, damage or
injury, including any judgments, settlements, costs, fees and expenses, and
attorneys' fees, incurred in connection therewith.
(B) Tenant shall at all times during the term of this Lease carry, at its
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own expense, for the protection of Tenant, Landlord and Landlord's management
agent, as their interests may appear, one or more policies of general public
liability and property damage insurance, issued by one or more insurance
companies acceptable to Landlord, with minimum coverages of $1,000,000 for
injury to one person in any one accident, $1,000,000 for injuries to more than
one person in any one accident and $1,000,000 in property damage per accident,
and insuring against any and all liability for which Tenant is responsible
hereunder. Such insurance policy or policies shall name Landlord as an insured
and shall provide that they may not be cancelled on less than ten (10) days
prior written notice to Landlord. Tenant shall furnish Landlord with
certificates evidencing such insurance. Should Tenant fail to carry such
insurance and to furnish Landlord with copies of all such policies after a
request to do so, Landlord shall have the right to obtain such insurance and
collect the cost thereof from Tenant as additional rent.
(C) Landlord shall be responsible for, shall have the obligation to insure
against, and shall indemnify Tenant and hold it harmless from, any and all
liability for any loss, damage or injury to person or property occurring in, on
or about the common areas and facilities of the Building and the walks,
driveways, parking lot and landscaped areas adjacent to the Building.
14. Eminent Domain.
If the whole or any part of the Premises shall be taken for public or
quasi-public use by a governmental authority under the power of eminent domain
or shall be conveyed to a governmental authority in lieu of such taking, and if
such taking or conveyance shall cause the remaining part of the Premises to be
untenantable and inadequate for use by Tenant for the purpose for which they
were leased, then Tenant may, at its option, terminate this Lease as of the date
Tenant is required to surrender possession of the Premises. If a part of the
Premises shall be taken or conveyed but the remaining part is tenantable and
adequate for Tenant's use, then this Lease shall be terminated as to the part
taken or conveyed as of the date Tenant surrenders possession; Landlord shall
make such repairs, alterations and improvements as may be necessary to render
the part not taken or conveyed tenantable; and the rent shall be reduced in
proportion to the part of the Premises so taken or conveyed. Notwithstanding any
such repairs, Tenant shall have the use of the number of car parking spaces set
forth in paragraph 4 of the Addendum attached hereto and made a part hereof, and
if such taking causes a reduction in the number of car parking spaces available
to Tenant below such level, Tenant shall have the option of terminating this
Lease by giving Landlord notice of its election to do so on or before the date,
which is thirty (30) days after Landlord shall have notified Tenant of such
taking, which termination shall be effective as of the date such car parking is
no longer available to Tenant; provided, however, that such right on the part of
Tenant to terminate this Lease by reason of a reduction in the number of car
parking spaces shall be nullified if Landlord shall, on or before the sixtieth
(60th) day after the giving of such notice by Tenant advise Tenant in writing of
Landlord's intention to forthwith provide and furnish substitute parking
facilities either by providing a ground level parking area of comparable quality
and contiguous to the remaining parking area or by erecting a parking deck at a
location and of a design reasonably satisfactory to Tenant. All compensation
awarded for such taking or conveyance shall be the property of Landlord without
any deduction therefrom for any present or future estate of Tenant, and Tenant
hereby assigns to Landlord all its right, title and interest in and to any such
award. However, Tenant shall have the right to recover from the governmental
authority, but not from Landlord, such compensation as may be awarded to Tenant
on account of the interruption of Tenant's business, moving and relocation
expenses and depreciation to and removal of Tenant's trade fixtures and personal
property.
15. Liens.
If, because of any act or omission of Tenant or anyone claiming by,
through, or under Tenant, any mechanic's lien or other lien shall be filed
against the Premises or the Building or against other property of Landlord
(whether or not such lien is valid or enforceable as such), Tenant shall, at its
own expense, cause the same to be discharged of record within a reasonable time,
not to exceed thirty (30) days, after the date of filing thereof, and shall also
defend and indemnify Landlord and hold it harmless from any and all claims,
losses, damages, judgments, settlements, costs and expenses, including
attorneys' fees, resulting therefrom or by reason thereof.
16. Rental, Personal Property and Other Taxes.
(A) Tenant shall pay before delinquency any and all taxes, assessments,
fees or charges (hereinafter referred to as "taxes"), including any sales, gross
income, rental, business occupation or other taxes, levied or imposed upon
Tenant's business operation in the Premises and any personal property or similar
taxes levied or imposed upon Tenant's trade fixtures, leasehold improvements or
personal property located within the Premises. In the event any such taxes are
charged to the account of, or are levied or imposed upon the property of,
Landlord, Tenant shall reimburse Landlord for the same as additional rent.
Notwithstanding the foregoing, Tenant shall have the right to contest in good
faith any such tax and to defer payment, if required, until after Tenant's
liability therefor is finally determined.
(B) If any tenant finish improvements, trade fixtures, alterations or
improvements or business machines and equipment located in, on or about the
Premises, regardless of whether they are installed or paid for by Landlord or
<PAGE>
Tenant and whether or not they are affixed to and become a part of the realty
and the property of Landlord, are assessed for real property tax purposes at a
valuation higher than that at which other such property in other leased space in
the Building is assessed, then Tenant shall reimburse Landlord as additional
rent for the amount of real property taxes shown on the appropriate county
official's records as having been levied upon the Building or other property of
Landlord by reason of such excess assessed valuation.
17. Assignment and Subletting.
Tenant may not assign or otherwise transfer its interest in this Lease or
sublet the Premises or any part thereof without the prior written consent of
Landlord. It is agreed that Landlord's consent to such assignment or subletting
shall not be unreasonably withheld; provided, however, that it shall not be
deemed unreasonable for Landlord to refuse its consent to any proposed assignee
or subtenant which is currently a tenant in the Corporate Hill II Building or in
active negotiation within the last ninety (90) days for space in the Corporate
Hill Buildings, or whose reputation or financial responsibility is unacceptable
to Landlord. Any withholding of consent by Landlord hereunder shall specify the
reason therefor. The transfer or sale of all or substantially all the assets or
a majority of the stock of Tenant shall be deemed an assignment hereunder. In
the event of any such assignment or subletting, Tenant shall nevertheless at all
times remain fully responsible and liable for the payment of Rent and the
performance and observance of all of the tenant's other obligations under this
Lease. No assignment or subletting of the Premises or any part thereof shall be
effective or binding upon Landlord unless such assignee or subtenant shall
deliver to Landlord an instrument (in recordable form, if requested) containing
an agreement of assumption of all of Tenant's obligations under this Lease. Upon
the occurrence of an event of default, if all or any part of the Premises are
then assigned or sublet, Landlord, in addition to any other remedies provided by
this Lease or by law, may, at its option, collect directly from the assignee or
subtenant all rent becoming due to Landlord by reason of the assignment or
subletting, and Landlord shall have a security interest in all property on the
Premises to secure payment of such sums. Any collection by Landlord from the
assignee or subtenant shall not be construed to constitute a novation or release
of Tenant from the further performance of its obligations under this Lease.
18. Subordination of Lease to Mortgages.
This Lease is subject and subordinate to any mortgage, deed of trust or
similar encumbrance presently existing or hereafter voluntarily placed upon the
Building or the Premises, including any renewals, extensions or modifications
thereof; and the recording of any such mortgage, deed of trust or similar
encumbrance shall make it prior and superior to this Lease regardless of the
date of execution or recording of either document. Tenant shall, at Landlord's
request, execute and deliver to Landlord, without cost, any instrument which may
be deemed necessary or desirable by Landlord to confirm the subordination of
this Lease; and if Tenant fails to refuses to do so, Landlord may execute such
instrument in the name and as the act of Tenant.
19. Defaults and Remedies.
(A) Default by Tenant. The occurrence of any one or more of the following
events shall be a default and breach of this Lease by Tenant:
(i) Tenant shall fail to pay any monthly installment of Base Rent or
Additional Rent or the Annual Rental Adjustment within ten (10) days after the
same shall be due and payable.
(ii) Tenant shall fail to perform or observe any other term,
condition, covenant or obligation required to be performed or observed by it
under this Lease for a period of ten (10) days after notice thereof from
Landlord; provided, however, that if the term, condition, covenant or obligation
to be performed by Tenant is of such nature that the same cannot reasonably be
performed within such ten-day period, such default shall be deemed to have been
cured if Tenant commences such performance within said ten-day period and
thereafter diligently undertakes to complete the same.
(B) Remedies of Landlord. Upon the occurrence of any event of default set
forth in Paragraph 19(A) hereof, Landlord shall have the following rights and
remedies, in addition to those allowed by law, any one or more of which may be
exercised without further notice to or demand upon Tenant:
(i) Landlord may apply the security deposit or re-enter the Premises
and cure any default of Tenant, in which event Tenant shall reimburse Landlord
as additional rent for any costs and expenses which Landlord may incur to cure
such default; and Landlord shall not be liable to Tenant for any loss or damage
which Tenant may sustain by reason of Landlord's action, regardless of whether
caused by Landlord's negligence or otherwise.
(ii) Landlord may terminate this Lease as of the date of such default,
in which event: (a) neither Tenant nor any person claiming under or through
Tenant shall thereafter be entitled to possession of the Premises, and Tenant
shall immediately thereafter surrender the Premises to Landlord; (b) Landlord
may re-enter the Premises and dispossess Tenant or any other occupants of the
Premises by force, summary proceedings, ejectment or otherwise, and may remove
their effects, without prejudice to any other remedy which Landlord may have for
possession or arrearages in rent; and (c) Tenant shall be liable for all loss or
damage which Landlord may sustain by reason of such termination and re-entry. In
<PAGE>
addition, Landlord may re-let all or any part of the Premises for a term
different from that which would otherwise have constituted the balance of the
term of this Lease and for rent and on terms and conditions different from those
contained herein, whereupon Tenant shall be obligated to pay to Landlord as
liquidated damages the difference between the rent provided for herein and that
provided for in any lease covering a subsequent re-letting of the Premises, for
the period which would otherwise have constituted the balance of the term of
this Lease, together with all of Landlord's costs and expenses for preparing the
Premises for re-letting, including all repairs, tenant finish improvements,
broker's and attorney's fees, and all loss or damage which Landlord may sustain
by reason of such termination, re-entry and reletting, it being expressly
understood and agreed that the liabilities and remedies specified above shall
survive the termination of this Lease. Any agreement for an extension of the
Term of this Lease or any additional period thereafter shall not thereby prevent
Landlord from terminating this Lease for any reason specified in this Lease. If
any such right of termination is exercised by Landlord during the Term or any
extension thereof, Tenant's right to any further extension shall be thereby
automatically cancelled. Any such right of termination of Landlord contained
herein shall continue during the Term of this Lease and any subsequent extension
hereof.
(iii) Notwithstanding the termination of this Lease, Landlord may
declare all rents which would have been due under this Lease for the balance of
the Term to be immediately due and payable, whereupon Tenant shall be obligated
to pay the same to Landlord.
(iv) Landlord may sue for injunctive relief or to recover damages for
any loss resulting from the breach.
(C) Non-Waiver of Defaults. The failure or delay by either party hereto to
enforce or exercise at any time any of the rights or remedies or other
provisions of this Lease shall not be construed to be a waiver thereof, nor
affect the validity of any part of this Lease or the right of either party
thereafter to enforce each and every such right or remedy or other provisions.
No waiver of any default and breach of this Lease shall be held to be a waiver
of any other default or breach. The receipt of Rent by Landlord at a time after
rent is due under this Lease shall not be construed as a waiver of such default.
The receipt by Landlord of less than the full rent due shall not be construed to
be other than a payment on account of rent then due, nor shall any statement on
Tenant's check or any letter accompanying Tenant's check be deemed an accord and
satisfaction, and Landlord may accept such payment without prejudice to
Landlord's right to recover the balance of the rent due or to pursue any other
remedies provided in this Lease. No act or omission by Landlord or its employees
or agents during the term of this Lease shall be deemed an acceptance of a
surrender of the Premises, and no agreement to accept such a surrender shall be
valid unless in writing and signed by Landlord.
(D) Payments Deemed Rent. Any amounts of money to be paid by Tenant to
Landlord pursuant to the provisions of this Lease, [whether or not such payments
are denominated "Rent" or "Additional Rent" and whether or not they are to be
periodic or recurring, shall be deemed rent or additional rent for purposes of
this Lease; and any failure to pay any of same as provided in Paragraph 19(A)
hereof shall entitle Landlord to exercise all of the rights and remedies
afforded hereby or by law for the collection and enforcement of Tenant's
obligation to pay Rent. Tenant's obligation to pay any such Rent or Additional
Rent pursuant to the provisions of this Lease shall survive the expiration or
other termination of this Lease and the surrender of possession of the Premises
after any holdover period.
(E) Attorney's Fees. In the event Tenant defaults in the performance or
observance of any of the terms, conditions, covenants or obligations contained
in this Lease and Landlord places the enforcement of all or any part of this
Lease, the collection of any rent due or to become due or the recovery of
possession of the Premises in the hands of an attorney or collection agency,
Tenant agrees to reimburse Landlord for the attorney's or collection agent's
fees incurred thereby, whether or not suit is actually filed.
20. Bankruptcy or Insolvency. It is understood and agreed that the following
shall apply in the event of the bankruptcy or insolvency of Tenant:
(i) If a petition is filed by, or an order for relief is entered
against Tenant under Chapter 7 of the Bankruptcy Code and the trustee of Tenant
elects to assume this Lease for the purpose of assigning it, such election or
assignment, or both, may be made only if all of the terms and conditions of
subparagraphs (ii) and (iv) below are satisfied. To be effective, an election to
assume this Lease must be in writing and addressed to Landlord, and in
Landlord's business judgment, all of the conditions hereinafter stated, which
Landlord and Tenant acknowledge to be commercially reasonable, must have been
satisfied. If the trustee fails so to elect to assume this Lease within sixty
(60) days after such filing or order, this Lease will be deemed to have been
rejected, and Landlord shall then immediately be entitled to possession of the
Premises without further obligation to Tenant or the trustee, and this Lease
shall be terminated. Landlord's right to be compensated for damages in the
bankruptcy proceeding, however, shall survive such termination.
(ii) If Tenant files a petition for reorganization under Chapters 11
or 13 of the Bankruptcy Code, or if a proceeding filed by or against Tenant
under any other chapter of the Bankruptcy Code is converted to a Chapter 11 or
13 proceeding and Tenant's trustee or Tenant as debtor-in-possession fails to
<PAGE>
assume this Lease within sixty (60) days from the date of the filing of such
petition or conversion, then the trustee or the debtor-in-possession shall be
deemed to have rejected this Lease. To be effective, any election to assume this
Lease must be in writing addressed to Landlord and, in Landlord's business
judgment, all of the following conditions, which Landlord and Tenant acknowledge
to be commercially reasonable, must have been satisfied:
(a) The trustee or the debtor-in-possession has cured or has
provided to Landlord adequate assurance, as defined in this subparagraph (ii),
that:
(1) It will cure all monetary defaults under this Lease within
ten (10) days from the date of assumption; and
(2) It will cure all nonmonetary defaults under this Lease
within thirty (30) days from the date of assumption.
(b) The trustee or the debtor-in-possession has compensated
Landlord, or has provided Landlord with adequate assurance, as hereinafter
defined, that within ten (10) days from the date of assumption Landlord will be
compensated for any pecuniary loss it has incurred arising from the default of
Tenant, the trustee, or the debtor-in-possession, as recited in Landlord's
written statement of pecuniary loss sent to the trustee or debtor-in-possession.
(c) The trustee or the debtor-in-possession has provided Landlord
with adequate assurance of the future performance of each of Tenant's
obligations under this Lease; provided, however, that:
(1) From and after the date of assumption of this Lease, it
shall pay all monetary obligations, including the Base and Additional Rents
payable under this Lease in advance in equal monthly installments on each date
that such Rents are payable.
(2) It shall also deposit with Landlord, as security for the
timely payment of Rent, an amount equal to three months' Base Rent and other
monetary charges accruing under this Lease;
(3) If not otherwise required by the terms of this Lease, it
shall also pay in advance, on each day that any installment of Base Rent is
payable, one-twelfth of Tenant's annual tax, escalation and other obligations
under this Lease; and
(4) The obligations imposed upon the trustee or the
debtor-in-possession will continue for Tenant after the completion of bankruptcy
proceedings.
(d) For purposes of this subparagraph (ii), "adequate
assurance" means that:
(1) Landlord determines that the Tenant, the trustee or the
debtor-in-possession has, and will continue to have, sufficient unencumbered
assets, after the payment of all secured obligations and administrative
expenses, to assure Landlord that the trustee or the debtor-in-possession will
have sufficient funds timely to fulfill Tenant's obligations under this Lease
and to keep the Premises properly staffed with sufficient employees to conduct a
fully operational, actively promoted business in the Premises; and
(2) An order shall have been entered segregating sufficient
cash payable to Landlord and/or a valid and perfected first lien and security
interest shall have been granted in property of Tenant, trustee, or
debtor-in-possession which is acceptable in value and kind to Landlord, to
secure to Landlord the obligation of the Tenant, the trustee or
debtor-in-possession to cure all monetary and nonmonetary defaults under this
Lease within the time periods set forth above.
(iii) In the event this Lease is assumed by a trustee appointed for Tenant
or by Tenant as debtor-in-possession under the provisions of subparagraph (ii)
above and, thereafter, Tenant is either adjudicated a bankrupt or files a
subsequent petition for arrangement under Chapter 11 of the Bankruptcy Code,
then Landlord may, at its option, terminate this Lease and all the tenant's
rights under it, by giving written notice of Landlord's election so to
terminate.
(iv) If the trustee or the debtor-in-possession has assumed this Lease,
pursuant to subparagraph (i) or (ii) above, to assign or to elect to assign
Tenant's interest under this Lease or the estate created by that interest to any
other person, such interest or estate may be assigned only if the intended
assignee has provided adequate assurance of future performance, as defined in
this subparagraph (iv), of all of the terms, covenants, and conditions of this
Lease.
(a) For the purposes of this Subparagraph (iv), "adequate assurance
of future performance" means that Landlord has ascertained that each of the
following conditions has been satisfied:
(1) The assignee has submitted a current financial statement,
audited by a certified public accountant, which shows a net worth and working
capital in amounts determined by Landlord to be sufficient to assure the future
performance by the assignee of the tenant's obligations under this Lease;
<PAGE>
(2) If requested by Landlord, the assignee will obtain
guarantees, in form and substance satisfactory to Landlord, from one or more
persons who satisfy Landlord's standards of creditworthiness; and
(3) Landlord has obtained consents or waivers from any third
parties which may be required under any lease, mortgage, financing arrangement,
or other agreement by which Landlord is bound, to enable Landlord to permit such
assignment.
(v) When, pursuant to the Bankruptcy Code, the trustee or the
debtor-in-possession is obligated to pay reasonable use and occupancy charges
for the use of all or part of the Premises, it is agreed that such charges will
not be less than the Base Rent as defined in this Lease, plus additional rent
and other monetary obligations of Tenant included herein.
(vi) Neither Tenant's interest in this Lease nor any estate of Tenant
created in this Lease shall pass to any trustee, receiver, assignee for the
benefit of creditors, or any other person or entity, nor otherwise by operation
of law under the laws of any state having jurisdiction of the person or property
of Tenant, unless Landlord consents in writing to such transfer. Landlord's
acceptance of rent or any other payments from any trustee, receiver, assignee,
person, or other entity will not be deemed to have waived, or waive, either the
requirement of Landlord's consent or Landlord's right to terminate this Lease
for any transfer of Tenant's interest under this Lease without such consent.
21. Access to Premises.
Landlord, its employees and agents and any mortgagee of the Building shall
have the right to enter any part of the Premises at all reasonable times for the
purposes of examining or inspecting the same, showing the same to prospective
purchasers, mortgagees or tenants and for making such repairs, alterations or
improvements to the Premises or the Building as Landlord may deem necessary or
desirable. If representatives of Tenant shall not be present to open and permit
such entry into the Premises at any time when such entry is necessary or
permitted hereunder, Landlord and its employees and agents may enter the
Premises by means of a master key or otherwise. Landlord shall incur no
liability to Tenant for such entry, nor shall such entry constitute an eviction
of Tenant or a termination of this Lease, nor entitle Tenant to any abatement of
rent therefor.
22. Surrender of Premises.
Upon the expiration or earlier termination of this Lease, Tenant shall
surrender the Premises to Landlord, together with all alterations, improvements
and other property as provided elsewhere herein, in broom-clean condition and in
good order, condition and repair, except for ordinary wear and tear and damage
which Tenant is not obligated to repair, failing which Landlord may restore the
Premises to such condition at Tenant's expense.
23. Holding Over.
In the event Tenant remains in possession of the Premises or any part
thereof without the consent of Landlord after the expiration or earlier
termination of this Lease, Tenant shall be deemed, at Landlord's election,
either to hold the Premises as a tenant at will or to have extended this Lease
for one year, in either case subject to all of the terms, conditions, covenants
and provisions of this Lease (which shall be applicable during the holdover
period), except that Tenant shall pay to Landlord such rent as Landlord shall
then specify, or in the absence of such specification, twice the sum of last
current Base Rent plus Additional Rent, which rent shall be payable to Landlord
on demand. In addition, Tenant shall be liable to Landlord for all damages
occasioned by such holding over. Tenant shall vacate and surrender the Premises
to Landlord upon Tenant's receipt of notice from Landlord to vacate. No holding
over by Tenant, whether with or without the consent of Landlord, shall operate
to extend this Lease except as otherwise expressly provided herein.
24. Quiet Enjoyment.
Except as provided in Paragraph 23 hereof to the extent that it may be
applicable, if and so long as Tenant pays the prescribed rent and performs or
observes all of the terms, conditions, covenants and obligations of this Lease
required to be performed or observed by it hereunder, Tenant shall at all times
during the term hereof have the peaceable and quiet enjoyment, possession,
occupancy and use of the Premises without any interference from Landlord or any
person or persons claiming the Premises by, through or under Landlord, subject
to any mortgages, underlying leases or other matters of record to which this
Lease is or may become subject.
25. Notices.
Any notice, demand or request required or permitted to be given under this
Lease or by law shall be deemed to have been given if reduced to writing and
delivered in person or mailed by overnight or Registered mail, postage prepaid,
to the party who is to receive such notice, demand or request at the addresses
set forth at Section 1(A) or (B) above, as applicable, or at such other address
as Landlord or Tenant may specify from time to time by written notice. Such
notice, demand or request shall be deemed to have been given as of the date it
was so delivered or mailed.
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26. Miscellaneous General Provisions.
(A) Allocation of Rent. Landlord and Tenant agree that no portion of the
Base Rent paid by Tenant during the portion of the term of this Lease occurring
after the expiration of any period during which such rent was abated shall be
allocated for income tax purposes by Landlord or Tenant to such rent abatement
period, nor is such rent intended by the parties to be allocable for income tax
purposes to any abatement period.
(B) Estoppel Letters. Tenant shall, within ten (10) days following written
request from Landlord, execute, acknowledge and deliver to Landlord or to any
lender, purchaser or prospective lender or purchaser designated by Landlord a
written statement certifying (i) that this Lease is in full force and effect and
unmodified (or, if modified, stating the nature of such modification), (ii) the
date to which rent has been paid, and (iii) that there are not, to Tenant's
knowledge, any uncured defaults (or specifying such defaults if any are
claimed). Any such statement may be relied upon by any prospective purchaser or
mortgagee of all or any part of the Building. Tenant's failure to deliver such
statement within such period shall be conclusive upon Tenant that this Lease is
in full force and effect and unmodified, and that there are no uncured defaults
in Landlord's performance hereunder.
(C) Memorandum of Lease. If requested by either party, a Memorandum of
Lease, containing the information required by applicable law concerning this
Lease shall be prepared, executed by both parties and filed for record in the
office of the Recorder in the county in which the Premises is located.
(D) Applicable Law. This Lease and all matters pertinent thereto shall be
construed and enforced in accordance with the laws of the state in which the
Premises is located.
(E) Entire Agreement. This Lease, including all Exhibits, Riders and
Addenda, constitutes the entire agreement between the parties hereto and may not
be modified except by an instrument in writing executed by the parties hereto.
(F) Binding Effect. This Lease and the respective rights and obligations
of the parties hereto shall inure to the benefit of and be binding upon the
successors and assigns of the parties hereto as well as the parties themselves;
provided, however, that Landlord, its successors and assigns shall be obligated
to perform Landlord's covenants under this Lease only during and in respect of
their successive periods as Landlord during the term of this Lease.
(G) Severability. If any provision of this Lease shall be held to be
invalid, void or unenforceable, the remaining provisions hereof shall not be
affected or impaired, and such remaining provisions shall remain in full force
and effect.
(H) No Partnership. Landlord shall not, by virtue of the execution of this
Lease or the leasing of the Premises to Tenant, become or be deemed a partner of
Tenant in the conduct of Tenant's business on the Premises or otherwise.
(I) Headings, Gender, etc. As used in this Lease, the word "person" shall
mean and include, where appropriate, an individual, corporation, partnership or
other entity; the plural shall be substituted for the singular, and the singular
for the plural, where appropriate; and words of any gender shall include any
other gender. The topical headings of the several paragraphs of this Lease are
inserted only as a matter of convenience and reference, and do not affect,
define, limit or describe the scope or intent of this Lease.
(J) Waiver of Jury. To the extent permitted by law and applicable policies
of insurance, each party hereto hereby waives any right it may have to a jury
trial in the event of litigation between Tenant and Landlord pertaining to this
Lease.
(K) Post-Default Payment. No receipt of money by Landlord from Tenant
after the termination of this Lease or after the service of any notice or after
the commencement of any suit, or after final judgment for possession of the
Demised Premises shall reinstate, continue or extend the term of this Lease or
affect any such notice, demand or suit.
(L) Waiver of Defaults. No waiver of any default of Tenant hereunder shall
be implied from any omission by Landlord to take any action on account of such
default if such default persists or is repeated, and no waiver shall affect any
default other than the default specified in the waiver and that only for the
time and to the extent therein stated.
(M) No Option. Submission of this instrument for examination does not
constitute a reservation of or option for the Demised Premises. The instrument
does not become effective as a lease or otherwise until execution and delivery
by both Landlord and Tenant.
(N) Brokerage. Tenant represents and warrants that Tenant has dealt
directly with and only with the individuals and/or firms set forth at Section
1(L) above as broker or brokers in connection with this Lease, and that insofar
as Tenant knows no other broker negotiated this Lease or is entitled to any
commission in connection therewith. Tenant agrees to indemnify, defend and hold
Landlord, its successors and assigns and their respective agents and employees,
harmless from all claims of any other broker or brokers in connection with this
<PAGE>
Lease.
27. Additional Provisions: Additional provisions of this Lease, if any, are set
forth in Paragraphs one (1) through ten (10) of the Addendum to Lease attached
hereto and made a part hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Lease as of the
day and year first above written.
LANDLORD:
THE PRUDENTIAL INSURANCE COMPANY
OF AMERICA, a New Jersey corporation
By: PM Realty Group, Inc., its
Managing Agent
Date: By:
----------------------- -----------------------------------------
Time:
-----------------------
TENANT:
EKI INCORPORATED
Date: By:
----------------------- -----------------------------------------
Thomas P. Laffer, President
Time:
-----------------------
<PAGE>
EXHIBIT A
FLOOR PLAN - PREMISES
[FLOOR PLAN OMITTED]
<PAGE>
EXHIBIT A-1
FLOOR PLAN - CANCELLATION OPTION SPACE
[FLOOR PLAN OMITTED]
<PAGE>
EXHIBIT B
LEGAL DESCRIPTION
A tract of land being Lot B of "Corporate Hill", a subdivision according to the
plat thereof recorded as Daily No. 51 on July 7, 1981 in the St. Louis County
Records in Section 27, Township 45 North - Range 5 East, St. Louis County,
Missouri, and being more particularly described as:
Beginning at a point in the West line of said Section 27; said point being also
the Southwest corner of said Lot B of "Corporate Hill; thence Northwardly along
the West line of said Lot B North 00 degrees 39 minutes 03 seconds East 404.00
feet to the Northwest corner thereof; then Eastwardly along the North line of
said Lot B South 89 degrees 20 minutes 57 seconds East 414.83 feet to a point in
the West line of Interstate Highway 270; thence Southwardly along the said West
line of Interstate Highway 270 South 08 degrees 56 minutes 37 seconds East
309.27 feet and South 09 degrees 17 minutes 28 seconds West 91.09 feet to the
Southeast corner of said Lot B; said point being also the Northeast corner Lot C
of said "Corporate Hill"; thence along the line dividing said Lot B and Lot C of
"Corporate Hill" the following courses and distances: North 89 degrees 20
minutes 57 seconds West 192.69 feet, North 00 degrees 39 minutes 03 seconds East
27.00 feet, North 89 degrees 20 minutes 57 seconds West 224.00 feet, South 00
degrees 39 minutes 03 seconds West 36.00 feet, and North 89 degrees 20 minutes
57 seconds West 36.00 feet to the point of beginning and containing 3.903 acres
according to calculations by Volz Engineering & Surveying, Inc. on December 21,
1987.
<PAGE>
EXHIBIT C
Rules and Regulations
1. Tenant will refer to Landlord all contractors, contractor's
representatives and installation technicians rendering any service for
Tenant for Landlord's supervision and/or written approval before
performance of any such contractual services. This shall apply to all work
performed in the Building, including, without limitation: (1) installation
of telephones, telegraph equipment, electrical devices and attachments,
and installations of any and every nature affecting floors, walls,
woodwork, trim, windows, ceiling, equipment of any other physical portion
of the building, (2) painting or drilling (3) boring, cutting, or
stringing of wires.
2. The work of the janitor or cleaning personnel shall not be hindered by
tenant after 5:30 p.m., and such work may be done at any time when the
offices are vacant. The windows, doors and fixtures may be cleaned at any
such time. Tenant shall provide adequate waste and rubbish receptacles,
cabinets, book cases, map cases, etc., necessary to prevent unreasonable
hardship to Landlord in discharging its obligation regarding cleaning
services.
3. Movement in or out of the Building of fixtures or office equipment, or
dispatch or receipt by Tenant of any merchandise or materials which
requires movement through the Building entrance or lobby, shall be
restricted to the hours designated by Landlord and in a manner to be
approved by Landlord. Such approval by Landlord shall include its
determination, decision, and control of time, method and routing of
equipment and furniture, together with any limitations imposed by safety
or other concerns which may prohibit any article, equipment or any other
item from being brought into the building. Any hand trucks, carryalls, or
similar appliance used for the delivery or receipt of merchandise or
equipment shall be equipped with rubber tires, side guards, and such other
safeguards as Landlord shall require. Tenant expressly assumes all risk of
damage to the Property and to any and all articles so moved, as well as
injury to any person or persons or to the public engaged or not engaged in
such movement. Landlord shall not be liable for the act or acts of any
person or persons so engaged or for any damage or loss to any property of
persons resulting directly or indirectly from any act in connection with
service performed by or for Tenant.
4. Tenant shall not place, install or operate on the Property any engine,
stove, or machinery, or conduct mechanical operations or cook therein, or
place or use in or about the demised premises any explosives, gasoline,
kerosine, oil, acids, caustics, or any other flammable, explosives,
hazardous or odorous material without the prior written consent of
Landlord.
If consent is granted, Tenant will be required to furnish approved fire
extinguishers and have them inspected and approved by the proper local
authorities on an annual basis. No portion of the leased premises shall at
any time be used for cooking, sleeping or lodging quarters.
5. Landlord will not be responsible for any lost or stolen personal property
equipment, money or jewelry, from any of the Property or any public areas
regardless of whether such loss occurs when the area is locked against
entry or not.
6. Tenant, or the employees, agents, servants, visitors, or licensees of
Tenant shall not at any time or place, leave or discard any rubbish,
paper, articles, or objects of any kind whatsoever outside the doors of
the premises, or in the corridors or passageways of any portion of the
Property. No birds, animals, bicycles or vehicles shall be brought into or
kept in or about the building.
7. Landlord may permit entrance to Tenant's offices by use of passkeys
controlled by Landlord's agents, employees, contractors or service
personnel supervised or employed by Landlord. No additional locks or
similar devices shall be placed by Tenant on any door in the Building
unless written consent of Landlord shall have first been obtained.
Twenty-five (25) keys and twenty-five (25) security cards will be
furnished by Landlord for the Leased Property, and any additional key
required must be obtained from Landlord. A charge will be made for each
additional key or security card furnished. All keys and security cards
shall be surrendered to Landlord upon termination of tenancy.
8. None of the entries, passages, doors, hallways, or stairways shall be
blocked or obstructed by Tenant.
9. All Christmas and other temporary or special decorations must be flame
retardant and removed within seven (7) days.
10. Tenant shall provide Landlord a list of all people authorized entrance
into the Building after hours (6:00 p.m. to 8:00 a.m., Monday through
Friday, and 24 hours a day on weekends and holidays).
<PAGE>
11. Tenant shall notify management office of any furniture or equipment
removed from the Building after hours. Description and serial numbers must
be included on the stationery (letterhead) of Tenant.
12. Names to be placed on or removed from directories should be furnished to
the management office in writing on Tenant's letterhead.
13. Any additional services not required by Lease to be performed by Landlord
which Tenant requests Landlord to perform and which are performed by
Landlord shall be billed to Tenant at Landlord's cost plus fifteen percent
(15%).
14. Canvassing, soliciting or peddling on or about any portion of the Property
is prohibited and Tenant shall cooperate to prevent same.
15. Tenant shall give immediate notice to the Property Manager in case of
accidents in the demised premises or any portion of the Property or of
defects therein or in any fixtures or equipment, or of any other type of
emergency on or about the Property.
16. Any requirements of Tenant will be attended to only upon application at
the office of the Property Manager. Employees of the Property shall not
perform any work or do anything outside of their regular duties, unless
under special instructions from the office of the Property Manager.
17. Tenant shall not make or permit any loud or improper noises on or about
the Property or otherwise interfere in any way with other tenants or
persons having business with them.
18. For the purposes of the lease, holidays shall be deemed to mean and
include the following:
a. New Years Day
b. July 4th
c. Labor Day
d. Thanksgiving Day
e. Christmas Day
19. Tenant shall not place anything or allow anything to be placed on or near
the glass of any window, door, partitions, or wall which may appear
unsightly from outside the Premises; provided, however, that Landlord may
furnish and install a Building standard window covering on all exterior
windows.
20. The toilet rooms, urinals, wash bowls and other apparatus shall not be
used for any purposes than that for which they were constructed and no
foreign substance of any kind whatsoever shall be thrown therein and the
expense of any breakage, stoppage or damage resulting from the violation
of this rule be borne by the Tenant who, or whose employees or invitees
shall have caused it.
21. Landlord reserves the right to exclude or expel from the Building any
person who, in the judgement of Landlord is under the influence of liquor
or drugs, or who shall in any manner do any act in violation of any of
these Rules and Regulations.
22. Vending machine or machines of any description may be installed,
maintained or operated upon the Premises solely for the use of Tenant's
employees.
23. Without written consent of Landlord, Tenant shall not use the name of the
Building in connection with or in promoting or advertising the business of
Tenant except as Tenant's address.
24. Landlord shall have the right to control and operate the public portions
of the Property the public facilities, and heating and air-conditioning as
well as facilities for the common use of the Tenants, in such manner as it
deems best for the benefit of the Tenants generally.
25. Landlord reserves the right at any time to rescind any of these Rules and
Regulations of the Building, and to make such other and further rules and
regulations as in its sole judgement shall from time to time be needful
for the safety, protection, care and cleanliness of the Building, the
Leased Premises and the attached garage, the operation thereof, the
preservation of good order therein and the protection and comfort of the
other Tenants in the building and their agents, employees and invitees,
which Rules and Regulations, when made and written notice thereof is given
to Tenant, shall be binding upon Tenant in like manner as if originally
herein prescribed. Landlord shall use its reasonable best efforts to
consistently apply the rules and regulations set forth herein with respect
to all tenants of the Building.
26. Tenant shall fully cooperate and participate in all evacuation, fire
safety and related emergency or security procedures established from time
to time by Landlord.
<PAGE>
EXHIBIT D
Plans and Specifications
[PLANS AND SPECIFICATIONS OMITTED]
<PAGE>
EXHIBIT D-1
BUILDING STANDARD FINISHES
Landlord will construct the Premises based upon the Exhibit D floor plan
utilizing Building Standard materials, including the following:
Drywall Partitioning:
1/2" drywall on metal studs (finished both sides) per Exhibit D. Walls to be
painted both sides and to have 4" cove resilient vinyl base.
Interior Doors:
3'0" x 6'8" x 1 3/4" solid-core, plain sliced red oak, prehung door, complete
with painted hollow metal frame and finish hardware per Exhibit D.
Exterior Doors:
3'0" x 7'10" x 1 3/4" solid core, plain sliced red oak, prehung door, complete
with painted hollow metal frame with lockset.
Carpeting:
All tenant areas to be fully carpeted with 28 oz. level loop pile, or 30 oz. cut
pile carpeting throughout, direct glue down. Color selection by Tenant from
samples provided by Landlord.
Ceiling:
Ceiling to be suspended acoustical system with 2' x 4' lay-in panels. Landlord
to clean and repair existing ceiling.
Window Treatment:
All exterior windows shall have furnished and installed 1" Levolor Riviera
blinds.
Electrical:
Receptacles - Refer to Exhibit D.
Lighting:
Provided by 2' x 4' fluorescent parabolic ceiling fixtures to provide 70' candle
power at desk height.
Heating, Ventilating and Air Conditioning:
Provided by roof-mounted, electric-fired units through a variable air volume
system. Landlord to install one (1) thermostat controlled variable air volume
unit for each 1,000 square feet of leased area. HVAC to be reworked to conform
to Tenant's layout.
<PAGE>
EXHIBIT E
Equipment/Machinery List
15) S280 Computers with Disk & Tape Drive (Data General)
3) Data Products Printers
1) Data Printer
4) Fujitsu Printers
2) Centronics Printers
1) IBM P.C.
16) WYSE 60/50 Terminals
7) IBM 4381 Computer
6) Tape Drives 4670
2) 3480 IBM Cartridge Tape Drives
1) 3880R Disk Drive
1) Floppy Disk Reader
2) 3262 Line Printers
1) 6100 Storage Tech Siemens
1) 2140 Siemens
1) 4090 Xerox
2) 9790 Xerox
1) 4135 Xerox
2) 9790 Xerox
2) 3280 Data General Systems
<PAGE>
ADDENDUM TO LEASE
Attached to and made part of Lease dated August 26, 1993, between THE
PRUDENTIAL INSURANCE COMPANY OF AMERICA, as Landlord, and EKI Incorporated,
as Tenant.
1. Option to Extend.
(A) Provided Tenant is not in default hereunder, and has performed all of
the covenants and obligations of Tenant under this Lease, Tenant shall have the
option to extend the Term of this Lease for one (1) period of five (5) years
(the "Extension Period") upon the same terms and conditions, except as herein
set forth.
(B) Tenant shall exercise this Option only by so notifying Landlord in
writing not later than March 31, 2001. Base Rent for the Extension Period shall
be the Fair Market Rental Rate (hereafter "FMRR").
FMRR shall mean the annual rental rate then being charged by similar
buildings in the area for improved space comparable to the Premises for leases
commencing on or about the time of the applicable extension or option period,
taking into consideration use, location and floor level within the applicable
Building, the location, quality, age and reputation of the building, the
definition of rentable area or net rentable area, as the case may be, with
respect to which such rental rates are computed, abatements, lease assumptions
or take-overs, moving expenses, the term of the lease under consideration and
the extent of services provided thereunder, applicable distinctions between
"gross" leases and "net" leases, base year figures for escalation purposes,
other adjustments (including by way of indexes) to base rental, and any other
relevant term or condition in making such evaluation.
(C) Within thirty (30) days after receipt of notice of exercise of this
option from Tenant, Landlord shall advise Tenant in writing of the FMRR for the
Extension Period, together with supporting data. Within sixty (60) days after
receipt of Landlord's written notice of the FMRR, Tenant shall, by written
notice to Landlord, either (i) accept the FMRR rate proposed by Landlord, or
(ii) propose a different FMRR, together with supporting data.
If the parties are unable to agree on a FMRR within thirty (30) days after
Tenant's proposal of a different FMRR, then Tenant may revoke the exercise of
the Option, or if both parties agree, each party shall, within five (5) business
days, select a real estate broker registered in the State of Missouri, and the
two brokers so selected shall, within five (5) business days, select a third
broker holding the same qualifications. All individuals selected shall have at
least two (2) years experience in the St. Louis suburban office market. The
three (3) brokers shall, within ten (10) days of the selection of the third
broker, determine the FMRR for the Extension Period, and provide the parties
with written notification thereof. If the three (3) brokers are unable to agree
on a FMRR, then the two (2) FMRR's that are closest in amount shall be averaged
to determine the FMRR. The parties shall share equally in the expense of
retaining the brokers.
(D) It is understood and agreed that this Option to Extend is personal to
Tenant and in the event of any assignment or subleasing of any or all of the
Premises to anyone other than an Affiliate, said Option shall be null and void.
(E) In the event Tenant fails to timely exercise the Option pursuant to
Section B above, or to make an election pursuant to Section C above, within the
time provided, then the Option hereby granted shall automatically terminate and
shall thereafter be null and void.
2. Expansion Option. Provided that: (i) the Lease is in full force and
effect; and (ii) Tenant is not in default under the Lease, during the period
commencing on the Commencement Date and ending on the date twelve full calendar
months thereafter, Tenant shall have the option (the "Expansion Option") to
lease the space (the "Expansion Area") on the second floor of the Building as
shown on Exhibit A. Landlord and Tenant hereby stipulate that the Expansion Area
contains 2,652 square feet of usable space. In order to exercise the Expansion
Option, Tenant must give Landlord written notice of the Tenant's election to
lease the Expansion Area, said notice to be given not more than nine (9) months
after the Commencement Date. Following the delivery of such notice, Tenant and
Landlord agree to enter into an amendment to this Lease to document Tenant's
exercise of the Expansion Option. No failure or delay by either party to execute
such an amendment to this Lease shall be construed to mean that the Expansion
Area is not a part of the Premises, it being mutually understood and agreed
that, upon Tenant's timely, valid and proper exercise of the Expansion Option in
accordance with this Section, such Expansion Area shall constitute a part of the
Premises and Landlord and Tenant shall be bound by all of the terms and
provisions of this Lease as modified to include the Expansion Area, including an
appropriate increase in Tenant's Proportionate Share. The Landlord shall
construct certain tenant improvements to the Expansion Area in accordance with
plans and specifications prepared by Landlord and mutually agreed upon by both
parties. Landlord shall contribute up to $13.00 multiplied by the square footage
of the Expansion Area for all or part of the cost of the Tenant Finish
Improvements, and Tenant shall pay Landlord as Additional Rent any construction
costs in excess of such amount on or before the date specified for the
commencement of the Tenant's occupation of the Expansion Area or the date which
Landlord delivers possession of the Expansion Area to Tenant, whichever is
<PAGE>
earlier. In the event the construction costs are less than such amount, then
Tenant shall receive a credit against the next month's Rent due (on a
dollar-for-dollar basis) of the amount of such savings. On the date specified
for the commencement of Tenant's proposed occupancy of the Expansion Area, the
Base Rent payable by Tenant shall increase as follows:
April 1, 1994 - March 31, 1995: $11.50 per square foot
April 1, 1995 - March 31, 1997: $13.00 per square foot
April 1, 1997 - March 31, 1998: $13.55 per square foot
April 1, 1998 - March 31, 2000: $14.05 per square foot
April 1, 2000 - March 31, 2002: $14.55 per square foot
3. Moving Allowance. The Landlord shall provide Tenant a moving allowance of
Sixty-Two Thousand and 00/100 Dollars ($62,000.00), payable within thirty (30)
days of the Commencement Date of this Lease.
4. Parking. Tenant shall be provided with parking spaces for its use as follows:
(a) Upon the Commencement Date, Tenant shall be provided with one hundred
seventy (170) car parking spaces, twelve (12) of which shall be covered parking
spaces in the Building garage;
(b) For each 1,000 square feet of leased area in the Expansion Area leased
by Tenant and becoming part of the Premises pursuant to the Expansion Option set
forth above, Tenant shall be provided with six (6) car parking spaces; and
(c) For each 1,000 square feet of additional area leased by Tenant in the
Building and becoming a part of the Premises other than pursuant to the
Expansion Option, Tenant shall be provided with four (4) car parking spaces.
Such parking shall be provided on an unallocated basis within the Building
parking lot (or in the Building garage as set forth below). If the required
parking cannot be provided for Tenant to the reasonable satisfaction of Tenant
on an unallocated basis, the Tenant shall have the option to require Landlord
from time-to-time to assign a portion of Tenant's parking in designated spaces
in the adjacent parking lots of Corporate Hill I, III, or IV, which spaces shall
be clearly marked to Tenant's reasonable satisfaction. Landlord shall have no
obligation to monitor the use of any such designated spaces and Tenant shall
have no right to move or otherwise disturb cars parked in such spaces. Landlord
shall not substantially change the parking around the Building so as to impair
Tenant's use of the loading dock as presently situated.
As part of the additional parking provided to Tenant upon expansion of the
Premises, for every 3,000 square feet of leased area added to the Premises, one
(1) of the car parking spaces to be provided Tenant pursuant to this section
shall be a covered parking space in the Building garage provided on an
unallocated basis at no charge. As part of the parking spaces provided to Tenant
pursuant to this section, Landlord agrees to designate five (5) parking spaces
on the north side of the Building entrance for the exclusive use of Tenant's
home workers. Landlord shall have no obligation to monitor the use of any such
designated spaces and Tenant shall have no right to move or otherwise disturb
cars parked in such spaces.
5. Right of First Offer. Provided that: (i) the Lease is in full force and
effect; and (ii) Tenant is not in default under the Lease; Tenant shall have the
first opportunity to lease such other space in the Building as becomes available
for leasing during the term of this Lease (the "First Opportunity"), at a rental
rate equal to the Fair Market Rent and, except with respect to the rental rate,
upon the terms and conditions set forth in this Lease. The Landlord shall
contribute for tenant improvements with respect to space leased in the Building
pursuant to the First Opportunity in an amount not to exceed $0.13 per square
foot of usable space to be leased multiplied by the number of months remaining
in the initial term of this Lease from the date Landlord is scheduled to deliver
possession of such space. Tenant shall pay to Landlord as additional Rent any
construction costs in excess of Landlord's contribution on or before the date
specified for the commencement of Tenant's occupancy of the First Opportunity
area or the date which Landlord delivers possession of the First Opportunity
area to Tenant, whichever is sooner. In the event the construction costs are
less than Landlord's contribution, then Tenant shall receive a credit of such
savings on a dollar-for-dollar basis against the next month's Rent due.
Upon notification in writing by Landlord that such space is available,
Tenant shall have ten (10) days in which to elect in writing to lease such
space, in which event the lease for same shall commence not more than thirty
(30) days after such space becomes vacant and shall be coterminous with this
Lease.
In the event Tenant declines or fails to elect so to lease such space,
then the First Opportunity hereby granted shall automatically terminate and
shall thereafter be null and void with respect to such space.
It is understood that this First Opportunity shall not be construed to
prevent any tenant in the Building from extending or renewing its lease.
The First Opportunity hereby granted is personal to Tenant and is not
transferable; in the event of any assignment or subletting under this Lease,
this First Opportunity shall automatically terminate and shall thereafter be
null and void.
<PAGE>
6. Cancellation Option. Provided that: (i) This Lease is in full force and
effect; and (ii) Tenant is not in default under this Lease; on each of March 31,
1999, March 31, 2000, and March 31, 2001, each such date being hereinafter
referred to as a "Cancellation Date", Tenant shall have the right to vacate and
surrender to Landlord that portion of the Premises containing approximately
6,107 square feet of usable space on the second floor of the Building as
outlined on Exhibit A-1 attached hereto.
In order to exercise such cancellation option, the Tenant must give the
Landlord written notice of the Tenant's election to vacate and surrender such
portion of the Premises, said notice to be given not less than eight (8)
calendar months prior to the applicable Cancellation Date. Said cancellation
notice must be accompanied by a bank cashier's check in an amount equal to the
cancellation fee set forth below:
Date of Cancellation Cancellation Penalty
March 31, 1999 $60,000.00
March 31, 2000 $40,000.00
March 31, 2001 $20,000.00
7. Sign. Tenant shall be permitted at Tenant's cost, subject to Landlord's
consent, not to be unreasonably withheld or delayed, to erect a sign of a type
selected by Tenant, subject to compliance with the procedures and regulations of
St. Louis County. Tenant shall remove such sign and restore the surface in a
workmanlike manner, reasonable wear and tear excepted, at its expense upon
termination of this Lease.
8. Environmental. Landlord will provide Tenant with a copy of the most
recent Phase I environmental assessment prepared on behalf of the Landlord with
respect to the Building, which environmental assessment is dated May 1987, and
was prepared by BCM Converse, Inc. (the "Environmental Assessment"). Tenant
shall not rely on and Tenant hereby represents to Landlord that it has not
relied on the Environmental Assessment. Landlord makes no representations or
warranties whatsoever to Tenant regarding: (i) the Environmental Assessment
(including without limitation, the contents and/or accuracy thereof), and (ii)
the presence, location or scope of any hazardous materials or chemicals in, at,
or under the Premises and/or the Building.
9. Subordination of Lease. The rights of the Tenant under this Lease shall
be and are subject and subordinate at all times to the lien of any mortgage or
mortgages now or hereafter in force against such leases and/or the Building, and
to all advances made or hereafter to be made upon the security thereof. With
respect to any future mortgages or deeds of trust created by Landlord, such
subordination shall be effective only upon Landlord delivering to Tenant a
Non-Disturbance Agreement from the holder of the mortgage or deeds of trust,
whereby the holder agrees not to disturb Tenant's possession under this Lease
and agrees to recognize this Lease and all rights of Tenant under this Lease, so
long as Tenant is not in default herein. There are no mortgages or ground leases
on the Building as of the date of Landlord's execution of this Lease. Tenant
hereby covenants and agrees to execute any and all documents as may be necessary
to effectuate the subordination provisions hereof.
10. American Disabilities Act. Landlord agrees to defend, indemnify and save
harmless Tenant (and Tenant's officers, directors, agents and employees) from
and against any and all causes of action, liability, judgments, damages, costs
and expenses (including reasonable attorney's fees) arising from any claim
against Tenant or Landlord alleging noncompliance with requirements of Title III
of the Americans with Disabilities Act concerning access, use and/or enjoyment
of the common areas in the Building by persons with disabilities, including but
not limited to employees of the Tenant.
Tenant agrees to defend, indemnify and save harmless Landlord (and
Landlord's officers, directors, agents and employees) from and against any and
all causes of action, liability, judgments, damages, costs and expenses
(including reasonable attorney's fees) arising from any claim against Landlord
or Tenant alleging noncompliance with requirements of Title III and Title I of
the Americans with Disabilities Act concerning access, use and/or enjoyment of
the Premises by persons with disabilities, including but not limited to
employees of the Landlord.
<PAGE>
PROPERTY #PR499-002
SECOND AMENDMENT
TO LEASE DATED AUGUST 26, 1993 BY AND BETWEEN
THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, AS LANDLORD
AND EKI INCORPORATED, AS TENANT
THIS AMENDMENT TO LEASE, entered into and made as of the 30th day of
November, 1994, by and between THE PRUDENTIAL INSURANCE COMPANY OF AMERICA, a
New Jersey corporation, as Landlord and EKI INCORPORATED, a Missouri
corporation, as Tenant.
WITNESSETH:
WHEREAS, Landlord and Tenant have heretofore entered into a certain lease,
dated August 26, 1993, as amended by that certain First Amendment dated December
15, 1993 (the "Lease"), of certain space at 1633 Des Peres Road, St. Louis,
Missouri, known as Suite 100 and Suite 200 (the "Premises"), upon terms and
conditions described in said Lease; and
WHEREAS, words and phrases having defined meanings in the Lease shall have
the same respective meanings when used herein, unless otherwise expressly
defined herein; and
WHEREAS, Landlord and Tenant desire to amend said Lease as described below;
NOW THEREFORE, in consideration of the rents reserved and of the covenants
and agreements herein set forth, it is agreed that the Lease be hereby amended
from and after the date hereof as follows:
1. Effective as of the date hereof, the space leased and demised by the
Lease and described in Section 1(C) of the Lease shall be increased by adding
thereto the Expansion Area. Such additional space shall be used for the same
purposes as the original Premises described in the Lease, and for no other use
or purpose whatsoever without the express prior written consent of the Landlord.
The Expansion Area will hereafter constitute part of the Premises, and will be
subject to all the conditions agreed to for the Premises, as provided in the
Lease (including without limitation the Addendum). Effective as of the date
hereof, and continuing thereafter through the end of the term of the Lease, such
additional space shall constitute a part of the Premises.
2. Tenant and Landlord hereby stipulate that the Expansion Area contains
2,652 square feet of usable space.
3. Effective January 1, 1995, or, if earlier, the date upon which
Landlord delivers possession of the Expansion Area to Tenant, Tenant's
Proportionate Share, as set forth in Section 1(J) of the Lease is hereby amended
to be 43.3% (39,259/90,752).
4. Effective January 1, 1995, or, if earlier, the date upon which
Landlord delivers possession of the Expansion Area to Tenant, Section 1(H) of
the Lease is hereby amended in its entirety to read as follows:
Base Rent: is payable as follows:
1. $453,869.75 per annum ($37,822.48 per month) for the period from
the date upon which Landlord delivers possession of the Expansion
Area to Tenant (if earlier that January 1, 1995) through December
31, 1994;
2. $30,498.00 per annum ($2,541.50 per month) for the period from
January 1, 1995 through January 31, 1995;
3. $453,869.75 per annum ($37,822.48 per month) for the period from
February 1, 1995 through April 30, 1995;
4. $512,758.25 per annum ($42,729.85 per month) for the period from
February 1, 1995 through April 30, 1997;
5. $534,350.70 per annum ($44,529.23 per month) for the period from
May 1, 1997 through April 30, 1998;
6. $553,980.20 per annum ($46,165.02 per month) for the period from
May 1, 1998 through April 30, 2000;
7. $573,609.70 per annum ($47,800.81 per month) for the period from
May 1, 2000 through April 30, 2002.
5. The Landlord shall construct certain tenant improvements to the
Expansion Area (the "Expansion Improvements") in accordance with the plans and
<PAGE>
specification attached to this Second Amendment as Exhibit A, which plans and
specification were prepared by Landlord and mutually agreed to by both parties.
No changes shall be made to such plans and specifications without the prior
written approval of Landlord. The Expansion Improvements shall be completed by
Landlord's contractor.
In accordance with the provisions of paragraph 2 of the Addendum to the
Lease, Landlord shall contribute up to $34,476 for all or part of the cost of
the Expansion Improvements. Tenant shall pay Landlord as Additional Rent any
construction costs in excess of such amount on or before January 1, 1995 or the
date upon which Landlord delivers possession of the Expansion Area to Tenant,
whichever is earlier (together with any costs, charges or expenses incurred by
Landlord subsequent to such date). In the event the construction costs are less
than such amount, then Tenant shall receive a credit against the next month's
Rent due (on a dollar-for-dollar basis) of the amount of such savings.
Landlord will use its best reasonable efforts to complete the Expansion
Improvements on or before January 1, 1995. Notwithstanding the foregoing, in no
event will Landlord be liable to Tenant, or any other person, for any delay in
the completion of the Expansion Improvements.
6. In accordance with the provisions of paragraph 4(b) of the Addendum to
the Lease, on January 1, 1995, or if earlier, the date upon which Landlord
delivers possession of the Expansion Area to Tenant, Tenant shall be provided
with twelve (12) additional unallocated car parking spaces, subject in all
respects to the terms and conditions of paragraph 4 of the Addendum to the
Lease.
7. Tenant represents and warrants that it has dealt with no broker, agent,
or other person in connection with this transaction other than PM Realty Group,
Inc. and Tenant agrees to indemnify and hold Landlord harmless from and against
any claims by any other broker, agent or other person claiming a commission or
other form of compensation by virtue of having dealt with Tenant with regard to
this transaction. The provisions of this paragraph shall survive termination of
the Lease.
Except as is hereinabove set forth, all terms, provisions and covenants of
the Lease shall remain unchanged and in full force and effect.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as of
the date and year first above written.
TENANT: LANDLORD:
EKI INCORPORATED, a Missouri THE PRUDENTIAL INSURANCE
corporation COMPANY OF AMERICA, a New Jersey
corporation
By: By: PM Realty Group, Inc.
----------------------------------- its Managing Agent
its
By
------------------------------
its
<PAGE>
EXHIBIT 10.13
INTERFACE TECHNOLOGY, INC.
Amended and Restated Preferred Stock Purchase Agreement
This Amended and Restated Preferred Stock Purchase Agreement (the
"Agreement") is entered into as of the 23rd day of December, 1988, by and among
Interface Technology Inc., a Missouri corporation (the "Company"), MiTek
Industries, Inc., a Florida corporation ("MiTek"), Intech Group, Inc., a
Missouri corporation ("Intech"), Gateway Venture Partners II, L.P., a Delaware
limited partnership (the "Investor"), Zinsmeyer Trusts Partnership ("Zinsmeyer")
and Missouri Venture Partners, L.P. II, a Missouri limited partnership (the
"Additional Investor").
WITNESSETH:
WHEREAS, Company, Mitek, Intech and Investor entered into a Preferred Stock
Purchase Agreement dated December 23, 1987, pursuant to which Investor purchased
on December 23, 1987 (the "Initial Closing") 526,440 shares (as adjusted for
stock splits) of the Company's Series A Preferred Stock; and
WHEREAS, the parties to said Stock Purchase Agreement anticipated that one
or more additional investors would purchase shares of the Company's Series A
Preferred Stock pursuant to an offer or offers exempt from registration under
the Securities Act of 1933; and
WHEREAS, Zinsmeyer purchased 26,316 shares of Series A Preferred Stock from
the Company on December 15, 1988, and became a signatory to the Stock Purchase
Agreement; and
WHEREAS, Additional Investor desires to purchase 394,737 shares of the
Company's Series A Preferred Stock; and
WHEREAS, the parties hereto wish to amend and restate the Preferred Stock
Purchase Agreement dated December 23, 1987, to permit the sale of Series A
Preferred Stock to Additional Investor and define the rights of all of the
parties to this Amended and Restated Preferred Stock Purchase Agreement.
NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth in this Agreement, the parties
to this Agreement mutually agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series A Preferred Stock.
(a) The Company shall, prior to the Closing (as defined below),
adopt and file with the Secretary of State of the State of Missouri the
Certificate of Amended Preferred Stock Designation attached to this Agreement as
Exhibit A (the Company's Articles of Incorporation, as amended and the
Certificate of Amended Preferred Stock Designation are hereinafter referred to
as the "Articles").
(b) Subject to the terms and conditions of this Agreement, the
Additional Investor agrees to purchase at the Closing, and the Company agrees to
sell and issue to the Additional Investor at the Closing, 394,737 shares of the
Company's Series A Preferred Stock for an aggregate purchase price of Seven
Hundred Fifty Thousand Dollars ($750,000).
1.2 Closing. The purchase and sale of the shares of the Company's
Series A Preferred Stock being purchased by the Additional Investor and Intech
(the "Stock") shall take place at the offices of Suelthaus & Kaplan, P.C., 8000
Maryland Avenue, St. Louis, Missouri 63105, on December 23, 1988, or at such
other time, date, or place as the Company and the Additional Investor shall
mutually agree (which time, date, and place are referred to in this Agreement as
the "Closing"). At the Closing the Company shall deliver to the Additional
Investor a certificate or certificates representing the shares of the Stock that
the Additional Investor is purchasing against delivery to the Company by the
Additional Investor of a cashier's or certified check, drawn on a bank
headquartered in St. Louis, Missouri and payable to the Company in the amount of
the purchase price of such shares.
2. Representations and Warranties of the Company.
Subject to and except as specifically disclosed by the Company in Exhibit B
(the "Disclosure Schedule") attached to the Agreement and incorporated by
reference herein, the Company and MiTek (except that MiTek's liability under
paragraphs 2.6, 2.7, 2.9 through 2.14 and 2.15 shall be limited to matters and
conditions existing prior to the date on which William W. Canfield became
associated with the Company) represent and warrant to the Additional Investor
that:
2.1 Organization and Standing. The Company is a corporation duly
organized, validly existing, and in good standing under the laws of the State of
<PAGE>
Missouri, has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted, and is qualified as a
foreign corporation and is in good standing in all other jurisdictions in which
such qualification is required; provided however, that the Company need not be
qualified in a jurisdiction in which its failure to qualify would not have a
material adverse effect on its operations or financial condition. True and
accurate copies of the Company's Articles of Incorporation and Bylaws, as
presently in effect, have been delivered to Suelthaus & Kaplan, P.C., 8000
Maryland Avenue, St. Louis, Missouri 63105, counsel for the Additional Investor.
2.2 Capitalization. The authorized capital of the Company consists of:
(a) Preferred Stock: 2,000,000 shares of Preferred Stock, $.0625
par value, of which 2,000,000 shares have been designated Series A Preferred
Stock (the "Stock") and of which 1,102,712 shares are validly issued and
outstanding, fully paid and nonassessable, and were issued in compliance with
all federal and state securities laws. The rights, privileges and preferences of
the Series A Preferred Stock are as stated in Exhibit A.
(b) Common Stock: 3,000,000 shares of Common Stock, $.0625 par
value per share, of which 502,932 shares are validly issued and outstanding,
fully paid and nonassessable, and were issued in compliance with all applicable
federal and state securities laws. The Company has reserved 138,724 shares
Common Stock for issuance to key employees and other persons as may be
determined by the Company's Board of Directors from time to time, in accordance
with a Stock Option Plan adopted by the Company's Board of Directors, a true and
accurate copy of which is attached hereto as Section 2.2 of the Disclosure
Schedule (the "Stock Option Plan"). As of the date hereof, no options for shares
of Common Stock have been granted by the Company except that options for up to
138,724 shares of Common Stock may be granted pursuant to the Stock Option Plan.
As of the Closing, there will be no options, warrants, convertible subordinated
debentures, conversion privileges, preemptive rights or other rights presently
outstanding to purchase or otherwise acquire any of the authorized but unissued
stock of the Company, except for (i) the rights created by this Agreement; and
(ii) as set forth in Exhibit B.
2.3 Subsidiaries. The Company does not presently own or control,
directly or indirectly, and is not under common control with, any other
corporation, association, or other business entity.
2.4 Authorization. All corporate action on the part of the Company and
its officers, directors and shareholders necessary for the authorization,
execution, delivery and performance of all obligations of the Company under this
Agreement and for the authorization, issuance and delivery of the Stock being
sold under this Agreement and of the Common Stock issuable upon conversion or
the Stock (the "Underlying Common Stock") has been taken prior to the Closing or
will be taken no later than thirty (30) days thereafter. This Agreement, when
executed and delivered, shall constitute a valid and legally binding obligation
of the Company enforceable in accordance with its terms, subject to laws of
general application relating to bankruptcy, insolvency, the relief of debtors
and, with respect to rights of indemnity, subject to Federal and state
securities laws.
2.5 Validity of Stock. The Stock, when issued, sold and delivered in
accordance with the terms of this Agreement shall be duly and validly issued,
fully paid and nonassessable. The Underlying Common Stock has been (or, prior to
the Closing), will be duly and validly reserved and, upon issuance in accordance
with the conversion provisions of the Stock, shall be duly and validly issued,
fully paid and nonassessable and will be free of any liens or encumbrances.
2.6 Liabilities. The Company has a working capital line of credit with
Southwest Bank and a long term note with MiTek Industries, Inc. as shown at
Section 2.6 of the Disclosure Schedule. The Company moved to its current
location on January 15, 1988, and is committed for rentals of space, equipment
and various other expenses. In connection therewith, commitments in excess of
$25,000 each are shown at Section 2.6 of the Disclosure Schedule. The Company
has no other material liability or obligation, absolute or contingent, except
for liabilities incurred in the ordinary course of its business, none of which
individually exceeds $50,000.
2.7 Title to Property and Assets. Except (a) for liens for current
taxes not yet delinquent, (b) for liens imposed by law and incurred in the
ordinary course of business for obligations not yet due to carriers,
warehousemen, laborers, materialmen, and the like, (c) for liens in respect of
pledges or deposits under workers' compensation laws or similar legislation, or
(d) for minor defects in title, none of which, individually or in the aggregate,
materially interferes with the use of such property, the Company owns its
property free and clear of all mortgages, liens, loans and encumbrances. With
respect to the property it leases, to the best of its knowledge the Company is
in compliance with such leases and holds a valid leasehold interest free of any
liens, claims and encumbrances, subject to clauses (b)-(c) above.
2.8 Governmental Consents. To the best of the Company's knowledge, all
consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated by this Agreement shall have
been obtained prior to, and be effective as of Closing.
<PAGE>
2.9 Compliance with Other Instruments. The Company is not in violation
of any provisions of its Articles of Incorporation or By-Laws as amended and in
effect on the Closing, or, in any material respect, of any provision of any
material mortgage, indenture, contract, agreement, instrument, judgment or
decree to which it is a party, or, to the best of its knowledge, of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation applicable to the Company. The execution, delivery
and performance of this Agreement will not result in any such violation or be in
conflict with or constitute a default under any such provision. There is no such
provision that materially and adversely affects, or in the future may (so far as
the Company can now foresee) materially and adversely affect, the Company's
business, prospects, condition, affairs, operations, properties or assets.
2.10 Misleading Statements; Business Plan. No representation or
warranty by the Company in this Agreement or in any written statement or
certificate furnished or to be furnished to the Additional Investor pursuant to
this Agreement or in connection with the transactions contemplated by this
Agreement, when taken together contains or will contain any untrue statement of
a material fact or omits or will omit to state a material fact necessary in such
context to make the statements not misleading. The materials presented in the
Company's Business Plan, which has been presented to the Investor and the
Additional Investor, have been prepared in a good faith effort by the Company to
describe the Company's present and proposed products, operations and projected
growth. To the best of the Company's knowledge, the assumptions used in the
preparation of the Business Plan continue to be reasonable and are unchanged as
of the date hereof, and the Company is not aware of any materially misleading
statements or omissions therein.
2.11 Litigation. There is no action, proceeding or investigation
pending or to the best of the Company's knowledge, threatened against the
Company before any court or agency (or any basis therefor) known to the Company
that might result, either individually or in the aggregate, in any material
adverse change in the business prospects, condition, affairs, operations,
properties or assets of the Company or in any material liability on the part of
the Company or in any way questions the validity of this Agreement or any
actions taken or to be taken in connection therewith. The foregoing includes,
without limiting its generality, actions pending or, to the best of the
Company's knowledge, threatened (or any basis therefor known to the Company)
involving the prior employment of any of the Company's employees or their use in
connection with the Company's business of any information or techniques
allegedly proprietary to any of their former employers.
2.12 Patents; Trademarks. To the best of its knowledge and belief (but
without having conducted any special investigation or patent search), the
Company owns or possesses, has access to, or can become licensed on reasonable
terms under, all patents, inventions, trademarks, trade names, copyrights,
licenses, information, know-how, proprietary rights and processes necessary for
the lawful conduct of its business as now conducted and as proposed to be
conducted, without any infringement of or conflict with the rights of others.
2.13 Taxes. From October 9, 1984, through December 31, 1987 the
Company was included in the consolidated federal income tax returns of MiTek
Industries, Inc. for fiscal years ended March 31, all of which have been filed
in a timely manner. Tax years of the Company prior to and including the year
ended December 31, 1983 are closed. The consolidated federal income tax returns
of MiTek Industries, Inc. for the years ended March 31, 1985 and 1986 and have
been reviewed but not closed. The Company filed its own tax returns for the year
ended March 31, 1988. The Company is not aware of any deficiency assessments or
proposed adjustments to the Company's open federal and state income tax returns
at this time. MiTek hereby represents and warrants that it, and not the Company,
shall pay any tax liabilities arising out of such consolidated tax returns. The
Company has accurately prepared and timely filed all other United States income
tax returns and municipal tax that are required to be filed by it and has paid
or made provision for the payment of all taxes that have become due pursuant to
such returns. No deficiency assessment or proposed adjustment of the Company's
United States income tax or state or municipal taxes is pending and the Company
has no knowledge of any proposed liability for any tax to be imposed upon its
properties or assets for which there is not an adequate reserve reflected in the
Company's financial statements.
2.14 Employees. The Company and Intech entered into a contract for the
management services of William W. Canfield from September 1, 1986 through
September 30, 1989, to serve as President, Chief Executive Officer and as a
Director at a rate of $90,000 per year. The agreement provides, among other
things, for termination by either party with ninety (90) days written notice,
compensation review at March 31, 1988, and annual incentive payments up to
$90,000. A compensation review at March 31, 1988, increased the rate of this
contract to $96,000 per year. The Company does not have any employment contract
with any of its employees not terminable at will (except as disclosed in Section
2.14 of the Disclosure Schedule) and does not have any collective bargaining
agreements covering any of its employees. All current and future employees of
the Company in technical or management positions have executed or will execute a
Covenant By Employee substantially in the form of Exhibit C attached hereto with
such changes as may be approved from time to time by the Company's Board of
Directors.
2.15 Insurance. The Company is a named insured under fire and casualty
insurance policies, sufficient in amount (subject to reasonable deductibles)
including coverages for auto, products, crime, fiduciary, medical and workmen's
<PAGE>
compensation to allow the Company to replace any of its properties that might be
damaged or destroyed.
2.16 Registration Rights. Except as provided for in this Agreement,
the Company is not under any obligation to register under the Securities Act of
1933, as amended (the "1933 Act"), any of its presently outstanding securities
or any of its securities that may subsequently be issued.
2.17 Financial Statements. The Company has furnished the Additional
Investor with the Company's comparative balance sheets at March 31, 1988 and
1987 together with statements of income and changes in financial position for
the years then ended. The balance sheet and the statements of income and change
in financial condition for the year ended March 31, 1987, was extracted from the
financial statement of MiTek. Ernst & Whinney conducted an audit of MiTek for
the year ended March 31, 1987 and has given MiTek an unqualified opinion on the
consolidated financial statement. Peat Marwick Main & Company has conducted the
audit of the Company for the year ended March 31, 1988 and has given the Company
an unqualified opinion on the financial statement. None of the notes to the
consolidated financial statements of MiTek have a material or adverse effect on
the Company. Information from the notes to the consolidated financial statements
of MiTek which pertain to the Company are shown on the Disclosure Schedule at
Section 2.17. Since March 31, 1988, there have been no changes in the financial
condition, operating results, assets, properties, business prospects, employee
relations or customer relations of the Company from that reflected on the March
31, 1988 balance sheet which, individually or in the aggregate, have been
materially adverse to the Company except as noted in the six-month income
statement for the period ended September 30, 1988 as shown in Exhibit B.
2.18 Availability of Certain Information After Closing. The Company
acknowledges that the Additional Investor will need access to such information
as reasonably requested by it on a daily basis after Closing. In addition, the
Company agrees to cooperate with the Additional Investor to provide means of
electronic transfer of monthly financial information as reasonably requested by
Additional Investor.
3. Representations and Warranties of the Investor, MiTek and Intech and of
Additional Investor.
3.1 Representations of Investor, MiTek and Intech. Each of Investor,
MiTek and Intech represent and warrant that this Agreement, when executed and
delivered by such entity, will constitute a valid and legally binding obligation
of such entity.
3.2 Representations and Warranties of the Additional Investor. The
Additional Investor represents and warrants to the Company that:
(a) The Additional Investor is duly organized, validly existing
and in good standing under its jurisdiction of organization.
(b) All action on the part of the Additional Investor necessary
for the authorization, execution, delivery and performance of all obligations,
of the Additional Investor under this Agreement has been (or will be) taken
prior to the Closing.
This Agreement, when executed and delivered by the Additional Investor, shall
constitute a valid and legally binding obligation of the Additional Investor
enforceable in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency, the relief of debtors and, with respect to
rights to indemnity, subject to Federal and state securities laws.
(c) To the best knowledge of the Additional Investor, all
consents, approvals, orders or authorizations of, or registrations,
qualifications, designations, declarations or filings with any Federal or state
governmental authority on the part of the Additional Investor required in
connection with the consummation of the transactions contemplated by this
Agreement shall have been obtained prior to, and be effective as of, the
Closing.
(d) The execution, delivery and performance of this Agreement
will not result in the violation of any provisions of the Additional Investor's
presently effective governing partnership instruments or to the best of the
Additional Investor's knowledge, in any material respect, of any material
mortgage, indenture, contract, agreement, instrument, judgment or decree to
which the Additional Investor is a party, or to the best of Additional
Investor's knowledge of any provision of any Federal or state judgment, writ,
decree, order, statute, rule or governmental regulation application to the
Additional Investor.
4. Federal and Other Securities Laws.
4.1 Investment Representations.
(a) This Agreement is made with the Additional Investor in
reliance upon the Additional Investor's representation to the Company, which by
its acceptance hereof the Additional Investor hereby confirms, that the shares
of the Stock to be received by it will be acquired for investment for its own
account, not as a nominee or agent, and not with a view to the sale or
distribution of any part thereof, and that it has no present intention of
selling, granting participation in, or otherwise distributing the same, but
<PAGE>
subject nevertheless to any requirement of law that the disposition of its
property shall at all be within its control. By executing this Agreement, the
Additional Investor further represents that it does not have any contract,
undertaking, agreement or arrangement with any person to sell, transfer or grant
participations to such person, or to any third person with respect to any of the
shares of the Stock or the Underlying Common Stock acquired on conversion
thereof.
(b) The Additional Investor understands that the Stock is not,
and the Underlying Common Stock at the time of issuance may not be, registered
under the 1933 Act on the ground that the sale provided for in this Agreement
and the issuance of securities hereunder is exempt from registration under the
1933 Act pursuant to Section 4(2) thereof, and that the Company's reliance on
such exemption is predicated on the Additional Investor's representations set
forth herein. The Additional Investor realizes that the basis for the exemption
may not be present if, notwithstanding such representations, the Additional
Investor has in mind merely acquiring shares of the Common Stock for a fixed or
determinable period in the future, or for a market rise or for sale if the
market does not rise. The Additional Investor hereby confirms that it has no
such intention.
(c) The Additional Investor represents that it is experienced in
evaluating and investing in recently organized, high technology companies such
as the Company, is able to fend for itself in the transactions contemplated by
this Agreement, has such knowledge and experience in financial and business
matters as to be capable of evaluating the merits and risks of its investment,
and has the ability to bear the economic risks of its investment. The Additional
Investor further represents that it has had access, during the course of the
transaction and prior to its purchase of the Stock, to the same kind of
information that would be provided in a registration statement filed by the
Company under the 1933 Act and that it has had, during the course of the
transaction and prior to its purchase of its shares of the Stock, the
opportunity to ask questions of, and receive answers from, the Company and MiTek
concerning the terms and conditions of the offering and to obtain additional
information (to the extent the Company possessed such information or could
acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access.
(d) The Additional Investor understands that the Stock and the
Underlying Common Stock may not be sold, transferred or otherwise disposed of
without registration under the 1933 Act or an exemption therefrom, and that in
the absence of an effective registration statement covering the Stock (or the
Underlying Common Stock) or an available exemption from registration under the
1933 Act, the Stock (and any Underlying Common Stock) must be held indefinitely.
In particular, the Additional Investor is aware that the Stock (and any
Underlying Common Stock) may not be sold pursuant to Rule 144 promulgated under
the 1933 Act unless all of the conditions of that Rule are met. Among the
conditions for use of Rule 144 is the availability of current information to the
public about the Company. Such information is not now available and the Company
has no present plans to make such information available. The Additional Investor
represents that, in the absence of an effective registration statement covering
the Stock (or any Underlying Common Stock) it will sell, transfer or otherwise
dispose of the Stock (or any Underlying Common Stock) only in a manner
consistent with its representations set forth herein and then only in accordance
with the provisions of paragraph 4.1(e) hereof.
(e) The Additional Investor agrees that in no event will it make
a transfer or disposition of any of the Stock or any Underlying Common Stock
(other than pursuant to an effective registration statement under the 1933 Act),
unless and until the Additional Investor shall have notified the Company of (i)
the proposed disposition and shall have furnished the Company with a statement
of the circumstances surrounding the disposition, and (ii) if requested by the
Company, at the expense of the Additional Investor or transferee, it shall have
furnished to the Company an opinion of counsel, reasonably satisfactory to the
Company, to the effect that such transfer may be made without registration under
the 1933 Act. Notwithstanding the foregoing, no formal notice or opinion of
counsel shall be required for the transfer by Additional Investor to any partner
of Additional Investor, or to a retired partner of Additional Investor who
retires after the date of this Agreement or to the estate of any such partner or
a retired partner or for the transfer by gift, will or intestate succession of
any partner to his spouse or lineal descendants or ancestors; provided, however,
in all cases that the transferee shall agree in writing to be subject to the
terms of this Agreement to the same extent as if it were the original Additional
Investor hereunder.
4.2 Legends; Stop Transfer.
(a) All certificates for shares of the Stock and Underlying
Common Stock shall bear the following legend:
"These securities have not been registered under the Securities
Act of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration
statement as to the securities under said Act or an opinion of
counsel satisfactory to the Company that such registration is not
required."
(b) The certificates for shares of the Stock and any Underlying
Common Stock shall also bear any legend required by any applicable state
<PAGE>
securities law.
(c) In addition, the Company shall make a notation regarding the
restrictions on transfer of the Stock in its stock books, and shares of the
Stock (and any Underlying Common Stock) shall be transferred on the books of the
Company only if transferred or sold pursuant to an effective registration
statement under the 1933 Act covering such shares or pursuant to and in
compliance with the provisions of paragraph 4.1(e) hereof.
5. Conditions to Additional Investor's Obligations at Closing. The
obligations of the Additional Investor under paragraph 1.2 of this Agreement are
subject to the fulfillment on or before Closing of each of the following
conditions:
5.1 Representations and Warranties True on the Closing. The
representations and warranties of the Company contained in paragraph 2 shall be
true and correct in all material respects on and as of the Closing with the same
force and effect as if they had been made at the Closing.
5.2 Performance. The Company shall have performed and complied with
all agreements and conditions contained in this Agreement required to be
performed or complied with by it on or before the Closing.
5.3 Qualifications. All authorizations, approvals, or permits, if any,
of any governmental authorities or regulatory bodies of the United States or of
any state that are required in connection with the lawful issuance and sale of
the Stock to this Agreement shall have been duly obtained and shall be effective
on and as of the Closing.
5.4 Compliance Certificate. There shall have been delivered to the
Additional Investor a certificate, dated as of the Closing, signed by the
Company's President or a Vice President, in the form of Exhibit D hereto,
certifying that the conditions specified in paragraphs 5.1 through 5.3 and 5.8
have been fulfilled.
5.5 Opinion of Counsel. The Additional Investor shall have received
from Bryan, Cave, McPheeters & McRoberts, counsel for the Company, an opinion,
dated as of the Closing, in the form of Exhibit E attached hereto.
5.6 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to the Additional Investor and Suelthaus & Kaplan, P.C., its
counsel, and the Additional Investor shall have received all such counterpart
originals or certified or other copies of such documents as it may reasonably
request.
5.7 Financial Statements. The Company shall have furnished the
Additional Investor with a copy of unaudited internal financial statements, for
September 30, 1988 and for the six-month period then ended.
5.8 Intech and Management Investment. Simultaneously with the closing
of the transaction contemplated herein, Intech shall purchase 52,632 shares of
Series A Preferred Stock and thereafter employees of the Company may purchase up
to 20,000 shares of Common Stock, all on terms and conditions acceptable to
Additional Investor.
5.9 Access to Information. Additional Investor shall have such access
to the books and records of the Company and other information pertaining to the
business and assets of the Company necessary in connection with the transaction
contemplated herein. Additional Investor will hold all such information in
confidence and will not disclose the same except to persons participating in
this transaction, including attorneys and accountants and the Missouri State
Employees' Retirement System, except that nothing herein shall prevent
disclosure or use of any information as may be required by applicable law or
that is at the date hereof or hereafter becomes public other than by reason of a
breach of this paragraph. The parties hereto realize that the Additional
Investor may provide information and quarterly and annual reports to the
Missouri State Employees Retirement System and that such information and reports
may be available to the public under the public access statutes of the State of
Missouri.
5.10 Amendment to Articles of Incorporation. Company shall, within
thirty (30) days after Closing, amend its Articles of Incorporation to provide
for indemnification of Company's Board of Directors for all actions (or
inaction) as a director except actions (or inactions) that were knowingly
fraudulent, deliberately dishonest, or constituted willful misconduct.
6. Conditions to the Company's Obligations at Closing. The obligations of
the Company under paragraph 1.2 of this Agreement are subject to the fulfillment
on or before the Closing of each of the following conditions:
6.1 Representations and Warranties True on the Closing. The
representations and warranties of the Additional Investor contained in
paragraphs 3 and 4 shall be true on and as of the Closing with the same force
and effect as if they had been made at the Closing.
6.2 Qualifications. All authorizations, approvals or permits, if any,
of any governmental authority or regulatory body of the United States or of any
<PAGE>
state that are required in connection with the lawful issuance and sale of the
Stock pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing.
6.3 Compliance Certificate. There shall have been delivered to the
Company a certificate, dated as of the Closing, signed on behalf of the
Additional Investor by a duly authorized person in the form of Exhibit G hereto,
certifying that the conditions specified in paragraphs 6.1 and 6.2 have been
fulfilled.
6.4 Proceedings and Documents. All corporate and other proceedings in
connection with the transactions contemplated hereby and all documents and
instruments incident to such transactions shall be in form and substance
satisfactory to the Company and Bryan, Cave, McPheeters & McRoberts, their
counsel, and the Company shall have received all such counterpart originals or
certified or other copies of such documents as it may reasonably request.
6.5 Minimum Investment. The Additional Investor shall purchase at the
Closing not less than 394,737 shares of Series A Preferred Stock of the Company.
7. Registration Rights.
7.1 Definitions. For purposes of paragraph 7:
(a) The term "Act" means the Securities Act of 1933, as amended;
(b) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of effectiveness of such
registration statement;
(c) The term "Registrable Securities" means (i) Common Stock
issuable or issued upon conversion of the Stock and (ii) any Common Stock of the
Company issued as a dividend or other distribution with respect to, or in
exchange or in replacement of, the stock described in paragraph 7.1(c)(i); and
(d) The term "Holder" means the Investor, the Additional
Investor, Intech, Zinsmeyer, and any other person holding Registrable Securities
to whom these registration rights have been transferred pursuant to paragraph
7.16 of this Agreement.
7.2 Request for Registration. Commencing eighteen months after the
Initial Closing, if the Company shall receive a written request (specifying that
it is being made pursuant to this paragraph 7.2) from the Holders of more than
fifty percent (50%) of the Registrable Securities (or securities that are
convertible into Registrable Securities) that the Company file a registration
statement under the Act, or a similar document pursuant to any other statute
then in effect corresponding to the Act, covering the registration of (i) at
least twenty percent (20%) of the Registrable Securities and (ii) Registrable
Securities the expected price to the public of which equals or exceeds
$5,000,000, then the Company shall promptly notify all other Holders of such
request and shall use its best efforts to cause all Registrable Securities that
Holders have requested be registered to be registered under the Act.
Notwithstanding the foregoing, (a) the Company shall not be obligated
to effect a registration pursuant to this paragraph 7.2 during the period
starting with the date sixty (60) days prior to the Company's estimated date of
filing of, and ending on a date six (6) months following the effective date of,
a registration statement pertaining to an underwritten public offering of
securities for the account of the Company, provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective and that the Company's estimate of the date of
filing such registration statement is made in good faith; and (b) if the Company
shall furnish to such Holders a certificate signed by the President of the
Company stating that in the good faith judgment of the Board of Directors it
would be seriously detrimental to the Company or its shareholders for a
registration statement to be filed in the near future, then the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed six (6) months.
The Company shall be obligated to effect only one registration
pursuant to this paragraph. Any request for registration under this paragraph
must be for a firmly underwritten public offering to be managed by an
underwriter or underwriters of recognized standing reasonably acceptable to the
Company, Investor and Additional Investor.
7.3 Company Registration. If at any time the Company proposes to
register any of its Common Stock under the Act in connection with the public
offering of such securities solely for cash on a form that would also permit the
registration of the Registrable Securities, the Company shall, each such time,
promptly give each Holder written notice of such determination. Upon the written
request of any Holder given within twenty (20) days after mailing of any such
notice by the Company, the Company shall use its best efforts to cause to be
registered under the Act all of the Registrable Securities that such Holder has
requested be registered.
If the registration of which the Company gives notice is for a
registered public offering involving an underwriting, then the Company shall so
advise the Holders as a part of such written notice. In such event, the right of
<PAGE>
any Holder to registration pursuant to this Section 7.3 shall be conditioned
upon such Holder's agreeing to participate in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein. All Holders proposing to distribute their securities
through such underwriting shall (together with the Company and the other holders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 7.3 if the underwriter determines that the marketing
factors require a limitation of the number of shares to be underwritten, then
the underwriter may exclude some or all Registrable Securities from such
registration and underwriting in accordance with the provisions of this Section
7.3. The Company shall so advise all Holders and the other holders distributing
their securities through such underwriting, and the number of Registrable
Securities and other securities that may be included in the registration and
underwriting shall be allocated among the Holders and the other holders, in
proportion, as nearly as practicable, to the respective amounts of securities
held by each such Holder and other holder at the time of filing the registration
statement. If any Holder disapproves of the terms of any such underwriting then
he may elect to withdraw therefrom by written notice to the Company and the
underwriter. Any securities excluded or withdrawn from such underwriting shall
be withdrawn from such registration.
7.4 Obligations of the Company. Whenever required under paragraphs
7.2, 7.3 or 7.11 to use its best efforts to effect the registration of any
Registrable Securities, the Company shall as expeditiously as reasonably
possible:
(a) Prepare and file with the Securities and Exchange Commission
("SEC") a registration statement with respect to such Registrable Securities and
use its best efforts to cause such registration statement to become and remain
effective; provided, however, that the Company shall in no event be obligated to
cause any such registration to remain effective for more than ninety (90) days,
except as otherwise required by law;
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus in conformity with the
requirements of the Act, and such other documents as they may reasonably
request, in order to facilitate the disposition of Registrable Securities owned
by them; and
(d) Use its best efforts to register the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably appropriate for the distribution of the
securities covered by the registration statement, provided that the Company
shall not be required in connection therewith or as a condition thereof to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions, and further provided that (anything in the
Agreement to the contrary notwithstanding with respect to the bearing of
expenses) if any jurisdiction in which the securities shall be qualified shall
require that expenses incurred in connection with the qualification of the
securities in that jurisdiction be borne by selling shareholders, then such
expenses shall be payable by selling shareholders pro rata, to the extent
required by such jurisdiction.
7.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to paragraph 7 that the
Holders shall furnish to the Company such information regarding them, the
Registrable Securities held by them, and the intended method of disposition of
such securities as the Company shall reasonably request and as shall be required
in connection with the action to be taken by the Company.
7.6 Expenses of Demand Registration. All expenses incurred in
connection with a registration pursuant to paragraph 7.2 (excluding
underwriters' discounts and commissions), including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company, and the reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to paragraph 7.2 if
the registration request is subsequently withdrawn other than at the request of
either the Company of the underwriter or because of market conditions, unless
the Holders agree to forfeit their right to the demand registration pursuant to
paragraph 7.2; provided further that if the Holders' request under paragraph 7.2
is made at a time not within seventy-five (75) days after the end of the
Company's fiscal year, the Holders shall bear the additional costs and fees of
the Company's auditors resulting from the Company's inability to use year-end
financial statements in the registration statement initially filed pursuant to
their request; and provided further that the Holders may withdraw a request made
within seventy-five (75) days of the end of the fiscal year if the audited
financial statements of the Company for such year and at such year-end
materially and adversely differ from the information known to the Holders at the
time of their request, in which event the Holders shall not be required to pay
<PAGE>
any of the expenses and shall retain the right to require the Company to
register Registrable Securities pursuant to paragraph 7.2.
7.7 Company Registration Expenses. In the case of any registration
effected pursuant to paragraph 7.3, the Holders shall bear any additional
registration and qualification fees and expenses (including underwriters'
discounts and commissions), and any additional costs and disbursements of
counsel for the Company that result from the inclusion of securities held by the
Holders in such registration, with such additional expenses of the registration
being borne by all Holders pro rata on the basis of the amount of securities so
registered; provided, however, that if any such cost or expense is attributable
solely to one selling Holder and does not constitute a normal cost or expense of
such a registration, such cost or expense shall be allocated to that selling
Holder. In addition, each selling Holder shall bear the fees and costs of its
own counsel.
7.8 Underwriting Requirements. In connection with any offering
involving an underwriting of shares being sold by persons exercising the demand
registration right contained in paragraph 7.2, the Company shall (together with
all other holders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form with the
representative of the underwriter or underwriters of recognized standing,
reasonably acceptable to the Company, selected for such underwriting by a
majority-in-interest of the Holders. If the representative advises the Holders
in writing that marketing factors require a limitation of the number of shares
to be underwritten, then the number of shares of Registrable Securities that may
be included in the registration and underwriting shall be allocated among all
Holders thereof in proportion, as nearly as practicable, to the respective
amount of Registrable Securities held by such Holders at the time of filing the
Registration Statement.
If the underwriter has not limited the number of Registrable
Securities to be underwritten, then the Company and the other holders may
include securities for their own account in such registration if the underwriter
so agrees and if the number of Registrable Securities that would otherwise have
been included in such registration and underwriting will not thereby be limited
for any reason, including but not limited to the price for which the Registrable
Securities will be sold. To the extent that the underwriter wishes to limit the
number of shares to be included in the registration on behalf of the Company and
the other holders the shares of Common Stock to be registered held by the other
holders shall be excluded from such offering prior to excluding any shares held
by the Company.
7.9 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this paragraph 7.
7.10 Indemnification. In the event any Registrable Securities are
included in a registration statement under paragraph 7:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder requesting or joining in a registration, any
underwriter (as defined in the Act) for it and each person, if any, who controls
such Holder or underwriter within the meaning of the Act, against any losses,
claims, damages or liabilities, joint or several, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arises out of or are based on any untrue or alleged untrue statement of
any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, or arise out of or are based on the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading (except where such
alleged untrue statement or omission was made in reliance upon and in conformity
with the written information furnished by a Holder expressly for use in
connection with such registration) or arise out of any violation by the Company
of any rule or regulation promulgated under the Act applicable to the Company
and relating to action or inaction required of the Company in connection with
any such registration; and will reimburse each such Holder, such underwriter or
controlling person for any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this paragraph 7.10(a) shall not apply to amounts paid in settlement of any
such loss, damage, liability or action if such settlement is affected without
the consent of the Company (which consent shall not be unreasonably withheld)
nor shall the Company be liable in any such case for any such loss, claim,
damage, liability or action to the extent that it arises out of or is based upon
an untrue statement or alleged untrue statement or omission or alleged omission
made in connection with such registration statement, preliminary prospectus,
final prospectus or amendments or supplements thereto in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each Holder requesting or
joining in a registration will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act, and
each agent and any underwriter for the Company (within the meaning of the Act)
against any losses, claims, damages or liabilities to which the Company or any
<PAGE>
such director, officer, controlling person, agent or underwriter may become
subject, under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions in respect thereto) arise out of or are based upon any
untrue statement or alleged untrue statement of any material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, or arise
out of or are based upon the omission or alleged omission to state therein a
material fact required to be stated therein dr necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent, that
such untrue statement or alleged untrue statement or omission or alleged
omission was made in such registration statement, preliminary or final
prospectus, or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, agent or underwriter in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this paragraph
7.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of such Holder (which consent shall not be unreasonably withheld).
(c) Promptly after receipt by an indemnified party under this
paragraph of notice of the commencement of any action, such indemnified party
will, if a claim in respect thereof is to be made against any indemnifying party
under this paragraph, notify the indemnifying party in writing of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties. The failure to notify
an indemnifying party promptly of the commencement of any such action, if
prejudicial to his ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
paragraph, but the omission so to notify the indemnifying party will not relieve
him of any liability that he may have to an indemnified party otherwise than
under this paragraph.
7.11 Registrations on Form S-3.
(a) If (i) a Holder (other than Zinsmeyer) or Holders request in
writing (specifying that it is being made pursuant to this paragraph 7.11) that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3 regardless of its designation) for a public offering of shares of the
Registrable Securities the reasonably anticipated aggregate price to the public
of which would exceed One Million Dollars ($1,000,000), and (ii) the Company is
a registrant entitled to use Form S-3 to register such shares, then the Company
shall use its best efforts to cause such shares to be registered on Form S-3 (or
any successor form to Form S-3); provided, however, that the Company shall not
be required to file more than one such registration statement in any one
calendar year.
(b) All expenses incurred in connection with a registration
requested pursuant to paragraph 7.11(a), including without limitation, all
registration, qualification, printing and accounting fees, and fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, shall be borne pro rata by the Holder or Holders participating in the
registration pursuant to paragraph 7.11(a) on the basis of the amount of
securities so registered.
(c) Holders' rights to registration under this paragraph 7.11 are
in addition to, and not in lieu of, their rights to registration under
paragraphs 7.2 and 7.3.
7.12 Reports Under Securities Exchange Act of 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration if
the Company becomes subject to the reporting requirements of the Securities
Exchange Act of 1934, as amended (the "1934 Act") the Company agrees to use its
best efforts to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144, at all times subsequent to ninety (90)
days after the effective date of the first registration statement covering an
underwritten public offering filed by the Company;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the 1934 Act; and
(c) furnish to any Holder so long as such Holder owns any of the
Stock or Registrable Securities forthwith upon request a written statement by
the Company that it has complied with the reporting requirements of Rule 144 and
of Act and the 1934 Act, a copy of the most recent annual or quarterly report of
the Company and such other reports and documents so filed by the Company as may
be reasonably requested in availing any Holder of any rule or regulation of the
SEC permitting the selling of any such securities without registration.
7.13 Lockup Agreement. In consideration for the Company agreeing to
its obligations under this paragraph 7, Intech, Zinsmeyer, Investor and the
<PAGE>
Additional Investor each agree in connection with any registration of the
Company's securities that, upon the request of the Company or underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, grant any option for the purchase of, or otherwise
dispose of any Registrable Securities (other than those in the registration)
without the prior written consent of the Company or such underwriters, as the
case may be, for a period of time not to exceed one hundred twenty (120) days,
from the effective date of such registration as the Company or the underwriters
may specify.
7.14 Certain Limitations in Connection with Future of Registration
Rights. From and after the date of this Agreement, the Company shall not enter
into any agreement with any holder or prospective holder of any securities of
the Company providing for the granting to such holder of registration rights,
unless such agreement:
(a) includes the equivalent of paragraph 7.13 as a term; and
(b) includes a provision that, in the case of a public offering
involving an underwritten registered offering under paragraph 7.2, protects the
Holders if marketing factors require a limitation on the amount of securities to
be included in the underwriting in the manner in which the Company and the
Holders are protected under paragraph 7.8.
7.15 Transfer of Registration Rights. The registration rights of the
Investor and the Additional Investor under this paragraph 7 may be transferred
to any transferee who acquires at least fifty-two thousand (52,000) shares of
the Stock or an equivalent amount of Registrable Securities issued upon
conversion thereof; provided, however, that the Company is given written notice
by the Holder at the time of such transfer stating the name and address of the
transferee and identifying the securities with respect to which the rights under
this paragraph 7 are being assigned.
8. Covenants of the Company, MiTek and Intech.
8.1 Annual Financial Statements. The Company shall deliver to the
Investor and the Additional Investor, so long as either hold any of the Stock
(including, for these purposes, Common Stock into which Stock has been
converted):
(a) Audited financial statements including a profit and loss
statement, balance sheet, and cash flow statement together with an unqualified
opinion thereon (except for items or events outside of the control of the
Company) within ninety (90) days after the close of its fiscal year or other
agreed upon reporting period. The public accountants shall be Peat, Marwick,
Main & Company or another firm, of recognized national standing, selected by the
Company and reasonably acceptable to all shareholders controlling twenty percent
(20%) or more of the preferred and/or common shares; and
(b) As soon as available, but in any event within thirty (30)
days after commencement of each new fiscal year, the Company shall deliver to
the Investor and the Additional Investor a business plan, projected financial
statements and cash flow projections for such fiscal year as set forth in the
Company's operating plan as approved by the Company's Board of Directors, along
with a capital expenditures budget. As part of its business plan, the Company
shall submit to its Board of Directors a detailed capital expenditure budget for
the coming year, with such budget to be approved by the Board.
8.2 Monthly and Quarterly Financial Statements. The Company shall
deliver to the Investor and to the Additional Investor so long as either holds
any of the Stock (including, for these purposes, Common Stock into which the
Stock has been converted) within twenty-five (25) days after the end of each
month and each quarter an unaudited statement of profit or loss for such month
or quarter and the current fiscal year to date and an unaudited balance sheet as
of the end of each such month or quarter, and a cash flow statement setting
forth in comparative form the figures for the corresponding periods of the
previous fiscal year and the Company's operating plan then in effect and
approved by its Board of Directors.
8.3 Inspection. The Company shall permit a duly authorized
representative of the Investor's General Partner and a duly authorized
representative of the Additional Investor's General Partner, at their expense to
visit and inspect the Company's properties, to examine the Company's books of
account and records, and to discuss the Company's affairs, finances and accounts
with its officers and independent accountants, all at such reasonable times as
may be requested by the Investor.
8.4 Termination of Covenants. The covenants set forth in paragraphs
8.1, 8.2, and 8.3 shall terminate and be of no further force or effect after the
date upon which a registration statement filed by the Company under the 1933 Act
in connection with a public offering of its securities underwritten on a firm
commitment basis first becomes effective.
8.5 Key-Man Insurance. The Company shall use its best efforts to
obtain, within 30 days of Closing, term life insurance in the amount of
$2,000,000 on the life of William W. Canfield, with proceeds payable to the
Company, so long as he is president of the Company.
8.6 Board Representation. The Company's Bylaws provide and shall
<PAGE>
continue to provide for a Board of Directors consisting of five (5) persons,
which Board shall be required to meet at least four (4) times a year.
Immediately after the Closing the Board of Directors shall consist of: William
W. Canfield, Richard F. Ford (as designee of the Investor) Paul Cornelson (as
designee of MiTek), an individual designated by Additional Investor and a fifth
member acceptable to the other four directors. The Investor, Additional
Investor, MiTek and Intech shall execute irrevocable cross-proxies coupled with
an interest to accomplish election of a designee of each of them to the Board of
Directors so long as this Agreement is in effect. Further, Additional Investor
shall have the right to have up to two observers (in addition to a board member)
of its choosing present at each board meeting.
8.7 Employee Stock Option Plan. Each person who purchases any of the
138,724 shares of the Company's Common Stock reserved for issuance to officers
and employees of the Company under the Company's Stock Option Plan shall execute
and deliver to the Company an Employee Stock Option Agreement and the related
vesting schedule in such form as holders of not less than eighty percent (80%)
of the Stock (including an equivalent amount of any Common Stock issued upon
conversion thereof) approve in writing.
8.8 Proprietary Information Agreement. Unless waived in any given
instance by the Company's Board of Directors, each person employed by the
Company in a technical or management position, either as an employee or a
consultant, shall, as a condition to employment with the Company, execute a
Covenant By Employee in the form of Exhibit C attached hereto or another form
satisfactory to the Company's Board of Directors.
8.9 Underwriting of Future Offerings. The Company agrees to negotiate
in good faith with Stifel, Nicolaus & Company, Incorporated ("Stifel") towards
providing Stifel a role in any future underwritten offerings of Common Stock of
the Company (or securities convertible into or exchangeable for Common Stock of
the Company), whether by public offering or private placement.
8.10 Application of Net Proceeds from Sale of Stock. The Company shall
use the net proceeds from the sale of the Stock, after payment of reasonable
costs associated with such sale, for general corporate purposes authorized by
the Board of Directors.
8.11 Reservation of Underlying Common Stock. The Company shall keep
reserved the total number of shares of its Common Stock issuable upon conversion
of the Stock at any time (which number shall be increased in accordance with
Exhibit A).
8.12 Sale of Additional Shares. The Company shall not issue any
additional shares of Common Stock or other capital stock of the Company, or
issue warrants or options for, or otherwise agree to sell, Common Stock or other
capital stock of the Company, after Closing, to any party, without the written
consent of Investor and Additional Investor, except for those shares of other
capital stock to be sold to Additional Investor pursuant to Sections 1 and 5.8
of this Agreement and any shares sold to employees, officers, directors, and
consultants of the Company (up to 138,724 shares of Common Stock), as may be
approved by the Company's Board of Directors.
9. Agreements Between the Company, MiTek, Intech, Investor, and Additional
Investor.
9.1 Right of First Refusal With Respect to Primary Issuances.
(a) The Right. If at any time prior to the expiration of the
period set forth in paragraph 9.1(f), the Company should reach an agreement with
one or more potential investors, acceptable to the Company, to issue and sell,
in a transaction not registered under the 1933 Act in reliance upon a claimed
exemption thereunder, any Equity Securities (as hereinafter defined), it shall
give each Eligible Investor (as hereinafter defined) the first right to purchase
up to that amount of Equity Securities which would maintain its percentage
ownership in the Company's Common Stock on a fully-diluted basis on the same
terms as the Company is willing to sell such Equity Securities to such potential
investors). Each Eligible Investor's pro rata share of the Equity Securities
shall be such fraction of the Equity Securities to be issued as will enable such
Eligible Investor to maintain its percentage interest in the Company's Common
Stock on a fully diluted basis prior to the proposed issuance of Equity
Securities.
(b) Notice. Prior to any sale or issuance by the Company of any
Equity Securities, the Company shall notify each Eligible Investor in writing of
its intention to call and issue such securities, setting forth the terms under
which it proposes to make such sale. Such notice shall be signed by the
potential investors to whom the Company intends to issue and sell the Equity
Securities and shall indicate the potential investors' concurrence with the
description of the terms. Within thirty (30) days after receipt of such notice,
each Eligible Investor shall notify the Company as to the maximum amount of the
Equity securities so offered each that such Eligible Investor desires to
purchase. Each Eligible Investor shall be entitled to apportion Equity
Securities to be purchased among its partners and affiliates upon liquidation
and winding up of the Investor or the Additional Investor as a limited
partnership, provided that such Eligible Investor notifies the Company of such
allocation. If the Eligible Investors as a group do not purchase the maximum
portion of the Equity Securities to which they are entitled pursuant to this
paragraph 9.1 (the "Maximum Portion"), each such Eligible Investor who exercised
<PAGE>
an option to purchase additional shares may, within ten (10) days after the
expiration of the thirty (30) day option, exercise an option to purchase certain
of the remaining shares in the Maximum Portion. In the case of a single Eligible
Investor, its option shall be to purchase up to all of the remaining shares in
the Maximum Portion. In the case of two or more Eligible Investors, each such
Eligible Investor's option shall be to purchase that proportion of the remaining
shares of the Maximum Portion which equals the proportion which the number of
shares owned by each such Eligible Investor bears to the total number of shares
then owned by all of the Eligible Investors exercising this secondary option.
The Eligible Investors and the Company shall purchase and sell the Equity
Securities at the same time as Equity Securities are sold to the investors
described in paragraph 9.1(a).
(c) Failure to Notify. If, within forty (40) days after the
Company gives its aforesaid notice to the Eligible Investors, the Eligible
Investors as a group do not notify the Company that they desire to purchase the
Maximum Portion of the Equity Securities described in such notice upon the terms
and conditions set forth in such notice, then the Company may, during a period
of ninety (90) days following the end of such forty (40) day period, sell and
issue the portion of the Equity Securities which the Eligible Investors are not
entitled to purchase pursuant to Section 9.1 and such additional Equity
Securities as to which the Eligible Investors do not indicate a desire to
purchase to the investors with whom the agreement had been reached at a price
and upon terms and conditions no more favorable in any material respect to such
investors than those set forth in the notice to the Eligible Investors. In the
event that the Company has not sold all such Equity Securities to such investors
within said ninety (90) day period, the Company shall not thereafter issue or
sell any Equity Securities without first offering such Equity Securities to the
Eligible Investors in the manner provided above.
(d) Payment. If an Eligible Investor gives the Company notice
that it desires to purchase any of the Equity Securities offered by the Company,
then payment for the Equity Securities shall be by bank cashier's or certified
check or wire transfer against delivery of the securities at the executive
offices of the Company at the time of the scheduled closing therefor. The
Company shall take all such action (except registration under the 1933 Act) as
may reasonably be required by any regulatory authority in connection with the
exercise by an Eligible Investor of the right to purchase Equity Securities as
set forth in this paragraph 9.1, provided, however, the Company shall not be
required to sell any Equity Securities if such sale would result in a violation
of applicable securities laws if the Company has taken such action as aforesaid.
(e) Limitation. The right of first refusal in this paragraph 9.1
shall not apply to the issuance by the Company of:
(i) up to 138,724 shares of Common Stock (such number
subject to adjustment for changes in capitalization) reserved for issuance to
employees, officers, directors and consultants pursuant to transactions approved
by the Company's Board of Directors or sold pursuant to Section 5.8 of the
Agreement;
(ii) all shares of Common Stock issued upon conversion of
any shares of the Company's Series A Preferred Stock, and
(iii) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization.
(f) Termination. The right of first refusal contained in this
paragraph 9.1 shall terminate (i) immediately prior to the closing of the
Company's first firmly underwritten public offering registered under the 1933
Act with aggregate proceeds to the Company of at least Five Million Dollars
($5,000,000) and an offering price per share to the public equal to or greater
than two (2) times the price at which Series A Preferred Stock is first issued,
appropriately adjusted for stock dividends, stock splits, stock combinations and
the like, or (ii) upon shareholder approval of any merger or consolidation of
the Company with any other corporation in which the Company is not the surviving
entity, provided that, if such merger or consolidation is not consummated, the
right of first refusal shall be deemed restored and reinstated to full force and
effect.
(g) Equity Securities. The term "Equity Securities" shall mean
any securities having voting rights in the election of the Company's Board of
Directors not contingent upon default, or any securities evidencing an ownership
interest in the Company, or any securities convertible into or exercisable for
any shares of the foregoing or any agreement or commitment to issue any of the
foregoing.
(h) Eligible Investors. For purposes of this Agreement the term
"Eligible Investors" shall mean the Investor, Intech, Zinsmeyer and the
Additional Investor or transferees who have acquired Series A Preferred Stock or
Common Stock issuable upon conversion of the Series A Preferred Stock in a
transaction not involving a public offering (in which case the aggregate
purchase price paid by such transferees for purposes of paragraph 9.2(a) shall
be the original purchase price of the shares transferred paid by the Investor or
Additional Investor to the Company for such shares).
9.2 Right of First Refusal With Respect to Shares Held by MiTek and
Intech.
<PAGE>
(a) The Right. If at any time either or both of MiTek or Intech
(MiTek and Intech are hereinafter referred to as the "Founders") propose to sell
shares of Common Stock or other securities of the Company convertible or
exchangeable into Common Stock (hereinafter "Common Equity Securities") to one
or more third parties, then such Founder shall first grant each Eligible
Investor the right to purchase its pro rata share (or any part thereof) of all
of the such securities (the "Offered Securities") on the same terms as the
Founder is willing to sell such Common Equity Securities to such third party or
parties. Each Eligible Investor's pro rata share of the Offered Securities shall
be a fraction of the offered Securities, of which the aggregate purchase price
of all securities acquired by the Eligible Investor from the Company which are
held by the Eligible Investor on the date of the Founder's written notification
referred to in paragraph 9.2(b) below (the "Notice Date") shall be the
numerator, and the aggregate purchase price of all securities acquired by the
Eligible Investors, as a group, from the Company, which are held by the Eligible
Investors on the Notice Date shall be the denominator. For purposes of this
subparagraph (a), the stock of the Company shall be arithmetically adjusted for
stock dividends, stock splits, recapitalizations and the like. Notwithstanding
the foregoing, the Founders shall have no obligation to sell Common Equity
Securities to the Eligible Investors unless the Eligible Investors have agreed
in the aggregate, to purchase all Common Equity Securities that the Founders
then propose to sell.
(b) Notice. Prior to any sale by any Founder of any Common Equity
Securities, the Founder shall notify each Eligible Investor, in writing, of such
Founder's intention to sell such securities, setting forth the terms under which
he proposes to make such sale. Such notice shall be signed by the third parties
to whom the sale, assignment or transfer is proposed and shall indicate the
third parties' concurrence with the description for the sale, assignment or
transfer. Within thirty (30) days after receipt or such Notice, each Eligible
Investor shall notify the Founder as to the maximum amount of the Offered
Securities such Eligible Investor desires to purchase. Each Eligible Investor
shall be entitled to apportion Offered Securities to be purchased among its
partners and affiliates, provided that such Eligible Investor notifies the
Founder of such allocation. If the Eligible Investors as a group do not purchase
the maximum portion of the Offered Securities to which they are entitled
pursuant to this paragraph 9.2 (the "Maximum Portion"), each such Eligible
Investor who exercised an option to purchase Offered Securities may, within ten
(10) days after the expiration of the thirty (30) days option, exercise an
option to purchase certain of the remaining Offered Securities in the Maximum
Portion. In the case of a single Eligible Investor, its option shall be to
purchase up to all of the remaining shares in the Maximum Portion. In the case
of two or more Eligible Investors, each such Eligible Investor's option shall be
to purchase that proportion of the remaining shares of the Maximum Portion which
equals the proportion which the number of shares owned by each such Eligible
Investor bears to the total number of shares then owned by all of the Eligible
Investors exercising this secondary option. The Eligible Investors and the
Founder shall actually purchase and sell the Offered Securities within forty
(40) days of the date of the Founder's notice to the Eligible Investors. If an
Eligible Investor gives the Founder notice that it desires to purchase any of
the Offered Securities, then payment for the Offered Securities shall be by bank
cashier's or certified check or wire transfer, against delivery of the
securities at a place agreed upon between the parties and at the time of the
scheduled closing therefor.
(c) Failure to Notify. If, within forty (40) days after a Founder
gives its aforesaid notice to the Eligible Investors, the Eligible Investors as
a group do not notify the Founder that they elect to purchase the Maximum
Portion of the Common Equity Securities described in such notice on the terms
set forth therein, then, subject to the immediately following paragraph 9.3,
Founder may during the ninety (90) days following the end of such forty (40) day
period, sell such Offered Securities as to which the Eligible Investors do not
indicate a desire to purchase to the third parties with whom the agreement was
reached at a price and upon terms and conditions no more favorable in any
material respect to such third parties as those set forth in the notice to the
Eligible Investors. In the event the Founder has not sold such Offered
Securities within said ninety (90) day period, the Founder shall not thereafter
sell any Common Equity Securities without first offering such securities to the
Eligible Investors in the manner provided above.
9.3 Right of Co-Sale.
(a) The Right. If at any time any Founder proposes to sell shares
of Common Equity Securities pursuant to a bona fide offer from a party or
parties other than the Eligible Investors, and the Eligible Investors as a group
do not exercise their right of first refusal for the Maximum Portion of Offered
Securities pursuant to the preceding paragraph 9.2, then any Eligible Investor
(a "Selling Investor") which notifies such Founder in writing within thirty (30)
days after receipt of the notification from such Founder referred to in
paragraph 9.2(b), shall have the opportunity to sell a pro rata portion of
Common Equity Securities which the Founder proposes to sell to such third party;
whereupon the Founder shall assign so much of its interest in the agreement of
sale as the Selling Investor shall be entitled to and shall request hereunder,
and the Selling Investor shall assume such part of the obligations of the
Founder under such agreement as shall relate to the sale of the securities by
the Selling Investor. For the purposes of this paragraph 9.3, the "pro rata
portion" which the Selling Investor shall be entitled to sell shall be an amount
of Common Equity Securities (assuming the conversion of all such securities to
<PAGE>
Common Stock) equal to a fraction of the total amount of Common Equity
Securities (assuming the conversion of all such securities to Common Stock)
proposed to be sold, the numerator of which is the aggregate of all securities
acquired by a Selling Investor from the Company which are then held by the
Selling Investor and the denominator is the aggregate of all securities acquired
by the Selling Investors, as a group, from the Company which are then held by
the Selling Investors and the aggregate of all securities acquired by the
selling Founder from the Company which are then held by such, Founder. Each
Selling Investor shall notify the Founder whether it elects to sell an amount
equal to, more than or less than its pro rata share of the Common Equity
Securities so offered. Each such Selling Investor who exercised its right to
sell pursuant to this paragraph 9.3 may, within ten (10) days after the
expiration of the thirty-day period specified in this paragraph 9.3(a), exercise
the right of co-sale for up to a pro rata proportion of all those shares of
Common Equity Securities that were subject to the right of co-sale under this
paragraph 9.3, but for which the Eligible Investors did not exercise such right
of co-sale (the "Remaining Shares"). In the case of a single Selling Investor,
its right of co-sale shall be to sell up to all of the Remaining Shares. In the
case of two or more Selling Investors, each such Selling Investor's right of
co-sale shall be to sell that proportion of the Remaining Shares which equals
that proportion which the number of shares owned by each such Selling Investor
bears to the total number of shares then owned by all Selling Investors
exercising this secondary right of co-sale. Each Selling Investor shall be
entitled to apportion Common Equity Securities to be sold among its partners and
affiliates, provided that such Selling Investor notifies the Founder of such
allocation.
(b) Failure to Notify. If within forty (40) days after the
Founder gives the aforesaid notice to the Eligible Investors, the Eligible
Investors do not notify the Founder that they desire to sell all of their pro
rata portions of the Common Equity Securities described in such notice at the
price and on the terms and conditions set forth therein, then such Founder may,
subject to paragraph 9.2, sell during the 90-day period set forth in paragraph
9.2(c) such Common Equity Securities as to which the Eligible Investors do not
indicate a desire to sell to other persons at the same price and upon the same
terms and conditions as those set forth in the notice. In the event such Founder
has not sold the Common Equity Securities within the period set forth in
paragraph 9.2(c), the Founder shall not thereafter sell any Common Equity
Securities without first notifying the Eligible Investors in the manner provided
above.
9.4 Limitations to Rights of First Refusal and Co-Sale. Without regard
and not subject to the provisions of paragraphs 9.2 and 9.3:
(a) Founders may sell or otherwise assign for consideration or
gift Common Equity Securities to any or all of their successors, shareholders or
affiliates, provided that each such transferee or assignee, prior to the
completion of the sale, transfer, gift or assignment, shall have executed
documents assuming the obligations of the Founder under this Agreement with
respect to the transferred securities; and
(b) Founders may sell or transfer Common Equity Securities in a
public offering of securities of the Company registered under the 1933 Act
having gross offering proceeds of at least Five Million Dollars ($5,000,000) and
an offering price per share of at least two (2) times the price at which Series
A Preferred Stock is first issued (adjusted for stock splits, stock dividends,
reorganizations and the like from the date hereof).
9.5 Legends. All instruments evidencing Common Equity Securities held
by Founders shall be legended, describing the obligations of Founders under this
paragraph 9.
9.6 Termination.
(a) The obligations of Founders under this paragraph 9 shall
terminate and be of no further force and effect upon any event described in
paragraph 9.1(f) of this Agreement.
(b) Notwithstanding any other provision of this paragraph 9 to
the contrary, the obligations under paragraph 9.3 shall terminate as to any
Founder at such time as such Founder beneficially owns fewer than twenty percent
(20%) of the Company's outstanding Common Equity Securities. "Beneficial
ownership" shall be determined in accordance with Rule 13d-3 promulgated by the
Securities and Exchange Commission under the Securities Exchange Act of 1934, as
amended or superseded.
9.7 Assignment. Upon written notice to the Founders, the rights
granted pursuant to this paragraph 9 may be assigned by an Eligible Investor or
its transferees upon a sale or transfer (other than a sale thereof to the
public) of the Stock or any Underlying Common Stock held by any such Eligible
Investor provided that any transferee of an Eligible Investor shall agree to
become subject to the obligations of the Eligible Investors hereunder.
10. Indemnification. To the extent permitted by law the Company hereby
agrees to indemnify and hold harmless Intech (subject to the limitations
contained herein), MiTek, Kirk Capital Corporation, The Kirk Organization, Inc.,
the Additional Investor, Lary R. Kirchenbauer, the Investor, Gateway Associates,
L.P., and/or Richard F. Ford, and each of their officers, directors, employees,
and agents against any and all claims, liabilities, damages, costs, risks,
<PAGE>
threats and expenses (including but not limited to all expenses and costs of
defense and investigation related thereto), of any and every nature and
description, however incurred, arising out of or related to the Letter of Intent
accepted November 29, 1988 between Missouri Venture Partners, L.P. and the
Company, this Agreement, the purchase of any shares by Additional Investor, and
any agreements or proceedings related to any of the foregoing. The foregoing
indemnification shall not apply in any respect to William W. Canfield as a
shareholder, officer, director, employee or agent of Intech, and any amounts
otherwise due Intech under this paragraph shall be reduced by a percentage equal
to William W. Canfield's ownership interest in Intech at the time the right to
indemnification arose.
11. Miscellaneous.
11.1 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein. The warranties, representations and covenants set forth herein or
therein shall survive any investigation made by the Additional Investor and the
closing of the transactions contemplated hereby. The terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties, except as otherwise provided in this
Agreement and except that no rights shall be transferred to a purchaser of the
Stock sold pursuant to a registration statement under the 1933 Act or pursuant
to a transaction under Rule 144 thereunder. Nothing in this Agreement, express
or implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement. The ability of the Additional Investor and
the Investor to transfer registration rights and the rights described in
paragraph 9 is as specifically set forth in this Agreement. This Agreement
supersedes the Preferred Stock Purchase Agreement except that the warranties,
representations and covenants contained in paragraphs 2, 3, and 4 shall survive
and be binding upon the parties to that Preferred Stock Purchase Agreement.
11.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of Missouri as applied to agreements among Missouri
residents entered into and to be performed entirely within Missouri.
11.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
11.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
11.5 Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall be deemed effectively given upon personal
delivery or upon deposit with the United States Post Office, by registered or
certified mail, postage prepaid, addressed to the Company at 1850 Borman Court,
St. Louis, Missouri 63146, Attention: President, and to the Investor at 8000
Maryland Avenue, Suite 1190, St. Louis, Missouri 63105, Attention: Richard F.
Ford, and to Additional Investor at 101 South Hanley Road, Suite 1250, St.
Louis, Missouri 63105, Attention: Lary R. Kirchenbauer, or at such other address
as any party may designate by ten (10) days' advance written notice to the other
party.
11.6 Finders' Fees. Each party represents that it neither is, nor will
be, obligated for any finders' fee or commission in connection with this
transaction. The Additional Investor agrees to indemnify and to hold harmless
the Company from any liability for any commission or compensation in the nature
of a finders' fee (and the costs and expenses of defending against such
liability or asserted liability) for which the Additional Investor or any of its
partners, employees or representatives is responsible. The Company agrees to
indemnify and hold harmless the Additional Investor from any liability for any
commission or compensation in the nature of a finders' fee (and the costs and
expenses of defending against such liability or asserted liability) for which
the Company or any of its officers, employees or representatives is responsible.
11.7 Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Company shall be responsible for and pay the legal fees
of Additional Investor associated with this transaction up to the sum of
$10,000. Company will further reimburse Additional Investor for any and all of
its out-of-pocket costs incurred for out-of-town travel billed in accordance
with Additional Investor's standard practices, research costs incurred by third
parties unrelated to Additional Investor for research performed at the direction
of the Additional Investor, and any other out-of-pocket costs incurred by
Additional Investor in connection with the transaction after November 29, 1988
up to the sum of $2,000 at Closing. The Company will reimburse Additional
Investor for its out-of-pocket expenses after Closing associated with the
Company's business, and Additional Investor, when practicable, will endeavor to
discuss any such expenses with Company prior to the incurring of such expenses.
In addition, at Closing, Company shall pay to Kirk Capital Corporation, the
managing general partner of Additional Investor, a transaction fee equal to two
percent (2%) of the purchase price of the Series A Preferred Stock purchased by
Additional Investor. Further, Company shall pay the legal fees and expenses of
Investor associated with this transaction up to the sum of $3,000.
<PAGE>
11.8 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), with the
written consent of the Company and the holders of at least eighty percent (80%)
of the outstanding shares of the Stock (including, for such purposes, on a
proportional basis, any shares of Common Stock into which any shares of the
Stock have been converted that have not been sold to the public). Any amendment
or waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), and each
future holder of all such securities and the Company.
11.9 Effect of Amendment or Waiver. The Additional Investor and the
Investor acknowledge that by the operation of paragraph 11.8 hereof the holders
of eighty percent (80%) of the outstanding Series A Preferred Stock (and Common
Stock issued upon conversion thereof) will have the right and power to diminish
or eliminate all rights of such Additional Investor and the Investor under this
Agreement.
11.10 Rights of Investor and Additional Investor. Except as otherwise
set forth herein, each holder of Series A Preferred Stock (and Common Stock
issued upon conversion thereof) shall have the absolute right to exercise or
refrain from exercising any right or rights that such holder may have by reason
of this Agreement or any Series A Preferred Stock, including without limitation
the right to consent to the waiver of any obligation of the Company under this
Agreement and to enter into an agreement with the Company for the purpose of
modifying this Agreement or any agreement effecting any such modification, and
such holder shall not incur any liability to any other holder or holders of
Series A Preferred Stock with respect to exercising or refraining from
exercising any such right or rights.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INTERFACE TECHNOLOGY, INC.
BY
------------------------------------
William W. Canfield, President
MITEK INDUSTRIES, INC.
BY
------------------------------------
Paul F. Cornelsen, Chairman
and Chief Executive Officer
INTECH GROUP, INC.
BY
------------------------------------
William W. Canfield, President
GATEWAY VENTURE PARTNERS II, L.P.
By: GATEWAY ASSOCIATES L.P.
Its General Partner
BY
--------------------------------
Richard F. Ford, General Partner
MISSOURI VENTURE PARTNERS II, L.P.
By: KIRK CAPITAL CORPORATION,
Its General Partner
BY
--------------------------------
Larry R. Kirchenbauer,
President
ZINSMEYER TRUSTS PARTNERSHIP
BY
------------------------------------
Authorized Partner
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Rights, Privileges and Preferences of Series A Preferred Stock
Exhibit B - Outstanding Rights to Acquire Stock of Company
Exhibit C - Form of Employee Covenant
Exhibit D - Officer Certificate
Exhibit E - Opinion of Counsel
The Registrant hereby undertakes to furnish supplementally a copy of any omitted
exhibit to the Commission upon request.
<PAGE>
EXHIBIT 10.14
TALX CORPORATION
SECURITIES PURCHASE AGREEMENT
This Securities Purchase Agreement (the "Agreement") is entered into
as of the 28th day of November, 1990, by and among TALX Corporation, a Missouri
corporation (the "Company"), and MiTek Industries, Inc., a Florida corporation
("MiTek"), Intech Group, Inc., a Missouri corporation ("Intech"), Gateway
Venture Partners II, L.P., a Delaware limited partnership ("Gateway"), and
Zinsmeyer Trusts Partnership ("Zinsmeyer," collectively with MiTek, Intech and
Gateway, the "Purchasers").
RECITALS
1. The Company, MiTek, Intech and Gateway entered into a Preferred
Stock Purchase Agreement dated December 23, 1987 pursuant to which Gateway
purchased 526,440 shares of the Company's Series A Convertible Preferred Stock
and, on December 15, 1988, Zinsmeyer became a signatory to the Preferred Stock
Purchase Agreement and purchased 26,316 shares of the Company's Series A
Convertible Preferred Stock.
2. The Purchasers and the Company entered into an Amended and
Restated Preferred Stock Purchase Agreement (the "Amended Preferred Stock
Agreement") dated as of December 23, 1988 pursuant to which the Preferred Stock
Purchase Agreement was amended and restated, Missouri Venture Partners II, L.P.,
now a dissolved Missouri limited partnership, purchased 394,737 shares of the
Company's Series A Convertible Preferred Stock and the rights of all
stockholders of the Company were further defined.
3. The Company, MiTek, Intech, Gateway, Zinsmeyer and certain other
investors entered into a Debenture Purchase Agreement (the "Debenture
Agreement") dated May 11, 1990 pursuant to which those investors purchased
Subordinated Convertible Debentures in the aggregate principal amount of
$620,000 (the "Debentures") and Warrants (the "Debenture Warrants") to purchase
equity securities of the Company.
4. Pursuant to the terms of the Debentures, on November 9, 1990, the
Company paid its September 30, 1990 interest payment on the Debentures by
issuing 8,339 shares of Series A Convertible Preferred Stock to the holders of
the Debentures.
5. As of November 12, 1990, MiTek, Intech, Gateway and Zinsmeyer
converted the Debentures and exercised a portion of the Debenture Warrants and
received 425,858 shares of the Company's Series A Convertible Preferred Stock.
6. In accordance with the terms and subject to the conditions of
this Agreement, the Purchasers desire to purchase an aggregate of 236,873 shares
of Series B Convertible Preferred Stock, par value $0.0625 per share, of the
Company and warrants to purchase an aggregate of 4,737,460 shares of Series C
Convertible Preferred Stock, par value $0.0625 per share, of the Company.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the mutual promises, covenants,
and conditions set forth herein, the parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 "Act" means the Securities Act of 1933, as amended.
1.2 "Agreement," "hereof" and "hereunder" and words of similar
import means this Securities Purchase Agreement, as it may be amended from time
to time.
1.3 "Amended Preferred Stock Agreement" shall have the meaning set
forth in the preamble hereof.
1.4 "Articles" means the Amended and Restated Articles of
Incorporation of the Company which set forth the terms of the Stock, attached
hereto as Exhibit A.
1.5 "Closing" shall have the meaning specified in Section 2.2
hereof.
1.6 "Commission" means the Securities and Exchange Commission.
1.7 "Common Equity Securities" means shares of Common Stock or other
securities of the Company convertible or exchangeable into Common Stock.
1.8 "Common Stock" means shares of the Company's Common Stock, par
value $0.0625 per share.
<PAGE>
1.9 "Conversion Stock" means the Common Stock issuable upon
conversion of the Stock and the Exercise Stock.
1.10 "Debentures" shall have the meaning set forth in the preamble
hereof.
1.11 "Debenture Agreement" shall have the meaning set forth in the
preamble hereof.
1.12 "Debenture Warrant" shall have the meaning set forth in the
preamble hereof.
1.13 "Eligible Investor" means any Purchaser or any transferee who
has acquired the Stock or Conversion Stock in a transaction not involving a
public offering.
1.14 "Equity Securities" means any securities having voting rights
in the election of the Company's Board of Directors not contingent upon default,
or any securities evidencing an ownership interest in the Company, or any
securities convertible into or exercisable for any shares of the foregoing or
any agreement or commitment to issue any of the foregoing.
1.15 "Exchange Act" means the Securities Exchange Act of 1934, as
amended from time to time.
1.16 "Exercise Price" means the price payable for one share of
Common Stock upon exercise of the Warrants.
1.17 "Exercise Stock" means the 4,737,460 shares of Series C
Preferred Stock issued or issuable upon exercise of the Warrants.
1.18 "Founders" shall mean MiTek and Intech.
1.19 "Maximum Portion" shall have the meaning set forth in
Section 8.1 hereof.
1.20 "Offered Securities" shall have the meaning set forth in
Section 8.2 hereof.
1.21 "Preferred Stock" means the Series A Preferred Stock, the
Series B Preferred Stock and the Series C Preferred Stock, collectively.
1.22 "Purchase Price" means the purchase price paid by each
Purchaser for the Stock and the Warrants being purchased by such Purchaser as
set forth on Schedule 1 hereto.
1.23 "Purchasers" shall have the meaning set forth in the preamble
hereof.
1.24 "Remaining Shares" shall have the meaning set forth in
Section 8.3 hereof.
1.25 "Series A Preferred Stock" means the Series A Convertible
Preferred Stock, par value $0.0625 per share, of the Company.
1.26 "Series B Preferred Stock" means the Series B Convertible
Preferred Stock, par value $0.0625 per share, of the Company.
1.27 "Series C Preferred Stock" means the Series C Convertible
Preferred Stock, par value $0.0625 per share, of the Company.
1.28 "Selling Investor" shall have the meaning set forth in
Section 8.3 hereof.
1.29 "Stock" means the 236,873 shares of Series B Preferred Stock of
the Company, sold to the Purchasers by the Company pursuant to this Agreement.
1.30 "Warrants" means warrants issued by the Company to the
Purchasers pursuant to this Agreement that will enable the Purchasers to
purchase an aggregate of 4,737,460 shares of Series C Preferred Stock. A form of
Warrant is attached hereto as Exhibit B.
ARTICLE II
PURCHASE AND SALE
2.1 Sale and Issuance of Stock and Warrants. Subject to the terms
and conditions of this Agreement, the Company will issue and sell to each
Purchaser and each Purchaser will purchase from the Company, severally and not
jointly, the Stock and the Warrants set forth opposite such Purchaser's name on
Schedule 1 hereto for the respective Purchase Prices set forth therein.
2.2 Closing. The purchase and sale of the Stock and the Warrants
(the "Closing") shall take place on November 28, 1990 at 10:00 A.M. at the
offices of Bryan, Cave, McPheeters & McRoberts, St. Louis, Missouri or at such
other time, date or place as the Company and the Purchasers shall mutually
agree. At the Closing, the Company shall deliver to each Purchaser a single
certificate representing the shares of the Stock that each Purchaser is
<PAGE>
purchasing and a single Warrant evidencing the Warrants being purchased by such
Purchaser, in each case against delivery to the Company by each Purchaser of the
applicable Purchase Price in the form of a cashier's or certified check drawn on
a bank headquartered in St. Louis, Missouri, or by wire transfer, and payable to
the Company in the amount of the Purchase Price.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as specifically disclosed by the Company in
Exhibit C hereto, the Company hereby makes the following representations and
warranties, each of which is true and correct as of the date hereof, and each of
which shall survive the Closing.
3.1 Organization and Standing. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Missouri, has all requisite corporate power and authority to carry on its
business as now conducted and as proposed to be conducted, and is qualified as a
foreign corporation and is in good standing in all other jurisdictions in which
such qualification is required; provided, however, that the Company need not be
qualified in a jurisdiction unless its failure to qualify would have a material
adverse effect on its operations or financial condition.
3.2 Capitalization.
(a) The authorized capital stock of the Company consists of
(i) 8,700,000 shares of Preferred Stock, of which (A) 2,373,000 shares have been
designated as Series A Preferred Stock and 1,984,278 shares are issued and
outstanding; (B) 327,000 shares have been designated as Series B Preferred Stock
and no shares are issued and outstanding; and (C) 6,000,000 shares have been
designated as Series C Preferred Stock and no shares are issued and outstanding;
and (ii) 65,300,000 shares of Common Stock of which 512,290 shares are issued
and outstanding. The rights, privileges and preferences of the Preferred Stock
are as stated in Exhibit A.
(b) All of the issued and outstanding shares of Preferred
Stock and Common Stock are validly issued, fully paid and nonassessable. Except
for (i) 138,724 shares of Common Stock reserved for issuance to employees of the
Company pursuant to the Company's option plans, of which options to purchase
61,500 shares have been issued to employees; (ii) 1,984,278 shares of Common
Stock reserved for issuance upon conversion of presently outstanding shares of
Series A Preferred Stock; (iii) warrants to purchase 36,000 shares of Common
Stock issued to William W. Canfield; (iv) Debenture Warrants to purchase 63,614
shares of Series A Preferred Stock; and (v) the rights created under this
Agreement and the Amended Preferred Stock Agreement, there will be no options,
warrants, convertible subordinated debentures, conversion privileges, preemptive
rights or other rights presently outstanding to purchase or otherwise acquire
any of the authorized but unissued capital stock of the Company.
3.3 Subsidiaries. The Company does not own or control, directly or
indirectly, and is not under common control with, any other corporation,
association, or other business entity.
3.4 Authorization. All corporate action on the part of the Company
and its officers, directors and shareholders necessary for the execution,
delivery and performance of all obligations of the Company under this Agreement
and for authorization, issuance and delivery of the Stock, the Warrants, the
Exercise Stock and the Conversion Stock has been taken prior to the Closing.
When duly executed by the Company, and assuming due authorization, execution and
delivery by the other parties hereto, this Agreement shall constitute a valid
and legally binding obligation of the Company enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, moratorium, reorganization or similar laws affecting the
enforcement of creditor's rights generally or by principles of equity
jurisprudence and, with respect to rights of indemnity, subject to federal and
state securities laws.
3.5 Validity of Stock. The Stock and the Warrants, when issued, sold
and delivered in accordance with the terms of this Agreement, the Exercise
Stock, when issued upon exercise of the Warrants against payment of the Exercise
Price, and the Conversion Stock, when issued upon conversion of the Stock and
the Exercise Stock, shall be duly authorized and validly issued, fully paid and
nonassessable and will be free of any liens or encumbrances.
3.6 Liabilities. The Company has no indebtedness for borrowed money
that the Company has directly or indirectly created, incurred, assumed or
guaranteed, or with respect to which the Company has otherwise become directly
or indirectly liable. Except as disclosed on the financial statements, the
Company has no other material liability or obligation, absolute or contingent,
except for liabilities incurred in the ordinary course of its business, none of
which individually exceeds $50,000.
3.7 Title to Property and Assets. Except for (a) liens for current
taxes not yet delinquent, (b) liens imposed by law and incurred in the ordinary
course of business for obligations not yet due to carriers, warehousemen,
laborers, materialmen, and the like, (c) liens in respect of pledges or deposits
under workers' compensation laws or similar legislation, or (d) minor defects in
title, none of which, individually or in the aggregate, materially interferes
<PAGE>
with the use of such property, the Company owns its property free and clear of
all mortgages, liens, loans and encumbrances. With respect to the property it
leases, to the best of its knowledge the Company is in compliance with such
leases and holds a valid leasehold interest free of any liens, claims and
encumbrances, subject to clauses (b) and (c) above.
3.8 Governmental Consents. To the best of the Company's knowledge,
all consents, approvals, orders, or authorizations of, or registrations,
qualifications, designations, declarations, or filings with any federal or state
governmental authority on the part of the Company required in connection with
the consummation of the transactions contemplated by this Agreement shall have
been obtained prior to, and be effective as of, the Closing.
3.9 Compliance with Other Instruments. The Company is not in
violation of any provisions of its Articles or Bylaws as amended and in effect
on the Closing, or, in any material respect, of any provision of any material
mortgage, indenture, contract, agreement, instrument, judgment or decree to
which it is a party, or, to the best of its knowledge, of any provision of any
federal or state judgment, writ, decree, order, statute, rule or governmental
regulation applicable to the Company. The execution, delivery and performance of
this Agreement will not result in any such violation or be in conflict with or
constitute a default under any such provision. There is no such provision that
materially and adversely affects, or in the future may (so far as the Company
can now foresee) materially and adversely affect, the Company's business,
prospects, condition, affairs, operations, properties or assets.
3.10 Misleading Statements. No representation or warranty by the
Company in this Agreement (or in any written statement or certificate furnished
or to be furnished to the Purchasers pursuant to this Agreement), when taken
together, contains any untrue statement of a material fact or omits a material
fact necessary in such context to make the statements made not misleading.
3.11 Litigation. There is no action, proceeding or investigation
pending or to the best of the Company's knowledge, threatened against the
Company before any court or agency (or any basis therefor) known to the Company
that might result, either individually or in the aggregate in any material
adverse change in the business prospects, condition, affairs, operations,
properties or assets of the Company or in any material liability on the part of
the Company or in any way questions the validity of this Agreement or any
actions taken or to be taken in connection therewith.
3.12 Patents; Trademarks. To the best of its knowledge and belief
(but without having conducted any special investigation or search), the Company
owns or possesses, has access to, or can become licensed on reasonable terms
under, all patents, inventions, trademarks, trade names, copyrights, licenses,
information, know-how, proprietary rights and processes necessary for the lawful
conduct of its business as now conducted and as proposed to be conducted,
without any infringement of or conflict with the rights of others.
3.13 Taxes. The Company has accurately prepared and timely filed all
United States income tax returns and all state and municipal tax that are
required to be filed by it and has paid or made provision for the payment of all
taxes that have become due pursuant to such returns. No deficiency assessment or
proposed adjustment of the Company's United States income tax or state or
municipal taxes is pending and the Company has no knowledge of any proposed
liability for any tax to be imposed upon its properties or assets for which
there is not an adequate reserve reflected in the Company's financial statements
referred to in Section 3.17 of this Agreement.
3.14 Employees. The Company does not have any employment contracts
with any of its employees not terminable at will and does not have any
collective bargaining agreements covering any of its employees.
3.15 Insurance. The Company has fire and casualty insurance
policies, with extended coverage, sufficient in amount (subject to reasonable
deductibles) to allow it to replace any of its properties that might be damaged
or destroyed. The Company owns and is the beneficiary under a policy of term
life insurance in the amount of $2 million on the life of William W. Canfield.
3.16 Registration Rights. Except as set forth in this Agreement, the
Debenture Agreement and the Amended Preferred Stock Agreement, the Company is
not under any obligation under the Act to register any of its presently
outstanding securities or any of its securities that may subsequently be issued.
3.17 Financial Statements. The Company has furnished the Purchasers
with copies of the Company's audited balance sheet as of March 31, 1990 and the
related audited statements of income and cash flows for the year then ended and
the notes thereto, which fairly reflect the financial position of the Company as
of the date indicated and the results of its operations and cash flows for the
period indicated, in all material respects, are in accordance with the books and
records of the Company (which are, in turn, true, correct and accurate in all
material respects) and have been prepared in accordance with generally accepted
accounting principles consistently applied.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE PURCHASERS
Each Purchaser, severally and not jointly, hereby represents and
<PAGE>
warrants to the Company that:
4.1 Organization and Standing. It is duly organized, validly
existing and in good standing under the laws of its jurisdiction of
organization.
4.2 Authorization. All action on the part of such Purchaser
necessary for the authorization, execution, delivery and performance of all of
its obligations under this Agreement has been taken prior to the Closing. The
Agreement, when executed and delivered by it and assuming due authorization,
execution and delivery by the other parties hereto, shall constitute a valid and
legally binding obligation of such Purchaser, enforceable in accordance with its
terms, except as such enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance, moratorium, reorganization or similar laws affecting the
enforcement of creditor's rights generally or by principles of equity
jurisprudence and, with respect to rights of indemnity, subject to federal and
state securities laws.
4.3 Governmental Consents. To the best of its knowledge, all
consents, approvals, orders or authorizations of, or registrations,
qualifications, designations, declarations or filings with any federal or state
governmental authority required on the part of such Purchaser in connection with
the consummation of the transactions contemplated by this Agreement shall have
been obtained prior to, and be effective as of, the Closing.
4.4 Compliance with Other Instruments. The execution, delivery and
performance of this Agreement will not result in the violation of any provisions
of its corporate governance or partnership instruments or to the best of such
Purchaser's knowledge, in any material respect, of any material mortgage,
indenture, contract, agreement, instrument, judgment or decree to which such
Purchaser is a party, or to the best of such Purchaser's knowledge of any
provision of any federal or state judgment, writ, decree, order, statute, rule
or governmental regulation application to such Purchaser.
4.5 Federal and Other Securities Laws.
(a) Each Purchaser acknowledges that this Agreement is made in
reliance upon it's representation to the Company that the shares of the Stock,
the Warrants, the Exercise Stock and the Conversion Stock to be received by it
will be acquired for investment for its own account, not as a nominee or agent,
and not with a view to the sale or distribution of any part thereof, and that it
has no present intention of selling, granting participation in, or otherwise
distributing any of these securities. Each Purchaser further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person, or to any third
person with respect to the Warrants or any of the shares of the Stock, the
Exercise Stock or the Conversion Stock.
(b) Each Purchaser understands that the Stock and the Warrants
are not, and the Exercise Stock and Conversion Stock at the time of issuance may
not be, registered under the Act on the ground that the sale provided for in
this Agreement and the issuance of securities hereunder is exempt from
registration under the Act pursuant to Section 4(2) thereof, and that the
Company's reliance on such exemption is predicated on the representations set
forth herein.
(c) Each Purchaser represents that it is experienced in
evaluating and investing in high technology companies such as the Company, is
able to fend for itself in the transactions contemplated by this Agreement, has
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of its investment, and has the ability to
bear the economic risks of its investment. Each Purchaser further represents
that it has had access, during the course of the transaction and prior to its
purchase of the securities to be purchased hereunder, to the same kind of
information that would be provided in a registration statement filed by the
Company under the Act and that it has had, during the course of the transaction
and prior to such purchase, the opportunity to ask questions of, and receive
answers from, the Company concerning the terms and conditions of the offering
and to obtain additional information (to the extent the Company possessed such
information or could acquire it without unreasonable effort or expense)
necessary to verify the accuracy of any information furnished to it or to which
it had access.
(d) Each Purchaser understands that the Stock, the Warrants,
the Exercise Stock and the Conversion Stock may not be sold, transferred or
otherwise disposed of without registration under the Act or an exemption
therefrom, and that in the absence of an effective registration statement
covering the Stock, the Warrants, the Exercise Stock and the Conversion Stock,
or an available exemption from registration under the 1933 Act, the Stock, the
Warrants, the Exercise Stock and the Conversion Stock must be held indefinitely.
Each Purchaser is aware that the Stock, the Warrants, the Exercise Stock and the
Conversion Stock may not be sold pursuant to Rule 144 promulgated under the Act
unless all of the conditions of that Rule are met. Among the conditions for use
of Rule 144 is the availability of current information to the public about the
Company. Such information is not now available and the Company has no present
plans to make such information available. Each Purchaser represents that, in the
absence of an effective registration statement covering the Stock, the Warrants,
the Exercise Stock and the Conversion Stock, it will sell, transfer or otherwise
dispose of the Stock, the Warrants, the Exercise Stock and the Conversion Stock
<PAGE>
only in a manner consistent with its representations set forth herein and then
only in accordance with the provisions of paragraph 4.5(e) hereof.
(e) Each Purchaser agrees that in no event will it make a
transfer or disposition of any of the Stock, the Warrants, the Exercise Stock
and the Conversion Stock (other than pursuant to an effective registration
statement under the Act), unless and until it shall have notified the Company of
(i) the proposed disposition and shall have furnished the Company with a
statement of the circumstances surrounding the disposition, and (ii) if
requested by the Company, at its expense or the expense of the transferee, it
shall have furnished to the Company an opinion of counsel, reasonably
satisfactory to the Company, to the effect that such transfer may be made
without registration under the Act.
4.6 Legends; Stop Transfer. All certificates for Warrants and the
shares of the Stock, the Exercise Stock and the Conversion Stock shall bear the
following legend:
"These securities have not been registered under the Securities Act
of 1933. They may not be sold, offered for sale, pledged or
hypothecated in the absence of an effective registration statement
as to the securities under said Act or an opinion of counsel
satisfactory to the Company that such registration is not required."
The certificates shall also bear any legend required by any applicable state
securities law. In addition, the Company shall make a notation regarding the
restrictions on transfer of the Stock, the Warrants, the Exercise Stock and the
Conversion Stock in its stock books, and such securities shall be transferred on
the books of the Company only if transferred or sold pursuant to an effective
registration statement under the Act covering such securities or pursuant to and
in compliance with the provisions of paragraph 4.5(e) hereof.
ARTICLE V
CONDITIONS TO CLOSING
5.1 Conditions to Each Purchaser's Obligations at Closing. The
obligations of each Purchaser set forth in Article II of this Agreement are
subject to the fulfillment on or before Closing of each of the following
conditions:
(a) The representations and warranties of the Company
contained in Article III shall be true and correct in all material respects on
and as of the Closing with the same force and effect as if they had been made at
the Closing.
(b) The Company shall have performed and complied with all
agreements and conditions contained in this Agreement required to be performed
or complied with by it on or before the Closing.
(c) All authorizations, approvals, or permits, if any, of any
governmental authorities or regulatory bodies of the United States or of any
state that are required in connection with the lawful issuance and sale of the
Stock, the Warrants and the lawful issuance of the Exercise Stock and Conversion
Stock pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing.
(d) All corporate and other proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be in form and substance satisfactory to each Purchaser
and its counsel.
5.2 Conditions to the Company's Obligations at Closing. The
obligations of the Company under Article II of this Agreement are subject to the
fulfillment on or before the Closing of each of the following conditions:
(a) The representations and warranties of each Purchaser
contained in Article IV shall be true on and as of the Closing with the same
force and effect as if they had been made at the Closing.
(b) All authorizations, approvals or permits, if any, of any
governmental authority or regulatory body of the United States or of any state
that are required in connection with the lawful issuance and sale of the Stock
and the Warrants and the lawful issuance of the Exercise Stock and Conversion
Stock pursuant to this Agreement shall have been duly obtained and shall be
effective on and as of the Closing.
(c) All corporate and other proceedings in connection with the
transactions contemplated hereby and all documents and instruments incident to
such transactions shall be in form and substance satisfactory to the Company and
Bryan, Cave, McPheeters & McRoberts, its counsel, and the Company shall have
received all such counterpart originals or certified or other copies of such
documents as it may reasonably request.
ARTICLE VI
REGISTRATION RIGHTS
The Company hereby grants to the Purchasers as to Common Stock
<PAGE>
issuable upon conversion of the Series B Shares, the Series C Shares or any
other securities issuable upon exercise of the Warrants, respectively, the same
rights to registration under the 1933 Act and state securities laws as the
rights granted in paragraph 7 of the Amended Preferred Stock Agreement to the
"Holders" described therein with respect to Common Stock issuable upon
conversion of the Series A Shares issued pursuant to the Amended Preferred Stock
Agreement, the provisions of which paragraph are hereby incorporated in this
Agreement by this reference. The parties hereto agree that, as used in paragraph
7 of the Amended Preferred Stock Agreement, the term "Registrable Securities"
shall, after the Closing, be deemed to include Common Stock issuable upon
conversion of the Series B Shares, the Series C Shares or other securities
issuable as aforesaid upon exercise of the Warrants issued at such Closing.
ARTICLE VII
COVENANTS OF THE COMPANY
7.1 Application of Net Proceeds from Sale of the Stock and the
Warrants. The Company shall use the net proceeds from the sale of the Stock and
the Warrants, after payment of reasonable costs associated with such sale, for
general corporate purposes authorized by the Board of Directors.
7.2 Reservation of Underlying Common Stock. The Company shall keep
reserved the total number of shares of its Common Stock issuable upon conversion
of the Stock or the Exercise Stock at any time.
ARTICLE VIII
ADDITIONAL AGREEMENTS BETWEEN THE COMPANY AND THE PURCHASERS
8.1 Right of First Refusal With Respect to Primary Issuances.
(a) The Right. If at any time prior to the expiration of the
period set forth in Section 8.1(f), the Company should reach an agreement with
one or more potential investors, acceptable to the Company, to issue and sell,
in a transaction not registered under the Act in reliance upon a claimed
exemption thereunder, any Equity Securities, it shall give each Eligible
Investor the first right to purchase up to that amount of Equity Securities
which would maintain its percentage ownership in the Common Stock on a
fully-diluted basis on the same terms as the Company is willing to sell such
Equity Securities to such potential investors. Each Eligible Investor's pro rata
share of the Equity Securities shall be such fraction of the Equity Securities
to be issued as will enable such Eligible Investor to maintain its percentage
interest in the Common Stock on a fully diluted basis prior to the proposed
issuance of Equity Securities.
(b) Notice. Prior to any sale or issuance by the Company of
any Equity Securities, the Company shall notify each Eligible Investor in
writing of its intention to call and issue such securities, setting forth the
terms under which it proposes to make such sale. Such notice shall be signed by
the potential investors to whom the Company intends to issue and sell the Equity
Securities and shall indicate the potential investors' concurrence with the
description of the terms. Within 30 days after receipt of such notice, each
Eligible Investor shall notify the Company as to the maximum amount of the
Equity Securities so offered that such Eligible Investor desires to purchase. If
such investor is a partnership, each Eligible Investor shall be entitled to
apportion Equity Securities to be purchased among its partners and affiliates
upon liquidation and winding up of such investor as a limited partnership,
provided that such Eligible Investor notifies the Company of such allocation. If
the Eligible Investors as a group do not purchase the maximum portion of the
Equity Securities to which they are entitled pursuant to this Section 8.1 (the
"Maximum Portion"), each such Eligible Investor who exercised an option to
purchase additional shares may, within 10 days after the expiration of the
30-day option, exercise an option to purchase certain of the remaining shares in
the Maximum Portion. In the case of a single Eligible Investor, its option shall
be to purchase up to all of the remaining shares in the Maximum Portion. In the
case of two or more Eligible Investors, each such Eligible Investor's option
shall be to purchase that proportion of the remaining shares of the Maximum
Portion which equals the proportion which the number of shares owned by each
such Eligible Investor bears to the total number of shares then owned by all of
the Eligible Investors exercising this secondary option. The Eligible Investors
and the Company shall purchase and sell the Equity Securities at the same time
as Equity Securities are sold to the investors described in Section 8.1(a).
(c) Failure to Notify. If, within 40 days after the Company
gives its aforesaid notice to the Eligible Investors, the Eligible Investors as
a group do not notify the Company that they desire to purchase the Maximum
Portion of the Equity Securities described in such notice upon the terms and
conditions set forth in such notice, then the Company may, during a period of 90
days following the end of such 40 day period, sell and issue the portion of the
Equity Securities which the Eligible Investors are not entitled to purchase
pursuant to Section 8.1 and such additional Equity Securities as to which the
Eligible Investors do not indicate a desire to purchase to the investors with
whom the agreement had been reached at a price and upon terms and conditions no
more favorable in any material respect to such investors than those set forth in
the notice to the Eligible Investors. In the event that the Company has not sold
all such Equity Securities to such investors within such 90-day period, the
Company shall not thereafter issue or sell any Equity Securities without first
offering such Equity Securities to the Eligible Investors in the manner provided
<PAGE>
above.
(d) Payment. If an Eligible Investor gives the Company notice
that it desires to purchase any of the Equity Securities offered by the Company,
then payment for the Equity Securities shall be by bank cashier's or certified
check or wire transfer against delivery of the securities at the executive
offices of the Company at the time of the scheduled closing therefor. The
Company shall take all such action (except registration under the 1933 Act) as
may reasonably be required by any regulatory authority in connection with the
exercise by an Eligible Investor of the right to purchase Equity Securities as
set forth in this Section 8.1, provided, however, the Company shall not be
required to sell any Equity Securities if such sale would result in a violation
of applicable securities laws if the Company has taken such action as aforesaid.
(e) Limitation. The right of first refusal in
this Section 8.1 shall not apply to the issuance by the Company
of:
(i) up to 138,724 shares of Common Stock (such number
subject to adjustment for changes in capitalization) reserved for issuance to
employees, officers, directors and consultants pursuant to transactions approved
by the Company's Board of Directors;
(ii) all shares of Series A Preferred Stock issued upon
the exercise of presently outstanding warrants therefor;
(iii) the Stock or the Exercise Stock;
(iv) the Conversion Stock and all shares of Common Stock
issued upon conversion of any shares of the Company's Series A Preferred Stock
outstanding on the date hereof or issuable pursuant to exercise of the Debenture
Warrants;
(v) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization; and
(vi) 36,000 shares of Common Stock issued to
William W. Canfield pursuant to warrants.
(f) Termination. The right of first refusal contained in this
Section 8.1 shall terminate (i) immediately prior to the closing of the
Company's first firmly underwritten public offering registered under the 1933
Act with aggregate proceeds to the Company of at least $5,000,000 and an
offering price per share to the public equal to or greater than 2 times the
price at which Series A Preferred Stock was first issued, appropriately adjusted
for stock dividends, stock splits, stock combinations and the like, or (ii) upon
shareholder approval of any merger or consolidation of the Company with any
other corporation in which the Company is not the surviving entity, provided
that, if such merger or consolidation is not consummated, the right of first
refusal shall be deemed restored and reinstated to full force and effect.
8.2 Right of First Refusal With Respect to Shares Held by MiTek and
Intech.
(a) The Right. If at any time either or both of the Founders
propose to sell shares of Common Stock or other securities of the Company
convertible or exchangeable into Common Stock (hereinafter "Common Equity
Securities") to one or more third parties, then such Founder shall first grant
each Eligible Investor the right to purchase its pro rata share (or any part
thereof) of all of the such securities (the "Offered Securities") on the same
terms as the Founder is willing to sell such Common Equity Securities to such
third party or parties. Each Eligible Investor's pro rata share of the Offered
Securities shall be a fraction of the Offered Securities, of which the aggregate
purchase price of all securities acquired by the Eligible Investor from the
Company which are held by the Eligible Investor on the date of the Founder's
written notification referred to in Section 8.2(b) below (the "Notice Date" )
shall be the numerator, and the aggregate purchase price of all securities
acquired by the Eligible Investors, as a group, from the Company which are held
by the Eligible Investors on the Notice Date shall be the denominator. For
purposes of this subparagraph (a), the stock of the Company shall be
arithmetically adjusted for stock dividends, stock splits, recapitalizations and
the like. Notwithstanding the foregoing, the Founders shall have no obligation
to sell Common Equity Securities to the Eligible Investors unless the Eligible
Investors have agreed in the aggregate, to purchase all Common Equity Securities
that the Founders then propose to sell.
(b) Notice. Prior to any sale by any Founder of any Common
Equity Securities, the Founder shall notify each Eligible Investor, in writing,
of such Founder's intention to sell such securities, setting forth the terms
under which he proposes to make such sale. Such notice shall be signed by the
third parties to whom the sale, assignment or transfer is proposed and shall
indicate the third parties' concurrence with the description of the terms of the
sale, assignment or transfer. Within 30 days after receipt or such Notice, each
Eligible Investor shall notify the Founder as to the maximum amount of the
Offered Securities such Eligible Investor desires to purchase. Each Eligible
Investor shall be entitled to apportion Offered Securities to be purchased among
its partners and affiliates, provided that such Eligible Investor notifies the
Founder of such allocation. If the Eligible Investors as a group do not elect to
<PAGE>
purchase all the Offered Securities pursuant to this paragraph 8.2, each such
Eligible Investor who exercised an option to purchase Offered Securities may,
within 10 days after the expiration of the 30-day option, exercise an option to
purchase certain of the remaining Offered Securities as to which the primary
option to purchase had not been exercised. In the case of a single Eligible
Investor, its option shall be to purchase up to all of the remaining shares. In
the case of two or more Eligible Investors, each such Eligible Investor's option
shall be to purchase that proportion of the remaining shares which equals the
proportion which the number of shares owned by each such Eligible Investor bears
to the total number of shares then owned by all of the Eligible Investors
exercising this secondary option. The Eligible Investors and the Founder shall
actually purchase and sell the Offered Securities within 40 days of the date of
the Founder's notice to the Eligible Investors. If an Eligible Investor gives
the Founder notice that it desires to purchase any of the Offered Securities,
then payment for the Offered Securities shall be by bank cashier's or certified
check or wire transfer, against delivery of the securities at a place agreed
upon between the parties and at the time of the scheduled closing therefor.
(c) Failure to Notify. If, within 40 days after a Founder
gives its aforesaid notice to the Eligible Investors, the Eligible Investors as
a group do not notify the Founder that they elect to purchase the all of the
Common Equity Securities described in such notice on the terms set forth
therein, then, subject to Section 8.3, Founder may during the 90 days following
the end of such 40-day period, sell such Offered Securities to the third parties
with whom the agreement was reached at a price and upon terms and conditions no
more favorable in any material respect to such third parties as those set forth
in the notice to the Eligible Investors. In the event the Founder has not sold
such Offered Securities within such 90-day period, the Founder shall not
thereafter sell any Common Equity Securities without first offering such
securities to the Eligible Investors in the manner provided above.
8.3 Right of Co-Sale.
(a) The Right. If at any time any Founder proposes to sell
shares of Common Equity Securities pursuant to a bona fide offer from a party or
parties other than the Eligible Investors, and the Eligible Investors as a group
do not exercise their right of first refusal for the Offered Securities pursuant
to the preceding Section 8.2, then any Eligible Investor (a "Selling Investor")
which notifies such Founder in writing within 30 days after receipt of the
notification from such Founder referred to in Section 8.2(b), shall have the
opportunity to sell a pro rata portion of Common Equity Securities which the
Founder proposes to sell to such third party; whereupon the Founder shall assign
so much of its interest in the agreement of sale as the Selling Investor shall
be entitled to and shall request hereunder, and the Selling Investor shall
assume such part of the obligations of the Founder under such agreement as shall
relate to the sale of the securities by the Selling Investor. For the purposes
of this Section 8.3, the "pro rata portion" which the Selling Investor shall be
entitled to sell shall be an amount of Common Equity Securities (assuming the
conversion of all such securities to Common Stock) equal to a fraction of the
total amount of Common Equity Securities (assuming the conversion of all such
securities to Common Stock) proposed to be sold, the numerator of which is the
aggregate of all securities acquired by a Selling Investor from the Company
which are then held by the Selling Investor and the denominator is the aggregate
of all securities acquired by the Selling Investors, as a group, from the
Company which are then held by the Selling Investors and the aggregate of all
securities acquired by the selling Founder from the Company which are then held
by such Founder. Each Selling Investor shall notify the Founder whether it
elects to sell an amount equal to, more than or less than its pro rata share of
the Common Equity Securities so offered. Each such Selling Investor who
exercised its right to sell pursuant to this Section 8.3 may, within 10 days
after the expiration of the 30-day period specified in this Section 8.3(a),
exercise the right of co-sale for up to a pro-rata portion of all those shares
of Common Equity Securities that were subject to the right of co-sale under this
Section 8.3, but for which the Eligible Investors did not exercise such right of
co-sale (the "Remaining Shares"). In the case of a single Selling Investor, its
right of co-sale shall be to sell up to all of the Remaining Shares. In the case
of two or more Selling Investors, each such Selling Investor's right of co-sale
shall be to sell that proportion of the Remaining Shares which equals that
proportion which the number of shares (assuming conversion of all such shares to
Common Stock) owned by each such Selling Investor bears to the total number of
shares then owned by all Selling Investors exercising this secondary right of
co-sale. Each Selling Investor shall be entitled to apportion Common Equity
Securities to be sold among its partners and affiliates, provided that such
Selling Investor notifies the Founder of such allocation.
(b) Failure to Notify. If within 40 days
after the Founder gives the aforesaid notice to the Eligible Investors, the
Eligible Investors do not notify the Founder that they desire to sell all of
their pro rata portions of the Common Equity Securities described in such notice
at the price and on the terms and conditions set forth therein, then such
Founder may, subject to Section 8.2, sell during the 90-day period set forth in
Section 8.2(c) such Common Equity Securities as to which the Eligible Investors
do not indicate a desire to sell to other persons at the same price and upon the
same terms and conditions as those set forth in the notice. In the event such
Founder has not sold the Common Equity Securities within the period set forth in
Section 8.2(c), the Founder shall not thereafter sell any Common Equity
Securities without first notifying the Eligible Investors in the manner provided
above.
<PAGE>
8.4 Limitations to Rights of First Refusal and Co-Sale. Without
regard and not subject to the provisions of Sections 8.2 and 8.3:
(a) Founders may sell or otherwise assign for consideration or
gift Common Equity Securities to any or all of their successors, shareholders or
affiliates, provided that each such transferee or assignee, prior to the
completion of the sale, transfer, gift or assignment, shall have executed
documents assuming the obligations of the Founder under this Agreement with
respect to the transferred securities; and
(b) Founders may sell or transfer Common Equity Securities in
a public offering of securities of the Company registered under the 1933 Act
having gross offering proceeds of at least $5,000,000 and an offering price per
share of at least 2 times the price at which Series A Preferred Stock was first
issued (adjusted for stock splits, stock dividends, reorganizations and the like
from the date hereof).
8.5 Legends. All instruments evidencing Common Equity Securities
held by Founders shall be legended, describing the obligations of Founders under
this Article VIII.
8.6 Termination.
(a) The obligations of Founders under this Article VIII shall
terminate and be of no further force and effect upon any event described in
Section 8.1(f) of this Agreement.
(b) Notwithstanding any other provision of this Section 8 to
the contrary, the obligations under Section 8.3 shall terminate as to any
Founder at such time as such Founder beneficially owns fewer than 20% of the
Company's outstanding Common Equity Securities. "Beneficial ownership" shall be
determined in accordance with Rule 13d-3 promulgated by the Securities and
Exchange Commission under the Exchange Act.
8.7 Assignment. Upon written notice to the Founders, the rights
granted pursuant to this Article VIII may be assigned by an Eligible Investor or
its transferees upon a sale or transfer (other than a sale thereof to the
public) of the Stock, the Exercise Stock or the Conversion Stock held by any
such Eligible Investor provided that any transferee of an Eligible Investor
shall agree to become subject to the obligations of the Eligible Investors
hereunder.
ARTICLE IX
MISCELLANEOUS
9.1 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties with respect to the
subject matter hereof.
9.2 Binding Effect; Assignment. The terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties, except as otherwise provided in this
Agreement and except that no rights shall be transferred to a purchaser of the
Stock sold pursuant to a registration statement under the 1933 Act or pursuant
to a transaction under Rule 144 thereunder. Nothing in this Agreement, express
or implied, is intended to confer upon any third party any rights, remedies,
obligations or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
9.3 Governing Law. This Agreement shall be governed by and construed
under and interpreted in accordance with the laws of the State of Missouri as
applied to agreements among Missouri residents entered into and to be performed
entirely within Missouri, without reference to the rules governing conflicts of
laws.
9.4 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
9.5 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement or any portion thereof.
9.6 Notices. Any notice required or permitted under this Agreement
is to be given in writing and shall be deemed effectively given upon personal
delivery or telecopy or upon deposit with the United States post office, by
registered or certified mail, postage prepaid, addressed to the Purchasers at
their respective addresses set out on Schedule 1 hereto or such other address as
any Purchaser or the subsequent holder of any Stock or Warrant initially issued
to any Purchaser may designate in writing and if to the Company, delivered or
mailed to TALX Corporation, 1850 Borman Court, St. Louis, Missouri 63146, marked
"Attention: President" or to such other address as the Company may in writing
designate to the Purchasers or to subsequent holders of the Stock or Warrants
initially issued to the Purchasers.
9.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
<PAGE>
prospectively), with the written consent of the Company and the holders of at
least 66-2/3% of the outstanding shares of the Stock and the Exercise Stock
(including, for such purposes, on a proportional basis, any outstanding shares
of Conversion Stock that have not been sold to the public). Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any securities purchased under this Agreement at the time outstanding
(including securities into which such securities have been converted), and each
future holder of all such securities and the Company.
9.8 Expenses. The Company shall pay all costs and expenses that it
incurs with respect to the negotiation, execution, delivery and performance of
this Agreement, and the Company shall be responsible for and pay the legal fees
of the Purchasers to Thompson & Mitchell associated with this transaction up to
the sum of $3,000.
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
TALX CORPORATION
BY:
----------------------------------------
William W. Canfield, President
MITEK INDUSTRIES, INC.
BY:
----------------------------------------
John M. Casper, Senior Vice
President/Treasurer
INTECH GROUP, INC.
BY:
----------------------------------------
William W. Canfield, President
GATEWAY VENTURE PARTNERS II, L.P.
By: GATEWAY ASSOCIATES L.P.,
Its General Partner
BY:
-----------------------------------
Richard F. Ford,
General Partner
ZINSMEYER TRUSTS PARTNERSHIP
BY:
----------------------------------------
Authorized Partner
<PAGE>
SCHEDULE 1
Dollar
Amount of
Securities
Number Issuable
Of Purchase Upon
Series B Price Exercise Purchase
Shares Of Of Warrants Price
To be Series B To be For
Acquired Shares Issued Warrants
-------- ---------- ----------- --------
Gateway Venture Partners II, L.P... 141,691 $269,214* $ 708,455 $ 0.60
8000 Maryland Avenue
Suite 1190
St. Louis, MO 63105
ATTN: Richard F. Ford
Intech Group, Inc. ............. 17,922 34,053 89,610 0.08
1860 Borman Court
St. Louis, MO 63146
ATTN: William W. Canfield
MiTek Industries, Inc. ......... 53,912 102,434** 269,560 0.23
P.O. Box 7359
St. Louis, MO 63177
ATTN: John M. Casper
Zinsmeyer Trusts Partnership.... 23,348 44,363 116,740 0.09
13525 Clayton Road
St. Louis, MO 63141
ATTN: Andrew Zinsmeyer
Total: ......................... 236,873 $450,064 $1,184,365 $ 1.00
-------- ---------- ----------- --------
- ----------
* To be paid in part by cancellation of indebtedness of the Company in principal
amount of $87,224.
** To be paid by cancellation of indebtedness of the Company in principal amount
of $102,434.
<PAGE>
EXHIBIT A
ARTICLE THREE
A. Classes and Number of Shares
The total number of shares of all classes of capital stock which the
Corporation shall have the authority to issue is 74,000,000 shares, consisting
of 65,300,000 shares of Common Stock, par value $0.0625 per share (the "Common
Stock") and 8,700,000 shares of Preferred Stock, which have been designated as
follows:
(i) 2,373,000 shares of Series A Convertible Preferred Stock,
par value $0.0625 per share (the "Series A Preferred Stock");
(ii) 327,000 shares of Series B Convertible Preferred Stock,
par value $0.0625 per share (the "Series B Preferred Stock");
(iii) 6,000,000 shares of Series C Convertible Preferred
Stock, par value $0.0625 per share (the "Series C Preferred Stock").
The Series A Preferred Stock, the Series B Preferred Stock and the
Series C Preferred Stock are collectively referred to hereinafter as the
"Preferred Stock."
The preferences, powers, qualifications, special or relative rights
or privileges of the Series A Preferred Stock, the Series B Preferred Stock, the
Series C Preferred Stock and the Common Stock shall be as set forth in Sections
B and C of this Article Three.
B. The Preferred Stock
Section 1. Rank. With respect to mandatory redemption payments and
rights upon liquidation, dissolution or winding up of the affairs of the
Corporation: (a) each share of Series C Preferred Stock shall rank senior and
prior to the shares of Series A Preferred Stock and Series B Preferred Stock,
and each share of Series B Preferred Stock, in turn, shall rank senior and prior
to the shares of Series A Preferred Stock; (b) shares of a series of Preferred
Stock shall rank on a parity with any other class or series of capital stock of
the Corporation hereafter issued for fair value as determined by the Board of
Directors of the Corporation the terms of which specifically provide that shares
of such class or series shall rank on a parity with the shares of such series of
Preferred Stock; (c) shares of a series of Preferred Stock shall rank senior and
prior to the Common Stock and to any other class or series of capital stock of
the Corporation hereafter issued unless the terms of such class or series of
capital stock of the Corporation specifically provide that shares of such class
or series shall rank prior to or on a parity with the shares of such series of
Preferred Stock (shares of the Common Stock and any other class or series of
capital stock of the Corporation hereafter issued the terms of which do not
specifically provide that such shares shall rank prior to or on a parity with
shares of such series of Preferred Stock are hereinafter collectively referred
to as "Junior Securities"); and (d) shares of a series of Preferred Stock shall
rank junior to any other class or series of capital stock of the Corporation
hereafter issued with the consent of the holders of at least 66-2/3% of the
shares of the affected series of Preferred Stock (pursuant to Section B(6)
hereof) the terms of which specifically provide that shares of such class or
series shall rank senior to shares of such series of Preferred Stock (shares of
such class or series are collectively referred to as "Senior Securities"). In
the event the proceeds of mandatory redemption, liquidation, dissolution or
winding up of the Corporation are insufficient to pay the holders of shares of a
series of Preferred Stock the full amount to which they would be entitled, such
proceeds shall be paid pro rata to the holders of such series of Preferred Stock
based upon the number of shares held.
Section 2. Dividends. If the Board of Directors shall elect to
declare dividends out of funds legally available therefor, such dividends shall
be declared on all Preferred Stock and Common Stock and the holders of the
Preferred Stock shall share such dividends pro rata with (a) the holders of the
Common Stock in accordance with the number of shares of Common Stock held by
such holders and (b) other holders of the Preferred Stock in accordance with the
number of shares of Common Stock receivable upon conversion of the Preferred
Stock held by such holders.
Section 3. Liquidation.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, whether voluntary or involuntary, the holders of Preferred
Stock shall be entitled to receive, prior and in preference to any distribution
of any of the assets or surplus funds of the Corporation to the holders of any
Junior Securities by reason of their ownership thereof, (i) the amount of (A)
$1.90 per share for Series A or Series B Preferred Stock, and (B) the issuance
price per share of Series C Preferred Stock (in each case, the "Issuance
Price"); and (ii) an amount equal to all declared but unpaid dividends on such
shares. If upon the occurrence of such event the assets and funds available for
distribution to the holders of Preferred Stock are insufficient to permit the
payment to such holders of the full preferential liquidation amounts to which
they are entitled, then the entire assets and funds of the Corporation legally
available for distribution shall be distributed ratably among the holders of
<PAGE>
Preferred Stock in proportion to the respective liquidation amounts due to each
holder in accordance with their rank as provided in Section B(1) of this Article
Three. After payment has been made to the holders of the Preferred Stock of the
full preferential liquidation amounts to which they are entitled, all remaining
assets of the Corporation legally available for distribution, if any, shall be
distributed pro rata among all holders of Preferred Stock, Junior Securities and
capital stock convertible into Common Stock on the basis of their respective
interests in the Common Stock on an "as if converted" basis.
(b) Inclusion of Certain Transactions. For purposes of this Section
3, a liquidation, dissolution or winding up of the Corporation shall be deemed
to include the Corporation's sale of all or substantially all of its assets or
the acquisition of the Corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of this
Corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary.
Section 4. Conversion.
(a) Conversion Rights. The holders of Preferred
Stock shall have the following conversion rights ("Conversion
Rights"):
(i) Voluntary Conversion. Subject to the provisions set forth
in Section B(5) below, each share of Preferred Stock shall be convertible, at
the option of the holder thereof, at any time after the date of issuance of such
share at the office of the Corporation or any transfer agent for such stock,
into one fully paid and nonassessable share of Common Stock; provided, however,
that if the outstanding number of shares of Common Stock are increased or
decreased through stock split, stock dividend, stock consolidation or similar
adjustment in the Corporation's outstanding capital stock, the number of shares
receivable upon conversion shall be adjusted appropriately and proportionately
such that the number of shares of Common Stock issuable after such change shall
be equal to the number and kind of shares the holder of such Preferred Stock
would have held had the Preferred Stock been converted immediately prior to said
event.
(ii) Automatic Conversion. Each share of Preferred Stock shall
automatically be converted into one share of Common Stock in the event that (A)
the Company completes a firm-commitment underwritten public offering pursuant to
an effective registration statement under the Securities Act of 1933, as
amended, covering the offer and sale of Common Stock for the account of the
Corporation to the public with aggregate net proceeds to the Corporation of not
less than $5,000,000, or (B) the holders of at least 66-2/3% of all outstanding
shares of Preferred Stock consent to such conversion; provided, however, that if
the outstanding number of shares of Common Stock are increased or decreased
through stock split, stock dividend, stock consolidation or other similar
adjustment to the Corporation's outstanding capital stock, the number of shares
receivable upon conversion shall be adjusted appropriately and proportionately
such that the number of shares of Common Stock issuable after such change shall
be equal to the number and kind of shares the holder of such Preferred Stock
would have held had the Preferred Stock been converted immediately prior to said
event. In the event of conversion upon a public offering, the persons entitled
to receive the Common Stock issuable upon such conversion of the Preferred Stock
shall not be deemed to have converted their shares until immediately prior to
the closing of the sale of such securities.
(b) Mechanics of Conversion. Before any holder of Preferred Stock
shall be entitled to convert the same into full shares of Common Stock, he shall
surrender the certificate or certificates therefor, duly endorsed, at the office
of the Corporation or of any transfer agent for the Preferred Stock, and shall
give written notice to the Corporation at such office that he elects to convert
the same. The Corporation shall, as soon as practicable thereafter, issue and
deliver at such office to the holder, or to the nominee of such holder, a
certificate or certificates for the number of shares of Common Stock to which
such holder is entitled and a check payable to such holder in the amount of any
cash amounts payable as the result any declared and unpaid dividends on the
converted Preferred Stock. Such conversion shall be deemed to have been made
immediately prior to the close of business on the date of the surrender of the
certificate representing the shares of the Preferred Stock to be converted, and
the person or persons entitled to receive the shares of Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder or
holders of such shares of Common Stock on such date. If the conversion is in
connection with an underwritten offering of securities registered pursuant to
the Securities Act of 1933, as amended, then the conversion may, at the option
of any holder tendering Preferred Stock for conversion, be conditioned upon the
closing with the underwriter of the sale of securities pursuant to such
offering, in which event any person entitled to receive the Common Stock
issuable upon such conversion of the Preferred Stock shall not be deemed to have
converted such Preferred Stock until immediately prior to the completion of such
sale of securities.
(c) Exercise of Voluntary Conversion Rights on Merger
or Sale of Assets.
(i) Notice. The Corporation shall give each holder of record
of Preferred Stock written notice of any merger of the Corporation with any
other corporation or any other corporate reorganization in which the Corporation
is not the continuing or surviving entity of such merger or reorganization, or
<PAGE>
of any sale of substantially all of the assets of the Corporation. Such notice
shall be given not later than 20 days prior to the shareholders' meeting called
to approve such transaction or 20 days prior to the completion of such
transaction, whichever is earlier. Such notice shall describe the material terms
and conditions of the contemplated transaction, as well as the terms and
conditions of Section B(3) above and this Section B(4)(c), setting forth the
date on which the holders of shares of Common Stock shall be entitled to
exchange their shares of Common Stock for securities or other property
deliverable upon the occurrence of such event. The Corporation shall thereafter
give such holders prompt notice of any material changes in such terms and
conditions. The transaction shall in no event take place sooner than 20 days
after the mailing by the Corporation of the notice provided for in this Section
B(4)(c)(i); provided, however, that such period may be shortened or waived upon
the written consent of the holders of at least 66-2/3% of all outstanding shares
of Preferred Stock.
(ii) Conditional Exercise of Conversion Rights. If subsequent
to the giving of notice pursuant to Section B(4)(c)(i) above but not later than
10 days prior to the closing of such transaction, any holder of Preferred Stock
elects to exercise its Conversion Rights, then the conversion may, at the option
of any holder tendering Preferred Stock for conversion, be conditioned upon the
closing of such transaction, in which event the person entitled to receive the
Common Stock issuable upon such conversion of the Preferred Stock shall not be
deemed to have converted such Preferred Stock until immediately prior to the
closing of such transaction.
(d) Notices.
(i) Events Triggering Notices. In addition to any notices
otherwise required by this Section B(4), the following events shall also cause
the Corporation to issue notices in accordance with the provisions of Section
B(4)(d)(ii) below:
(1) a declaration by the Corporation of any
dividend or distribution upon shares of its Common Stock, whether in cash,
property, stock or other securities, whether or not a regular cash dividend and
whether or not out of earnings or earned surplus;
(2) a pro rata offering by the Corporation
to the holders of any class or series of its stock to subscribe
for any additional shares of stock of any class or series or
other rights; or
(3) any reclassification or
recapitalization by the Corporation of its outstanding Common Stock.
(ii) Types of Notice. At least 20 days prior to the record
date for the dividend, distribution or subscription rights referred to in
Sections B(4)(d)(i)(1) and B(4)(d)(i)(2) above or for determining rights to vote
with regard to the matters referred to in Section B(4)(d)(i)(3) above, the
Corporation shall send a notice to each holder of Preferred Stock setting forth
the record or voting date and the nature of the action. Each such written notice
shall be given by personal delivery or by first class mail, postage prepaid,
addressed to each holder of Preferred Stock at the address for each such holder
as shown on the books of the Corporation.
(a) No Impairment. The Corporation will not, by amendment of its
Articles of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section B(4) and in the taking of all actions that may be necessary or
appropriate to protect the Conversion Rights of the holders of the Preferred
Stock against impairment.
Section 5. Redemption.
(a) Mandatory Redemption of the Preferred Stock. On January 1, 1994,
the Corporation shall, to the extent it may lawfully do so, redeem each share of
Preferred Stock which has not been converted to Common Stock by paying in cash
therefor an amount per share equal to (i) the greater of: (A) the Issuance
Price, or (B) 10 times the average of consolidated earnings per share of Common
Stock for the two full fiscal years immediately preceding January 1, 1994 for
each share of Preferred Stock; plus (ii) any dividends declared but not then
paid (such aggregate amount per share being referred to herein as the
"Redemption Price"). For purposes of this Section B(5)(a), earnings per share of
Common Stock shall be determined in accordance with generally accepted
accounting principles applied on a consistent basis. If the funds of the
Corporation available for redemption of Preferred Stock on the Redemption Date
are insufficient to redeem the total number of shares of Preferred Stock to be
redeemed on such date, then those funds that are legally available shall be used
to redeem the maximum possible number of the shares ratably among the holders of
the shares to be redeemed in accordance with Section B(1).
(b) Notice of Redemption. At least 45 days but no more than 60 days
prior to the date fixed for any redemption of Preferred Stock (the "Redemption
Date"), written notice (the "Redemption Notice") shall be mailed, postage
prepaid, to each holder of record at the close of business on the business day
<PAGE>
next preceding the day on which notice is given, at the address last shown on
the records of this Corporation for such holder (or at the address given by the
holder to the Corporation for the purpose of notice or if no such address
appears or is given, at the place where the principal executive office of the
Corporation is located), notifying such holder of (i) the Preferred Stock to be
redeemed, (ii) specifying the Redemption Date, the applicable Redemption Price,
the place at which payment may be obtained, and the date on which such holder's
Conversion Rights as to such shares terminate and (iii) calling upon such holder
to surrender to the Corporation, in the manner and at the place designated, his
certificate or certificates representing the shares to be redeemed. Except as
provided in Section B(5)(c) below, on or after the close of business on the
Redemption Date, each holder of Preferred Stock to be redeemed shall surrender
to the Corporation the certificate or certificates representing such shares in
the manner and at the place designated in the Redemption Notice. Thereupon, the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificates as the owner thereof, and
each surrendered certificate shall be cancelled. If less than all the shares
represented by such certificate are redeemed, then a new certificate shall be
issued representing the unredeemed shares.
(c) Cessation of Rights. From and after the Redemption Date, unless
there has been a default in payment of the Redemption Price, all dividends, if
any, on the Preferred Stock designated for redemption in the Redemption Notice
shall cease to accrue, all rights of the holders of such shares as holders of
shares of Preferred Stock (except the right to receive the Redemption Price
without interest upon surrender of their certificate or certificates) shall
cease with respect to such shares and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be outstanding for
any purpose whatsoever; provided, however, that any shares of Preferred Stock
not redeemed shall remain outstanding and entitled to all the rights and
preferences provided herein (specifically including but not limited to
Conversion Rights) as if such shares had not been called for redemption. At any
time thereafter when additional funds of the Corporation are legally available
for the redemption of any unredeemed shares of Preferred Stock, such funds shall
immediately be set aside for the redemption of the balance of the shares that
the Corporation was obligated to redeem on the Redemption Date.
(d) Deposit of Redemption Price. Three days prior to the Redemption
Date, the Corporation shall deposit an amount equal to the total amount required
to redeem all outstanding shares of Preferred Stock designated for redemption in
the Redemption Notice and not yet converted with a bank or trust company having
aggregate capital and surplus in excess of $50,000,000 as a trust fund for the
benefit of the respective holders of the shares to be redeemed. Simultaneously,
the Corporation shall provide such bank or trust company with irrevocable
instructions to pay to each holder for each share of Preferred Stock
surrendered, on and after the Redemption Date, the Redemption Price upon
surrender of the certificate representing such a share. Any monies deposited by
the Corporation pursuant to this Section B(5)(d) for the redemption of shares
that are thereafter converted into shares of Common Stock shall be returned to
the Corporation forthwith upon such conversion. The balance of any monies so
deposited by the Corporation which have not been claimed by stockholders or
returned to the Corporation because the shares were converted at the expiration
of the 1-year period following the Redemption Date shall thereafter be returned
to the Corporation, provided that the shareholder to which such monies would be
payable hereunder shall be entitled, upon proof of its ownership of the
Preferred Stock and payment of any bond requested by the Company, to receive
such monies from the Corporation. Monies deposited on or after the Redemption
Date shall not bear interest. The Corporation shall bear the administrative
costs for the trust fund.
Section 6. Voting Rights. Except as otherwise required by law or
these Articles, in connection with all matters to be voted upon by the
Corporation's shareholders, all shareholders shall vote as a single class, with
each share of Preferred Stock issued and outstanding having the number of votes
equal to the number of shares of Common Stock into which the share of Preferred
Stock is convertible. Notwithstanding any other provision of this Article Three
to the contrary, in addition to any other rights provided by law, so long as at
least 250,000 shares of Preferred Stock are outstanding, the Corporation shall
not, without first obtaining the affirmative vote or written consent of the
holders of not less than 66-2/3% of the shares of Preferred Stock outstanding,
take any of the following actions:
(a) amend or repeal any provision of, or add any provision to, this
Corporation's Articles of Incorporation or Bylaws, if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of the holders of shares
of the Preferred Stock (this specifically includes but is not limited to any
change in the number of directors, indemnification of directors or change in
this Section B(6));
(b) authorize or issue shares of any class of stock having any
preference or priority as to dividends or assets superior to or on a parity with
any such preference or priority of the Preferred Stock, or authorize or issue
shares of stock of any class or any convertible bonds, convertible debentures,
convertible notes or other obligations that are convertible into or exchangeable
for, or have option rights to purchase, any shares of stock of this Corporation
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Preferred Stock;
<PAGE>
(c) reclassify any securities into shares having any preference or
priority as to dividends or assets superior to or on a parity with any such
preference or priority of any series of the Preferred Stock;
(d) pay or declare any dividend on any Junior Securities (except
dividends payable solely in shares of Common Stock) or apply any of the
Corporation's assets to the redemption, retirement, purchase or acquisition,
directly or indirectly, through subsidiaries or otherwise, of any Junior
Securities, except from employees or directors or consultants of the Corporation
upon termination of employment or services pursuant to the terms of restrictive
stock agreements entered into with such employees, directors or consultants; or
(e) sell, convey or otherwise dispose of or encumber all or
substantially all of the Corporation's property or business or merge into or
consolidate with any other corporation (other than a wholly owned subsidiary
corporation) or effect any transaction or series of related transactions in
which more than 50% of the voting power of the Corporation is disposed of.
C. Common Stock.
Section 1. Rank. The Common Stock shall, upon liquidation,
dissolution or winding up of the affairs of the Corporation, rank (a) senior and
prior to any class or series of capital stock of the Corporation hereafter
issued the terms of which specifically provide that shares of such class or
series shall rank junior to the shares of Common Stock; (b) on a parity with any
other class or series of capital stock of the Corporation hereafter issued the
terms of which specifically provide that shares of such class or series shall
rank on a parity with the shares of Common Stock; and (c) junior to the shares
of the Preferred Stock and to any other class or series of capital stock of the
Corporation hereafter issued unless the terms of such class or series of capital
stock of the Corporation specifically provide that such series or class shall
rank junior to or on a parity with shares of the Common Stock.
Section 2. Dividends. If the Board of Directors shall elect to
declare dividends out of funds legally available therefor, such dividends shall
be declared on all shares of Preferred Stock and Common Stock and the holders of
Common Stock shall share such dividends pro rata with (a) the holders of the
Preferred Stock in accordance with the provisions set forth in Section B(2) of
this Article Three, and (b) other holders of the Common Stock in accordance with
the number of shares of Common Stock held.
Section 3. Liquidation. Subject to Section B(3) of this Article
Three, in the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, after payment of all preferential
liquidation payments on outstanding Senior Securities and the Preferred Stock,
the holders of the Common Stock shall be entitled to receive their pro rata
share of all of the remaining assets of the Corporation legally available for
distribution, if any, along with the holders of the Preferred Stock, on the
basis of their respective interests in the Common Stock on an "as if converted
basis."
Section 4. Voting Rights. Except as otherwise required by law, in
accordance with all matters to be voted upon by the holders of Common Stock,
each share of Common Stock issued and outstanding shall have one vote.
D. No Preemptive Rights
No holder of any stock of any class or other securities of this
Corporation shall have any preemptive or preferential right by reason of his
being a shareholder or a security holder to have first offered to him, or to
subscribe for, purchase or receive any part of the presently authorized stock of
this Corporation, or any part of any stock of this Corporation which may
hereafter be authorized, issued or sold, or any part of any debentures, bonds or
other securities of this Corporation convertible into, exchangeable for, or
representing stock or securities which may at any time be authorized, issued or
sold by this Corporation.
<PAGE>
EXHIBIT B
THE SALE OF THE SECURITIES REPRESENTED HEREBY HAS NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933. NO SALE OR OTHER DISPOSITION OR PLEDGE OF THESE
SECURITIES MAY BE EFFECTED WITHOUT AN EFFECTIVE REGISTRATION STATEMENT RELATING
THERETO OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
TALX CORPORATION
WARRANT
VOID AFTER DECEMBER 31, 1993
1. The Warrant; Period of Exercise.
(a) Preferred Stock Purchase Agreement. This Warrant is
executed and delivered by TALX Corporation, a Missouri corporation (the
"Company"), in accordance with the Securities Purchase Agreement dated as of
November __, 1990 (the "Agreement") executed and delivered by the Company,
pursuant to which Warrants (the "Warrants") to purchase securities of the
Company were issued. All provisions of the Agreement applicable hereto are
incorporated herein by reference. Capitalized terms used but not otherwise
defined herein shall have meanings ascribed to such terms in the Agreement.
(b) Number and Price of Securities Subject to Warrant. Subject
to the terms and conditions herein set forth, __________ or its registered
successors or assigns (the "Holder"), is entitled to purchase from the Company,
upon the occurrence of any Triggering Event (as hereinafter defined) and any
time and from time to time thereafter until December 31, 1993, up to $_____ of
fully paid and nonassessable Warrant Securities (as hereinafter defined),
subject to adjustment as set forth below. The purchase price of securities
purchased hereunder shall be as provided in Section 1(f) of this Agreement,
subject to adjustment as hereinafter provided. The purchase price of one unit of
Warrant Securities payable from time to time upon the exercise of this Warrant
(whether such price be the price specified above or an adjusted price determined
as hereinafter provided) is referred to herein as the "Applicable Warrant
Price."
(c) Partial Exercise. This Warrant may be exercised by the
Holder from time to time as to all or a portion of the Warrant Securities
subject hereto.
(d) Triggering Event. As used in this Warrant and for purposes
of determining the Warrant Securities and Applicable Warrant Price, the term
"Triggering Event" shall mean:
(i) the Company's receipt, at any time on or after
November 28, 1993, of the written consent to the exercisability of the Warrants
by the holders of at least 40% of the number of shares of the Company's
outstanding Preferred Stock (including for purposes of determining such
percentage any shares of the Company's Series C Convertible Preferred Stock
("Series C Shares") issuable upon exercise of this Warrant pursuant to this
Section 1(d)(i)) ("Consent Exercise");
(ii) the completion of the offer and sale by the
Company of any equity securities, any securities convertible into equity
securities or any package of equity securities and debt securities ("New
Securities"), placed in a transaction exempt from the registration provisions of
the federal securities laws with an entity that is not an affiliate of Gateway
Venture Partners II, L.P. in a transaction or series of related transactions
which would be subject to integration pursuant to Regulation D under the
Securities Act of 1933, as amended (the "1933 Act"), in an aggregate amount of
at least $1.2 million cash ("Qualifying Round");
(iii) the liquidation, sale of all or substantially all
the outstanding capital stock or assets of the Company, or the merger or
consolidation of the Company with or into another corporation other than a
wholly-owned subsidiary of the Company ("Sale"); or
(iv) the completion by the Company of a firm-commitment
underwritten public offering pursuant to an effective registration statement
under the 1933 Act covering the offer and sale of Common Stock for the account
of the Company of not less than $5 million ("Qualifying Public Offering").
The Company shall give the Holder at least 20 days' prior
written notice of the proposed occurrence of a Qualifying Round, Sale or
Qualifying Public Offering and thereafter the exercise of this Warrant shall be
conditioned upon the occurrence of the Qualifying Round, Sale or Qualifying
Public Offering, in which case the person entitled to receive the Warrant
Securities issuable upon such exercise shall not be deemed to have exercised
this Warrant until immediately prior to the occurrence of such Qualifying Round,
Sale or Qualifying Public Offering. As used in this Warrant, the term
"affiliate" shall have the meaning ascribed thereto in Rule 405 under the 1933
Act.
(e) Warrant Securities. As used in this Warrant, the term
<PAGE>
"Warrant Securities" shall mean:
(i) Series C Shares in the event of a Consent Exercise,
Sale or Qualifying Public Offering; or
(ii) New Securities of the Company in the event of a
Qualifying Round. (f) Applicable Warrant Price. The Applicable Warrant Price
shall be: (i) $0.25 per share in the case of Series C Shares issued pursuant to
paragraph 1(e)(i), (iii) or (iv) hereof; and (ii) the lowest price per unit of
the New Securities being paid by investors in the Qualifying Round in the case
of New Securities issued pursuant to paragraph 1(e)(ii) hereof.
2. Adjustment of the Applicable Warrant Price and Number and Kind of
Warrant Securities. The Applicable Warrant Price and the number and kind of
Warrant Securities shall be subject to adjustment from time to time upon the
happening of certain events as follows:
(a) Adjustment for Dividends in Stock. In case at any time or
from time to time on or after the date hereof the holders of any shares of stock
or other securities at the time receivable upon the exercise of this Warrant
shall have received, or, on or after the record date fixed for the determination
of eligible shareholders, shall have become entitled to receive, without payment
therefor, other or additional stock of the Company by way of dividend, then and
in each case, the Holder shall, upon the exercise hereof, be entitled to
receive, in addition to the Warrant Securities receivable thereupon, and without
payment of any additional consideration therefor, the amount of such other or
additional stock of the Company which such Holder would have held on the date of
such exercise had it been the holder of record of such Warrant Securities on the
date hereof and had thereafter, during the period from the date hereof to and
including the date of such exercise, retained such Warrant Securities and/or all
other additional stock receivable by it as aforesaid during such period, giving
effect on all adjustments called for during such period by paragraphs (b) and
(c) of this paragraph 2.
(b) Adjustment for Reclassification, Reorganization or Merger.
In case of any reclassification or change of the outstanding securities of the
Company or of any reorganization of the Company (or of any other corporation the
stock or securities of which are at the time receivable upon the exercise of
this Warrant) on or after the date hereof, or in case, after such date, the
Company (or any such other corporation) shall merge with or into another
corporation or convey all or substantially all of its assets to another
corporation, then and in each such case the Holder, upon the exercise hereof at
any time after the consummation of such reclassification, change,
reorganization, merger or conveyance, shall be entitled to receive, in lieu of
the stock or other securities and property receivable upon the exercise hereof
prior to such consummation, the stock or other securities or property to which
such Holder would have been entitled upon such consummation if such Holder had
exercised this Warrant immediately prior thereto, all subject to further
adjustment as provided in subparagraphs (a) and (c); in each such case, the
terms of this paragraph 2 shall be applicable to the shares of stock or other
securities properly receivable upon the exercise of this Warrant after such
consummation.
(c) Stock Splits and Reverse Stock Splits. If at any time on
or after the date hereof the Company shall subdivide its outstanding Series C
Shares into a greater number of shares, the Applicable Warrant Price in effect
immediately prior to such subdivision shall be proportionately reduced and the
number of shares receivable upon exercise of the Warrant shall be
proportionately increased; and, conversely, if at any time on or after the date
hereof the outstanding number of shares of Series C Shares shall be combined
into a smaller number of shares, the Applicable Warrant Price in effect
immediately prior to such combination shall be proportionately increased and the
number of shares receivable upon exercise of the Warrant shall be
proportionately decreased.
(d) Adjustments to New Securities. In the event the Warrant
Securities shall be New Securities in lieu of Series C Shares, the Applicable
Warrant Price and the number and kind of securities issuable upon the exercise
of this Warrant shall be adjusted upon the occurrence of the events described in
paragraphs (a), (b) and (c) above with respect to the New Securities in the same
manner as provided in this paragraph 2 with respect to Series C Shares.
3. Other Adjustments. Except as provided herein or in paragraph 2,
no adjustment on account of dividends or interest on Warrant Securities will be
made upon the exercise hereof.
4. No Fractional Shares. No fractional Series C Shares or New
Securities will be issued in connection with any exercise hereunder. In lieu of
any fractional shares which would otherwise be issuable, the Company shall pay
cash equal to the product of such fraction multiplied by the fair market value
of one Series C Share or unit of New Securities, as the case may be, on the date
of exercise, as determined in good faith by the Company's Board of Directors.
5. No Shareholder Rights. This Warrant shall not entitle the Holder
to any of the rights of a shareholder of the Company.
6. Reservation of Stock. The Company covenants that during the
period this Warrant is exercisable, the Company will reserve from its authorized
but unissued Series C Shares, a sufficient number of shares to provide for the
<PAGE>
issuance of Series C Shares upon the exercise of this Warrant. The Company
agrees that its issuance of this Warrant shall constitute full authority to its
officers who are charged with the duty of executing stock certificates to
execute and issue the necessary certificates for Warrant Securities.
7. Exercise of Warrant. The Holder's ability to exercise this
Warrant is subject to the Company's having obtained all necessary governmental
approvals prior to such exercise. The Company shall use its best efforts
promptly to obtain such consents after the date hereof. Subject to such
approvals, this Warrant may be exercised by the Holder by its giving written
notice to the Company of its intent to exercise the Warrant ("Exercise Notice")
on or before the expiration of this Warrant, which Exercise Notice shall
indicate the number of Warrant Securities to be purchased by the Holder
hereunder. Upon giving such notice, the Holder shall surrender this Warrant at
the principal office of the Company and pay the Applicable Warrant Price for the
Warrant Securities to be acquired in cash or by check. A Warrant shall be deemed
to have been exercised immediately prior to the close of business on the date of
its surrender for exercise as provided above, and the person entitled to receive
the Warrant Securities shall be treated for all purposes as the holder of such
securities of record as of the close of business on such date. As promptly as
practicable on or after such date, the Company shall issue and deliver to the
person or persons entitled to receive the same a certificate or certificates for
the number of Warrant Securities, together with cash in lieu of any fraction of
a share as provided above. In the event that this Warrant shall be exercised as
to only a portion of the Warrant Securities subject hereto, the Company shall,
upon issuance of the Warrant Securities acquired on partial exercise of this
Warrant, deliver to the holder a new Warrant to purchase the remaining Warrant
Securities subject hereto.
8. Certificate of Adjustment. Whenever the Applicable Warrant Price
is adjusted as herein provided, the Company shall promptly deliver to the Holder
of this Warrant a certificate of an officer of the Company setting forth the
Warrant Price after such adjustment and setting forth a brief statement of the
facts requiring such adjustment.
9. Restrictions on Transfer of Warrant. This Warrant and all rights
hereunder are transferable, in whole or in part. The terms of this Warrant shall
be binding upon the successors and assigns of the Holder.
10. Compliance with Securities Laws.
(a) The Holder represents and agrees that this Warrant (and
the Warrant Securities, if the Warrant is exercised), are purchased only for
investment, for the Holder's own account, and without any present intention to
sell or distribute the Warrant or the Warrant Securities. The Holder further
acknowledges that the Warrant Securities will not be issued pursuant to the
exercise of this Warrant unless the exercise of the Warrant and the issuance and
delivery of such Warrant Securities shall comply with all relevant provisions of
law, including, without limitation, the 1933 Act, and other federal and state
securities laws and regulations and the requirements of any stock exchange upon
which the securities may then be listed.
(b) The Holder acknowledges and agrees that this Warrant and
the Warrant Securities have not been registered under the 1933 Act and
accordingly will not be transferable except as permitted under the various
exemptions contained in the 1933 Act, or upon satisfaction of the registration
and prospectus delivery requirements of the 1933 Act. Therefore, the Warrant and
Warrant Securities must be held indefinitely unless they are subsequently
registered under the 1933 Act or an exemption from such registration is
available. The Holder understands that the certificate evidencing the Warrant
Securities will be imprinted with a legend which prohibits the transfer of the
Warrant Securities unless they are registered or unless the Company receives an
opinion of counsel reasonably satisfactory to the Company that such registration
is not required. The Holder is aware of the adoption of Rule 144 by the
Securities and Exchange Commission and that Company is not now and, at the time
he wishes to sell the Warrant Securities, may not be satisfying the current
public information requirements of Rule 144 and, in such case, the Holder would
be precluded from selling the securities under Rule 144. The Holder understands
that a stop transfer instruction will be in effect with respect to transfer of
Warrant Securities consistent with the requirements of the securities laws.
11. Miscellaneous. This Warrant shall be governed by the laws of the
State of Missouri. The headings in this Warrant are for purposes of convenience
of reference only and shall not be deemed to constitute a part hereof. Neither
this Warrant nor any term hereof may be changed, waived, discharged or
terminated orally but only by an instrument in writing signed by the Company and
the registered holder hereof. All notices and other communications from the
Company to the Holder of this Warrant shall be mailed by first-class registered
or certified mail, postage prepaid, to the address furnished to the Company in
writing by the last Holder of this Warrant who shall have furnished an address
to the Company in writing.
ISSUED this day of November, 1990.
TALX CORPORATION
By
-------------------------------------
William W. Canfield, President
<PAGE>
SUBSCRIPTION FORM
(To be signed only upon exercise of Warrant)
To: TALX CORPORATION
The undersigned, the holder of the attached Warrant, hereby
irrevocably elects to exercise the purchase right represented by that Warrant
for, and to purchase under that Warrant, __________ shares of Series C
Convertible Preferred Stock or New Securities of the Company issuable
thereunder, as the case may be, and herewith makes payment of __________ for
those securities, and requests that the certificates for the shares be issued in
the name of, and delivered to, ____________________, whose address is
____________________.
Dated: __________, 19__.
(Signature must conform in all respects to
name of holder as specified on the face of
the attached Warrant.)
By
------------------------------------------
Title:
------------------------------------
------------------------------------------
Address
-----------------------------------
------------------------------------------
<PAGE>
LIST OF SCHEDULES
-----------------
Schedule 1 - Purchase Price
The Registrant hereby undertakes to furnish supplementally a copy of any
omitted Schedule to the Commission upon request.
<PAGE>
LIST OF EXHIBITS
----------------
Exhibit A - Rights, privileges and preferences of the Preferred Stock
Exhibit B - Form of Warrant
Exhibit C - Exceptions to the Representations and Warranties
The Registrant hereby undertakes to furnsih supplementally a copy of any omitted
exhibit to the commission upon request.
<PAGE>
FIRST AMENDMENT TO THE
STOCK PURCHASE WARRANT
WITH PETRA CAPITAL, LLC
THIS FIRST AMENDMENT TO THE STOCK PURCHASE WARRANT WITH PETRA CAPITAL, LLC
(this "Amendment") is dated and effective as of September 6, 1996.
WHEREAS, TALX Corporation (the "Company") and Petra Capital, LLC (the
"Holder") are parties to the Stock Purchase Warrant (the "Warrant") dated June
28, 1996, to which they desire to make certain amendments, as further described
herein;
NOW, THEREFOR, in consideration of the foregoing recital and the premises
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties hereto agree for themselves, their
successors and assigns, as follows:
1. Section 1(b) of the Warrant shall be deleted and the following
substituted therefor:
(b) The shares of Common Stock issuable upon exercise of this Warrant
are hereinafter referred to as the "Shares." This Warrant shall be
exercisable at any time and from time to time during the period beginning
as of the date 18 months following the effective date of the Company's
initial public offering and ending on June 28, 2006; provided, however,
that if the effective date of the Company's initial public offering does
not occur on or prior to March 1, 1997, this Warrant shall be exercisable
at any time and from time to time during the period beginning as of March
1, 1997 and ending on June 28, 2006.
2. This Amendment is limited as specified and shall not constitute a
modification of any other provision of the Warrant. Except as expressly amended
hereby, the Warrant shall continue in full force and effect in accordance with
the provisions thereof on the date hereof. As used in the Warrant, "herein,"
"hereinafter," "hereto," "hereof," and words of similar import shall, unless the
context otherwise requires, mean the Warrant after the amendment by this
Amendment.
3. This Amendment may be executed in one or more identical counterparts,
each of which shall be deemed an original but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, the Company and Petra Capital, LLC, hereby approve
the Amendment as of the day and year first written above.
TALX CORPORATION, a Missouri
corporation
By:_________________________________
Name:____________________________
Title:_____________________________
Attest:_______________________________
Name:____________________________
Title:_____________________________
[CORPORATE SEAL]
PETRA CAPITAL, LLC, a Georgia limited
liability company
By: Petra Capital Management, LLC,
Manager
By:____________________________
Name:_______________________
Title:________________________
<PAGE>
EXHIBIT 23.2
The Board of Directors
TALX Corporation:
We consent to the use of our report included herein and to the reference to
our firm under the headings "Selected Consolidated Financial Data" and
"Experts" in the Prospectus.
KPMG Peat Marwick LLP
St. Louis, Missouri
September 6, 1996
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND> THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FISCAL 1996 TALX CORPORATION CONSOLIDATED STATEMENT OF OPERATIONS AND
CONSOLIDATED BALANCE SHEET FILED WITH THE COMPANY'S REGISTRATION ON FORM S-1 AND
IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1996
<PERIOD-END> MAR-31-1996
<CASH> 56
<SECURITIES> 0
<RECEIVABLES> 5,918
<ALLOWANCES> 244
<INVENTORY> 1,389
<CURRENT-ASSETS> 8,915
<PP&E> 9,317
<DEPRECIATION> 5,738
<TOTAL-ASSETS> 15,844
<CURRENT-LIABILITIES> 10,176
<BONDS> 630
<COMMON> 25
0
26
<OTHER-SE> 4,987
<TOTAL-LIABILITY-AND-EQUITY> 15,844
<SALES> 13,517
<TOTAL-REVENUES> 13,517
<CGS> 6,030
<TOTAL-COSTS> 6,030
<OTHER-EXPENSES> 6,964
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 343
<INCOME-PRETAX> 180
<INCOME-TAX> 57
<INCOME-CONTINUING> 123
<DISCONTINUED> (703)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (580)
<EPS-PRIMARY> (.17)
<EPS-DILUTED> 0
</TABLE>
