<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 8, 1996
REGISTRATION NO. 333-10969
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------
AMENDMENT NO. 2
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, OCTOBER 8, 1996
2,000,000 SHARES
TALX
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. See "Glossary" for definitions of certain terms used in this
Prospectus.
THE COMPANY
TALX Corporation ("TALX" or the "Company") designs and implements interactive
communications solutions, primarily for Fortune 500 and other large
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. (based on 1995 residential mortgage originations),
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 a 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
applications categories usable by a broad range of businesses regardless of the
industry in which they operate (i.e., 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 specialized implementations of its products targeted
at specific industries (i.e., 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 implemented tailored interactive communications solutions since the
early 1980s. 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. See "Glossary" for
definitions of certain other terms used in this Prospectus.
<TABLE>
<S> <C>
Common Stock offered by the
Company....................... 2,000,000 Shares
Common Stock to be outstanding
after the offering(1).......... 5,238,975 Shares
Proposed Nasdaq National Market
symbol......................... TALX
Use of proceeds................. For repayment of bank debt (approximately $3.7
million as of September 30, 1996) 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 372,694 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.
HISTORY OF NET LOSSES
The Company has incurred net losses in each of the last two fiscal years and
in the first quarter of fiscal 1997. In fiscal 1995, the Company incurred net
losses from continuing operations and discontinued operations of $754,000 and
$410,000, respectively. In fiscal 1996 and in the first quarter of fiscal
1997, the Company incurred losses only from discontinued operations of
$703,000 and $164,000, respectively. The Company's accumulated deficit as of
June 30, 1996 was $1,817,000. 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 employees, 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. If the market for The Work Number fails to
develop or be sustained, develops slowly or becomes subject to significant
competition, the Company's business, financial condition, results of
operations and business prospects would be materially adversely affected. See
"Business--Services and Products--The Work Number."
RISKS RELATED TO USE OF CONFIDENTIAL INFORMATION WITH THE WORK NUMBER
The Work Number depends on the accuracy of highly confidential information
regarding employment and salary history provided to the Company by employers
and converted by the Company for use as part of The Work Number. Although the
Company has certain protective measures in place, any inaccuracies in such
information (whether in the recording of such information or due to the
unauthorized access of information, or otherwise) or the inability by the
Company to keep such information confidential, may give rise to potential
claims against the Company and adversely affect market acceptance of The Work
Number. If any claims should be asserted which are ultimately decided
adversely to the Company, the Company's business, financial condition, results
of operations and business prospects may be materially adversely affected. See
"Business--Services and Products--The Work Number."
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
8
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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, 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."
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RISKS ASSOCIATED WITH RAPID 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, 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. Towards this end, the Company has recently contracted with a
consulting firm, which specializes in software development, for exclusive
rights to a base Windows NT product. Although such product will not
immediately offer customers the full range of features currently available for
the OS/2 operating system, the Company plans to direct development efforts
towards integrating additional features, including EasyScript, into such base
product in 1997. Additionally, as part of the process of making TALX products
compatible with the Windows NT operating system, the Company has developed
conversion utilities to allow the same digitized voice messages to be used
with both the OS/2 and Windows NT operating systems, has begun the process of
porting licensed technologies from the OS/2 operating system to the Windows NT
operating system and is proceeding with the design and development of a
graphical user interface for system administration functions for both the OS/2
and Windows NT operating systems. Further, it is the Company's strategy that
new TALX products will be developed to run on both the OS/2 and Windows NT
operating systems. Thus, the Company is currently developing software using
cross-platform software development tools that allow software developed for
the OS/2 operating system to also run on the Windows NT operating system.
These projects are 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
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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.
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, if ever, 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") or
purchased under open market purchase arrangements and then 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, or if a third party supplier
refuses to sell to the Company pursuant to the existing open market purchase
arrangements, as the case may be, and the existing third party supplier
refuses to enter into a subsequent agreement or other arrangement, the Company
could enter into a similar agreement or arrangement 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 currently being purchased under Supplier
Agreements or pursuant to open market purchase arrangements. 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
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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
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.
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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
allies, subject to certain exceptions, 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 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. The Company believes its products do not infringe upon any
of the claims of the patent relating to the action filed by Elk. Further, the
Company has filed an answer to Elk's complaint that also asserts that such
patent is invalid and that the claims are unenforceable. 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
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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."
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, 3,226,067 of the 3,238,975 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
1,663,054 "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 678,322 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
372,694 shares of Common Stock outstanding on the date hereof, of
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which 175,517 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 ANTI-TAKEOVER 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), based
on their holdings as of October, 7 1996. 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 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."
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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 use the net proceeds to 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%, with an effective interest rate
of 19.25% (see "Certain Relationships and Related Transactions"), (ii) a
promissory note in the principal amount of approximately $417,000 as of
September 30, 1996, and which is due and payable through August 1997 and
accrues interest at the bank's prime rate (8.25% as of September 30, 1996)
plus 0.75%, and (iii) a demand note representing borrowings under a revolving
line of credit (approximately $3.3 million as of September 30, 1996) which
accrues interest at the bank's prime rate (8.25% as of September 30, 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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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)(1).......................... $ 2,929 $ 33
Long-term debt, less current installments(1)............ 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(1)...................... 2,614 --
------- -------
Total debt.......................................... 5,612 60
------- -------
Stockholders' equity (2):
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)(3)........................... 25 52
Additional paid-in capital............................. 7,166 24,915
Retained earnings (accumulated deficit)................ (1,817) (2,457)(4)
------- -------
Total stockholders' equity.......................... 5,400 22,510
------- -------
Total capitalization................................ $11,012 $22,570
======= =======
</TABLE>
- --------
(1) After consummation of this offering, the Company will use a portion of the
proceeds from such offering to repay all amounts outstanding as Short-term
debt (including current portion of long-term debt and excluding capital
lease obligations), Long-term debt, less current installments and
Subordinated note payable (net of discount), which amounts as of June 30,
1996 were $2,896,000, $42,000 and $2,614,000, respectively, and as of
September 30, 1996 were $3,717,000, $0 and $3,163,000, respectively. See
"Use of Proceeds."
(2) 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."
(3) Assumes no exercise of outstanding stock options or warrants. As of the
date of this Prospectus, there were outstanding options and warrants to
purchase 372,694 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.
(4) 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... 3,229,181 61.8% $ 6,481,784 24.5% $2.01
New investors........... 2,000,000 38.2 20,000,000 75.5 10.00
--------- ----- ----------- -----
Total................. 5,229,181 100.0% $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 372,694 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" and "Risks Related to Use of Confidential Information with The
Work Number."
The Company's customer premises systems business designs and implements
customer premises systems with interactive communications capabilities using
computer telephony to integrate technologies such as IVR, facsimile, e-mail,
Internet and corporate Intranet. The Company's interactive communications
solutions enable an organization's Users to access, input and update
information without human assistance. Revenues from customer premises systems
are derived from the license or sale of software, related hardware and custom
applications and are generally recognized upon shipment of the system. Sales
are effected through a direct sales force and in conjunction with strategic
marketing alliances (including third party resellers). The typical size of a
system ranges from $35,000 to $200,000 or more and averages approximately
$75,000. In the case of a third party reseller, revenues are recognized at the
time of shipment to the reseller; however, the Company does not have any
future obligations related to these types of sales. The Company provides
maintenance and support services with respect to installed customer premises
systems. These services include a 24-hour per day, 7-day a week toll-free
customer service line. 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 through progress billings. These
customers' contracts cover periods generally from one to six months and
progress billings are made in accordance with individual customer contract
terms. 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.
21
<PAGE>
In connection with the issuance of a $4.0 million subordinated promissory note
(the "Subordinated Note") which bears interest at 13.25% (with an effective
interest rate of 19.25%), 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 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," "Risks Related to Use of Confidential
Information 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."
22
<PAGE>
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.
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. However, in the first quarter
of fiscal year 1997, notwithstanding the continued increase in verification
revenues, the focusing of the sales force from The Work Number 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
compared with the fourth quarter of fiscal year 1996. The Company has
commenced, and is continuing, the process of hiring and establishing a sales
force dedicated to The Work Number. 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 effected in prior periods and continuing in the current period,
reflecting the Company's efforts to increase historic revenue generation.
Additionally, revenue growth also benefited from the replacement of a regional
sales manager who left the Company in September 1994 and the addition of
another sales manager in the same territory. The continuing development of
strategic marketing alliances also contributed to increased revenues. Revenues
from maintenance and support related to the customer
23
<PAGE>
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. This
increase is due to the increase in customer premises systems revenue.
Additionally, 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. This
increase is due to an increase in fixed labor costs as the Company continued
to increase staffing to support possible future increases in 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 as the Company expands its sales and marketing efforts.
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 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
24
<PAGE>
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 effected in fiscal 1996, reflecting the Company's efforts
to increase historic revenue generation. Additionally, revenue growth also
benefited from the replacement of a regional sales manager who left the
Company in September 1994 and the addition of another sales manager in the
same territory. The continuing development of strategic marketing alliances
also contributed to increased revenues. 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. This increase is due to the increase in customer premises systems
revenue. 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. This decrease is due to the lower levels of
revenues in the second half of fiscal 1995 and the relatively fixed nature of
the Company's labor costs, which resulted in higher than normal cost of
revenue percentage in fiscal 1995. 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.
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
25
<PAGE>
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. This increase was due to the Company
staffing for anticipated increased levels of customer premises systems
revenue. 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. While no
specific transaction has been approved, the Company has contacted several
strategic buyers and received several unsolicited inquiries, which management
is evaluating, and anticipates divestiture will occur within 12 months. Any
divestiture of the assets of such businesses would require the approval of the
Company's lenders and certain equipment lessors who have been informed of
management's intention and preliminary plan of divestiture. The net proceeds
of this offering will repay outstanding indebtedness to such lenders,
resulting in the elimination of the requirements for approval of the
divestiture of assets from such lenders. 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.
26
<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. The Company believes the loss of AT&T 800 Directories was a
result of its desire to consolidate its directory suppliers in a single,
larger vendor. Although the Company has subsequently taken steps to rebuild
the revenue base of the database and document businesses, it believes that its
management and financial resources are better allocated towards continued
expansion of its interactive communications business.
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.
27
<PAGE>
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% 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.
28
<PAGE>
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 this 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>
29
<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, a number of which sales
resulted in a large number of one-time conversion fees in the fourth quarter
of fiscal year 1996. Similarly, in the first quarter of 1997, notwithstanding
the continued increase in verification revenues, the focusing 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 has commenced, and is continuing, 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
30
<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, including expansion of the Company's computer room facilities,
acquisition of additional computer equipment, installation of leasehold
improvements, and establishment of a disaster recovery facility.
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 use the net proceeds of this offering to 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%,
with an effective interest rate of 19.25% (see "Certain Relationships and
Related Transactions"), (ii) a promissory note in the principal amount of
approximately $417,000 as of September 30, 1996, and which is due and payable
through August 1997 and
31
<PAGE>
accrues interest at the bank's prime rate (8.25% as of September 30, 1996)
plus 0.75%, and (iii) a demand note representing borrowings under a revolving
line of credit (approximately $3.3 million as of September 30, 1996) which
accrues interest at the bank's prime rate (8.25% as of September 30, 1996)
plus 0.875%. See "Use of Proceeds."
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.
32
<PAGE>
BUSINESS
GENERAL
TALX designs and implements interactive communications solutions, primarily
for Fortune 500 and other large 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 a 20% interest in the Company by Intech Group Inc. ("Intech
Group") in 1987, the Company became primarily involved in designing and
implementing interactive communications solutions. At the time of Intech
Group's initial purchase of TALX capital stock, the Company's only other
shareholders were MiTek, Inc. ("MiTek") and Gateway Venture Partners II, L.P.
("Gateway"). In fiscal 1994, the Company acquired from Intech Group and its
affiliates, on a pooling-of-interests basis, TALX Information Services
Corporation, formerly known as 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 holdings of TALX capital stock to Intech
Group's shareholders. Immediately prior to such merger, Intech Group owned
approximately 31.46% of the outstanding TALX capital stock. At such time, the
Company had 21 other shareholders, three of whom, Gateway, Mitek and Intech
Partners, L.P. ("Intech Partners"), each beneficially owned more than ten
percent of the outstanding TALX capital stock. See "Certain Relationships and
Related Transactions."
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
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inquiries, processing transaction requests and using enterprise software
applications to extract relevant 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. In 1996, 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 to utilize interactive communications to provide and receive
employment information regarding current and
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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 1995). 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 in the U.S. (based
on 1995 residential mortgage originations), currently utilize The Work Number
to facilitate their underwriting process. The Company plans to follow a dual
strategy and aggressively market The Work Number to subscribing lenders and
other verifiers, in order to encourage such lenders and verifiers to promote
increased enrollment by employers, as well as to lenders and verifiers not yet
utilizing The Work Number. Through these efforts, the Company intends to
establish a market for a national employment verification service and seek to
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 new users and areas that could
potentially benefit from a similar national service, based on their need for
timely information and utilization of multiple entity databases. The Company
believes that users other than mortgage lenders could potentially benefit from
access to the employment and salary information already contained in the
database used for The Work Number. The Company also believes there may be new
areas where a new national database (containing information other than
employment and salary information) would be desirable for which the Company
could provide users access for a fee. 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.
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
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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 or strategies will be
achieved. See "Risk Factors."
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.
[CHART]
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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 application process, as the applicant's employment and
salary information is provided to verifiers by a source less susceptible to
fraud. The traditional employment verification process requires the employee
to provide a verifier with paper documents such as W-2 forms, tax returns or
paycheck stubs, which in the era of desktop publishing and high quality laser
printers may be susceptible to forgery, thus increasing the risk of fraud.
However, the Company believes The Work Number reduces this risk by removing
the need to rely on documents that may be supplied directly or indirectly by
the employee. Verifiers using The Work Number receive employment verification
directly from an electronic database which contains records provided by the
employer. 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. (based on 1995
residential mortgage originations), 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 1995). 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" and "--Risks Related to Use of
Confidential Information 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.
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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 a 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 applications categories
usable by a broad range of businesses regardless of the industry in which they
operate (i.e., 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 specialized implementations of its
products targeted at specific industries (i.e., 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.
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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, 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.
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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.
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
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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.
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") or
purchased under open market arrangements and then 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
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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.
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.
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.
42
<PAGE>
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."
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, many 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, Kaiser
Permanente, represented approximately 14% in fiscal 1996. The following table
sets forth certain of the customers for whom the Company has provided services
or installed customer premises systems.
- -------------------------------------------------------------------------------
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.
43
<PAGE>
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.
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
44
<PAGE>
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, subject to certain exceptions, 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 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. The Company believes its products do not infringe upon any of the
claims of the patent relating to the action filed by Elk. Further, the Company
has filed an answer to Elk's complaint that also asserts that such patent is
invalid and that the claims are unenforceable. 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."
45
<PAGE>
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. The
Company has contacted several strategic buyers and received several
unsolicited inquiries, which management is evaluating. The Company has no
present understandings, agreements or commitments with respect to any such
transaction. 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. Although the
Company has subsequently begun to rebuild the revenue base of the database and
document services businesses, it believes its resources are better allocated
towards the continued expansion of its core interactive communications
business. The operating losses resulting from the loss of AT&T 800 Directories
was one of the factors the Company considered in making its divestiture
decision. The primary reason was to enable the Company to focus its management
and financial resources towards its core interactive communications business.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--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 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.
46
<PAGE>
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.
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 condition, 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."
47
<PAGE>
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.
48
<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, subject to the terms of applicable employment agreements.
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
49
<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.
50
<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.
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
51
<PAGE>
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 as well as each individual's initial annual base salary, is
as noted in parenthesis next to each individual's name. Additionally, each
employment agreement will automatically be extended annually for an additional
one year period 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. Such employees are also eligible for a performance bonus
based on a formula recommended by a committee of the Board of Directors and
approved by the Board of Directors. Each employment agreement contains
confidentiality provisions that extend indefinitely after termination of
employment as well as non-solicitation and non-competition provisions that
extend for one year after termination of employment. If the employment
agreement is terminated by the Company without "cause" (as defined in the
agreement, but including, without limitation, breach by the employee of the
employment agreement) or by the employee for "good reason" (as defined in the
agreement, but including, without limitation, breach of the employment
agreement by the Company, the reduction of salary, benefits or other
perquisites provided to employee under the agreement and failure by the
Company to agree to an extension of such employee's employment agreement), the
Company would be obligated to pay the employee his annual base salary plus a
bonus (based on their estimated bonus for the year of termination) over the
period (the "Continuation Period") which is equal to the original term of his
agreement and which period commences on the date of early termination of such
employee, and such amount shall be payable ratably over such Continuation
Period, as well as to continue his employee benefits over such Continuation
Period; however, if his employment agreement is terminated otherwise, the
employee is only entitled to be paid through the date of his early
termination. Further, if within 12 months of a "Change of Control" of the
Company the employee, under certain circumstances, is terminated or resigns,
(a) in the case of Mr. Canfield, he will be entitled to (i) a lump-sum cash
payment equal to $1 less than three times an amount equal to the average
annual compensation received by Mr. Canfield from the Company reported on his
Form W-2 for the five calendar years preceding the calendar year of the Change
of Control and (ii) the continuation of certain health insurance benefits for
a three-year period and (b) in the case of Mr. Tubbesing, Mr. Smith and Mr.
Cohen, each will be entitled to (i) a lump-sum cash payment equal to 100% of
their respective annual base salaries plus, (ii) a lump sum cash payment equal
to their anticipated annual bonus (based on their estimated bonus for the year
of termination), (iii) the continuation of certain health insurance and other
employee benefits for a one-year period and (iv) payment for certain
outplacement services. Additionally, the Company has agreed to make certain
"gross-up" payments in the event any excise taxes are imposed pursuant to
Section 4999 of the Internal Revenue Code of 1986, as amended or replaced,
related to the employment agreements. The term "Change of Control" shall mean
(i) a change of control of a nature that would be required to be reported in
response to Item 1(a) of the Current Report on Form 8-K, as in effect on the
date hereof, pursuant to Section 13 or 15(d) of the Securities Exchange Act of
1934, or any comparable successor provisions. Without limiting the foregoing,
a "Change of Control" shall also include, without limitation, (i) the purchase
or other acquisition by any person or group of beneficial ownership of 25%
52
<PAGE>
or more of either the then outstanding shares of common stock or the combined
voting power of the Company's then outstanding voting securities entitled to
vote in the election of directors, (ii) when individuals who, as of the date
of the employment agreement, constitute the Board of Directors of the Company
cease for any reason to constitute at least two-thirds of the Board of
Directors, provided that generally persons who are approved by the incumbent
Board will be deemed a member thereof, and (iii) approval by the shareholders
of the Company of a reorganization, merger, or consolidation, in each case,
with respect to which persons who were the shareholders of the Company
immediately prior to such reorganization, merger or consolidation do not,
immediately thereafter, own more than 50% of the combined power entitled to
vote generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities, or a liquidation or
dissolution of the Company or of the sale of all or substantially all of the
assets of the Company. All four employment agreements contain an arbitration
provision.
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.
53
<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
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 and indirect 6.2% shareholder of the
54
<PAGE>
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. Immediately
prior to the Intech Merger, Intech Group owned approximately 31.46% of the
outstanding TALX capital stock.
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.
55
<PAGE>
PRINCIPAL SHAREHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of October 7, 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 October 7, 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)....... 660,824 20.5 660,824 12.6
MiTek, Inc.(3)............................. 471,629 14.6 471,629 9.0
William W. Canfield(4)..................... 533,387 16.4 533,387 10.2
Craig N. Cohen(5).......................... 10,000 * 10,000 *
Derick L. Driemeyer(6)..................... 205,572 6.4 205,572 3.9
Richard F. Ford(7)......................... 681,231 20.9 681,231 13.0
Craig E. LaBarge........................... -- -- -- --
Roger L. Mell, M.D.(8)..................... 178,526 5.5 178,526 3.4
Walter L. Metcalfe, Jr.(9)................. 199,987 6.2 199,987 3.8
Michael E. Smith(10)....................... 15,872 * 15,872 *
Eugene M. Toombs(11)....................... 474,768 14.7 474,768 9.1
John E. Tubbesing(12)...................... 38,905 1.2 38,905 *
M. Steve Yoakum............................ -- -- -- --
All directors and executive officers as a
group(13)................................. 1,754,163 52.7 1,754,163 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 63,209 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 October 7, 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 660,824 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 98,536 shares owned by his spouse. Mr. Metcalfe is a
partner with Bryan Cave llp.
(10) Includes 12,857 shares which Mr. Smith may acquire upon the exercise of
options within 60 days after October 7, 1996.
(11) The address of Mr. Toombs is 14515 N. Outer Forty Rd., St. Louis, MO
63017. Includes 471,629 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 91,109 shares which may be acquired upon exercise of options or
warrants within 60 days after October 7, 1996.
56
<PAGE>
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 5,238,975 shares of Common Stock (5,538,975 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 3,238,975
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, 2,913 will be available
under Rule 144(k) for immediate sale in the public market without restriction
following this offering, and an additional 454,130 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 3,226,067
of the 3,238,975 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 3,226,067 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
1,663,054 "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 175,517 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 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.
57
<PAGE>
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.
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, 3,238,975 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 5,238,975 shares of Common Stock and no shares
of Preferred Stock.
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<PAGE>
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.
CERTAIN EFFECTS OF AUTHORIZED BUT UNISSUED STOCK
Upon the completion of this offering, there will be 24,225,189 shares of
Common Stock and 5,000,000 shares of preferred stock available for future
issuance without shareholder approval, taking into consideration the 535,836
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.
59
<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
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<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.
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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.
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
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<PAGE>
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 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.
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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.
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.
65
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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, 1996
---------------- ------------------
1995 1996 ACTUAL PRO FORMA
------- ------- ------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................ $ 27 $ 56 $ 287 $ 287
Trade receivables, net................... 5,022 5,918 4,938 4,938
Inventories.............................. 1,204 1,389 1,200 1,200
Work in progress, less progress billings. 547 761 - -
Prepaid expenses and other current
assets.................................. 445 306 231 231
Income tax refund receivable............. 293 260 - -
Deferred tax assets, net................. 193 225 133 133
------- ------- ------- -------
Total current assets.................. 7,731 8,915 6,789 6,789
Property and equipment, net............... 3,944 3,579 1,870 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 2,716
Net assets of business held for sale...... - - 2,505 2,505
Deferred tax assets, net.................. 459 466 414 414
Other assets.............................. 249 263 392 392
------- ------- ------- -------
$14,476 $15,844 $14,686 $14,686
======= ======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank.................... $ 2,655 $ 4,243 $ 2,396 $ 2,396
Current installments of obligations under
capital leases.......................... 222 226 33 33
Current installments of long-term debt... 500 500 500 500
Accounts payable......................... 1,958 2,250 1,698 1,698
Accrued expenses and other liabilities... 1,401 1,742 1,250 1,250
Progress billings in excess of work in
progress................................ 138 226 138 138
Deferred maintenance revenue............. 674 989 588 588
------- ------- ------- -------
Total current liabilities............. 7,548 10,176 6,603 6,603
Obligations under capital leases, less
current installments..................... 651 463 27 27
Long-term debt, less current installments. 667 167 42 42
Subordinated note payable, net of
discount................................. - - 2,614 2,614
------- ------- ------- -------
Total liabilities..................... 8,866 10,806 9,286 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 (pro
forma none)............................. 18 18 18 --
Series B convertible preferred stock,
$.01 par value; authorized 327,000
shares, issued and outstanding 236,873
shares (pro forma none)................. 2 2 2 --
Series C convertible preferred stock,
$.01 par value; authorized 6,000,000
shares, issued and outstanding 615,745
shares (pro forma none)................. 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 (pro
forma 3,229,230 shares)................. 25 25 25 32
Additional paid-in capital............... 6,423 6,431 7,166 7,185
Accumulated deficit...................... (864) (1,444) (1,817) (1,817)
------- ------- ------- -------
Total stockholders' equity............ 5,610 5,038 5,400 5,400
------- ------- ------- -------
$14,476 $15,844 $14,686 $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 on a product-by-product basis.
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. The Company sells customer premises
systems through certain strategic alliance relationships. In these instances,
revenues are recognized at the time of shipment to the strategic alliance's
customer, however, the Company does not have any future obligations related to
these types of sales. 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 for certain database and document services customers.
Progress billings in excess of accumulated project costs are shown as a
current liability. These customers' contracts generally cover periods from one
to six months. 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
F-8
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
(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, in the
opinion of management, include all adjustments, consisting only of normal
recurring adjustments, necessary for a fair presentation of the consolidated
financial information set forth therein. The results for the three months
ended June 30, 1996 are not necessarily indicative of the results that may be
expected for the year ending March 31, 1997.
F-9
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(p) Unaudited Interim Pro Forma Financial Information
The unaudited interim pro forma financial information as of June 30, 1996
gives effect to the conversion of all outstanding preferred stock into 751,160
shares of common stock.
(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 customer ceased business
with the Company in November 1995.
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>
F-10
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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.
(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>
F-11
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(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
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>
F-12
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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.
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>
F-13
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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>
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
F-14
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
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 non-assessable share of common stock, adjusted for any stock splits (see
Note 15), stock dividends, or similar adjustments in the Company's capital
stock.
-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.
F-15
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
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.
(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% (with an effective
interest rate of 19.25%) 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>
GLOSSARY
ACTIVEX/OLE CONTROLS ENVIRONMENT--Software conforming to Microsoft standards
that extends the functionality of software tools supporting such extensions to
develop application software for the Microsoft Windows operating system.
ActiveX is the Internet name for OLE Controls (OCX). With various software
development tools, one can write an ActiveX control. An ActiveX control gives
one the ability to have any Web-browsing client actively execute one's
application as it visits the Website.
"BEST OF CLASS" TECHNOLOGIES--Technologies that generally offer superior
performance, feature functionality and quality than most other competitive
products.
CLIENT/SERVER INTERFACES--Technology that allows a computer to access and
update data stored in relational databases attached to a computer network.
COMPUTER TELEPHONY HARDWARE BOARDS--Computer hardware that permits computer
software to communicate with a user device over a telephone line.
CONNECTIVITY HARDWARE--Computer hardware that allows computer software to
communicate with other computers.
CORPORATE INTRANET--A company's computer network which allows users to access,
share and update information using an Internet server and Internet browser
software on the user's computer.
CT (COMPUTER TELEPHONY)--Computer telephony applies computer intelligence to
telecommunications devices with the basic goals of improving customer service
and enhancing corporate productivity.
CTI (COMPUTER TELEPHONY INTEGRATION)--The connection of a computer and a
telephone system to allow information from the telephone system to be passed
to the computer system and for the computer system to control the telephone
system.
DELPHI--An object-oriented software development tool that supports Microsoft's
ActiveX/OLE Controls for creating applications for Microsoft's Windows
operating system.
DIAL-UP BROWSER SOFTWARE--Internet software normally used to communicate over
the Internet's World Wide Web with enhancements to allow the software to
substitute a telephone line for an Internet/Intranet connection to a TALXWare
server.
DIAL-UP ACCESS--The use of a computer, a telephone line and a modem to dial
another computer system for the purpose of establishing a connection between
the two computers.
DNIS (DIALED NUMBER IDENTIFICATION SERVICES)--The telephone number dialed by a
caller.
DSP (DIGITAL SIGNAL PROCESSORS)--A computer chip designed for processing
digital information such as audio, video, and computer communications.
E-MAIL--ELECTRONIC MAIL--The capability of sending and receiving written
communications through a computer network.
EASYSCRIPT--The TALX developed object-oriented visual development environment
used by TALX and its licensed customers to create, modify and maintain
interactive communications applications.
EDI (ELECTRONIC DATA INTERCHANGE) TRANSACTION--Computer to computer
communications which complete transactions using pre-defined formats.
GUI (GRAPHICAL USER INTERFACE)--Software that allows users to control
computers by using a mouse to select the desired function from a three-
dimensional image shown on the computer screen.
G-1
<PAGE>
IBM OS/2 OPERATING SYSTEM--IBM's graphical multi-tasking software that
controls the basic functions of a personal computer.
INTERACTIVE COMMUNICATIONS--The use of technologies that allow users realtime
access to information stored in databases from a variety of devices such as
telephones, computers and fax machines.
INTERNET--a world-wide computer network.
IVR (INTERACTIVE VOICE RESPONSE)--A computer system that enables routine
information retrieval and transactions via the touch-tone telephone.
LOTUS NOTES--A groupware software product that allows computer users to share
information.
MICROSOFT WINDOWS NT OPERATING SYSTEM--Microsoft's graphical multi-tasking
software that controls the basic functions of a personal computer.
NMS PLATFORM--Computer telephone hardware installed by Natural Micro Systems
that when installed in a computer enables software on the computer to accept
touch-tone inputs and play pre-recorded messages over telephone lines.
OLE (OBJECT LINKING AND EMBEDDING)--A unified environment of object-based
services with the capability of both customizing those services and extending
the architecture through custom services, with the overall purpose of enabling
integration between components.
POWERBUILDER--A software development tool that supports Microsoft's
ActiveX/OLE Controls for creating applications for Microsoft's Windows
operating system.
SOFTWARE DRIVERS--Computer programs that control the functions of computer
hardware, other than the main CPU (central processing unit).
SOFTWARE SUITES--A collection of integrated software applications that
automate a number of tasks for the user.
TALXWARE RUNTIME--System software that enables a user to interact with an
application.
TALX VP/2000 PLATFORM--TALX computer telephony hardware that enables computer
software to accept touch-tone inputs, play pre-recorded messages and interact
with users using a variety of optional interactive communications technologies
with a telephone line.
TALXWARE--The complete set of TALX interactive communications system software.
TDD (TELEPHONE DEVICE FOR THE DEAF)--A specialized device that allows deaf
users to communicate using the public telephone network.
TEXT-TO-SPEECH--Technology that allows a computer to convert electronically
stored documents into computer generated voice.
THE WORK NUMBER FOR EVERYONE--A TALX national service providing automated
employment and salary verification to mortgage lenders and other verifiers.
VISUAL BASIC--A software development tool that supports Microsoft's
ActiveX/OLE Controls for creating applications for Microsoft's Windows
operating system.
VISUAL C++--A software development tool that supports Microsoft's ActiveX/OLE
Controls for creating applications for Microsoft's Windows operating system.
VOICE RECOGNITION--Technology that allows a user to control a computer using
spoken commands and inputs.
WORLD WIDE WEB--A feature of the Internet that allows users to access text,
graphics, audio and visual information using standards-based software called
browsers.
G-2
<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.................................................................. 33
Management................................................................ 48
Certain Relationships and Related Transactions............................ 54
Principal Shareholders.................................................... 56
Shares Eligible for Future Sale........................................... 57
Description of Capital Stock.............................................. 58
Certain Charter and Bylaw Provisions...................................... 60
Certain United States Federal Income Tax Considerations for Non-U.S.
Holders.................................................................. 61
Underwriting.............................................................. 63
Legal Matters............................................................. 65
Experts................................................................... 65
Additional Information.................................................... 65
Index to Consolidated Financial Statements................................ F-1
Glossary.................................................................. G-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
TALX
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............................... 30,598
Printing and Engraving Expenses.................................. 150,000
Blue Sky Fees and Expenses....................................... 20,000
Registrar and Transfer Agent Fees................................ 10,000
Legal Fees and Expenses.......................................... 250,000
Accounting Fees and Expenses..................................... 100,000
D&O Insurance.................................................... 200,000
Miscellaneous ................................................... 77,646
--------
Total........................................................ $850,000
========
</TABLE>
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
individual. 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. 2 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 October 7, 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.
2 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 October 7, 1996
____________________________________ Executive Officer and
William W. Canfield Director (Principal
Executive Officer)
* Director October 7, 1996
____________________________________
Richard F. Ford
* Director October 7, 1996
____________________________________
Craig E. LaBarge
* Director October 7, 1996
____________________________________
Eugene M. Toombs
* Director October 7, 1996
____________________________________
M. Steve Yoakum
* Chief Financial Officer October 7, 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>
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 Intentionally Omitted
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
10.21 Form of Employment Agreement between TALX Corporation and Mr.
Canfield
10.22 Form of Employment Agreement between TALX Corporation and Mr.
Tubbesing
10.23 Form of Employment Agreement between TALX Corporation and Mr.
Smith
10.24 Form of Employment Agreement between TALX Corporation and Mr.
Cohen
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
II-6
<PAGE>
EXHIBIT 1.1
2,000,000 SHARES/1/
TALX CORPORATION
COMMON STOCK
UNDERWRITING AGREEMENT
----------------------
OCTOBER __, 1996
FIRST ALBANY CORPORATION
PRINCIPAL FINANCIAL SECURITIES, INC.
As Representatives of the several
Underwriters named in Schedule I hereto
c/o First Albany Corporation
30 South Pearl Street
Albany, New York 12207
Gentlemen:
TALX Corporation, a Missouri corporation (the "Company"), proposes to sell
to the several Underwriters named in Schedule I hereto (the "Underwriters") an
aggregate of 2,000,000 shares (the "Firm Shares") of Common Stock, $0.01 par
value (the "Common Stock"), of the Company. In addition, the Company has granted
to the several Underwriters an option to purchase up to 300,000 additional
shares of Common Stock, on the terms and for the purposes set forth in Section 3
hereof (such 300,000 shares being referred to hereinafter as the "Option
Shares"). The Firm Shares and any Option Shares purchased pursuant to this
Underwriting Agreement are herein collectively called the "Securities."
References to the "Company" herein, unless the context requires otherwise, refer
to the Company and its subsidiaries as a consolidated operation.
The Company hereby confirms its agreement with respect to the sale of the
Securities to the several Underwriters, for whom you are acting as
Representatives (the "Representatives").
1. Registration Statement. A registration statement on Form S-1 (File
No. 333-________) with respect to the Securities, including a prospectus subject
to completion, has been prepared by the Company in conformity with the
requirements of the Securities Act of 1933, as amended (the "Act"), and the
rules and regulations ("Rules and Regulations") of the Securities and Exchange
Commission (the "Commission") thereunder and has been filed with the Commission;
such amendments to such registration statement, such amended prospectuses
subject to completion and such abbreviated registration statements pursuant to
Rule 462(b) of the Rules and Regulations as may have been required prior to the
date hereof have been similarly prepared and filed with the Commission; and the
Company will file such additional amendments to the registration statement, such
amended prospectuses subject to completion and such abbreviated registration
statements as may hereafter be required. Copies of such registration statement
and
- --------------------------------
/1/ Plus an option to purchase up to 300,000 additional shares to cover
over-allotments.
-1-
<PAGE>
amendments, of each related prospectus subject to completion sent or given to
any person prior to the effective date of such registration statement, including
all documents incorporated by reference therein, and of any abbreviated
registration statement filed pursuant to Rule 462(b) have been delivered to you.
If the registration statement relating to the Securities has been
declared effective under the Act by the Commission, the Company will, pursuant
to Rule 424(b) of the Rules and Regulations or by means of a post-effective
amendment to the registration statement that includes a final form of
prospectus, prepare and promptly file with the Commission the information
omitted from the registration statement pursuant to Rule 430A(a) of the Rules
and Regulations or, if First Albany Corporation, on behalf of the several
Underwriters, shall have agreed to the utilization of a term sheet pursuant to
and satisfying the requirements of Rule 434 of the Rules and Regulations ("Term
Sheet"), the information required to be included in such Term Sheet. If the
registration statement relating to the Securities has not been declared
effective under the Act by the Commission, the Company will prepare and promptly
file an amendment to the registration statement, including a final form of
prospectus, or, if First Albany Corporation, on behalf of the several
Underwriters, shall have agreed to the utilization of a Term Sheet, including
the information required to be included in such Term Sheet. The Company will
file any such Term Sheet with the Commission in a timely manner pursuant to Rule
424(b). The term "Registration Statement" as used herein shall mean such
registration statement, including financial statements, schedules and exhibits,
in the form in which it became or becomes, as the case may be, effective
(including, if the Company omitted information from the registration statement
pursuant to Rule 430A(a) or if the Company utilizes a Term Sheet, the
information deemed to be a part of the registration statement at the time it
became effective pursuant to Rule 430A(b) or Rule 434(d)) and, in the event of
any amendment thereto or the filing of any abbreviated registration statement
pursuant to Rule 462(b) relating thereto after the effective date of such
registration statement, shall also mean (from and after the effectiveness of
such amendment or the filing of such abbreviated registration statement) such
registration statement as so amended, together with any such abbreviated
registration statement. The term "Prospectus" as used herein shall mean the
prospectus relating to the Securities included in the Registration Statement at
the time it became or becomes, as the case may be, effective (including, if the
Company omitted information from the Registration Statement pursuant to Rule
430A(a), the information deemed to be a part of the Registration Statement at
the time it became effective pursuant to Rule 430A(b)); provided, however, that
if in reliance on Rule 434 and with the consent of First Albany Corporation, on
behalf of the several Underwriters, the Company shall have provided to the
Underwriters for use in connection with the offering of the Securities a Term
Sheet, the term "Prospectus" shall mean the "prospectus subject to completion"
(as defined in Rule 434(g)) last provided to the Underwriters by the Company and
circulated by the Underwriters to all prospective purchasers of the Securities,
together with such Term Sheet (including the information deemed to be a part of
the Registration Statement at the time it became effective pursuant to Rule
434(d)). Notwithstanding the foregoing, if any revised prospectus shall be
provided to the Underwriters by the Company for use in connection with the
offering of the Securities that differs from the prospectus referred to in the
immediately preceding sentence (whether or not such revised prospectus is
required to be filed with the Commission pursuant to Rule 424(b)), the term
"Prospectus" shall refer to such revised prospectus from and after the time it
is first provided to the Underwriters for such use. If in reliance on Rule 434
and with the consent of First Albany Corporation, on behalf of the several
Underwriters, the Company shall have provided to the Underwriters for use in
connection with the offering of the Securities a Term Sheet, the Prospectus and
the Term Sheet, taken together, will not be materially different from the
prospectus in the Registration Statement. The term "Preliminary Prospectus" as
used herein means (i) any prospectus subject to completion included in the
Registration Statement prior to the time it became or becomes, as the case may
be, effective under the Act, except that if any prospectus subject to completion
filed by the Company with the Commission pursuant to Rule 424(a) or any other
prospectus subject to completion provided to the Underwriters by the Company for
-2-
<PAGE>
use in connection with the offering of the Securities (whether or not required
to be filed by the Company with the Commission pursuant to Rule 424(a)) differs
from the prospectus subject to completion included in the Registration Statement
prior to the time it became or becomes, as the case may be, effective under the
Act, the term "Preliminary Prospectus" shall refer to such differing prospectus
subject to completion from and after the time such prospectus subject to
completion is filed with the Commission or transmitted to the Commission for
filing pursuant to Rule 424(a) or from and after the time it is first provided
to the Underwriters by the Company for such use, and (ii) any prospectus subject
to completion as described in Rule 430A or Rule 434(g).
2. Representations and Warranties of the Company.
---------------------------------------------
(a) The Company represents and warrants to, and agrees with, the
several Underwriters as follows:
(i) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission and each Preliminary Prospectus, at
the time of filing thereof (or, if not filed, at the time it is first provided
to the Underwriters by the Company for use in connection with the offering of
the Securities), did not contain an untrue statement of a material fact or omit
to state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading; except that the foregoing shall not apply to statements in
or omissions from any Preliminary Prospectus in reliance upon, and in conformity
with, written information furnished to the Company by or on behalf of you, or by
or on behalf of any Underwriter through you, specifically for use in the
preparation thereof.
(ii) As of the time the Registration Statement (or any post-
effective amendment thereto) is or was declared effective by the Commission,
upon the filing or first delivery to the Underwriters of the Prospectus (or any
supplement to the Prospectus) and at the First Closing Date and Second Closing
Date (as hereinafter defined), (A) the Registration Statement and Prospectus (in
each case, as so amended and/or supplemented) will conform or conformed in all
material respects to the requirements of the Act and the Rules and Regulations,
(B) the Registration Statement (as so amended) will not or did not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading,
and (C) the Prospectus (as so supplemented) will not or did not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein, in light of the
circumstances in which they are or were made, not misleading; except that the
foregoing shall not apply to statements in or omissions from any such document
in reliance upon, and in conformity with, written information furnished to the
Company by or on behalf of you, or by or on behalf of any Underwriter through
you, specifically for use in the preparation thereof. If the Registration
Statement has been declared effective by the Commission, no stop order
suspending the effectiveness of the Registration Statement has been issued, and
no proceeding for that purpose has been initiated or, to the Company's
knowledge, threatened by the Commission.
(iii) The consolidated financial statements of the Company,
together with the notes thereto, set forth in the Registration Statement and
Prospectus comply in all material respects with the requirements of the Act and
fairly present the financial condition of the Company as of the dates indicated
and the results of operations and changes in stockholders' equity and cash flows
for the periods therein specified in conformity with generally accepted
accounting principles as in effect in the United States consistently applied
throughout the periods involved (except as otherwise stated therein); and the
supporting schedules, if any, included in the Registration Statement present
fairly the information required to be stated
-3-
<PAGE>
therein. No other financial statements or schedules are required to be included
in the Registration Statement or Prospectus. KPMG Peat Marwick LLP, who have
expressed their opinion with respect to the financial statements and schedules
filed as a part of the Registration Statement and included in the Registration
Statement and Prospectus, are independent public accountants as required by the
Act and the Rules and Regulations. The summary financial and statistical data
included in the Registration Statement fairly present the information shown
therein and, in the case of such information and data relating to the Company,
have been compiled on a basis consistent with the financial statements presented
in the Registration Statement or otherwise on the basis stated therein.
(iv) Each of the Company and its subsidiaries has been duly
organized and is validly existing as a corporation in good standing under the
laws of its jurisdiction of incorporation. Each of the Company and its
subsidiaries has full corporate power and authority to own, lease and operate
its properties and conduct its business as currently being carried on and as
described in the Registration Statement and Prospectus, and is duly qualified to
do business as a foreign corporation in good standing in each domestic and
foreign jurisdiction in which it owns or leases real property or in which the
conduct of its business makes such qualification necessary and in which the
failure to so qualify could have a material adverse effect upon the business,
prospects, condition (financial or otherwise) or properties of the Company and
its subsidiaries, taken as a whole or taken with respect to the Company
exclusive of the database and document services businesses of the Company (a
"Material Adverse Effect").
(v) Except as expressly contemplated in the Prospectus,
subsequent to the respective dates as of which information is given in the
Registration Statement and the Prospectus, neither the Company nor its
subsidiaries have incurred any liabilities or obligations, direct or contingent,
or entered into any material transactions, that in any such case are material to
the Company and its subsidiaries taken as a whole or to the Company exclusive of
the database and document services businesses of the Company, or declared or
paid any dividends or made any distribution of any kind with respect to its
capital stock; and there has not been any change in the capital stock (other
than a change in the number of outstanding shares of Common Stock due to the
issuance of shares upon the exercise of options or warrants outstanding as of
the date the Registration Statement was filed), or any material change in the
consolidated short-term or long-term debt, or any issuance of (or amendment to
or change in the terms of) options, warrants, convertible securities or other
rights to purchase the capital stock, of the Company or its subsidiaries, or any
Material Adverse Effect, or any development likely to involve a prospective
Material Adverse Effect. An amendment to or change in the terms of an employee
stock option that does not change the vesting schedule, exercise price or number
of shares underlying such option (a "Non-Material Employee Option Amendment")
shall not be a breach of the representation contained in the preceding sentence.
To the knowledge of the Company, the Company has no material contingent
obligations which are not disclosed in the Registration Statement, as it may be
amended or supplemented.
(vi) Except as set forth in the Prospectus, there is not pending
or, to the knowledge of the Company, threatened or contemplated, any action,
suit or proceeding to which the Company or its subsidiaries or, to the best
knowledge of the Company after due inquiry, any of its or their officers or
directors, is a party before or by any domestic or foreign court or governmental
agency, authority or body, or any arbitrator, which might result in any Material
Adverse Effect or prevent the consummation of the transactions contemplated
hereby.
(vii) There are no contracts or documents of the Company or its
subsidiaries that are required to be described in the Prospectus or filed as
exhibits to the Registration Statement by the Act or by the Rules and
Regulations that have not been accurately described in all material respects or
so filed.
-4-
<PAGE>
(viii) This Agreement and the Warrant Agreement (as defined in
Section 4(a)(i) below) have been duly authorized, executed and delivered by the
Company, and each constitutes a valid, legal and binding obligation of the
Company, enforceable against the Company in accordance with its terms. The
execution, delivery and performance of this Agreement and the Warrant Agreement
and the consummation of the transactions herein and therein contemplated will
not result in a breach or violation of any of the terms and provisions of, or
constitute a default under, any statute, any material agreement or instrument to
which the Company is a party or by which it is bound or to which any of its
property is subject, the Company's Restated Articles of Incorporation or by-
laws, or any order, rule, regulation or decree of any court or governmental
agency or body having jurisdiction over the Company or any of its properties; no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body is required for the execution, delivery and
performance of this Agreement and the Warrant Agreement or for the consummation
of the transactions contemplated hereby or thereby, including the issuance or
sale of the Securities and the Warrants by the Company, except such as may be
required under any blue sky or state securities laws or regulations applicable
to the public offering of Common Stock by the several Underwriters contemplated
hereby ("Blue Sky Laws"), or the by-laws or rules of the National Association of
Securities Dealers, Inc. ("NASD") relating to the corporate financing
arrangements applicable to the transactions contemplated hereby; and the Company
has full corporate power and authority to enter into this Agreement and to
authorize, issue and sell the Securities as contemplated by this Agreement.
(ix) All of the issued and outstanding shares of capital stock of
the Company, including the outstanding shares of Common Stock, are duly
authorized and validly issued, fully paid and nonassessable, have been issued in
all material respects in compliance with all federal and state securities laws
and were not issued in violation of or subject to any preemptive rights, rights
of first refusal or other rights to subscribe for or purchase securities; the
Securities which may be sold hereunder by the Company have been duly authorized
and, when issued, delivered and paid for in accordance with the terms hereof,
will have been duly and validly issued and will be fully paid and nonassessable;
and the capital stock of the Company, including the Common Stock, and any
outstanding rights to acquire the capital stock of the Company, conform in all
material respects to the descriptions thereof in the Registration Statement and
Prospectus (and the Registration Statement and the Prospectus correctly state
and describe in all material respects the substance of the instruments defining
the capital stock of the Company and such rights, to the extent required).
Except as described in the Prospectus, there are no preemptive rights, rights of
first refusal or other rights to subscribe for or to purchase, or any
restriction upon the voting or transfer of, any shares of Common Stock pursuant
to the Company's Restated Articles of Incorporation, by-laws or any material
agreement or other instrument to which the Company is a party or by which the
Company is bound. Neither the filing of the Registration Statement nor the
offering or sale of the Securities as contemplated by this Agreement gives rise
(after giving effect to any waivers or rights which may have been executed) to
any rights for or relating to (i) the inclusion and registration in the
Registration Statement of any shares of Common Stock or other security of the
Company or (ii) except as disclosed in the Registration Statement, the
registration of any shares of Common Stock or other securities of the Company on
a future registration statement to be filed under the Act by the Company. No
person or entity has a right of participation or first refusal with respect to
the sale of the Securities by the Company. All of the issued and outstanding
shares of capital stock of the Company's subsidiaries have been duly and validly
authorized and issued and are fully paid and nonassessable, and the Company owns
of record and beneficially, free and clear of any security interests, claims,
liens, proxies, equities or other encumbrances, all of the issued and
outstanding shares of such stock. Except as described in the Registration
Statement and the Prospectus, there are no options, warrants, agreements,
contracts or other rights in existence to purchase or acquire from the Company
or any subsidiary of the Company any shares of the capital stock of the Company
or any
-5-
<PAGE>
subsidiary of the Company. The Company has an authorized and outstanding
capitalization as set forth in the Registration Statement and the Prospectus.
(x) The Warrants (as defined in Section 4(a)(i) below) will conform
to the description thereof in the Prospectus and, when sold to and paid for by
the Representatives in accordance with the Warrant Agreement, will be duly
authorized and validly issued and will be valid and binding obligations of the
Company entitled to all the benefits of the Warrant Agreement. The Warrant
Shares (as defined in Section 4(a)(i) below) will be duly authorized and
reserved for issuance upon exercise of the Warrants and, when issued upon such
exercise in accordance with the terms of the Warrants and the Warrant Agreement,
will be duly and validly issued, fully paid and nonassessable, free of
preemptive rights and will conform to the description thereof in the Prospectus.
(xi) Each of the Company and its subsidiaries holds, and is operating
in compliance in all material respects with, all franchises, grants,
authorizations, licenses, permits, easements, consents, certificates and orders
of any governmental or self-regulatory body required for the conduct of its
business and all such franchises, grants, authorizations, licenses, permits,
easements, consents, certifications and orders that are material to the conduct
of its business are valid and in full force and effect; and neither the Company
nor its subsidiaries has been advised, or has reason to believe, that it is not
in compliance with all applicable federal, state, local and foreign laws,
regulations, orders and decrees, except, in any of the foregoing cases, where
the failure to be so in compliance would not have a Material Adverse Effect.
(xii) The Company and its subsidiaries have good and marketable title
to all property and assets described in the Registration Statement and
Prospectus as being owned by them, in each case free and clear of all liens,
claims, security interests or other encumbrances except such as (i) are
described in the Registration Statement and the Prospectus or (ii) are not
material in amount and could not give rise to a Material Adverse Effect; the
property held under lease by the Company and its subsidiaries is held by them
under valid, subsisting and enforceable leases with only such exceptions with
respect to any particular lease as do not interfere in any material respect with
the conduct of the business of the Company or its subsidiaries; and the
agreements to which the Company is a party described in the Registration
Statement and Prospectus are valid agreements, enforceable by the Company and
its subsidiaries (as applicable), except as the enforcement thereof may be
limited by applicable bankruptcy, insolvency, reorganization, moratorium or
other similar laws relating to or affecting creditors' rights generally or by
general equitable principles and, to the Company's knowledge, the other
contracting party or parties thereto are not in material breach or material
default under any of such agreements.
(xiii) Each of the Company and its subsidiaries owns or possesses
adequate rights to use all patents, patent applications, trademarks, service
marks, trade names, trademark registrations, service mark registrations,
copyrights, licenses, inventions, know-how, trade secrets and rights
("Intellectual Property") necessary for the conduct of the business of the
Company and its subsidiaries as currently carried on and as proposed to be
carried on and as described in the Registration Statement and Prospectus,
including the Intellectual Property described or referred to in the Prospectus
as being owned or used by the Company or its subsidiaries. Except as stated in
the Registration Statement and Prospectus, no activity engaged in by, and no
aspect of the business of, the Company or its subsidiaries uses or involves or
gives rise to any infringement of, or license or similar fees for, any
Intellectual Property or other similar rights of others; and neither the Company
nor its subsidiaries have received any notice alleging any such infringement or
that any such fee is due which could be expected to have a Material Adverse
Effect. No executive officer of the Company or, to the knowledge of the
Company, no other officer or employee of the Company or officer or employee of
any of its subsidiaries is obligated under any contract or subject to any
-6-
<PAGE>
judgment, decree or order of any court or administrative agency that would
interfere in any material respect with the use of such person's best efforts to
promote the interests of the Company and its subsidiaries or which would
conflict in any material respect with the business of the Company and its
subsidiaries as described in the Registration Statement. No prior or subsequent
employer of any executive officer of the Company or, to the knowledge of the
Company, no prior or subsequent employer of any other officer or employee of the
Company or officer or employee of any of its subsidiaries, has any right to or
interest in any inventions, improvements, discoveries or other information
assigned to or owned by the Company or its subsidiaries.
(xiv) Neither the Company nor its subsidiaries is in violation of its
respective charter or by-laws or in breach of or otherwise in default in the
performance of any material obligation, agreement or condition contained in any
bond, debenture, note, indenture, loan agreement or any other material contract,
lease or other instrument to which it is subject or by which any of them may be
bound, or to which any of the material property or assets of the Company or its
subsidiaries is subject.
(xv) The Company and its subsidiaries have filed on a timely basis
all federal, state, local and foreign income, franchise and other tax returns
required to be filed (or timely filed for extensions thereof) and are not in
default in the payment of any taxes which were payable pursuant to said returns
or any assessments with respect thereto, and the Company has no knowledge of any
tax penalties or other deficiency that has been or might be asserted against the
Company or any subsidiary which could have a Material Adverse Effect; all tax
liabilities are adequately provided for in all material respects on the books of
the Company.
(xvi) The Company has not distributed and will not distribute any
prospectus or other offering material in connection with the offering and sale
of the Securities other than any Preliminary Prospectus or the Prospectus or
other materials permitted by the Act.
(xvii) The Company has filed a registration statement pursuant to
Section 12(g) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), to register the Common Stock, has filed an application to list the
Securities and the Warrant Shares on the Nasdaq National Market and has received
notification that such listing application has been approved, subject to notice
of issuance of the Securities.
(xviii) Other than its wholly owned subsidiaries, TALX Information
Services Corporation and TALX Document Services Corporation and TALX Ltd., the
Company owns no capital stock or other equity or ownership or proprietary
interest in any corporation, partnership, association, trust or other entity.
(xix) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorization; (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles applied
on a consistent basis and to maintain accountability for assets; (iii) access to
assets is permitted only in accordance with management's general or specific
authorization; and (iv) the recorded accountability for assets is compared with
existing assets at reasonable intervals and appropriate action is promptly taken
with respect to any differences.
(xx) Other than as expressly contemplated by this Agreement, the
Company has not incurred and will not incur any liability for any finder's or
broker's fee or agent's commission in
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connection with the execution and delivery of this Agreement or the consummation
of the transactions contemplated hereby.
(xxi) The Company and its subsidiaries maintain property, liability
and other insurance of the types and in the amounts reasonably deemed by the
Company to be adequate for their respective businesses and to be consistent with
insurance coverage maintained by similar companies in similar business,
including, but not limited to, insurance covering real and personal property
owned or leased by the Company or its subsidiaries against theft, damage,
destruction, acts of vandalism and all other risks customarily insured against,
all of which insurance is in full force and effect.
(xxii) The Company and its subsidiaries are not involved in any labor
dispute or disturbance nor, to the knowledge of the Company, is any such dispute
or disturbance threatened, except, in either case, with respect to the matters
set forth on Schedule II hereto. The Company has provided the Representatives
or their counsel with all correspondence and memoranda relating to the matters
set forth on Schedule II.
(xxiii) The Company has been advised concerning the Investment
Company Act of 1940, as amended (the "1940 Act"), and the rules and regulations
thereunder, and has in the past conducted, and intends in the future to conduct,
its affairs in such a manner as to ensure that it will not become an "investment
company" within the meaning of the 1940 Act and such rules and regulations.
(xxiv) Neither the Company nor its subsidiaries have at any time, (i)
made any unlawful contribution to any candidate for foreign office, or failed to
disclose fully any contribution in violation of law, or (ii) made any payment to
any federal or state governmental officer of official, or other person charged
with similar public or quasi-public duties, other than payments required or
permitted by the laws of the United States or any jurisdiction thereof.
(xxv) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might reasonably be expected to cause
or result in stabilization or manipulation of the price of the Common Stock, to
facilitate the sale or resale of the Securities.
(xxvi) Each director and executive officer of the Company, and each
holder of capital stock of the Company who is listed on Schedule V hereto, has
executed and delivered to the Representatives a letter in the form attached
hereto as Schedule VI. The Company has given or will give prior to the Closing
Date stop transfer instructions to the Company's transfer agent with respect to
the shares of Common Stock held by such persons.
(xxvii) The Company has complied with all provisions of Section
517.075, Florida Statutes relating to doing business with the Government of Cuba
or with any person or affiliate located in Cuba.
3. Purchase, Sale and Delivery of Securities.
-----------------------------------------
(a) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company agrees to issue and sell the Firm Shares to the several Underwriters,
and each Underwriter agrees, severally and not jointly, to purchase from the
Company the number of Firm Shares set forth opposite the name of such
Underwriter in Schedule I hereto. The purchase price for each Firm Share shall
be $_____ per share. In making this
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Agreement, each Underwriter is contracting severally and not jointly; except as
provided in paragraph (c) of this Section 3 and in Section 8 hereof, the
agreement of each Underwriter is to purchase only the respective number of Firm
Shares specified in Schedule I.
Delivery of definitive certificates for the Firm Shares to be
purchased by the Underwriters pursuant to this Section 3 and for the Warrants
shall be made against payment of the purchase price therefor by the several
underwriters (or by the Representatives in the case of the warrants) by
certified or official bank check or other next day funds payable to the order of
the Company, at the offices of First Albany Corporation, 30 South Pearl Street,
Albany, New York 12207 or such other location as may be mutually acceptable, at
9:00 a.m., New York time, (a) if this Agreement is executed and delivered after
4:30 p.m., New York time, on the fourth (4th) full business day following the
day that this Agreement is executed and delivered, (b) if clause (a) of this
sentence is inapplicable, then on the third (3rd) full business day following
the first day on which the Securities are traded (or at such time and date to
which payment and delivery shall have been postponed pursuant to Section 8
hereof), such time and date of delivery being herein referred to as the "First
Closing Date"; provided, however, that if the Company has not made available to
the Representatives copies of the Prospectus within the time provided in Section
4(a)(vi) hereof, the Representatives may, in their sole discretion, postpone the
First Closing Date until no later than two (2) full business days following
delivery of copies of the Prospectus to the Representatives. The certificates
for the Firm Shares and the Warrants, in definitive form and in such
denominations and registered in such names as you may request upon at least
three (3) business days' prior notice to the Company and the Custodian, will be
made available for checking and packaging at the offices of First Albany
Corporation, 30 South Pearl Street, Albany, New York 12207 or such other
location as may be mutually acceptable, at least one (1) business day prior to
the First Closing Date. If the Representatives so elect, delivery of the Firm
Shares may be made by credit through full fast transfer to the accounts at the
Depository Trust Company designated by the Representatives.
(b) On the basis of the representations, warranties and agreements
herein contained, but subject to the terms and conditions herein set forth, the
Company hereby grants to the several Underwriters an option to purchase all or
any portion of the Option Shares at the same purchase price as the Firm Shares,
for use solely in covering any over-allotments made by the Underwriters in the
sale and distribution of the Firm Shares. The option granted hereunder may be
exercised at any time (but not more than once) within 30 days after the
effective date of this Agreement upon written notice by the Representatives to
the Company setting forth the aggregate number of Option Shares as to which the
several Underwriters are exercising the option, the names and denominations in
which the certificates for the Option Shares are to be registered and the date
and time, as determined by you, when the Option Shares are to be delivered, such
time and date being herein referred to as the "Second Closing" and "Second
Closing Date," respectively; provided, however, that the Second Closing Date
shall not be earlier than the First Closing Date nor earlier than the third
(3rd) business day after the date on which the option shall have been exercised.
If the option granted hereunder is exercised, the number of Option Shares to be
purchased by each Underwriter shall be the same percentage of the total number
of Option Shares to be purchased by the several Underwriters as the number of
Firm Shares to be purchased by such Underwriter is of the total number of Firm
Shares to be purchased by the several Underwriters, as adjusted by the
Representatives in such manner as the Representatives deem advisable to avoid
fractional shares. You, as Representatives of the several Underwriters, may
cancel such option at any time prior to its expiration by giving written notice
of such cancellation to the Company. No Option Shares shall be sold and
delivered unless the Firm Shares previously have been, or simultaneously are,
sold and delivered.
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The Option Shares will be delivered to you for the accounts of the
several Underwriters against payment of the purchase price therefor by certified
or official bank check or other next day funds payable to the order of the
Company at the offices of First Albany Corporation, 30 South Pearl Street,
Albany, New York 12207 or such other location as may be mutually acceptable at
9:00 a.m. on the Second Closing Date. The Option Shares in definitive form and
in such denominations and registered in such names as you have set forth in your
notice of option exercise, will be made available for checking and packaging at
the office of First Albany Corporation, 30 South Pearl Street, Albany, New York
12207 or such other location as may be mutually acceptable, at least one (1)
business day prior to the Second Closing Date. If the Representatives so elect,
delivery of the Option Shares may be made by credit through full fast transfer
to the accounts of The Depositary Trust Company designated by the
Representatives.
(c) It is understood that you, individually and not as Representatives
of the several Underwriters, may (but shall not be obligated to) make payment to
the Company on behalf of any Underwriter for the Securities to be purchased by
such Underwriter. Any such payment by you shall not relieve any such
Underwriter of any of its obligations hereunder. Nothing herein contained shall
constitute any of the Underwriters an unincorporated association or partner with
the Company.
(d) The Representatives shall advise the Company if the distribution
of the Securities is complete upon a written request by the Company for such
information made at any time following the tenth business day after the earlier
of (i) the exercise of the option described in Section 3(b) or (ii) the
expiration of the period during which such option can be exercised.
4. Covenants.
---------
(a) The Company covenants and agrees with the several Underwriters as
follows:
(i) At the Closing Date, the Company will further issue and sell
to the Representatives or, at their direction, to their bona fide officers or
partners, as described below, for a total purchase price of $______ warrants
(the "Warrants") entitling the holders thereof to purchase up to an aggregate of
100,000 shares of Common Stock (subject to adjustment) (the "Warrant Shares")
for a period of four (4) years, such period to commence one year after the
effective date of the Registration Statement (except as otherwise set forth in
the Warrant Agreement referred to below). Said Warrants shall contain terms and
provisions set forth in the Warrant Agreement of even date among the Company and
the Representatives (the "Warrant Agreement"). As provided in the Warrant
Agreement, the Representatives may designate that some of all of the Warrants be
issued in varying amounts directly to their bona fide officers or partners and
not to the Representatives. Such designation will be made by the Representatives
only if they determine that such issuances would not violate the rules and
interpretations of the Board of Governors of the NASD relating to the review of
corporate financing arrangements and subject to applicable federal and state
securities laws. As further provided, no transfer, assignment or hypothecation
of the Warrants shall be made by the Representatives for a period of 12 months
from the issuance of the Warrants, except to their respective bona fide officers
or partners and subject to applicable federal and state securities laws.
(ii) The Company will use its best efforts to cause the
Registration Statement and any amendment thereof, if not effective at the time
and date that this Agreement is executed and delivered by the parties hereto, to
become effective as promptly as possible; the Company will use its best efforts
to cause any abbreviated registration statement filed pursuant to Rule 462(b) as
may be required subsequent to the date the Registration Statement is declared
effective to become effective as promptly as possible; the
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<PAGE>
Company will notify you, promptly after it shall receive notice thereof, of the
time when the Registration Statement, any subsequent amendment to the
Registration Statement or any abbreviated registration statement has become
effective or any supplement to the Prospectus has been filed; if the Company
omitted information from the Registration Statement at the time it was
originally declared effective in reliance upon Rule 430A of the Rules and
Regulations, the Company will provide evidence reasonably satisfactory to you
that the Prospectus contains such information and has been filed, within the
time period prescribed, with the Commission pursuant to Rule 424(b) or as part
of a post-effective amendment to such Registration Statement as originally
declared effective which is declared effective by the Commission; if the Company
utilizes a Term Sheet, the Company will provide evidence reasonably satisfactory
to you that the Prospectus and Term Sheet meeting the requirements of Rule 434
have been filed within the time period prescribed, with the Commission pursuant
to Rule 424(b); if for any reason the filing of the final form of Prospectus is
required under Rule 424(b), it will provide evidence satisfactory to you that
that Prospectus contains such information as may be required by Rule 424(b) and
the Rules and Regulations and has been filed with the Commission within the time
period prescribed; it will notify you promptly of any request by the Commission
for the amending or supplementing of the Registration Statement or the
Prospectus or for additional information; promptly upon your request, it will
prepare and file with the Commission any amendments or supplements to the
Registration Statement or Prospectus which, in your reasonable opinion, may be
necessary or advisable in connection with the distribution of the Securities by
the Underwriters; it will promptly prepare and file with the Commission, and
promptly notify you of the filing of, any amendments or supplements to the
Registration Statement or Prospectus which may be necessary to correct any
statements or omissions, if, at any time when a prospectus relating to the
Securities is required to be delivered under the Act, any event shall have
occurred as a result of which the Prospectus or any other prospectus relating to
the Securities as then in effect would include any untrue statement of a
material fact or omit to state a material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading; and it will file no amendment or supplement to the Registration
Statement or Prospectus which shall not previously have been submitted to you a
reasonable time prior to the proposed filing thereof or to which you shall
reasonably object in writing, subject, however to compliance with the Act and
the Rules and Regulations, and the provisions of this Agreement.
(iii) The Company will advise you, promptly after it shall receive
notice or obtain knowledge thereof, of the issuance by the Commission of any
stop order suspending the effectiveness of the Registration Statement or
suspending the use of the Prospectus, of the suspension of the qualification of
the Securities for offering or sale in any jurisdiction, or of the initiation or
threatening of any proceeding for any such purpose; and the Company will
promptly use its best efforts to prevent the issuance of any stop order or to
obtain its withdrawal at the earliest possible moment if such a stop order
should be issued.
(iv) Within the time during which a prospectus relating to the
Securities is required to be delivered under the Act, the Company will comply
with all requirements imposed upon it by the Act, as now and hereafter amended,
and by the Rules and Regulations, as from time to time in force, so far as
necessary to permit the continuance of sales of or dealings in the Securities as
contemplated by the provisions hereof and the Prospectus. If during such period
any event occurs as a result of which the Prospectus or any other prospectus
relating to the Securities as then in effect would include an untrue statement
of a material fact or omit to state a material fact necessary to make the
statements therein, in the light of the circumstances then existing, not
misleading, or if during such period it is necessary to amend the Registration
Statement or supplement the Prospectus to comply with the Act, the Company will
promptly notify you and will promptly amend the Registration Statement or
supplement the Prospectus (at the expense of the Company) so as to correct such
statement or omission or effect such compliance.
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<PAGE>
(v) The Company will use its best efforts in cooperation with you
to qualify the Securities for offering and sale under the securities laws of
such jurisdictions as you reasonably designate and to continue such
qualifications in effect so long as required for the distribution of the
Securities, except that the Company shall not be required in connection
therewith to qualify as a foreign corporation or to execute a general consent to
service of process in any state.
(vi) The Company will furnish to the Underwriters, as soon as
available, and, in the case of the Prospectus and any Term Sheet, in no event
later than the first full business day following the first day that the
Securities are traded, copies of the Registration Statement (one of which will
be manually signed and will include all exhibits), each Preliminary Prospectus,
the Prospectus, and all amendments and supplements to such documents, in each
case in such quantities as you may from time to time reasonably request.
Notwithstanding the foregoing, if First Albany Corporation, on behalf of the
several Underwriters, shall agree to the utilization of a Term Sheet, the
Company shall provide to you copies of the Preliminary Prospectus updated in all
respects through the date specified by you in such quantities as you may from
time to time reasonably request.
(vii) During a period of five (5) years commencing with the date
hereof, the Company will furnish to the Representatives if requested in writing,
and to each Underwriter who may so request in writing, copies of all periodic
and special reports furnished to the stockholders of the Company and all
information, documents and reports filed with the Commission, the NASD, the
Nasdaq National Market or any securities exchange if such report, information or
document is not available to the public via the Commission's Internet web site.
(viii) The Company will make generally available to its security
holders as soon as reasonably practicable, but in any event not later than the
45th day after the end of the fiscal quarter of the Company first occurring
after the first anniversary of the effective date of the Registration Statement
(or not later than the 90th day after the end of such fiscal quarter, if such
quarter is the Company's fourth fiscal quarter), an earnings statement (which
will be in reasonable detail but need not be audited) covering a 12-month period
beginning after the effective date of the Registration Statement that shall
satisfy the provisions of Section 11(a) of the Act and Rule 158 of the Rules and
Regulations and will advise you in writing when such statement has been made
available.
(ix) The Company, whether or not the transactions contemplated
hereunder are consummated or this Agreement is prevented from becoming effective
under the provisions of Section 9 hereof or is terminated, will pay or cause to
be paid (A) all expenses (including transfer taxes allocated to the respective
transferees) incurred in connection with the delivery to the Underwriters of the
Securities, (B) all expenses and fees (including, without limitation, fees and
expenses of the Company's accountants and counsel but, except as otherwise
provided below, not including fees of the Underwriters' counsel) in connection
with the preparation, printing, filing, delivery, and shipping of the
Registration Statement (including the financial statements therein and all
amendments, schedules, and exhibits thereto), the Securities, each Preliminary
Prospectus, the Prospectus, any Term Sheet and any amendment thereof or
supplement to any of the foregoing, and the photocopying, delivery, and shipping
of this Agreement, the Agreement Among Underwriters, the Selected Dealer
Agreement, the Preliminary Blue Sky Survey and any Supplemental Blue Sky Survey,
the Underwriters' Questionnaire and Power of Attorney, and any instruments or
documents related to any of the foregoing, (C) all filing fees and reasonable
fees and disbursements of the Underwriters' counsel incurred in connection with
the qualification of the Securities for offering and sale by the Underwriters or
by dealers under the securities or blue sky laws of the states and other
jurisdictions which you shall designate in accordance with Section 4(a)(v)
hereof (such fees of
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counsel not to exceed $20,000), (D) the fees and expenses of any transfer agent
or registrar, (E) the filing fees incident to any required review by NASD of the
terms of the sale of the Securities, (F) listing fees, if any, and (G) all other
costs and expenses incident to the performance of its obligations hereunder that
are not otherwise specifically provided for herein. The Company will, in
addition to the expenses payable pursuant to the previous sentence, pay to the
Representatives a non-accountable expense allowance equal to $100,000, such
allowance to be paid on the Closing Date by certified or bank cashier's check
or, at the election of the Representatives, by deduction from the proceeds of
the offering contemplated herein. If the sale of the Securities provided for
herein is not consummated pursuant to a termination under Section 9 hereof, or
by reason of any failure, refusal or inability on the part of the Company to
perform any agreement on its or their part to be performed, or because any other
condition of the Underwriters' obligations hereunder is not fulfilled, or
because the Company otherwise terminates the offering, the Company will
reimburse the several Underwriters for all out-of-pocket expenses and other
disbursements (including reasonable fees and disbursements of counsel) incurred
by the Underwriters in an amount not to exceed $150,000 in connection with their
investigation, preparing to market and marketing the Securities or in
contemplation of performing their obligations hereunder. The Company shall not
in any event be liable to any of the Underwriters for loss of anticipated
profits from the transactions covered by this Agreement.
(x) The Company will apply the net proceeds from the sale of the
Securities to be sold by it hereunder for the purposes set forth in the
Prospectus under "Use of Proceeds" and will file such reports with the
Commission with respect to the sale of the Securities and the application of the
proceeds therefrom as may be required by the Rules and Regulations. Without
limiting the foregoing, on the First Closing Date the Company shall,
contemporaneous with the closing of the purchase of the Shares, use the proceeds
from such sale to repay in full the principal and all accrued interest on that
certain Secured Promissory Note dated June 28, 1996 in the principal amount of
$4,000,000 (as the same or interests therein may have been assigned to one or
more parties).
(xi) The Company will not, for a period of 180 days after the
commencement of the public offering of the Securities by the Underwriters,
without the prior written consent of First Albany Corporation on behalf of
itself and the other Representatives, offer for sale, sell, contract to sell,
grant any option for the sale of or otherwise issue or dispose of any Common
Stock or any securities convertible into or exchangeable for, or any options or
rights to purchase or acquire, Common Stock, except (i) to the Underwriters
pursuant to this Agreement, (ii) to the holders of options granted under the
Company's 1988 or 1994 Stock Option Plans (the "Plans"), (iii) pursuant to the
Company's 1996 employee stock purchase plan, (iv) to the holders of options,
warrants or convertible preferred stock outstanding as of the date hereof upon
the exercise or conversion of such securities, or (v) in connection with a
private acquisition of assets or property in which the acquiror of such shares
of Common Stock agrees to be bound by such restrictions, provided that prior
notice of such transaction is given to the Representatives and they are
reasonably satisfied that the acquiror of such shares will be so bound. The
Company will not, without the prior written consent of First Albany Corporation
on behalf of itself and the other Representatives, grant any new option under
the Plans or any similar plan (including the Outside Directors' Stock Option
Plan) which becomes exercisable during such 180 day period.
(xii) The Company has not taken and will not take, directly or
indirectly, any action designed to or which constitutes the stabilization or
manipulation of the price of any security of the Company, to facilitate the sale
or resale of the Securities.
(xiii) If at any time during the 90-day period after the
Registration Statement becomes effective, any rumor, publication or event
relating to or affecting the Company shall occur as a
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result of which in your opinion the market price of the Common Stock has been or
is likely to be materially affected (regardless of whether such rumor,
publication or event necessitates a supplement to or amendment of the
Prospectus), the Company will after written notice from you advising the Company
to the effect set forth above, forthwith prepare, consult with you concerning
the substance of, and disseminate a press release or other public statement,
reasonably satisfactory to you, responding to or commenting on such rumor,
publication or event.
(xiv) The Company will have engaged, prior to the Closing Date,
Boatmen's Trust Company, St. Louis, Missouri, or another institution reasonably
satisfactory to the Representatives, to act as transfer agent and registrar for
a period of time following the Closing Date.
(xv) During a period of 180 days from the effective date of the
Registration Statement, the Company will not, without the consent of First
Albany Corporation, file a registration statement under the Act except for any
registration statement registering shares under any of the Plans or any other
employee benefit plan.
5. Conditions of Underwriters' Obligations. The obligations of the
several Underwriters hereunder are subject to the accuracy of, as of the date
hereof and at each of the First Closing Date and the Second Closing Date (as if
made at such Closing Date), as the case may be, and compliance with, all
representations, warranties and agreements of the Company contained herein, to
the performance by the Company of its obligations hereunder and to the following
additional conditions:
(a) The Registration Statement shall have become effective not later
than 2:00 p.m., New York time, on the date of this Agreement, or such later time
and date as First Albany on its own behalf and on behalf of the other
Representatives of the several Underwriters, shall approve, and all filings
required by Rule 424 and Rule 430A of the Rules and Regulations shall have been
timely made; no stop order suspending the effectiveness of the Registration
Statement or any amendment thereof shall have been issued; no proceedings for
the issuance of such an order shall have been initiated or threatened; and any
request of the Commission for additional information (to be included in the
Registration Statement or the Prospectus or otherwise) shall have been complied
with to your satisfaction.
(b) No Underwriter shall have advised the Company that the
Registration Statement or the Prospectus, or any amendment thereof or supplement
thereto, contains an untrue statement of fact which, in your opinion, is
material, or omits to state a fact which, in your reasonable opinion, is
material and is required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
(c) Except as expressly contemplated in the Prospectus, subsequent to
the respective dates as of which information is given in the Registration
Statement and the Prospectus, neither the Company nor its subsidiaries shall
have incurred any liabilities or obligations, direct or contingent, that are
material to the Company and its subsidiaries taken as a whole or to the Company
exclusive of the database and document services businesses of the Company, or
entered into any transactions that are material to the Company and its
subsidiaries taken as a whole or to the Company exclusive of the database and
document services businesses of the Company, or declared or paid any dividends
or made any distribution of any kind with respect to its capital stock; and,
except as contemplated by the Registration Statement and Prospectus, there shall
not have been any change in the capital stock (other than a change in the number
of outstanding shares of Common Stock due to the issuance of shares upon the
exercise of options or warrants outstanding as of the date the Registration
Statement was filed), or any material change in the consolidated short-term or
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long-term debt of the Company, or any issuance of (or, other than a Non-Material
Employee Option Amendment, as defined in Section 2(a)(v) hereof, any amendment
to or change in the terms of) options, warrants, convertible securities or other
rights to purchase the capital stock of the Company or its subsidiaries, or any
material adverse change or any development likely to involve a prospective
material adverse change (whether or not arising in the ordinary course of
business), in the general affairs, condition (financial or otherwise), business,
key personnel, property, prospects, net worth or results of operations of the
Company and its subsidiaries, taken as a whole, that, in your judgment, makes it
impractical or inadvisable to offer or deliver the Securities on the terms and
in the manner contemplated in the Prospectus.
(d) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, the opinion of Bryan Cave LLP,
special counsel for the Company, dated such Closing Date and addressed to you,
to the effect set forth in Schedule IV hereof:
(e) On each Closing Date, there shall have been furnished to you, as
Representatives of the several Underwriters, such opinion or opinions from
Goodwin, Procter & Hoar LLP, counsel for the several Underwriters, dated such
Closing Date and addressed to you, with respect to such matters as you
reasonably may request, and such counsel shall have received such papers and
information as they request to enable them to pass upon such matters.
(f) On each Closing Date you, as Representatives of the several
Underwriters, shall have received a letter of KPMG Peat Marwick LLP, dated such
Closing Date and addressed to you, confirming that they are independent public
accountants within the meaning of the Act and are in compliance with the
applicable requirements relating to the qualifications of accountants under Rule
2-01 of Regulation S-X of the Commission, and stating, as of the date of such
letter (or, with respect to matters involving changes or developments since the
respective dates as of which specified financial information is given in the
Prospectus, as of a date not more than five (5) days prior to the date of such
letter), the conclusions and findings of said firm with respect to the financial
information and other matters covered by its letter delivered to you
concurrently with the execution of this Agreement, and the effect of the letter
so to be delivered on such Closing Date shall be to confirm the conclusions and
findings set forth in such prior letter. All such letters shall be in a form
reasonably satisfactory to the Representatives and counsel thereto.
(g) On each Closing Date, there shall have been furnished to you, as
Representatives of the Underwriters, a certificate, dated such Closing Date and
addressed to you, signed by the chief executive officer and by the chief
financial officer of the Company acting in such capacity as such an officer of
the Company, to the effect that (and you shall be reasonably satisfied that as
of such date):
(i) The representations and warranties of the Company in this
Agreement are true and correct as if made at and as of such Closing Date, and
the Company has complied with all the agreements and satisfied all the
conditions on its part to be performed or satisfied at or prior to such Closing
Date;
(ii) The Registration Statement has become effective and no stop
order or other order suspending the effectiveness of the Registration Statement
or any amendment thereof or the qualification of the Securities for offering or
sale has been issued, and no proceeding for that purpose has been instituted or,
to the best of their knowledge, is contemplated by the Commission or any state
or regulatory body; and
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(iii) The signers of said certificate have carefully examined the
Registration Statement and the Prospectus, and any amendments thereof or
supplements thereto, and (A) such documents contain all statements and
information required to be included therein, the Registration Statement, or any
amendment thereof, does not contain any untrue statement of a material fact or
omit to state any material fact required to be stated therein or necessary to
make the statements therein not misleading, and the Prospectus, as amended or
supplemented, does not include any untrue statement of material fact or omit to
state a material fact necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, (B) since the
effective date of the Registration Statement there has occurred no event
required to be set forth in an amended or supplemented prospectus which has not
been so set forth, (C) subsequent to the respective dates as of which
information is given in the Registration Statement and the Prospectus, neither
the Company nor its subsidiaries has incurred any liabilities or obligations,
direct or contingent, or entered into any transactions, that in any such case
are material to the Company and its subsidiaries taken as a whole or to the
Company exclusive of its database and document services business or that are not
in the ordinary course of business, or declared or paid any dividends or made
any distribution of any kind with respect to its capital stock, and except as
contemplated by the Prospectus, there has not been any change in the capital
stock (other than a change in the number of outstanding shares of Common Stock
due to the issuance of shares upon the exercise of options or warrants
outstanding as of the date the Registration Statement was filed), or any
material change in the consolidated short-term or long-term debt, or any
issuance of (or, other than a Non-Material Employee Option Amendment, any
amendment to or change in the terms of) options, warrants, convertible
securities or other rights to purchase the capital stock, of the Company or its
subsidiaries, or any Material Adverse Effect, and (D) except as stated in the
Registration Statement and the Prospectus, there is not pending, or, to the
knowledge of the Company, threatened or contemplated, any action, suit or
proceeding to which the Company or its subsidiaries is a party before or by any
court or governmental agency, authority or body, or any arbitrator, which might
result in any Material Adverse Effect.
(h) The Company shall have furnished to you and counsel for the
Underwriters such additional documents and certificates and evidence as you or
they may have reasonably requested.
(i) The Securities shall be approved for listing, subject to notice of
official issuance, on the Nasdaq National Market.
All such opinions, certificates, letters and other documents will be
in compliance with the provisions hereof only if they are satisfactory in form
and substance to you and counsel for the Underwriters. The Company will furnish
you with such conformed copies of such opinions, certificates, letters and other
documents as you shall reasonably request.
If any of the conditions hereinabove provided for in this Section 5
shall not have been fulfilled when and as required by this Agreement to be
fulfilled, the obligations of the Underwriters hereunder may be terminated by
the Representatives by notifying the Company and the Selling Stockholders of
such termination in writing or by telegram at or prior to the Closing Date or
the Option Closing Date, as the case may be.
In such event, the Company and the Underwriters shall not be under any
obligation to each other (except to the extent provided in Sections 4(a)(ix) and
6 hereof).
6. Indemnification and Contribution.
--------------------------------
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(a) The Company agrees to indemnify and hold harmless each Underwriter
and each person, if any, who controls any Underwriter within the meaning of the
Act against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter or such controlling person may become subject under the
Act or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) arise out of or are based upon (i)
any breach of any representation, warranty, covenant or agreement of the Company
herein contained, (ii) any untrue statement or alleged untrue statement of any
material fact contained in the Registration Statement, any Preliminary
Prospectus, the Prospectus or any amendment or supplement thereto, or (iii) the
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein in light of the
circumstances under which they were made not misleading, and will reimburse each
Underwriter and each such controlling person for any legal or other expenses
reasonably incurred by such Underwriter or such controlling person in connection
with investigating or defending any such loss, claim, damage, liability, action
or proceeding; provided, however, that (i) the Company will not be liable in any
such case to the extent that any such loss, claim, damage or liability arises
out of or is based upon an untrue statement or alleged untrue statement or
omission or alleged omission made in the Registration Statement, any Preliminary
Prospectus, the Prospectus, or such amendment or supplement, in reliance upon
and in conformity with written information furnished to the Company by or on
behalf of or through the Representatives specifically for use in the preparation
thereof, and (ii) the indemnity obligation contained in this paragraph (a) with
respect to any Preliminary Prospectus shall not inure to the benefit of any
Underwriter from whom the person asserting any such losses, claims, damages or
liabilities purchased the Securities which are the subject thereof (or to the
benefit of any person controlling such Underwriter) if at or prior to the
written confirmation of the sale of such Securities a copy of the Prospectus (or
the Prospectus as amended or supplemented) was not sent or delivered to such
person and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with Section 4(a)(vi) hereof. This indemnity agreement will be in
addition to any liability which the Company may otherwise have.
(b) Each Underwriter will indemnify and hold harmless the Company,
each of its directors, each of its officers who have signed the Registration
Statement and each person, if any, who controls the Company within the meaning
of the Act, against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act or otherwise, insofar as such losses, claims, damages or
liabilities (or actions or proceedings in respect thereof) arise out of or are
based upon any untrue statement or alleged untrue statement of any material fact
contained in the Registration Statement, any Preliminary Prospectus, the
Prospectus or any amendment or supplement thereto, or arise out of or are based
upon the omission or the alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein in the
light of the circumstances under which they were made not misleading; and will
reimburse any legal or other expenses reasonably incurred by the Company or any
such director, officer or controlling person in connection with investigating or
defending any such loss, claim, damage, liability, action or proceeding;
provided, however, that each Underwriter will be liable in each case to the
extent, but only to the extent, that such untrue statement or alleged untrue
statement or omission or alleged omission has been made in the Registration
Statement, any Preliminary Prospectus, the Prospectus or such amendment or
supplement, in reliance upon and in conformity with written information
furnished to the Company by or on behalf of or through the Representatives
specifically for use in the preparation thereof.
(c) In case any proceeding (including any governmental investigation)
shall be instituted involving any person in respect of which indemnity may be
sought pursuant to this Section 6, such
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person (the "indemnified party") shall promptly notify the person against whom
such indemnity may be sought (the "indemnifying party") in writing. No
indemnification provided for in Section 6(a) or (b) shall be available to any
party who shall fail to give notice as provided in this Section 6(c) if the
party to whom notice was not given was unaware of the proceeding to which such
notice would have related and was substantially prejudiced by the failure to
give such notice, but the failure to give such notice shall not relieve the
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of the
provisions of Section 6(a) or (b). In case any such proceeding shall be brought
against any indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it shall wish, jointly with any other
indemnifying party similarly notified, to assume the defense thereof, with
counsel reasonably satisfactory to such indemnified party and shall pay as
incurred the fees and disbursements of such counsel related to such proceeding.
In any such proceeding, any indemnified party shall have the right to retain its
own counsel at its own expense. Notwithstanding the foregoing, the indemnifying
party shall pay as incurred the fees and expenses of the counsel retained by the
indemnified party in the event (i) the indemnifying party and the indemnified
party shall have mutually agreed in writing to the retention of such counsel or
(ii) the named parties to any such proceeding (including any impleaded parties)
include both the indemnifying party and the indemnified party and the
indemnified party shall have reasonably concluded that there may be legal
defenses available to it and/or other indemnified parties which are different
from or additional to those available to the indemnifying party or that
representation of both parties by the same counsel would be inappropriate due to
actual or potential differing interests between them. It is understood that the
indemnifying party shall not, in connection with any proceeding or related
proceedings in the same jurisdiction, be liable for the reasonable fees and
expenses of more than one separate firm for all such indemnified parties. Such
firm shall be designated in writing by you in the case of parties indemnified
pursuant to Section 6(a) and by the Company in the case of parties indemnified
pursuant to Section 6(b). The indemnifying party shall not be liable for any
settlement of any proceeding effected without its written consent but if settled
with such consent or if there be a final judgment for the plaintiff, the
indemnifying party agrees to indemnify the indemnified party to the extent
provided herein from and against any loss or liability by reason of such
settlement or judgment.
(d) If the indemnification provided for in this Section 6 is
unavailable to or insufficient to hold harmless an indemnified party under
Section 6(a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions or proceedings in respect thereof), then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of the losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) referred to in Section 6(a) or (b)
above in such proportion as is appropriate to reflect the relative benefits
received by the Company on the one hand and the Underwriters on the other from
the offering of the Securities. If, however, the allocation provided by the
immediately preceding sentence is not permitted by applicable law or if the
indemnified party failed to give the notice required under Section 6(c) above,
then each indemnifying party shall contribute to such amount paid or payable by
such indemnified party in such proportion as is appropriate to reflect not only
such relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company on the
one hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering (before deducting
expenses) received by the Company bear to the total underwriting discounts and
commissions received by the Underwriters, in each case as set forth in the table
on the cover page of the Prospectus. The relative fault shall be determined by
reference to, among other things, whether the untrue or alleged untrue statement
of a material fact or the omission or alleged omission to state a material fact
relates to information
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supplied by the Company on the one hand or the Underwriters on the other and the
parties' relative intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission.
The Company and the Underwriters agree that it would not be just and
equitable if contributions pursuant to this Section 6(d) were determined by pro
rata allocation (even if the Underwriters were treated as an entity for such
purpose) or by any other method of allocation which does not take account of the
equitable considerations referred to above in this Section 6(d). The amount
paid or payable by an indemnified party as a result of the losses, claims,
damages or liabilities (or actions or proceedings in respect thereof) referred
to above in this Section 6(d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigating or defending any such action or claim. Notwithstanding the
provisions of this Section 6(d), (i) no Underwriter shall be required to
contribute any amount in excess of the underwriting discounts and commissions
applicable to the shares purchased by such Underwriter, and (ii) no person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Act) shall be entitled to contribution from any person who was not guilty of
such fraudulent misrepresentation. The Underwriters' obligations in this
Section 6(d) to contribute are several in proportion to their respective
underwriting obligations and not joint.
(e) The parties to this Agreement hereby acknowledge that they are
sophisticated business persons who were represented by counsel during the
negotiations regarding the provisions hereof, including without limitation the
provisions of this Section 6, and are fully informed regarding such provisions.
They further acknowledge that the provisions of this Section 6 fairly allocate
the risks in light of the ability of the parties to investigate the Company and
its business in order to assure that adequate disclosure is made in the
Registration Statement, any Preliminary Prospectus, the Prospectus and any
Supplement or amendment thereto, as required by the Act.
7. Representations, Warranties and Agreements to Survive Delivery. All
representations, warranties, and agreements of the Company herein or in
certificates delivered pursuant hereto, and the agreements of the several
Underwriters and the Company contained in Section 6 hereof, shall remain
operative and in full force and effect regardless of any investigation made by
or on behalf of any Underwriter or any controlling person thereof, or the
Company or any of its officers, directors, or controlling persons, and shall
survive delivery of, and payment for, the Securities to and by the Underwriters
hereunder.
8. Substitution of Underwriters.
----------------------------
(a) If on the First Closing Date or the Second Closing Date, as the
case may be, any Underwriter or Underwriters shall fail to take up and pay for
the amount of the Securities agreed by such Underwriter or Underwriters to be
purchased hereunder upon tender of the Securities in accordance with the terms
hereof (otherwise than by reason of any default on the part of the Company),
you, as Representatives of the Underwriters, shall use your best efforts to
procure within 24 hours thereafter one or more of the other Underwriters, or any
others, to purchase from the Company such amounts as may be agreed upon and upon
the terms set forth herein, the Firm Shares or Option Shares, as the case may
be, which the defaulting Underwriter or Underwriters failed to purchase.
(b) If during such 24 hours you, as such Representatives, shall not
have procured such other Underwriters, or any others, to purchase the Firm
Shares or Option Shares, as the case may be, agreed to be purchased by the
defaulting Underwriter or Underwriters, then (i) if the aggregate number of
shares with respect to which such default shall occur does not exceed 10% of the
Firm Shares or Option
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<PAGE>
Shares, as the case may be, covered hereby, the other Underwriters shall be
obligated, severally, in proportion to the respective numbers of Firm Shares or
Option Shares, as the case may be, which they are obligated to purchase
hereunder, to purchase the Firm Shares or Option Shares, as the case may be,
which such defaulting Underwriter or Underwriters failed to purchase, or (ii) if
the aggregate number of shares of Firm Shares or Option Shares, as the case may
be, with respect to which such default shall occur exceeds 10% of the Firm
Shares or Option Shares, as the case may be, covered hereby, the Company or you
as the Representatives of the Underwriters will have the right, by written
notice given within the next 24-hour period to the parties to this Agreement, to
terminate this Agreement. In the event of any such termination the Company
shall not be under any liability to any Underwriter (except to the extent
provided in Section 4(a)(ix) and Section 6 hereof) nor shall any Underwriter
(other than an Underwriter who shall have failed, otherwise than for some reason
permitted under this Agreement, to purchase the amount of Firm Shares or Option
Shares, as the case may be, agreed by such Underwriter to be purchased
hereunder, which Underwriter shall remain liable to the Company and the other
Underwriters for damages, if any, resulting from such default) be under any
liability to the Company (except to the extent provided in Section 6 hereof).
If Firm Shares or Option Shares, as the case may be, to which a
default relates are to be purchased by the non-defaulting Underwriters or by any
other party or parties, the Representatives or the Company shall have the right
to postpone the First Closing Date or the Second Closing Date, as the case may
be, for not more than seven (7) business days in order that the necessary
changes in the Registration Statement, Prospectus and any other documents, as
well as any other arrangements, may be effected. As used herein, the term
"Underwriter" includes any person substituted for an Underwriter under this
Section 6.
9. Effective Date of this Agreement and Termination.
------------------------------------------------
(a) This Agreement shall become effective at 10:00 a.m., New York
time, on the first full business day following the effective date of the
Registration Statement, or at such earlier time after the effective time of the
Registration Statement as you in your discretion shall first release the
Securities for sale to the public; provided, that if the Registration Statement
is effective at the time this Agreement is executed, this Agreement shall become
effective at such time as you in your discretion shall first release the
Securities for sale to the public. For the purpose of this Section, the
Securities shall be deemed to have been released for sale to the public upon
release by you of the publication of a newspaper advertisement relating thereto
or upon release by you of telexes offering the Securities for sale to securities
dealers, whichever shall first occur. By giving notice as hereinafter specified
before the time this Agreement becomes effective, you, as Representatives of the
several Underwriters, or the Company may prevent this Agreement from becoming
effective without liability of any party to any other party, except that the
provisions of Section 4(a)(ix) and Section 6 hereof shall at all times be
effective.
(b) You, as Representatives of the several Underwriters, shall have
the right to terminate this Agreement by giving notice as hereinafter specified
at any time at or prior to the First Closing Date, and the option referred to in
Section 3(b), if exercised, may be canceled at any time prior to the Second
Closing Date, if (i) the Company shall have failed, refused or been unable, at
or prior to such Closing Date, to perform any agreement on its part to be
performed hereunder, (ii) any other condition of the Underwriters' obligations
hereunder is not fulfilled, (iii) since the respective dates as of which
information is given in the Registration Statement and the Prospectus, there
shall have occurred any material adverse change or any development likely to
involve a prospective material adverse change in or affecting the condition,
financial or otherwise, of the Company and its subsidiaries, taken as a whole,
or the earnings, business affairs, management, or business prospects of the
Company and its subsidiaries, taken as a whole,
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<PAGE>
in each case whether or not arising in the ordinary course of business, (iv) any
federal or state statute, regulation, rule or order of any court or other
governmental authority shall have been enacted, published, decreed or otherwise
promulgated which in your reasonable opinion materially and adversely affects or
will materially and adversely affect the business or operations of the Company
or its subsidiaries, (v) trading on the New York Stock Exchange or the Nasdaq
National Market shall have been wholly suspended, (vi) minimum or maximum prices
for trading shall have been fixed, or maximum ranges for prices for securities
shall have been required, on the New York Stock Exchange or the Nasdaq National
Market, by such Exchange or Market or by order of the Commission or any other
governmental authority having jurisdiction, (vii) a banking moratorium shall
have been declared by federal or New York or Missouri authorities, or (viii)
there has occurred any material adverse change in the financial markets in the
United States or an outbreak of major hostilities (or an escalation thereof) in
which the United States is involved, a declaration of war by Congress, any other
substantial national calamity or any other event or occurrence of a similar
character shall have occurred since the execution of this Agreement that, in
your judgment, makes it impractical or inadvisable to proceed with the
completion of the sale of and payment for the Securities. Any such termination
shall be without liability of any party to any other party except that the
provisions of Section 4(a)(ix) and Section 6 hereof shall at all times be
effective.
(c) If you elect to prevent this Agreement from becoming effective or
to terminate this Agreement as provided in this Section, the Company shall be
notified promptly by you by telephone or telegram, confirmed by letter. If the
Company elects to prevent this Agreement from becoming effective, you shall be
notified by the Company by telephone or telegram, confirmed by letter.
No action taken pursuant to this Section shall relieve the Company so
defaulting from liability, if any, in respect of such default.
10. Information Furnished by Underwriters. The statements set forth in
(i) footnote number one to the table and the first sentence of footnote number
three to the table, and (ii) in the last paragraph, in each case of the cover
page (to the extent related to the Underwriters) of any Preliminary Prospectus
and the Prospectus; in the stabilization legend on page 2 of the Preliminary
Prospectus and the Prospectus; and under the caption "Underwriting" in any
Preliminary Prospectus and in the Prospectus constitute the only written
information furnished by or on behalf of the Underwriters referred to in Section
2 and Section 6 hereof.
11. Actions on behalf of Others. In all dealings hereunder, you as the
Representatives of the several Underwriters shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by any of you on behalf of you as the Representatives.
12. Notices. Except as otherwise provided herein, all communications
hereunder shall be in writing or by telegraph and, if to the Underwriters, shall
be mailed, telegraphed or delivered to the Representatives c/o First Albany
Corporation, 30 South Pearl Street, 12th Floor, Albany, New York 12207 (with a
copy to Goodwin, Procter & Hoar LLP, Exchange Place, Boston, Massachusetts
02109, Attn: Stuart M. Cable, Esq.), except that notices given to an
Underwriter pursuant to Section 6 hereof shall be sent to the Representatives on
behalf of such Underwriter or, if the Representatives have advised the Company
in writing of an address for such Underwriter, to such Underwriter at such
address; if to the Company, shall be mailed, telegraphed or delivered to it at
1850 Borman Court, St. Louis, Missouri 63146, Attention: William W. Canfield,
President and Chief Executive Officer (with a copy to Bryan Cave LLP, One
Metropolitan Square, 211 North Broadway, St. Louis, Missouri 63102, Attn:
Walter L. Metcalfe, Jr.,
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Esq.) All notices given by telegram shall be promptly confirmed by letter. Any
party to this Agreement may change such address for notices by sending to the
parties to this Agreement written notice of a new address for such purpose.
13. Persons Entitled to Benefit of Agreement. This Agreement shall inure
to the benefit of and be binding upon the parties hereto and their respective
successors and assigns and the controlling persons, officers and directors
referred to in Section 6. Nothing in this Agreement is intended or shall be
construed to give to any other person, firm or corporation any legal or
equitable remedy or claim under or in respect of this Agreement or any provision
herein contained. The term "successors and assigns" as herein used shall not
include any purchaser, as such purchaser, of any of the Securities from any of
the several Underwriters.
14. Governing Law. This Agreement shall be governed and construed in
accordance with the substantive laws of the State of New York (without regard to
its choice of law rules).
15. Counterparts. This Agreement may be signed in several counterparts,
each of which will constitute an original.
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<PAGE>
Please sign and return to the Company the enclosed duplicates of this
Agreement whereupon this letter will become a binding agreement between the
Company and the several Underwriters in accordance with its terms.
Very truly yours,
TALX CORPORATION
By:___________________________________
Name: William W. Canfield
Chairman, President and Chief
Executive Officer
Confirmed as of the date first above
mentioned, on behalf of themselves
and the other several Underwriters
named in Schedule II hereto.
FIRST ALBANY CORPORATION
By:
--------------------------------
Name: Oleg M. Pohotsky
Title: Senior Vice President
PRINCIPAL FINANCIAL SECURITIES, INC.
By:
--------------------------------
Name:
Title:
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SCHEDULE I
Underwriters
Underwriter Number of Firm Shares/1/
- ----------- ---------------------
____________________
/1/ The Underwriters may purchase up to an additional 300,000 Option Shares, to
the extent the option described in Section 3 of the Agreement is exercised, in
the proportions and in the manner described in the Agreement.
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SCHEDULE II
[description of non-material dispute with employee or former employee regarding
commissions]
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SCHEDULE III
Foreign Qualification
---------------------
[List]
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<PAGE>
SCHEDULE IV
Opinion of Bryan Cave LLP
-------------------------
On each Closing Date, there shall have been furnished to you, as Representatives
of the several Underwriters, the opinion of Bryan Cave LLP, special counsel for
the Company, dated such Closing Date and addressed to you, to the effect that:
(i) Each of the Company and its subsidiaries is validly existing as a
corporation in good standing under the laws of its jurisdiction of
incorporation. Each of the Company and its subsidiaries has full corporate power
and authority to own its properties and conduct its business as currently being
carried on and as described in the Registration Statement and Prospectus, and
the Company is duly qualified to do business as a foreign corporation and is in
good standing in each jurisdiction set forth on Schedule III to this Agreement.
(ii) The authorized and outstanding capital stock of the Company, and,
to the knowledge of such counsel, all securities convertible into or exercisable
for capital stock of the Company, as of the date indicated in the Prospectus, is
as set forth in the Prospectus under the caption "Capitalization," including the
footnotes to the table included under such caption; the capital stock of the
Company conforms as to legal matters to the description thereof contained in the
Prospectus under the caption "Description of Capital Stock" (it being understood
that with respect to the fair presentation of such description and whether it is
an accurate summary such counsel's opinion is limited to that set forth in
clause (vi) below). All of the issued and outstanding shares of the capital
stock of the Company have been duly authorized and validly issued and are fully
paid and nonassessable. The Securities to be issued and sold by the Company
hereunder have been duly authorized and, when issued, delivered and paid for in
accordance with the terms of this Agreement, will have been validly issued and
will be fully paid and nonassessable. The certificates for the Securities to be
issued and sold by the Company hereunder and delivered to the Underwriters are
in due and proper form and meet the requirements of the General Business and
Corporation Law of Missouri and the Nasdaq National Market. Except as described
in the Prospectus, there are no preemptive rights or other rights to subscribe
for or to purchase, or any restriction upon the voting or transfer of, any
shares of Common Stock pursuant to the Company's Restated Articles of
Incorporation, by-laws or any agreement or other instrument known to such
counsel to which the Company is a party or by which the Company is bound. To the
knowledge of such counsel, neither the filing of the Registration Statement nor
the offering or sale of the Securities as contemplated by this Agreement gives
rise to any rights for or relating to the inclusion and registration in the
Registration Statement of any shares of Common Stock or other securities of the
Company.
(iii) All of the issued and outstanding shares of capital stock of the
Company's subsidiaries have been duly and validly authorized and issued and are
fully paid and nonassessable, and, to the knowledge of such counsel, the Company
owns of record, free and clear of any security interests, claims, liens, proxies
or other encumbrances, all of the issued and outstanding shares of such stock.
(iv) The Registration Statement has become effective under the Act
and, to the knowledge of such counsel, no stop order suspending the
effectiveness of the Registration Statement has been issued and no proceeding
for that purpose has been instituted or, to the knowledge of such counsel,
threatened by the Commission; any required filing of the Prospectus and any
supplement thereto pursuant to
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<PAGE>
Rule 424(b) of the Rules and Regulations has been made in the manner and within
the time period required by Rule 424(b).
(v) The descriptions in the Registration Statement and Prospectus of
statutes, of legal and governmental proceedings, and of contracts, insofar as
such descriptions purport to summarize matters of law, are reasonable summaries
and fairly present, in all material respects, the information required to be
presented by the Act or the Rules and Regulations;
(vi) The statement in the last sentence of the first paragraph of the
Prospectus cover page, and the statements under the captions "Business --
Facilities" (first two paragraphs only), "Management -- Benefit Plans,"
"Management -- Employment Agreements," "Management --Indemnification," "Certain
Relationships and Related Transactions," "Shares Eligible for Future Sale,"
"Description of Capital Stock," "Certain Charter and Bylaw Provisions" and
"Certain United States Federal Income Tax Considerations for Non-U.S. Holders"
in the Prospectus, as well as the statements in the second paragraph under, and
in the paragraph immediately preceding, the caption "Management --Directors'
Compensation" in the Prospectus, and under the caption "Item 14. Indemnification
of Directors and Officers" in the Registration Statement, insofar as such
statements constitute a summary of documents referred to therein or of statutes
or other matters of law, are reasonable summaries and fairly present, in all
material respects, the information called for with respect to such documents and
matters.
(vii) The Company has full corporate power and authority to enter into
this Agreement and the Warrant Agreement and to issue, sell and deliver to the
several Underwriters the Securities and the Warrant Shares to be issued and sold
by it hereunder and thereunder. This Agreement and the Warrant Agreement have
been duly authorized, executed and delivered by the Company and each constitutes
a valid, legal and binding obligation of the Company and, in the case of the
Warrant Agreement, enforceable against the Company in accordance with its terms
(except (1) as such enforcement may be limited by bankruptcy, insolvency,
reorganization, receivership, moratorium, fraudulent transfer, or other similar
laws now or hereinafter in effect relating to or affecting creditors' rights
generally and by general principles of equity, (2) that the remedies of specific
performance and injunctive and other forms of relief are subject to general
equitable principles, whether such enforcement is sought at law or in equity,
and such enforcement may be subject to the discretion of the court before which
any proceedings therefor may be brought and (3) as rights to indemnity and
contribution may be limited by state or federal laws or by policies underlying
such laws); the execution, delivery and performance of this Agreement and the
Warrant Agreement and the consummation of the transactions herein and therein
contemplated will not result in a breach or violation of any of the terms and
provisions of, or constitute a default under, any statute, any rule, regulation,
license, authorization, approval or permit issued or promulgated by any
governmental agency or body having jurisdiction over the Company (which such
counsel would, in its experience, recognize as applicable) or any material
agreement or instrument known to such counsel to which the Company is a party or
by which it is bound or to which any of its property is subject, the Company's
Restated Articles of Incorporation, or by-laws, or any material order, judgment,
writ or decree known to such counsel of any court or governmental agency or body
having jurisdiction over the Company or any of its respective properties; and no
consent, approval, authorization or order of, or filing with, any court or
governmental agency or body (which such counsel would, in its experience,
recognize as applicable) is required for the execution, delivery and performance
of this Agreement and the Warrant Agreement or for the consummation of the
transactions contemplated hereby or thereby, including the issuance or sale of
the Securities and the Warrant Shares by the Company, except such as have been
obtained (specifying the same) or except such as may be required under the Act
(provided, that no opinion need be expressed in this
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<PAGE>
paragraph with respect to any Blue Sky Laws or the by-laws or rules of the NASD
applicable to the corporate finance arrangements of the transactions
contemplated hereby).
(viii) The Warrants conform to the description thereof in the
Prospectus (it being understood that with respect to the fair presentation of
such description and whether it is an accurate summary such counsel's opinion is
limited to that set forth in clause (vi) above) and have been duly authorized
and validly issued and are valid and binding obligations of the Company entitled
to all the benefits of the Warrant Agreement and are enforceable against the
Company, (except (1) as such enforcement may be limited by bankruptcy,
insolvency, reorganization, receivership, moratorium, fraudulent transfer, or
other similar laws now or hereinafter in effect relating to or affecting
creditors' rights generally and by general principles of equity, (2) that the
remedies of specific performance and injunctive and other forms of relief are
subject to general equitable principles, whether such enforcement is sought at
law or in equity, and such enforcement may be subject to the discretion of the
court before which any proceedings therefor may be brought and (3) as rights to
indemnity and contribution may be limited by state or federal laws or by
policies underlying such laws). The Warrant Shares have been duly authorized and
reserved for issuance upon exercise of the Warrants and, when issued upon such
exercise in accordance with the terms of Warrants and the Warrant Agreement,
will be duly and validly issued, fully paid and nonassessable, free of
preemptive rights and will conform to the description thereof in the Prospectus.
(ix) The Registration Statement and the Prospectus, and any amendment
thereof or supplement thereto, comply as to form in all material respects with
the requirements of the Act and the Rules and Regulations, it being understood
that such counsel need express no opinion as to the financial statements and
notes thereto, financial statement schedules and other financial, statistical
and accounting data included in any of the documents mentioned in this clause.
(x) To the knowledge of such counsel, no holders of shares of Common
Stock or other securities of the Company have registration rights with respect
to securities of the Company, other than as described in the Prospectus.
(xi) Subject to appropriate assumptions and qualifications, the
Company is not an "Investment Company" within the meaning of the Investment
Company Act of 1940, as amended, and the rules and regulations thereunder.
(xii) No sales of Common Stock completed subsequent to one year prior
to the effective date of the Registration Statement and referred to in Item 15
of the Registration Statement were made in violation of the Act, except that
insofar as the Act requires disclosure of accurate or complete information in
connection with such sales, no opinion is expressed as to such matter.
In addition to the matters set forth above, such opinion shall also include
a statement to the effect that, during such counsel's participation in the
preparation of the Registration Statement and Prospectus such counsel
participated in conferences with officers and representatives of the Company,
representatives of the independent accountants of the Company, and the
representatives of the Underwriters at which the contents of the Registration
Statement and Prospectus 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, any portion of the Registration Statement
or the Prospectus, as amended or supplemented, nothing has come to such
counsel's attention that causes such counsel to believe that, as of its date and
as of such Closing Date, the Registration Statement or any further amendment or
supplement thereto made by the Company prior to such Closing Date (other than
the financial statements and related
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<PAGE>
schedules therein and other financial, statistical and accounting data, as to
which such counsel need express no 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. Such statement shall also recite that such counsel does not know
of any statutes or legal or governmental proceedings required to be described in
the Prospectus that are not described, or of any contracts or documents of a
character required to be described in the Registration Statement or Prospectus
or included as exhibits to the Registration Statement that are not described or
so included. Such counsel shall also state that, to the knowledge of such
counsel, neither the Company nor its subsidiaries is in violation of its
respective charter or by-laws and the Company is not in breach of or otherwise
improperly in default in the performance of any material obligation, agreement
or condition contained in (i) any bond, debenture, note, contract, indenture or
loan agreement that is filed as an exhibit to the Registration Statement, or
(ii) any judgment, decree, order, statute, rule or regulation that such counsel
knows the Company or its subsidiaries is subject to. Such counsel shall further
state that such counsel knows of no pending or threatened action, suit, claim,
proceeding or investigation before any court or governmental agency or body
which would reasonably be expected to have a material adverse effect on the
Company and its subsidiaries, taken as a whole.
In rendering such opinion such counsel may rely as to matters of fact, to
the extent such counsel deems reasonable, upon certificates of officers of the
Company and its subsidiaries provided that the extent of such reliance is
specified in such opinion. Such opinions may contain reasonable and appropriate
recitals, conditions and qualifications. Such opinion shall specify that the
words "to the knowledge of such counsel" and similar language (collectively,
"knowledge qualifiers") used therein are intended to be limited to the actual
knowledge of the lawyers within such firm who gained such actual knowledge in
the course of providing substantive attention to matters on behalf of the
Company in areas relevant to the opinions being rendered therein. Such opinion
shall further state that it is further understood that, solely in connection
with the making of statements in such opinion that are qualified by knowledge
qualifiers (and without reference as to the kind of legal or document review
that such counsel may have undertaken for other purposes unrelated to the making
of such statements), such counsel has not undertaken any special audit or legal
or document review (including of documents in such counsel's possession) of the
Company and its subsidiaries.
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SCHEDULE V
Form of Lock-up Letter
----------------------
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SCHEDULE VI
Holders of Capital Stock Who Will Sign Lock-Up Letters
------------------------------------------------------
[List]
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EXHIBIT 1.2
TALX CORPORATION,
FIRST ALBANY CORPORATION
and
PRINCIPAL FINANCIAL SECURITIES, INC.
WARRANT AGREEMENT
Dated as of October __, 1996
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of October __, 1996 among TALX CORPORATION, a
Delaware corporation (the "Company"), FIRST ALBANY CORPORATION ("First Albany")
and PRINCIPAL FINANCIAL SECURITIES, INC. ("Principal"), and, together with First
Albany, the "Representatives").
The Company and the Representatives have entered into an Underwriting
Agreement of even date herewith.
The Company proposes to issue to the Representatives warrants as
hereinafter described (the "Representatives' Warrants") to purchase up to an
aggregate of 100,000 shares, subject to adjustment as hereinafter provided (the
"Shares"), of the Company's Common Stock, par value $.0l per share (the "Common
Stock").
In consideration of the premises and the mutual agreements herein set forth
and for other good and valuable consideration, the parties hereto agree as
follows:
1. Issuance of Warrants; Form of Warrant. As more fully set forth below,
the Company will issue, sell and deliver the Representatives' Warrants to the
Representatives or their bona fide officers or partners, as named by the
Representatives in accordance with Section 4(a)(i) of the Underwriting
Agreement, for an aggregate price of $______ concurrently with the closing (the
"Closing") under the Underwriting Agreement relating to the public offering,
pursuant to a registration statement on Form S-1 (File No. 333-10969) (the
"Registration Statement"), of 2,000,000 shares of Common Stock (plus an option
to purchase up to an additional 300,000 shares of Common Stock to cover over-
allotments). Specifically, at the Closing, the Company will issue, sell and
deliver (a) 50,000 of the Representatives' Warrants to First Albany or its bona
fide officers or partners for an aggregate price of $___ and (b) 50,000 of the
Representatives' Warrants to Principal or its bona fide officers or partners for
an aggregate price of $___. The form of the Representatives' Warrants shall be
substantially as set forth in Exhibit A attached hereto. The Representatives'
Warrants shall be executed on behalf of the Company by the manual or facsimile
signature of the present or any future Chairman of the Board, President or Vice
President of the Company, under its corporate seal, affixed or in facsimile,
attested by the manual or facsimile signature of the present or any future
Secretary or Assistant Secretary of the Company.
2. The Representatives' Warrants shall be numbered and shall be
registered in a Representatives' Warrant register as they are issued. The
Company shall be entitled to treat the registered holder of any Representatives'
Warrant on the Representatives' Warrant register (the "Warrant Holder") as the
owner in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Representatives' Warrant on the
part of any other person, and shall not be liable for any registration of
transfer of Representatives' Warrants which are registered or are to be
registered in the name of or at the direction of a fiduciary or the nominee of a
fiduciary unless made with the actual knowledge
<PAGE>
that a fiduciary or nominee is committing a breach of trust in requesting such
registration of transfer, or with such knowledge of such facts that its
participation therein amounts to bad faith. The Representatives' Warrants shall
be registered initially in the name of "First Albany Corporation" and "Principal
Financial Securities, Inc.", as the case may be, in such denominations as First
Albany and Principal may request in writing to the Company; provided however,
that prior to the Closing, First Albany and Principal may each designate that
their respective Representatives' Warrants be issued in varying amounts directly
to their respective bona fide officers or partners and not to each of them
directly in accordance with Section 4(a)(i) of the Underwriting Agreement. Such
designation will only be made by First Albany and Principal if they each
determine such issuances would not violate the rules and interpretations of the
Board of Governors of the National Association of Securities Dealers, Inc. (the
"NASD") relating to the review of corporate financing arrangements and subject
to applicable federal and state securities law.
3. Transfer of Warrants. The Representatives' Warrants may not be
transferred, assigned, pledged, hypothecated, sold, made subject to a security
interest, or otherwise transferred, in part or in whole, prior to the first
anniversary of the effective date of the Registration Statement (the "Effective
Date"), except to the bona fide officers or partners of the Representatives, and
subject to applicable federal and state securities law, and only on the books of
the Company upon delivery thereof duly endorsed by the Warrant Holder or by his
duly authorized attorney or representative, or accompanied by proper evidence of
succession, assignment or authority to transfer. In all cases of transfer by an
attorney, the original power of attorney, duly approved, or an official copy
thereof, duly certified, shall be deposited with the Company. In case of
transfer by executors, administrators, guardians or other legal representatives,
duly authenticated evidence of their authority shall be produced and may be
required to be deposited with the Company in its discretion. Upon any
registration of transfer, the Company shall deliver a new Representatives'
Warrant or new Representatives' Warrants to the persons entitled thereto. A
Representatives' Warrant may be exchanged at the option of the Warrant Holder
thereof for another Representatives' Warrant, or other Representatives' Warrants
of different denominations, of like tenor and representing in the aggregate the
right to purchase a like number of shares of Common Stock upon surrender to the
Company or its duly authorized agent. Notwithstanding the foregoing, the
Company shall have no obligation to cause a Representatives' Warrant to be
transferred on its books to any person unless the Warrant Holder thereof shall
furnish to the Company evidence of compliance with the Securities Act of 1933,
as amended (the "Act"), and applicable state securities law, in accordance with
the provisions of Section 10 of this Agreement.
4. Term of Warrants; Exercise of Warrants. Each Representatives' Warrant
entitles the Warrant Holder thereof to purchase one Share at a purchase price of
$[120% OF IPO PRICE] per Share (the "Exercise Price") at any time from the first
anniversary of the Effective Date (except as otherwise set forth herein) until
5:00 p.m., New York City time (the "Close of Business"), on the day immediately
preceding the fifth anniversary of the Effective Date (the "Expiration Date").
The Exercise Price and the Shares issuable upon exercise of
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<PAGE>
each Representatives' Warrant are subject to adjustment upon the occurrence of
certain events, pursuant to the provisions of Section 8 of this Agreement.
Subject to the provisions of this Agreement, each Warrant Holder shall have the
right, which may be exercised as set forth in such Representatives' Warrant, to
purchase from the Company (and the Company shall issue and sell to such Warrant
Holder) the number of fully paid and nonassessable Shares specified in such
Representatives' Warrant, upon surrender to the Company, or its duly authorized
agent, of such Representatives' Warrant, with the form of election to purchase
attached thereto duly completed and signed, with (if requested by the Company
within two business days of surrender of the Warrant with the election to
purchase) signatures guaranteed by a member firm of a national securities
exchange, a commercial bank (not a savings bank or savings and loan association)
or trust company located in the United States or a member of the NASD, and upon
payment to the Company of the Exercise Price, as adjusted in accordance with the
provisions of Section 8 of this Agreement, for the number of Shares in respect
of which such Representatives' Warrant is then exercised. Payment of such
Exercise Price may be made in cash or by check payable to the order of the
Company in the amount obtained by multiplying the number of Shares for which
such Representatives' Warrant is then being exercised by the Exercise Price then
in effect (such amount, the "Exercise Payment"), except that the Warrant Holder
may, at its option, elect to pay the Exercise Payment by cancelling a portion of
such Representatives' Warrant that is equal to the number of shares determined
by dividing the Exercise Payment by the current market price (as defined in
paragraph (d) of Section 8) of a share of Common Stock as of the date of
exercise. Except as set forth in Section 8(c), no adjustment shall be made for
any dividends on any Shares issuable upon exercise of a Representatives'
Warrant. Upon each surrender of Representatives' Warrants and payment of the
Exercise Payment as aforesaid, the Company shall issue and cause to be delivered
with all reasonable dispatch to or upon the written order of the Warrant Holder
and (subject to receipt of evidence of compliance with the Act in accordance
with the provisions of Section 10 of this Agreement) in such name or names as
such Warrant Holder may designate, a certificate or certificates for the number
of full Shares so purchased upon the exercise of such Representatives' Warrant,
together with cash, as provided in Section 9 of this Agreement, in respect of
any fractional Shares otherwise issuable upon such surrender. Such certificate
or certificates shall be deemed to have been issued, and any person so
designated to be named therein shall be deemed to have become a holder of record
of such Shares, as of the date of the surrender of such Representatives' Warrant
and payment of the Exercise Payment as aforesaid; provided, however, that if, at
the date of surrender of such Representatives' Warrant and payment of such
Exercise Payment, the transfer books for the Common Stock or other class of
stock purchasable upon the exercise of such Representatives' Warrant shall be
closed, the certificates for the Shares shall be issuable as of the date on
which such books shall next be opened (whether before, on or after the
Expiration Date) and until such date the Company shall be under no duty to
deliver any certificate for such Shares; provided further, however, that the
transfer books of record, unless otherwise required by law, shall not be closed
at any one time for a period longer than 4 days. The rights of purchase
represented by a Representatives' Warrant shall be exercisable, at the election
of the Warrant Holder thereof, either in full or from time to time in part and,
in the event that any Representatives' Warrant is
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<PAGE>
exercised in respect of less than all of the Shares purchasable on such exercise
at any time prior to the Expiration Date, a new Representatives' Warrant or new
Representatives' Warrants will be issued for the remaining number of Shares
specified in the Representatives' Warrant or Representatives' Warrants so
surrendered.
5. Payment of Taxes. The Company will pay all documentary stamp taxes,
if any, attributable to the issuance of Shares upon the exercise of a
Representatives' Warrant; provided, however, that the Company shall not be
required to pay any tax or taxes which may be payable in respect of any transfer
involved in the issuance or delivery of any certificates for Shares in a name
other than that of the Warrant Holder who exercised the Representatives' Warrant
in respect of which such Shares are issued.
6. Mutilated or Missing Warrants. In case any Representatives' Warrant
shall be mutilated, lost, stolen or destroyed, the Company shall issue and
deliver in exchange and substitution for and upon cancellation of the mutilated
Representatives' Warrant, or in lieu of and substitution for the
Representatives' Warrant lost, stolen or destroyed, a new Representatives'
Warrant of like tenor and representing an equivalent right or interest, but only
upon receipt of evidence reasonably satisfactory to the Company of such loss,
theft or destruction of such Representatives' Warrant or an indemnity, also
reasonably satisfactory to the Company. An applicant for such substitute
Representatives' Warrant shall also comply with such other reasonable
regulations and pay such other reasonable charges as the Company may prescribe.
7. Reservation of Shares, etc. There have been reserved, and the Company
shall at all times keep reserved, out of the authorized and unissued Common
Stock, an aggregate number of shares of Common Stock sufficient to provide for
the exercise of the rights of purchase represented by the outstanding
Representatives' Warrants. After the effective date of the Company's initial
public offering, Boatman's Trust Company, St. Louis, Missouri, the transfer
agent for the Common Stock (the "Transfer Agent"), and every subsequent Transfer
Agent, if any, for Shares issuable upon the exercise of any of the rights of
purchase represented by the Representatives' Warrants, will be irrevocably
authorized and directed at all times until the Expiration Date to reserve such
aggregate number of authorized and unissued shares as shall be required for such
purpose. The Company will keep a copy of this Agreement on file with the
Transfer Agent and with every subsequent Transfer Agent for any Shares issuable
upon the exercise of the rights of purchase represented by the Representatives'
Warrants. The Company will supply any such Transfer Agent with duly executed
stock certificates for such purpose and will itself provide or otherwise make
available any cash which may be distributable as provided in Section 9 of this
Agreement. Any Representatives' Warrant surrendered in the exercise of the
rights thereby evidenced shall be cancelled, and until delivery to the person
surrendering such Representatives' Warrant of Stock Certificates representing
the Shares to be issued to such person as a result of such exercise, such
cancelled Representatives' Warrant shall constitute sufficient evidence of the
number of Shares that have been issued upon the exercise of such
Representatives' Warrant. No shares of Common Stock
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<PAGE>
shall be subject to reservation in respect of any unexercised Representatives'
Warrant subsequent to the Expiration Date.
8. Adjustments of Exercise Price and Number of Shares. The Exercise
Price and the number and kind of securities purchasable upon exercise of each
Representatives' Warrant shall be subject to adjustment from time to time upon
the happening of certain events, as follows:
(a) In case the Company shall (i) declare a dividend on its Common
Stock in shares of Common Stock or make a distribution in shares of Common
Stock, (ii) subdivide its outstanding shares of Common Stock into a greater
number of shares of Common Stock, (iii) combine its outstanding shares of Common
Stock into a smaller number of shares of Common Stock or (iv) issue by
reclassification of its shares of Common Stock other securities of the Company,
other than any such reclassification to which paragraph (j) applies, the number
of Shares purchasable upon exercise of each Representatives' Warrant immediately
prior thereto shall be adjusted so that the Warrant Holder shall be entitled to
receive the kind and number of Shares or other securities of the Company which
he would have owned or have been entitled to receive after the happening of any
of the events described above, had such Representatives' Warrant been exercised
immediately prior to the happening of such event or any record date with respect
thereto. An adjustment made pursuant to this paragraph (a) shall become
effective immediately after the effective date of such event, retroactive to the
record date, if any, for such event.
(b) In case the Company shall issue rights, options or warrants to all
holders of its Common Stock, entitling them to subscribe for or to purchase
shares of Common Stock or securities convertible into Common Stock at a price
per share (or having a conversion price per share) that is lower on the record
date for the determination of stockholders entitled to receive such rights,
options or warrants than the then current market price per share of Common Stock
(as defined in paragraph (d) below), the number of Shares thereafter purchasable
upon the exercise of each Representatives' Warrant shall be determined by
multiplying the number of Shares theretofore purchasable upon exercise of each
Representatives' Warrant by a fraction, of which the numerator shall be the
number of shares of Common Stock outstanding at the close of business on the
record date for the determination of stockholders entitled to receive such
rights, options or warrants plus the number of additional shares of Common Stock
offered for subscription or purchase (or into which the convertible securities
so offered are initially convertible), and of which the denominator shall be the
number of shares of Common Stock outstanding at the close of business on the
record date for the determination of stockholders entitled to receive such
rights, options or warrants plus the number of shares which the aggregate
offering price of the total number of shares of Common Stock so offered (or the
aggregate initial conversion price of the convertible securities so offered)
would purchase at the then current market price per share of Common Stock. Such
adjustment shall be made whenever such rights, options or warrants are issued,
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<PAGE>
and shall become effective retroactively to the record date for the
determination of stockholders entitled to receive such rights, options or
warrants.
(c) In case the Company shall distribute to all holders of its Common
Stock shares of stock (other than Common Stock) or evidences of its indebtedness
or assets (excluding cash dividends out of retained earnings and dividends or
distributions referred to in paragraph (a) of this Section 8) or rights, options
or warrants or convertible or exchangeable securities containing the right to
subscribe for or purchase shares of Common Stock (excluding those referred to in
paragraph (b) above), then in each case the number of Shares thereafter
purchasable upon the exercise of each Representatives' Warrant shall be
determined by multiplying the number of Shares theretofore purchasable upon the
exercise of each Representatives' Warrant by a fraction, of which the numerator
shall be the current market price per share of Common Stock (as defined in
paragraph (d) below) on the record date mentioned below in this paragraph (c),
and of which the denominator shall be the current market price per share of
Common Stock on such record date, less the then fair value (as determined by the
Board of Directors of the Company, whose determination shall be conclusive) of
the portion of the shares of stock or assets or evidences of indebtedness so
distributed or of such subscription rights, options or warrants, or of such
convertible or exchangeable securities applicable to one share of Common Stock.
Such adjustment shall be made whenever any such distribution is made, and shall
become effective on the date of distribution, retroactive to the record date for
the determination of stockholders entitled to receive such distribution.
(d) For the purpose of any computation under paragraphs (b) and (c)
of this Section 8 or under Section 4 or Section 9, the current market price per
share of Common Stock at any date shall be deemed to be the average of the daily
closing prices per share for the 30 consecutive trading days commencing 45
trading days before the date of such computation. The closing price for each day
shall be the last reported sale price regular way or, in case no such reported
sale takes place on such day, the average of the closing bid and asked prices
regular way for such day, in either case on the principal national securities
exchange on which the shares are listed or admitted to trading, or if the Common
Stock is not listed or admitted to trading on any national securities exchange,
but is traded in the over-the-counter market, the closing sale price of the
Common Stock or, in case no sale is publicly reported, the average of the
representative closing bid and asked quotations for the Common Stock on the
Nasdaq National Market System ("NASDAQ") or any comparable system, or if the
Common Stock is not listed on NASDAQ or a comparable system, the closing sale
price of the Common Stock or, in case no sale is publicly reported, the average
of the closing bid and asked prices as furnished by two members of the NASD
selected from time to time by the Company for that purpose.
(e) No adjustment in the number of Shares purchasable upon exercise
of each Representatives' Warrant shall be required unless such adjustment would
require an increase or decrease of at least one percent (1%) in the number of
Shares purchasable upon the
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<PAGE>
exercise of each Representatives' Warrant; provided, however, that any
adjustments which by reason of this paragraph (e) are not required to be made
shall be carried forward and taken into account in any subsequent adjustment.
All calculations shall be made to the nearest one thousandth of a share.
(f) Whenever the number of Shares purchasable upon the exercise of
each Representatives' Warrant is adjusted, as herein provided, the Exercise
Price shall be adjusted by multiplying such Exercise Price immediately prior to
such adjustment by a fraction, of which the numerator shall be the number of
Shares purchasable upon the exercise of each Representatives' Warrant
immediately prior to such adjustment, and of which the denominator shall be the
number of Shares so purchasable immediately thereafter.
(g) For the purpose of this Section 8, the term "shares of Common
Stock" shall mean (i) the class of stock designated as the Common Stock of the
Company at the date of this Agreement or (ii) any other class of stock resulting
from successive changes or reclassification of such shares consisting solely of
changes in par value, or from par value to no par value, or from no par value to
par value. In the event that at any time, as a result of an adjustment made
pursuant to paragraph (a) above, any Warrant Holder shall become entitled to
purchase any shares of capital stock of the Company other than shares of Common
Stock, thereafter the number of such other shares so purchasable upon exercise
of each Representatives' Warrant and the Exercise Price of such shares shall be
subject to adjustment from time to time in a manner and on terms as nearly
equivalent as practicable to the provisions with respect to the Shares contained
in this Section 8, and the provisions of Sections 4, 5, 7 and 12, with respect
to the Shares, shall apply on like terms to any such other shares.
(h) The Company may at its option, at any time during the term of a
Representatives' Warrant, reduce, either temporarily or permanently, the then
current Exercise Price to any amount deemed appropriate by the Board of
Directors of the Company; provided, however, that any such reduction may be
temporary only to the extent that Warrant Holders receive written notice from
the Company stating the term of such temporary reduction; and further provided,
that following the expiration of such temporary reduction, the Exercise Price
may not be raised to an amount in excess of the Exercise Price in effect
immediately prior to such temporary reduction.
(i) Whenever the number of Shares purchasable upon the exercise of
each Representatives' Warrant or the Exercise Price of such Shares is adjusted,
as herein provided, the Company shall promptly mail by first class mail, postage
prepaid, to each Warrant Holder notice of such adjustment or adjustments. The
Company may, but is not required to, retain a firm of independent public
accountants (who may be the regular accountants employed by the Company) to make
any computation required by this Section 8 and shall cause such accountants to
prepare a certificate setting forth the number of Shares purchasable upon the
exercise of each Representatives' Warrant and the Exercise Price of such Shares
after such adjustment, setting forth a brief statement of the facts requiring
such adjustment and setting
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<PAGE>
forth the computation by which such adjustment was made. Such a certificate
from a firm of independent public accountants shall be conclusive evidence of
the correctness of such adjustment, and each Warrant Holder shall have the right
to inspect such certificate during reasonable business hours.
(j) In case of any consolidation of the Company with or merger of the
Company with or into another corporation or any consolidation with or merger of
any other corporation into the Company (other than a merger which does not
result in a reclassification, conversion, exchange or cancellation of Shares) or
in case of any sale or conveyance to another corporation of the property of the
Company as an entirety or substantially as an entirety, [(I) NOTWITHSTANDING THE
PROVISIONS OF SECTION 4 HEREOF, EACH WARRANT HOLDER SHALL HAVE THE RIGHT TO
EXERCISE ANY REPRESENTATIVES' WARRANT THEN HELD IMMEDIATELY PRIOR TO SUCH
CONSOLIDATION, MERGER, SALE OR CONVEYANCE UPON PAYMENT OF THE EXERCISE PRICE
THEN IN EFFECT AND (II) WITH RESPECT TO ANY REPRESENTATIVES' WARRANTS WHICH ARE
NOT EXERCISED AS PROVIDED IN CLAUSE (I) ABOVE,] the Company or such successor or
purchasing corporation (or an affiliate of such successor or purchasing
corporation), as the case may be, agrees that each Holder shall have the right
after the happening of any such consolidation, merger, sale or conveyance upon
payment of the Exercise Price in effect immediately prior to such action to
purchase upon exercise of each Representatives' Warrant the kind and amount of
shares and other securities and property which he would have owned or have been
entitled to receive after the happening of such consolidation, merger, sale or
conveyance had such Representatives' Warrant been exercised immediately prior to
such action and the Securities issued upon such exercise been held since the
date of such exercise. The provisions of this paragraph (j) shall similarly
apply to successive consolidations, mergers, sales or conveyances.
(k) Notwithstanding any adjustment in the Exercise Price or the
number or kind of shares purchasable upon the exercise of a Representatives'
Warrant pursuant to this Agreement, a certificate for a Representatives' Warrant
issued prior or subsequent to such adjustment may continue to express the same
price and number and kind of shares as are initially issuable pursuant to this
Agreement.
(l) Notwithstanding the foregoing, in the event that the Company
shall distribute "poison pill" rights pursuant to a "poison pill" stockholder
rights plan (the "Rights"), the Company shall, in lieu of making any adjustment
pursuant to Section 8(b) or Section 8(c) hereof, make proper provision so that
each Warrant Holder who exercises a Representatives' Warrant after the record
date for such distribution and prior to the expiration or redemption of the
Rights shall be entitled to receive upon such exercise, in addition to the
Shares issuable upon such exercise, a number of Rights to be determined as
follows: (i) if such exercise occurs on or prior to the date for the
distribution to the holders of Rights of separate certificates evidencing such
Rights (the "Distribution Date"), the same number of Rights to which a holder of
a number of shares of Common Stock equal to the number of Shares issuable upon
such exercise at the time of such exercise in accordance with the terms and
provisions of and applicable to the Rights; and (ii) if such exercise occurs
after the
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<PAGE>
Distribution Date, the same number of Rights to which a holder of the number of
Shares into which the Representatives' Warrant so exercised was exercisable
immediately prior to the Distribution Date would have been entitled on the
Distribution Date in accordance with the terms and provisions of and applicable
to the Rights.
9. Fractional Interests. The Company shall not be required to issue
fractions of Shares on the exercise of a Representatives' Warrant. If more than
one Representatives' Warrant shall be presented for exercise in full at the same
time by the same Warrant Holder, the number of Shares which shall be issuable
upon the exercise thereof shall be computed on the basis of the aggregate number
of Shares purchasable on exercise of the Representatives' Warrants so presented.
If any fraction of a Share would, except for the provisions of this Section 9,
be issuable on the exercise of any Representatives' Warrant (or specified
portions thereof), the Company shall purchase such fraction from the Warrant
Holder for an amount in cash equal to the same fraction of the current market
price per share of Common Stock (determined as provided in paragraph (d) of
Section 8) on the date of exercise.
10. Certain Covenants
-----------------
Each Warrant Holder of any Representatives' Warrants by accepting the same
consents and agrees with the Company that:
(a) Such Holder understands that neither the Representatives'
Warrants nor the Shares may be assigned, pledged, hypothecated, sold, made
subject to a security interest, or otherwise transferred unless pursuant to
either (1) an effective registration statement for such Holders' Warrants and
Shares under the Act or (2) any available rule or exemption from registration
under the Act permitting such disposition of securities and an opinion of
counsel prepared at the expense of the Holder (which counsel may be an employee
of the Holder), reasonably satisfactory to counsel for the Company, that an
exemption from such registration is available.
(b) The Representatives' Warrants and the securities issuable upon
exercise of the Representatives' Warrants are transferrable only on the registry
books of the Company if surrendered at the principal office of the Company (or,
in the case of the securities issuable upon exercise, the Company's transfer
agent), duly endorsed, or accompanied by a proper instrument of transfer,
subject to the terms and conditions hereof.
11. Certificates to Bear Legends. Each Representatives' Warrant shall be
subject to a stop-transfer order and the certificate or certificates therefor
shall bear the following legend:
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY
STATE SECURITIES ACT AND NEITHER THE WARRANTS
9
<PAGE>
REPRESENTED BY THIS CERTIFICATE NOR THE SECURITIES ISSUABLE UPON
EXERCISE HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT TO (i) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT OR (ii) ANY AVAILABLE
RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE
DISPOSITION OF SECURITIES AND AN OPINION OF COUNSEL, REASONABLY
SATISFACTORY TO COUNSEL FOR THIS COMPANY, THAT AN EXEMPTION FROM
REGISTRATION UNDER SUCH ACT IS AVAILABLE.
The Shares or other securities issued upon exercise of a Representatives'
Warrant shall be subject to a stop-transfer order and the certificate or
certificates evidencing any such Shares or securities shall bear a legend in
substantially the following form:
THE SHARES OR SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"),
OR ANY STATE SECURITIES ACT AND THE SHARES OR OTHER SECURITIES
REPRESENTED BY THIS CERTIFICATE MAY NOT BE OFFERED OR SOLD EXCEPT
PURSUANT TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR
(ii) ANY AVAILABLE RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT
RELATING TO THE DISPOSITION OF SECURITIES AND AN OPINION OF COUNSEL,
REASONABLY SATISFACTORY TO COUNSEL FOR THIS COMPANY, THAT AN EXEMPTION
FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
12. Registration Rights.
(a) Demand Registration Rights. The Company covenants and agrees with
the Representatives and any other or subsequent Warrant Holder(s) or registered
holder(s) of Shares or registered holder(s) of other securities for which the
Representatives' Warrants become exercisable (collectively, the "Holders" and
each a "Holder") that, upon written request (a "Registration Request") of the
then Holder(s) of at least a majority of the securities issued and issuable
pursuant to the Representatives' Warrants, including Shares or other securities
for which the Representatives' Warrants become exercisable, if issued, made at
any time within the period commencing on the first anniversary of the Effective
Date and ending at the Close of Business on the date immediately preceding the
fifth anniversary of the Effective Date, the Company will file as soon as
practicable and, in any event, within 45 days after receipt of such written
request, at its sole expense, no more than once, and at the Holders'
10
<PAGE>
expense, no more than once, a registration statement or a Regulation A offering
statement (as requested by the Holders) registering or qualifying the Shares or
other securities for which the Representatives' Warrants become exercisable for
sale. Within 15 days after receiving any such notice, the Company shall give
notice to the other Holders advising that the Company is proceeding with such
registration statement or Regulation A offering statement and offering to
include therein the Shares or other securities for which the Representatives'
Warrants become exercisable of such Holders. The Company shall not be obligated
to any such other Holder unless such other Holder shall accept such offer by
notice in writing to the Company within 10 days after receipt of such notice
from the Company. The Company will use its best efforts, through its officers,
directors, auditors and counsel in all matters necessary or advisable, to file
and cause to become effective such registration statement or Regulation A
offering statement as promptly as practicable and for a period of two years
thereafter to reflect in the registration statement or Regulation A offering
statement financial statements which are prepared in accordance with Section
10(a)(3) of the Act and any facts or events arising that, individually or in the
aggregate, represent a fundamental or material change in the information set
forth in the registration statement or Regulation A offering statement. If any
registration pursuant to this paragraph (a) is an underwritten offering, the
Company will select an underwriter (or managing underwriter if such offering
should be syndicated) approved by the Holders of a majority of the
Representatives' Warrants or Shares or other securities for which the
Representatives' Warrants become exercisable to be included in such
registration. Notwithstanding the foregoing, the Company may postpone the filing
of such registration statement or offering statement for a reasonable period of
time after receipt of the original written Registration Request (not exceeding
90 days) if, in the good faith opinion of the Company's Board of directors,
effecting the registration would adversely affect a material or other comparable
transaction or would require the Company to make public disclosure of
information the public disclosure of which would have a material adverse effect
upon the Company. Further, the Company may include in such registration other
securities of the same class as the Shares for sale for its own account or for
the account of any other person.
(b) Piggyback Registration Rights. The Company covenants and agrees
with the Representatives and any other or subsequent Holder(s) that if, at any
time within the period commencing on the first anniversary of the Effective Date
and ending at the Close of Business on the day immediately preceding the sixth
anniversary of the Effective Date, it proposes to register any class of security
under the Act in a primary registration on behalf of the Company or in a
secondary registration on behalf of holders of such securities and the
registration form to be used may be used for registration of the Shares or other
securities for which the Representatives' Warrants become exercisable, the
Company will give prompt written notice (which, in the case of a registration
pursuant to the exercise of demand registration rights other than those provided
in Section 12(a) of this Agreement, shall be within 10 business days after the
Company's receipt of notice of such exercise and, in any event, shall be at
least 45 days prior to such filing) to each Holder (regardless of whether the
Holder shall have theretofore availed himself or herself of the right provided
in Section 12(a)) at the addresses appearing on the records of the Company of
its intention to effect a registration.
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<PAGE>
The Company will offer to include in such registration such number of Shares or
other securities for which the Representatives' Warrants are exercisable with
respect to which the Company has received written requests for inclusion therein
within 10 days after receipt of notice from the Company; provided, that if such
registration is to be underwritten, the Company shall not be required to include
the Shares or other securities for which the Representatives' Warrants become
exercisable in such registration to the extent the managing underwriter(s)
determines in good faith that the number of Shares requested to be included in
such registration exceed the number which can be sold in such offering without a
material reduction in the selling price anticipated to be received for the
securities to be sold in such offering. All registrations requested pursuant to
this Section (b) are referred to herein as "Piggyback Registrations". This
paragraph is not applicable to a registration statement filed by the Company
with the Commission on Forms S-4 or S-8 or any successor forms.
(c) Action to be Taken by the Company. In connection with the
registration of the Shares or other securities for which the Representatives'
Warrants become exercisable in accordance with paragraphs (a) or (b) above, the
Company agrees to:
(i) bear the expense of any registration or qualification under
(a), on one occasion, or under (b) of this section, on any number of
occasions, including but not limited to legal, accounting and printing
fees; provided, however, that in no event shall the Company be obligated to
pay (A) any fees and disbursements of any counsel for the Holder(s), or (B)
any underwriters' discount or commission in respect to such Shares or other
securities for which the Representatives' Warrants become exercisable,
payment of which shall, in each case, be the sole responsibility of the
respective Holder(s) thereof;
(ii) use its best efforts to register or qualify the Shares or
other securities for which the Representatives' Warrants become exercisable
for offer or sale under state securities or blue sky laws of such
jurisdictions as the Holders shall reasonably request and to do any and all
other acts and things which may be necessary or advisable to enable the
Holders to consummate the proposed sale, transfer or other disposition of
such securities in any jurisdiction;
(iii) furnish to each holder copies of any registration statement
(including the Registration Statement) for the Shares or other securities
for which the Representatives' Warrants become exercisable, any prospectus
included in any such registration statement and all amendments and
supplements to such documents, in each case as soon as available and in
such quantities as such Holder may from time to time reasonably request;
and
(iv) if registration is to be pursuant to an underwritten
offering, enter into a cross-indemnity agreement in customary form, with
each underwriter, if any, and each Holder of securities included in such
registration statement.
12
<PAGE>
(d) Action to be Taken by the Holders. In connection with the
registration of the Shares or other securities for which the Representatives'
Warrants become exercisable in accordance with (a) or (b) above the Holders
agree:
(i) upon receipt of any notice from the Company of the
occurrence of any event as a result of which the prospectus included in the
registration statement relating to the such registration of Shares may
include a material misstatement or omission, such Holder shall forthwith
discontinue disposition of Shares pursuant to the then current prospectus
until (i) the Holder is advised in writing by the Company that a new
registration statement covering the reoffer of Shares has become effective
under the Securities Act, or (ii) the Holder receives copies of a
supplemented or amended prospectus, or (iii) until the Holder is advised in
writing by the Company that the use of the then current prospectus may be
resumed; provided that the Company hereby agrees to supplement or amend
such prospectus as soon as practicable and acknowledges that the Warrant
Holders may be damaged by the delays contemplated by this clause (i);
(ii) if such registration is to be pursuant to an underwritten
offering, enter into an underwriting agreement in customary form with each
underwriter and the Company;
(iii) if such registration is to be pursuant to an underwritten
offering, upon request of the Company or managing underwriter(s), 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 underwriter(s), as
the case may be, for a period of time, not to exceed 180 days from the
effective date of such registration as the Company or the underwriter(s)
may specify.
13. Representations and Warranties.
Each Warrant Holder of any Representatives' Warrants by accepting the same
makes the following representations and warranties to the Company:
(i) The Representatives' Warrants are being issued by the
Company to such Warrant Holder in reliance upon the representations and
warranties of such Warrant Holders to the Company, which by such Warrant
Holder's acceptance herein such Warrant Holder hereby confirms, that any
securities to be received by such, Warrant Holder upon exercise of a
Warrant will be acquired for investment for such Warrant Holder's own
account, not as a nominee or agent, and (except as may otherwise be
permitted by Rule 144 under the Act) not with a view to the sale or
distribution of any part thereof, and that such Warrant Holder has no
present intention of assigning, pledging, hypothecating, selling, making
subject to a security interest, or
13
<PAGE>
otherwise transferring, the same, but subject nevertheless to any requirement of
law that the disposition of such Warrant Holder's property shall at all times be
within such Warrant Holder's control. By executing this Warrant, such Warrant
Holder further represents and warrants that such Warrant Holder does not have
any contract, undertaking, agreement or arrangement with any person to assign,
pledge, hypothecate, sell, make subject to a security interest, or otherwise
transfer, to such person, any securities to be acquired upon exercise of the
Warrant Holder's Warrant.
(ii) The Warrant Holder hereof understands that the issuance of
securities upon exercise of the Representatives' Warrants is not required to be
registered under the Securities Act of 1933, as amended (the "Securities Act")
on the grounds that such issuance is exempt from registration under the
Securities Act pursuant to Section 4(2) thereof, and the Company's reliance on
such exemption is predicated on the representations and warranties of the such
Warrant Holder set forth herein.
(iii) Each Warrant Holder of any Representatives' Warrant represents
and warrants that such Warrant Holder is experienced in evaluating and investing
in companies such as the Company, is able to fend for himself with respect to
the agreements set forth in this Warrant Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of such Warrant Holders investment and to make an informed
investment decision, and has the ability to bear the economic risks of such
Warrant Holder's investment. Each Warrant Holder acknowledges that an investment
in the Company is highly speculative and involves significant risks and there is
and will be no market for the Representatives' Warrants. Such Warrant Holder
further represents and warrants that such Warrant Holder has had access, during
the course of the transaction prior to the receipt of any Representatives'
Warrants, to the same kind of information that would be provided in a
registration statement filed by the Company under the Securities Act and that
such Warrant Holder has had during the course of the transaction and prior to
receipt of any Representatives' Warrants, 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 such
Warrant Holder or to which he had access.
(iv) Each Warrant Holder has adequate means of providing for such
Warrant Holder's current needs and possible personal contingencies, has no need
for liquidation of this investment, is able to bear the economic risks of this
investment, and at the present time can afford a complete loss of such
investment.
14
<PAGE>
(v) Each Warrant Holder of any Representatives' Warrants understands
that this Warrant may not be assigned, pledged, hypothecated, sold, made subject
to a security interest, or otherwise transferred, unless pursuant to
registration under the Securities Act or an exemption therefrom, and that in the
absence of an effective registration statement covering this Warrant or an
available exemption from registration under the Securities Act, the
Representatives' Warrants must be held indefinitely. In particular, each
Warrant Holder is aware that the Representatives' Warrants may not be sold
pursuant to Rule 144 promulgated under the Securities Act unless all of the
conditions of that Rule are met. Each Warrant Holder of this Warrant represents
and warrants that, in the absence of an effective registration statement
covering this Warrant, he will assign, pledge, hypothecate, sell, make subject
to a security interest, or otherwise transfer, this Warrant only in a manner
consistent with such Warrant Holders' representations and warranties set forth
herein and then only in accordance with the provisions set forth herein.
14. Notices to Warrant Holders; Dissolution Exercise Rights.
(a) Nothing contained in this Agreement or in any Representatives'
Warrant shall be construed as conferring upon any Warrant Holder the right to
vote or to receive dividends or to consent or to receive notice as a stockholder
in respect of the meetings of stockholders or the election of Directors of the
Company or any other matter, or any rights whatsoever as a stockholder of the
Company; provided, however, that in the event that a meeting of stockholders
shall be called to consider and take action on a proposal for the voluntary
dissolution of the Company or a consolidation, merger or sale of all or
substantially all of its property, assets, business and good will as an
entirety, then, in that event, the Company shall cause a notice thereof to be
sent by first-class mail, postage prepaid, at least 20 business days prior to
the date fixed as a record date or the date of closing the transfer books in
relation to such meeting, to each Warrant Holder at such Warrant Holder's
address appearing on the Representatives' Warrant register. If such notice
shall have been so given and if such a voluntary dissolution shall be authorized
at such meeting or any adjournment thereof, then (i) notwithstanding the
provisions of Section 4 thereof, each Warrant Holder shall have the right, at
the election of the Warrant Holder, (A) to exercise any Representatives' Warrant
then held immediately prior to such voluntary dissolution upon payment of the
Exercise Price then in effect or (B) to receive, as of the effective date of the
dissolution, the fair value of such Representatives' Warrant as of the time
immediately prior to the authorization of the dissolution (without taking the
dissolution into account) as determined by the Board of Directors of the Company
and (ii) from and after the date on which such voluntary dissolution shall have
been duly authorized by the stockholders, the purchase rights represented by
such Representatives' Warrant and all other rights with respect thereto shall
cease and terminate.
(b) In the event the Company intends to make any distribution on its
Common Stock (or other securities which may be purchasable in lieu thereof upon
the exercise
15
<PAGE>
of a Representatives' Warrant), including, without limitation, any such
distribution to be made in connection with a consolidation or merger in which
the Company is the continuing corporation, or to issue subscription rights or
warrants to holders of its Common Stock, the Company shall cause a notice of its
intention to make such distribution to be sent by first-class mail, postage
prepaid, at least 20 business days prior to the date fixed as a record date or
the date of closing the transfer books in relation to such distribution, to each
registered Warrant Holder at such Warrant Holder's address appearing on the
Representatives' Warrant register.
15. Notices. Any notice pursuant to this Agreement to be given or made by
any Holder to the Company shall be sufficiently given or made if sent by first-
class mail, postage prepaid, or by a nationally recognized overnight courier,
addressed as follows (or to such other address as the Company may designate by
notice given in accordance with this Section 14 to the Holder(s)):
TALX Corporation
1850 Borman Court
St. Louis, MO 63146
Attn: Craig Cohen, Chief Financial Officer
Notices or demands authorized by this Agreement to be given or made by the
Company to any Holder shall be sufficiently given or made (except as otherwise
provided in this Agreement) if sent by first-class mail, postage prepaid, or by
a nationally recognized overnight courier, addressed to such Holder at the
address of such Holder as shown on the Representatives' Warrant register, Common
Stock register or the register for such other security for which the
Representatives' warrants become exercisable.
16. Covenant as to Certain Transactions. The Company shall not consummate
any consolidation, merger, sale or conveyance (as described in Section 8(j)
hereof) unless prior thereto the successor or purchasing corporation (or an
affiliate of such successor or purchasing corporation), as the case may be (a)
shall have a sufficient aggregate number of authorized shares and other
securities which have not been issued or reserved for issuance to permit the
exercise in full of the Representatives' Warrants in accordance with Section
8(j) hereof and (b) the Company and such successor or purchasing corporation or
affiliate shall have executed and delivered to each Warrant Holder a
supplemental agreement confirming that the requirements of Section 8(j) hereof
shall be promptly performed in accordance with their terms and that such
consolidation, merger, sale or conveyance shall not result in a default by the
Company, such successor or purchasing corporation or such affiliate under this
Agreement (as the same shall have been assumed by such successor or purchasing
corporation or such affiliate) and further providing that such successor or
purchasing corporation or such affiliate shall assume all obligations of the
Company hereunder and agree to be bound hereby. In the event of and after the
happening of any such consolidation, merger, sale or conveyance, the term "the
Company," as used herein, shall be deemed to refer to such successor or
purchasing corporation or such affiliate, as the case may be.
16
<PAGE>
17. Governing Law. Except as otherwise required by the General Business
Corporation Law of Missouri, this Agreement and each Representatives' Warrant
issued hereunder shall be governed by and construed in accordance with the
substantive laws of the State of New York without giving effect to the
principles of conflicts of law thereof. The Company hereby agrees to accept
service of process by notice given to it pursuant to the provisions of Section
14.
18. Counterparts. The Agreement may be executed in any number of
counterparts, each of which so executed shall be deemed to be an original; but
such counterparts together shall constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed as of the day, month and year first above written.
TALX CORPORATION
By:
--------------------------------------
Name:
Title:
FIRST ALBANY CORPORATION
By:
--------------------------------------
Name:
Title:
PRINCIPAL FINANCIAL SECURITIES, INC.
By:
--------------------------------------
Name:
Title:
17
<PAGE>
EXHIBIT A
(Form of Warrant Certificate)
THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR ANY STATE
SECURITIES ACT AND NEITHER THE WARRANTS REPRESENTED BY THIS CERTIFICATE NOR THE
SECURITIES ISSUABLE UPON EXERCISE HEREOF MAY BE OFFERED OR SOLD EXCEPT PURSUANT
TO (i) AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT, OR (ii) ANY AVAILABLE
RULE OR EXEMPTION FROM REGISTRATION UNDER SUCH ACT RELATING TO THE DISPOSITION
OF SECURITIES AND AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO COUNSEL FOR
THIS COMPANY, THAT AN EXEMPTION FROM REGISTRATION UNDER SUCH ACT IS AVAILABLE.
No._________ 50,000 Warrants
VOID AFTER 5:00 P.M. NEW YORK TIME
ON OCTOBER __, 2001
TALX CORPORATION
Warrant Certificate
THIS CERTIFIES THAT for value received _________________, or registered
assigns, is the owner of the number of Warrants set forth above, each of which
entitles the owner thereof to purchase at any time from _______________, 1997
(except as otherwise set forth in the Warrant Agreement referred to below),
until 5:00 p.m., New York time on _______________, 2001 (the "Expiration Date"),
one fully paid and nonassessable share of the common stock, par value $.0l per
share (the "Common Stock"), of TALX CORPORATION, a Missouri corporation (the
"Company"), at the purchase price of $_________ per share (the "Exercise
Price") upon presentation and surrender of this Warrant Certificate with the
Form of Election to Purchase duly executed. The number of Warrants evidenced by
this Warrant Certificate (and the number of shares which may be purchased upon
exercise thereof) set forth above, and the Exercise Price per share set forth
above, are the number and Exercise Price as of the date of original issuance of
the Warrants, based on the shares of Common Stock of the Company as constituted
at such date. As provided in the Warrant Agreement referred to below, the
Exercise Price and the number or kind of shares which may be purchased upon the
exercise of the Warrants evidenced by this Warrant Certificate are, upon the
happening of certain events, subject to modification and adjustment.
18
<PAGE>
This Warrant Certificate is subject to, and entitled to the benefits of,
all of the terms, provisions and conditions of an agreement dated as of
__________, 1996 (the "Warrant Agreement") among the Company, First Albany
Corporation and Principal Financial Securities, Inc., which Warrant Agreement is
hereby incorporated herein by reference and made a part hereof and to which
Warrant Agreement reference is hereby made for a full description of the rights,
limitations of rights, duties and immunities hereunder of the Company and the
holders of the Warrant Certificates. Copies of the Warrant Agreement are on file
at the principal office of the Company.
This Warrant Certificate, with or without other Warrant Certificates, upon
surrender at the principal office of the Company, may be exchanged for another
Warrant Certificate or Warrant Certificates of like tenor and date evidencing
Warrants entitling the holder to purchase a like aggregate number of shares of
Common Stock as the Warrants evidenced by the Warrant Certificate or Warrant
Certificates surrendered entitled such holder to purchase. If this Warrant
Certificate shall be exercised in part, the holder hereof shall be entitled to
receive upon surrender hereof another Warrant Certificate or Warrant
Certificates for the number of whole Warrants not exercised.
No fractional shares of Common Stock will be issued upon the exercise of
any Warrant or Warrants evidenced hereby, but in lieu thereof, a cash payment
will be made, as provided in the Warrant Agreement.
No holder of this Warrant Certificate shall be entitled to vote or receive
dividends or be deemed the holder of Common Stock or any other securities which
may at any time be issuable on the exercise hereof for any purpose, nor shall
anything contained in the Warrant Agreement or herein be construed to confer
upon the holder hereof, as such, any of the rights of a stockholder of the
Company or any right to vote for the election of directors or upon any matter
submitted to stockholders at any meeting thereof, or to give or withhold consent
to any corporate action (whether upon any recapitalization, issue of stock,
reclassification of stock, change of par value or change of stock to no par
value, consolidation, merger, conveyance, or otherwise) or, except as provided
in the Warrant Agreement, to receive notice of meetings or to receive dividends
or subscription rights or otherwise, until the Warrant or Warrants evidenced by
this Warrant Certificate shall have been exercised and the shares of Common
Stock or other securities shall have become deliverable as provided in the
Warrant Agreement.
If this Warrant shall be surrendered for exercise within any period during
which the transfer books for the Company's Common Stock or other securities
purchasable upon the exercise of this Warrant are closed for any purpose, the
Company shall not be required to make delivery of certificates for the shares or
other securities purchasable upon such exercise until the date of the reopening
of said transfer books, subject to the terms of the Warrant Agreement.
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<PAGE>
IN WITNESS WHEREOF, TALX CORPORATION has caused the signature of its
President and Secretary to be printed hereon and its corporate seal to be
printed hereon.
Dated:
TALX CORPORATION
By: _____________________________________
President
Attest:
___________________________________
Secretary
20
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FORM OF ASSIGNMENT
(To be executed by the registered holder if such holder desires to transfer the
Warrant Certificates.)
FOR VALUE RECEIVED ____________________________________________ hereby
sells, assigns and transfers unto ___________________________________________
this Warrant Certificate, together with all right, title and interest therein,
and does hereby irrevocably constitute and appoint _____________________________
_______________________________________________ to transfer the within Warrant
Certificate on the books of the within-named Company, with full power of
substitution.
Dated: _______________________, _____
__________________________________________
Signature
Signature Guaranteed:
NOTICE
The signature on the foregoing Assignment must correspond in all respects
to the name as written upon the face of this Warrant Certificate, without
alteration, enlargement or any change whatsoever.
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<PAGE>
FORM OF
ELECTION TO PURCHASE
(To be executed if holder desires to exercise the Warrant Certificate).
TO TALX CORPORATION:
The undersigned hereby irrevocably elects to exercise __________
Warrants represented by this Warrant Certificate to purchase the shares of
Common Stock issuable upon the exercise of such Warrants and requests that
certificates for such shares be issued in the name of:
Please insert social security or other
identifying number
______________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
If such number of Warrants shall not be all the Warrants evidenced by this
Warrant Certificate, a new Warrant Certificate for the balance remaining of such
Warrants shall be registered in the name of and delivered to:
Please insert social security or other
identifying number
______________________________
________________________________________________________________________________
(Please print name and address)
________________________________________________________________________________
Reference is made to the representations of the Warrant Holder in
Section 13 of the Warrant Agreement dated October __, 1996 to which this Warrant
relates. By its execution of this election to purchase, the undersigned
represents that it has renewed and hereby reaffirms such representations.
Dated:_______________, 19__
__________________________________________
Signature
Signature Guaranteed:
22
<PAGE>
NOTICE
The signature on the foregoing election to purchase must correspond in all
respects to the name as written upon the face of this Warrant Certificate,
without alteration, enlargement or any change whatsoever.
23
<PAGE>
EXHIBIT 5.1
October 7, 1996
Board of Directors
TALX Corporation
1850 Borman Court
St. Louis, MO 63146
To the Board of Directors of TALX Corporation:
We have acted as special counsel for TALX Corporation, a Missouri
corporation (the "Company"), in connection with various legal matters relating
to the filing of a Registration Statement on Form S-1, No. 333-10969 (the
"Registration Statement") under the Securities Act of 1933, as amended (the
"Act"), covering the offering and sale of up to 2,300,000 shares (including
300,000 shares subject to the Underwriters' over-allotment option) of the
Company's Common Stock, par value $.01 per share (the "Shares").
In connection therewith, we have examined and relied without investigation
as to matters of fact upon the Registration Statement, certificates of public
officials, statements and certificates of officers of the Company, and originals
or copies certified to our satisfaction of the Restated Articles of
Incorporation and Bylaws of the Company, as amended, proceedings of the Board of
Directors of the Company and such other corporate records, documents,
certificates and instruments as we have deemed necessary or appropriate in order
to enable us to render the opinion expressed below.
In rendering this opinion, we have assumed the genuineness of all
signatures on all documents examined by us, the authenticity of all documents
submitted to us as originals and the conformity to authentic originals of all
documents submitted to us as certified or photostatted copies. We have also
assumed the due authorization, execution and delivery of all documents.
Based on the foregoing and in reliance thereon, we are of the opinion that
the Shares of the Company, if sold in accordance with the terms set forth in the
Registration Statement, will be legally issued, fully paid and non-assessable.
This opinion is not rendered with respect to any laws other than the laws
of the State of Missouri.
<PAGE>
Board of Directors
TALX Corporation
October 7, 1996
Page 2
We hereby consent to the filing of this opinion as Exhibit 5.1 to the
Registration Statement and to the use of our name under the caption "Legal
Matters" in the Prospectus filed as a part thereof. We also consent to your
filing copies of this opinion as an exhibit to the Registration Statement with
agencies of such states as you deem necessary in the course of complying with
the laws of such states regarding the offering and sale of the Shares. In
giving this consent, we do not admit that we are in the category of persons
whose consent is required under Section 7 of the Act or the rules and
regulations of the Securities and Exchange Commission.
Very truly yours,
/s/ Bryan Cave LLP
BRYAN CAVE LLP
<PAGE>
Exhibit 10.21
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of September,
1996 by and between TALX Corporation, a Missouri corporation (the "Company"),
and William W. Canfield ("Executive").
RECITALS
--------
A. The Company desires to employ Executive as President and Chief
Executive Officer and for Executive to serve as a Chairman of its Board of
Directors.
B. In return for the compensation, bonuses and other consideration
provided for herein, Executive has agreed to become President and Chief
Executive Officer and Chairman of the Board of Directors of the Company pursuant
to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the representations,
warranties and covenants hereinafter, the parties hereto agree as follows (the
"Agreement"):
1. Employment. At all times during the Employment Period (as hereinafter
defined), Company shall employ Executive in the capacity of President and Chief
Executive Officer. In such capacity, Executive shall devote his full time and
professional efforts to such position, shall be assigned and undertake only such
duties and tasks as are appropriate for a person in the position of President
and Chief Executive Officer, and shall exercise such authority over all of
Company's operations and employees as is customarily exercised by a President
and Chief Executive Officer, subject to the overall supervision of the Board of
Directors of the Company (the "Board").
2. Employment Period. The term of the Executive's employment under this
Agreement shall commence on September 1, 1996 (the "Commencement Date") and
shall expire, subject to earlier termination of employment as hereinafter
provided, on August 31, 1999 (the "Employment Period"); provided, however, that
on September 1, 1997 and each anniversary of such date, the Employment Period
shall automatically be extended for an additional one year period unless prior
thereto either party has given 90-days prior written notice to the other that
such party does not wish to extend the term of this Agreement.
3. Compensation. Except as otherwise provided for herein, throughout the
Employment Period the Company shall pay or provide
<PAGE>
Executive with the following, and Executive shall accept the same, as
compensation for the performance of his undertakings and the services to be
rendered by him throughout the Employment Period under this Agreement:
(a) Annual Compensation.
(i) Base Salary: $215,000 per year ("Base Amount"), to be reviewed
annually for increases only by the Management Compensation Committee
("Compensation Committee") of the Company's Board of Directors as such Base
Amount may not be reduced.
(ii) Annual Incentive Compensation Program: Executive will
participate in an annual incentive compensation program the terms and
conditions of which will have been reviewed by the Compensation Committee
and upon the recommendation of such Compensation Committee will have been
submitted to, and approved by, the Board.
(b) Benefits. Executive shall be entitled to participate in all benefit
plans and other applicable programs, practices and arrangements maintained by
the Company for its employees generally, to the extent that such plans,
programs, practices and arrangements do not conflict with the terms of this
Agreement.
4. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to the contrary,
in the event that any payment (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended or replaced (the "Code")), or
distribution to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his or her employment with the
Company (a "Payment" or "Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, interest and
penalties collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all such taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments; provided,
that the Executive shall not be entitled to receive any additional payment
relating to any interest or penalties attributable to any action or omission by
the Executive in bad faith.
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(b) An initial determination shall be made by an accounting firm mutually
agreeable to the Company and the Executive and, if not agreed to within three
days after the Date of Termination, a national independent accounting firm
selected by the Executive (the "Accounting Firm"), as to whether a Gross-Up
Payment is required pursuant to this Section 4 and the amount of such Gross-Up
Payment. To permit the Accounting Firm to make the initial determination, the
Company shall furnish the Accounting Firm with all information reasonably
required for such firm to complete such determination as soon as practicable
after the Date of Termination, but in no event more than fifteen (15) days
thereafter. All fees, costs and expenses (including, but not limited to, the
cost of retaining experts) of the Accounting Firm shall be borne by the Company
and the Company shall pay such fees, costs and expenses as they become due. The
Accounting Firm shall provide detailed supporting calculations, reasonably
acceptable both to the Company and the Executive within thirty (30) days of the
Date of Termination, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that any
of the Payments may be subject to the Excise Tax). The Gross-Up Payment, if any,
as determined pursuant to this Section 4(b) shall be paid by the Company to the
Executive within five (5) business days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive with respect to a Payment or Payments, it shall furnish the
Executive with an opinion reasonably satisfactory to the Executive that no
Excise Tax will be imposed with respect to any such Payment or Payments. Any
such initial determination by the Accounting Firm of the Gross-Up Payment shall
be binding upon the Company and the Executive subject to the application of
Section 4(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof)
will be paid which should not have been paid (an "Overpayment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will not have been
paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon
a "Final Determination" (as hereinafter defined) that the tax liability of the
Executive (whether in respect of the then current taxable year of the Executive
or in respect of any prior taxable year of the Executive) will be increased by
reason of the imposition of the Excise Tax on a Payment or Payments with respect
to which the Company has failed to make a sufficient Gross-Up Payment. An
Overpayment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed (or shall be
reduced) upon a Payment or Payments with respect to which the Executive had
previously received a Gross-Up Payment. A Final Determination shall be deemed to
have occurred when (i) in the case of an Overpayment, the Executive has received
from
3
<PAGE>
the applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment or, in
the case of an Underpayment, the Executive receives notice from a competent
governmental authority that his or her tax liability imposed as a result of a
Payment will be increased, and (ii) in the case of an Overpayment or an
Underpayment, upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or
in the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and either
all appeals have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the Executive's
applicable tax return has expired. If an Underpayment occurs, the Executive
shall promptly notify the Company and the Company shall promptly pay to the
Executive an additional Gross-Up Payment equal to the amount of the Underpayment
plus any interest and penalties imposed on the Underpayment (other than interest
and penalties attributable to any action or omission by the Executive in bad
faith). If an Overpayment occurs, the amount of the Overpayment shall be treated
as a loan by the Company to the Executive and the Executive shall, within ten
(10) business days of the occurrence of such Overpayment, pay the Company the
amount of the Overpayment, without interest.
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event it is determined that an Excise Tax will be imposed on any Payment
or Payments, the Company shall pay to the applicable governmental taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.
5. Expenses. During the Employment Period, the Company shall promptly pay
or reimburse Executive for all reasonable out-of-pocket expenses incurred by
Executive in the performance of duties hereunder in accordance with the
Company's policies and procedures then in effect.
6. Conditions of Employment. Throughout the Employment Period, (a) the
Company shall not require or assign duties to Executive which would require him
to have the location of his principal business office or his principal place of
residence other than the County of St. Louis, Missouri, and (b) the Company
shall not require or assign duties to Executive which would require him to spend
more than ninety (90) consecutive days away from his office during, any
consecutive twelve-month period.
4
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7. Termination.
(a) In addition to the termination rights in Section 2 of this Agreement,
this Agreement shall terminate upon the following circumstances:
(i) At any time at the election of Company for Cause. "Cause" for
this purpose shall mean (1) Executive commits a material breach of this
Agreement which has not been cured within 10 days of written notice from
the Company that such material breach has occurred; (2) Executive commits a
crime against moral turpitude, including, without limitation, committing an
act of fraud, dishonesty, disclosure of confidential information or the
commission of a felony, or direct and deliberate acts constituting a breach
of trust to Company; (3) Executive willfully violates the provisions of
this Agreement, including, without limitation, willfully or continuously
refusing to perform the duties reasonably assigned to him by the Board
which are consistent with the provisions of this Agreement; or (4)
Executive willfully engages in conduct that damages the Company's business
or reputation or materially injures the Company.
(ii) At any time at the election of Executive for Good Reason. "Good
Reason" for this purpose shall mean (1) a material breach of this Agreement
by the Company which has not been cured within 10 days of written notice
from Executive that such material breach has occurred; (2) the reduction of
salary, benefits or other perquisites provided to Executive under this
Agreement; (3) failure by the Company to obtain a successor's commitment to
perform the Company's obligations under this Agreement; or (4) the Company
providing written notice to Executive pursuant to Section 2 hereof that it
does not wish to extend the term of this Agreement.
(iii) Executive's death or his being unable to render the services
required to be rendered by him during the Employment Period for a period of
one hundred eighty (180) days during any twelve-month period
("Disability").
(b) In the event the Company or Executive intend to terminate this
Agreement for Cause or Good Reason, respectively, such termination may only be
accomplished upon compliance with the following procedures:
(i) The party seeking to terminate this Agreement (the "Notifying
Party") shall provide the other (the "Defaulting Party") with written
notice of its or his belief that Cause or Good Reason, as the case may be,
exists. The parties shall for a period of 30 days from the date of such
notice
5
<PAGE>
attempt to resolve to their mutual satisfaction whether or not Cause or
Good Reason exists, and, if so, the rights and obligations of the parties.
(ii) In the event the parties are unable to reach a mutually
acceptable resolution during such 30-day period, the Notifying Party shall
afford the Defaulting Party an additional 10 days or such longer period as
the Notifying Party in its or his sole discretion may determine to cure the
alleged breach.
(iii) In the event the Defaulting Party does not cure the breach
during the 10-day period, the Notifying Party shall be required to
institute an arbitration proceeding to determine whether Cause or Good
Reason existed and has not been cured in accordance with Section 18 herein.
(iv) This Agreement shall be terminated as of the date when the
Notifying Party institutes an arbitration proceeding in accordance with
subsection (iii) preceding; provided, however, that in the event Good
Reason exists as a result of the application of Section 7(a)(ii)(4), no
further employment services will be required or expected of Executive and
Executive and Company will coordinate the timing and press releases, if
any, of his departure. The sole decision of the arbitrator in such
proceeding shall be to determine whether Cause (if initiated by Company) or
Good Reason (if initiated by Executive) exists. Thereafter, the obligations
of the parties to each other shall be determined by applying the decision
of the arbitrator(s) in accordance with Exhibit A hereto.
(v) In the event the Company does not prevail in any such proceeding
initiated by it for Cause, Executive's termination shall be deemed to have
occurred for Good Reason. In the event Executive does not prevail in any
such proceeding initiated by him for Good Reason, Executive shall be
considered as having voluntarily terminated employment other than for Good
Reason, and his rights under this Agreement shall be determined as if he
had been terminated by Company for Cause.
(c) Upon expiration or termination of this Agreement under Section 2 or
Section 7 herein, Executive shall be entitled to receive compensation and other
benefits provided for herein in accordance with Exhibit A hereto. The parties
agree that, in the event of termination by Executive for Good Reason under
Section 7, such payments and benefits shall be deemed to constitute liquidated
damages for the breach of this Agreement by Company.
6
<PAGE>
8. Change of Control.
-----------------
(a) If (i) Executive terminates his employment for Good Reason during the
period commencing with the date of a Change of Control (as hereinafter defined)
and ending twelve months following the Change of Control (the "Change of Control
Period"), (ii) the Company terminates Executive's employment without Cause
during the Change of Control Period, or (iii) Company terminates Executive's
employment without Cause within six months prior to a Change of Control and
Executive can reasonably demonstrate that such termination was in connection
with or in anticipation of a Change of Control, the Executive shall be entitled
to receive compensation and other benefits ("Change of Control Payments")
described on Exhibit A under the column heading "Related to Change of Control"
and such Change of Control Payments shall be in lieu of any other payments
described in Section 7 herein. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement shall relieve Employer of its
obligation of providing Employee with all retirement and deferred compensation
benefits in accordance with the terms of all retirement and deferred
compensation plans in which Employee participates.
(b) The term "Change of Control" shall mean a change of control of a
nature that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any
comparable successor provisions. Without limiting the foregoing, a "Change of
Control" also means for purposes of this Agreement, regardless of its meaning
under the provisions of the Exchange Act:
(i) The purchase or other acquisition (other than from the Company)
by any person, entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Exchange Act (excluding, for this purpose, the
Company or its subsidiaries or any employee benefit plan of the Company or
its subsidiaries), of beneficial ownership, (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either the then
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the Board,
provided that any person (other than a person whose election or nomination
or whose initial assumption of office is in connection with an actual or
threatened election contest relating to the
7
<PAGE>
election of directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
three-quarters of the directors then comprising the Incumbent Board shall
be, for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities or a liquidation
or dissolution of the Company or of the sale of all or substantially all of
the assets of the Company.
9. Non-Competition Agreement. Executive acknowledges, agrees and
recognizes that (i) the Company has spent substantial money, time and effort
over the years in developing and solidifying its relationships with its
customers and in developing its confidential, proprietary and trade secret
information; (ii) long-term customer relationships often can be difficult to
develop and require a significant investment of time, effort and expense; (iii)
the Company pays its employees to, among other things, develop and preserve the
Company's business, confidential and trade secret information, customer
goodwill, customer loyalty and customer contacts for and on behalf of the
Company; and (iv) the Company is hereby agreeing to hire Executive and pay
Executive based upon Executive's assurances and promises contained herein not to
divert the Executive's customers' goodwill or to put himself in a position
during or following the term of this Agreement in which the confidentiality of
the Company's information might somehow be compromised. Executive agrees that
during his employment by the Company and for the Restricted Period (as defined
below), Executive will not as an individual or as a partner, employee, agent,
advisor, consultant or in any other capacity of or to any person, firm,
corporation or other entity, on Executive's own behalf or on behalf of any other
person, firm corporation or entity, directly or indirectly:
(a) carry on any business, become involved in any business activity, or
render any products or services to any business, competitive with the business
of the Company or any of its subsidiaries, affiliates or related companies as
such business or businesses are presently conducted and as such business or
8
<PAGE>
businesses may evolve in the ordinary course during the Employment Period
anywhere in the United States or in any other jurisdiction in which the Company
shall conduct business during the Employment Period;
(b) provide any products or services similar to or related to those
products or services which the Company or any of its subsidiaries, affiliates or
related companies provide;
(c) knowingly and intentionally hire, or assist anyone else to hire, any
employee or distributor of the Company or seek to persuade, or assist anyone
else to seek to persuade, any employee or distributor of the Company to
discontinue his or her employment with the Company or business relationship with
the Company, as the case may be;
(d) knowingly and intentionally induce or attempt to induce, or assist
anyone else to induce or attempt to induce, any customer of the Company to
reduce or discontinue its business with the Company or disclose to anyone else
the name and/or requirements of any such customer; or
(e) knowingly and intentionally interfere with any relationships between
the Company and its vendors, customers, strategic partners, distributors or
other persons with whom the Company has business relations.
The "Restricted Period" shall during the term of the Executive's employment with
the Company, and for a period of one year after the termination of such
employment for whatever reason.
Executive expressly agrees that the covenants set forth in this Section 9
are reasonable and enforceable because, among other things, (i) the nature of
the markets in which the Company's products or services are marketed and sold;
(ii) the Executive will be exposed or have access to confidential information;
(iii) the Company would not have adequate protection if Executive were permitted
to work for any of its competitors since the Company would be unable to verify
whether its confidential information was being disclosed and/or misused, and
(iv) Executive's other businesses and background which are such that the
restraint will not impose any undue hardships upon Executive. Furthermore,
Executive recognizes and agrees that the restraints contained in this Section 9
are reasonable and enforceable in view of the Company's legitimate interests in
protecting its confidential information and customer goodwill and the
limitations contained therein on the duration and geographic scope of, and
activities prohibited by, such restraints.
9
<PAGE>
10. Confidential Information.
------------------------
(a) Without the express written consent of the Company, Executive agrees,
during the term of this Agreement and thereafter (including after the
termination of this Agreement for any reason) to keep secret and confidential,
and not to use or disclose to any third parties, any of the Company's and/or its
clients/customers' proprietary trade secret information or other confidential
information acquired by or disclosed to the Executive prior to, during the
course of, or in connection with, this Agreement.
(b) The Company and its clients/customers consider and treat as
confidential, proprietary and trade secret, among other things, their respective
marketing data, plans and strategies, internal financial information, customer
lists, costs, margins, pricing and policies, component sourcing and supply
information, planning methods, systems, processes, computer software (whether in
object code, source code, applications, machine readable form, printouts, or
human readable form), computer programs and documentation, computer hardware
designs and configurations, systems, research and development plans and
activities, ideas, drawings, photographs, models, prototypes, developments,
constructions, computer firmware, videotapes (including, but not limited to,
original, work and/or finished master tapes), manufacturing methods and
techniques, quality control procedures and methods, investigations, engineering,
test methods and data, technical data, security methods and procedures, designs,
plans and specifications, and actual and potential applications thereof,
business acquisition and expansion plans, product applications, information
provided to the Company in confidence by its clients and third parties, and the
like (collectively the "Confidential Information"), and Executive agrees to
treat any and all such information as secret, confidential and proprietary to
the Company and/or, as applicable, its customers/clients. Executive understands
that confidential information may or may not be labeled as "confidential" and
will treat all information as confidential whether or not labeled as such.
Confidential information shall not include information which (i) was already
available to the general public at the time of receipt by Executive, (ii)
subsequently becomes known to the general public through no fault or admission
of Executive, (iii) is subsequently disclosed by a third party which has the
bona fide right to make such disclosure; or (iv) is required to be disclosed by
law or by any court or authority.
(c) Executive acknowledges that any and all notes, records, sketches,
computer diskettes, programs, and other documents or things obtained by or
provided to Executive, or otherwise made, produced, generated or compiled during
the course of Executive's employment by the Company, which contain any of the
Company's Confidential Information, regardless of the type of medium in
10
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which it is preserved, are and shall remain the sole and exclusive property of
the Company and shall be surrendered by Executive to the Company upon the
termination of this Agreement and/or upon the request or demand of the Company.
11. Effect of Breach of Sections 9 or 10. So long as any stock options
held by the Executive shall not be vested or shall not have been exercised, the
exercise of such stock options shall each be subject to Executive's full
compliance with the terms and conditions of Section 9 (which shall continue to
apply for this purpose) and Section 10 herein; provided, however, that any such
breach will not have any effect on stock options exercised prior to the date of
such breach. Notwithstanding any other provision is this Agreement, Executive
further agrees that a breach of Sections 9 or 10 cannot adequately be
compensated by money damages and, therefore, Company shall be entitled, in
addition to any other right or remedy available to it (including, but not
limited to, an action for damages), to an injunction restraining such breach or
a threatened breach and to specific performance of either such provision, and
Executive hereby consents to the issuance of such injunction and to the ordering
of specific performance.
12. Legal Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 7, 8, 9, 10 or 11 of this Agreement if Company prevails in such
litigation or arbitration.
13. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.
14. Notices. All notices required or permitted under this Agreement shall
be in writing, may be made by personal delivery or facsimile transmission,
effective on the day of such delivery or receipt of such transmission, or may be
mailed by registered or certified mail, effective five (5) days after the date
of mailing, addressed as follows:
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to Company: TALX Corporation
1850 Borman Court
St. Louis, Missouri 63146
Attention: John E. Tubbesing
Executive Vice President
Facsimile number: (314) 434-5176
to Executive: William W. Canfield
620 N. Taylor
St. Louis, Missouri 63122
or such other person or address as designated in writing to Executive at his
last known residence address or to such other addresses as designated by him in
writing to Company.
15. Successors. This Agreement may not be assigned by the Company (other
than by merger or operation of law) without the express written consent of
Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
16. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board of Directors of the
Company. No waiver by either party at any time of any breach by the party of, or
compliance with, any condition or provision of this Agreement to be performed by
the other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior to subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Missouri.
17. Invalidity of Provisions. In the event that any provision of this
Agreement is adjudicated to be invalid or unenforceable under applicable law in
any jurisdiction, the validity or enforceability of the remaining provisions
thereof shall be unaffected as to such jurisdiction and such adjudication shall
not affect the validity or enforceability of such provision in any other
jurisdiction. To the extent that any provision of this Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited to the extent required by applicable law and
enforced as so limited. The parties expressly acknowledge and agree that this
Section 18 is reasonable in view of the parties' respective interests.
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18. Arbitration
-----------
(a) Scope; Initiation. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of this Section 18.
Either party to this Agreement (each a "Party" and together the "Parties") may
commence proceedings hereunder by delivery of written notice providing a
reasonable description of the Dispute to the other, including a reference to
this Section 18 (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first attempt in
good faith to resolve promptly any Dispute by good faith negotiations. Not later
than three (3) business days after delivery of the Dispute Notice, the Company
shall appoint an executive to meet with the Executive or his or her
representative at a reasonably acceptable time and place, and thereafter as such
representatives deem reasonably necessary. The Parties shall exchange relevant
non-privileged information and endeavor to resolve the Dispute. Prior to any
such meeting, each Party or representative shall advise the other as to any
other individuals who will attend such meeting. All negotiations pursuant to
this Section 18(b) shall be confidential and shall be treated as compromise
negotiations for purposes of Rule 408 of the Federal Rules of Evidence and
similarly under other federal and state rules of evidence.
(c) Binding Arbitration. The Parties hereby agree to submit all
Disputes to arbitration under the following provisions, which arbitration shall
be final and binding upon the Parties, their successors and assigns, and that
the following provisions constitute a binding arbitration clause under
applicable law.
(i) Either Party may initiate arbitration of a Dispute by
delivery of a demand therefor (the "Arbitration Demand") to the other Party not
sooner than five (5) business days after the date of delivery of the Dispute
Notice but at any time thereafter.
(ii) The arbitration shall be conducted in the County of St.
Louis, Missouri, by three arbitrators (acting by majority vote, the "Panel")
selected by agreement of the Parties not later than 10 days after delivery of
the Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator becomes unable to serve,
his or her successor(s) shall be similarly selected or appointed.
13
<PAGE>
(iii) The arbitration shall be conducted pursuant to the Federal
Arbitration Act and the Missouri Uniform Arbitration Act, such procedures as the
Parties may agree or, in the absence of or failing such agreement, pursuant to
the AAA Rules. Notwithstanding the foregoing: (w) each party shall be allowed
to conduct discovery through written requests for information, document
requests, requests for stipulations of fact, and depositions; (x) the nature and
extent of such discovery shall be determined by the Panel, taking into account
the needs of the Parties and the desirability of making discovery expeditious
and cost-effective; (y) the Panel may issue orders to protect the
confidentiality of information, to be disclosed in discovery; and (z) the
Panel's discovery rulings may be enforced in any court of competent
jurisdiction.
(iv) All hearings shall be conducted on an expedited schedule, and
all proceedings shall be confidential. Either Party may at its expense make a
stenographic record thereof.
(v) The Panel shall complete all hearings not later than twenty (20)
days after selection or appointment, and shall make a final award not later than
ten (10) days thereafter. The award shall be in writing and shall specify the
factual and legal bases for the award, and shall include a determination as to
whether any claim by the Executive of Good Reason was manifestly unreasonable
for purposes of the second-to-last sentence of Section 5. Notwithstanding
anything contained in Section 8, in circumstances where a Dispute has been
asserted by the Executive or defended against by the Executive on grounds that
the Panel deems manifestly unreasonable (whether related to a claim of Good
Reason or otherwise), the Panel may assess all or part of the costs and expenses
of the arbitration, including the Panel's fees and expenses and fees and
expenses of experts and legal counsel ("Arbitration Costs"), against the
Executive and may include in the award the Executive's and the Company's
attorney's fees and expenses in connection with any and all proceedings under
this Section 18. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages to either party.
(d) Confidentiality - Notice. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third person, if it
receives any request for access to confidential information or proceedings
hereunder.
(e) Injunctions. However, notwithstanding anything else in this
Section 18, the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any continuation of
any violation of this Agreement, and the Executive hereby consents that such
restraining order or injunction may be granted without the
14
<PAGE>
necessity of the Company posting any bond. The expense of such arbitration
shall be borne by the Company.
19. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of any
provision of this Agreement.
20. Entire Agreement. This Agreement (together with the Exhibit hereto)
constitutes the entire agreement between the parties, supersedes in all respects
any prior agreement between Company and Executive and may not be changed except
by a writing duly executed and delivered by Company and Executive in the same
manner as this Agreement; provided however, that the terms of any securities of
the Company (or any options, warrants or other securities convertible into, or
exchangeable or exercisable for, securities of the Company), which are held by
the Executive shall be governed by the agreements entered into upon issuance of
such securities (or such options, warrants or other securities convertible into,
or exchangeable or exercisable for, securities of the Company).
21. Counterparts. Company and Executive may execute this Agreement in any
number of counterparts, each of which shall be deemed to be an original but all
of which shall constitute but one instrument. In proving this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
TALX CORPORATION
By:
_____________________________________
John E. Tubbesing
Executive Vice President
Executive
_____________________________________
William W. Canfield
<PAGE>
Exhibit A
EFFECT OF AGREEMENT TERMINATION
-------------------------------
REASON FOR TERMINATION
----------------------
<TABLE>
<CAPTION>
====================================================================================================================================
DEATH OR
TYPE OF NORMAL EXPIRATION DISABILITY
COMPENSATION DATE OF AGREEMENT BY EXECUTIVE FOR BY EMPLOYER FOR RELATED TO (AS DEFINED IN
/BENEFIT OR RENEWAL PERIOD "GOOD REASON" "CAUSE" CHANGE OF CONTROL AGREEMENT)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Salary Payable through Receives Base Payable through Receives $1 less Payable through
end of Employment Amount (as defined date of early than an amount end of month in
Period (as defined in the Agreement) termination. equal to three which death or
in Agreement) for the three year times the average disability
period commencing annual occurs.
on the Executive's compensation
early termination received by Mr.
date (the Canfield from the
"Continuation Company reported
Period"), payable on his Form W-2
ratably over such for the five
Continuation Period. calendar years
preceding the
calendar year of
the Change of
Control, payable
in one lump sum
cash payment.
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Incentive Payable through Receives targeted Amount determined None Amount earned
Compensation Program Employment Period; incentive by Compensation (recommended by
amount recommended compensation (based Committee in its the Compensation
by Compensation on estimated sole discretion; Committee based
Committee based on targeted incentive would likely be on the Company's
Company's and compensation for zero. and Executive's
Executive's year of performance for
performance. termination) for the year in which
the Continuation death or
Period, payable disability
over the occurs) will be
Continuation Period. prorated.
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employee Benefits Continue through Continue through Continue through Executive's Continue through
(excluding any benefits end of Employment end of Continuation date of early medical, dental end of month in
related to securities of Period, subject to Period, subject to termination, and vision which death or
the Company or options, legal and legal and subject to legal insurance shall be disability
warrants or convertible contractual rights contractual rights and contractual continued through occurs, subject
into or exercisable or in plans to in plans to convert rights in plans to the Continuation to legal and
exchangeable for convert or extend or extend coverages. convert or extend Period, subject to contractual
securities of the Company) coverages. coverages. legal and rights to convert
contractual rights or extend
in plans to coverages.
convert or extend
coverages;
provided, further,
if extension of
such insurance
coverage is not
permitted, the
Company shall pay
the premiums for a
new similar health
insurance plan
which would allow
coverage of the
Executive through
the Continuation
Period.
====================================================================================================================================
</TABLE>
<PAGE>
Exhibit 10.22
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of September,
1996 by and between TALX Corporation, a Missouri corporation (the "Company"),
and John E. Tubbesing ("Executive").
RECITALS
--------
A. The Company desires to employ Executive as Executive Vice President.
B. In return for the compensation, bonuses and other consideration
provided for herein, Executive has agreed to become Executive Vice President
pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the representations,
warranties and covenants hereinafter, the parties hereto agree as follows (the
"Agreement"):
1. Employment. At all times during the Employment Period (as hereinafter
defined), Company shall employ Executive in the capacity of Executive Vice
President. In such capacity, Executive shall devote his full time and
professional efforts to such position, shall be assigned and undertake only such
duties and tasks as are appropriate for a person in the position of Executive
Vice President, and shall exercise such authority over all of Company's
operations and employees as is customarily exercised by an Executive Vice
President, subject to the overall supervision of the Board of Directors of the
Company (the "Board").
2. Employment Period. The term of the Executive's employment under this
Agreement shall commence on September 1, 1996 (the "Commencement Date") and
shall expire, subject to earlier termination of employment as hereinafter
provided, on August 31, 1997 (the "Employment Period"); provided, however, that
on September 1, 1997 and each anniversary of such date, the Employment Period
shall automatically be extended for an additional one year period unless prior
thereto either party has given 90-days prior written notice to the other that
such party does not wish to extend the term of this Agreement.
3. Compensation. Except as otherwise provided for herein, throughout the
Employment Period the Company shall pay or provide
<PAGE>
Executive with the following, and Executive shall accept the same, as
compensation for the performance of his undertakings and the services to be
rendered by him throughout the Employment Period under this Agreement:
(a) Annual Compensation.
-------------------
(i) Base Salary: $146,500 per year ("Base Amount"), to be reviewed
annually for increases only by the Management Compensation Committee
("Compensation Committee") of the Company's Board of Directors as such Base
Amount may not be reduced.
(ii) Annual Incentive Compensation Program: Executive will
participate in an annual incentive compensation program the terms and
conditions of which will have been reviewed by the Compensation Committee
and upon the recommendation of such Compensation Committee will have been
submitted to, and approved by, the Board.
(b) Benefits. Executive shall be entitled to participate in all benefit
plans and other applicable programs, practices and arrangements maintained by
the Company for its employees generally, to the extent that such plans,
programs, practices and arrangements do not conflict with the terms of this
Agreement.
4. Excise Tax Payments.
-------------------
(a) Notwithstanding anything contained in this Agreement to the contrary,
in the event that any payment (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended or replaced (the "Code")), or
distribution to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his or her employment with the
Company (a "Payment" or "Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, interest and
penalties collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all such taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments; provided,
that the Executive shall not be entitled to receive any additional payment
relating to any interest or penalties attributable to any action or omission by
the Executive in bad faith.
2
<PAGE>
(b) An initial determination shall be made by an accounting firm mutually
agreeable to the Company and the Executive and, if not agreed to within three
days after the Date of Termination, a national independent accounting firm
selected by the Executive (the "Accounting Firm"), as to whether a Gross-Up
Payment is required pursuant to this Section 4 and the amount of such Gross-Up
Payment. To permit the Accounting Firm to make the initial determination, the
Company shall furnish the Accounting Firm with all information reasonably
required for such firm to complete such determination as soon as practicable
after the Date of Termination, but in no event more than fifteen (15) days
thereafter. All fees, costs and expenses (including, but not limited to, the
cost of retaining experts) of the Accounting Firm shall be borne by the Company
and the Company shall pay such fees, costs and expenses as they become due. The
Accounting Firm shall provide detailed supporting calculations, reasonably
acceptable both to the Company and the Executive within thirty (30) days of the
Date of Termination, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that any
of the Payments may be subject to the Excise Tax). The Gross-Up Payment, if
any, as determined pursuant to this Section 4(b) shall be paid by the Company to
the Executive within five (5) business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive with respect to a Payment or Payments, it shall furnish
the Executive with an opinion reasonably satisfactory to the Executive that no
Excise Tax will be imposed with respect to any such Payment or Payments. Any
such initial determination by the Accounting Firm of the Gross-Up Payment shall
be binding upon the Company and the Executive subject to the application of
Section 4(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof)
will be paid which should not have been paid (an "Overpayment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will not have been
paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon
a "Final Determination" (as hereinafter defined) that the tax liability of the
Executive (whether in respect of the then current taxable year of the Executive
or in respect of any prior taxable year of the Executive) will be increased by
reason of the imposition of the Excise Tax on a Payment or Payments with respect
to which the Company has failed to make a sufficient Gross-Up Payment. An
Overpayment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed (or shall be
reduced) upon a Payment or Payments with respect to which the Executive had
previously received a Gross-Up Payment. A Final Determination shall be deemed
to have occurred when (i) in the case of an Overpayment, the Executive has
received from
3
<PAGE>
the applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment or, in
the case of an Underpayment, the Executive receives notice from a competent
governmental authority that his or her tax liability imposed as a result of a
Payment will be increased, and (ii) in the case of an Overpayment or an
Underpayment, upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or
in the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and either
all appeals have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the Executive's
applicable tax return has expired. If an Underpayment occurs, the Executive
shall promptly notify the Company and the Company shall promptly pay to the
Executive an additional Gross-Up Payment equal to the amount of the Underpayment
plus any interest and penalties imposed on the Underpayment (other than interest
and penalties attributable to any action or omission by the Executive in bad
faith). If an Overpayment occurs, the amount of the Overpayment shall be
treated as a loan by the Company to the Executive and the Executive shall,
within ten (10) business days of the occurrence of such Overpayment, pay the
Company the amount of the Overpayment, without interest.
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event it is determined that an Excise Tax will be imposed on any Payment
or Payments, the Company shall pay to the applicable governmental taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.
5. Expenses. During the Employment Period, the Company shall promptly
pay or reimburse Executive for all reasonable out-of-pocket expenses incurred by
Executive in the performance of duties hereunder in accordance with the
Company's policies and procedures then in effect.
6. Conditions of Employment. Throughout the Employment Period, (a) the
Company shall not require or assign duties to Executive which would require him
to have the location of his principal business office or his principal place of
residence other than the County of St. Louis, Missouri, and (b) the Company
shall not require or assign duties to Executive which would require him to spend
more than ninety (90) consecutive days away from his office during, any
consecutive twelve-month period.
4
<PAGE>
7. Termination.
(a) In addition to the termination rights in Section 2 of this Agreement,
this Agreement shall terminate upon the following circumstances:
(i) At any time at the election of Company for Cause. "Cause" for
this purpose shall mean (1) Executive commits a material breach of this
Agreement which has not been cured within 10 days of written notice from
the Company that such material breach has occurred; (2) Executive commits a
crime against moral turpitude, including, without limitation, committing an
act of fraud, dishonesty, disclosure of confidential information or the
commission of a felony, or direct and deliberate acts constituting a breach
of trust to Company; (3) Executive willfully violates the provisions of
this Agreement, including, without limitation, willfully or continuously
refusing to perform the duties reasonably assigned to him by the Board
which are consistent with the provisions of this Agreement; or (4)
Executive willfully engages in conduct that damages the Company's business
or reputation or materially injures the Company.
(ii) At any time at the election of Executive for Good Reason.
"Good Reason" for this purpose shall mean (1) a material breach of this
Agreement by the Company which has not been cured within 10 days of written
notice from Executive that such material breach has occurred; (2) the
reduction of salary, benefits or other perquisites provided to Executive
under this Agreement; (3) failure by the Company to obtain a successor's
commitment to perform the Company's obligations under this Agreement; or
(4) the Company providing written notice to Executive pursuant to Section 2
hereof that it does not wish to extend the term of this Agreement.
(iii) Executive's death or his being unable to render the services
required to be rendered by him during the Employment Period for a period of
one hundred eighty (180) days during any twelve-month period
("Disability").
(b) In the event the Company or Executive intend to terminate this
Agreement for Cause or Good Reason, respectively, such termination may only be
accomplished upon compliance with the following procedures:
(i) The party seeking to terminate this Agreement (the "Notifying
Party") shall provide the other (the "Defaulting Party") with written
notice of its or his belief that Cause or Good Reason, as the case may be,
exists. The parties shall for a period of 30 days from the date of such
notice
5
<PAGE>
attempt to resolve to their mutual satisfaction whether or not Cause or
Good Reason exists, and, if so, the rights and obligations of the parties.
(ii) In the event the parties are unable to reach a mutually
acceptable resolution during such 30-day period, the Notifying Party shall
afford the Defaulting Party an additional 10 days or such longer period as
the Notifying Party in its or his sole discretion may determine to cure the
alleged breach.
(iii) In the event the Defaulting Party does not cure the breach
during the 10-day period, the Notifying Party shall be required to
institute an arbitration proceeding to determine whether Cause or Good
Reason existed and has not been cured in accordance with Section 18 herein.
(iv) This Agreement shall be terminated as of the date when the
Notifying Party institutes an arbitration proceeding in accordance with
subsection (iii) preceding; provided, however, that in the event Good
Reason exists as a result of the application of Section 7(a)(ii)(4), no
further employment services will be required or expected of Executive and
Executive and Company will coordinate the timing and press releases, if
any, of his departure. The sole decision of the arbitrator in such
proceeding shall be to determine whether Cause (if initiated by Company) or
Good Reason (if initiated by Executive) exists. Thereafter, the
obligations of the parties to each other shall be determined by applying
the decision of the arbitrator(s) in accordance with Exhibit A hereto.
(v) In the event the Company does not prevail in any such proceeding
initiated by it for Cause, Executive's termination shall be deemed to have
occurred for Good Reason. In the event Executive does not prevail in any
such proceeding initiated by him for Good Reason, Executive shall be
considered as having voluntarily terminated employment other than for Good
Reason, and his rights under this Agreement shall be determined as if he
had been terminated by Company for Cause.
(c) Upon expiration or termination of this Agreement under Section 2 or
Section 7 herein, Executive shall be entitled to receive compensation and other
benefits provided for herein in accordance with Exhibit A hereto. The parties
agree that, in the event of termination by Executive for Good Reason under
Section 7, such payments and benefits shall be deemed to constitute liquidated
damages for the breach of this Agreement by Company.
6
<PAGE>
8. Change of Control.
(a) If (i) Executive terminates his employment for Good Reason during the
period commencing with the date of a Change of Control (as hereinafter defined)
and ending twelve months following the Change of Control (the "Change of Control
Period"), (ii) the Company terminates Executive's employment without Cause
during the Change of Control Period, or (iii) Company terminates Executive's
employment without Cause within six months prior to a Change of Control and
Executive can reasonably demonstrate that such termination was in connection
with or in anticipation of a Change of Control, the Executive shall be entitled
to receive compensation and other benefits ("Change of Control Payments")
described on Exhibit A under the column heading "Related to Change of Control"
and such Change of Control Payments shall be in lieu of any other payments
described in Section 7 herein. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement shall relieve Employer of its
obligation of providing Employee with all retirement and deferred compensation
benefits in accordance with the terms of all retirement and deferred
compensation plans in which Employee participates.
(b) The term "Change of Control" shall mean a change of control of a nature
that would be required to be reported in response to Item 1(a) of the Current
Report on Form 8-K, as in effect on the date hereof, pursuant to Section 13 or
15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any comparable
successor provisions. Without limiting the foregoing, a "Change of Control"
also means for purposes of this Agreement, regardless of its meaning under the
provisions of the Exchange Act:
(i) The purchase or other acquisition (other than from the Company) by
any person, entity or group of persons, within the meaning of Section 13(d)
or 14(d) of the Exchange Act (excluding, for this purpose, the Company or
its subsidiaries or any employee benefit plan of the Company or its
subsidiaries), of beneficial ownership, (within the meaning of Rule 13d-3
promulgated under the Exchange Act) of 25% or more of either the then
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the Board,
provided that any person (other than a person whose election or nomination
or whose initial assumption of office is in connection with an actual or
threatened election contest relating to the
7
<PAGE>
election of directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
three-quarters of the directors then comprising the Incumbent Board shall
be, for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities or a
liquidation or dissolution of the Company or of the sale of all or
substantially all of the assets of the Company.
9. Non-Competition Agreement. Executive acknowledges, agrees and
recognizes that (i) the Company has spent substantial money, time and effort
over the years in developing and solidifying its relationships with its
customers and in developing its confidential, proprietary and trade secret
information; (ii) long-term customer relationships often can be difficult to
develop and require a significant investment of time, effort and expense; (iii)
the Company pays its employees to, among other things, develop and preserve the
Company's business, confidential and trade secret information, customer
goodwill, customer loyalty and customer contacts for and on behalf of the
Company; and (iv) the Company is hereby agreeing to hire Executive and pay
Executive based upon Executive's assurances and promises contained herein not to
divert the Executive's customers' goodwill or to put himself in a position
during or following the term of this Agreement in which the confidentiality of
the Company's information might somehow be compromised. Executive agrees that
during his employment by the Company and for the Restricted Period (as defined
below), Executive will not as an individual or as a partner, employee, agent,
advisor, consultant or in any other capacity of or to any person, firm,
corporation or other entity, on Executive's own behalf or on behalf of any other
person, firm corporation or entity, directly or indirectly:
(a) carry on any business, become involved in any business activity, or
render any products or services to any business, competitive with the business
of the Company or any of its subsidiaries, affiliates or related companies as
such business or businesses are presently conducted and as such business or
8
<PAGE>
businesses may evolve in the ordinary course during the Employment Period
anywhere in the United States or in any other jurisdiction in which the Company
shall conduct business during the Employment Period;
(b) provide any products or services similar to or related to those
products or services which the Company or any of its subsidiaries, affiliates or
related companies provide;
(c) knowingly and intentionally hire, or assist anyone else to hire, any
employee or distributor of the Company or seek to persuade, or assist anyone
else to seek to persuade, any employee or distributor of the Company to
discontinue his or her employment with the Company or business relationship with
the Company, as the case may be;
(d) knowingly and intentionally induce or attempt to induce, or assist
anyone else to induce or attempt to induce, any customer of the Company to
reduce or discontinue its business with the Company or disclose to anyone else
the name and/or requirements of any such customer; or
(e) knowingly and intentionally interfere with any relationships between
the Company and its vendors, customers, strategic partners, distributors or
other persons with whom the Company has business relations.
The "Restricted Period" shall during the term of the Executive's employment with
the Company, and for a period of one year after the termination of such
employment for whatever reason.
Executive expressly agrees that the covenants set forth in this Section 9
are reasonable and enforceable because, among other things, (i) the nature of
the markets in which the Company's products or services are marketed and sold;
(ii) the Executive will be exposed or have access to confidential information;
(iii) the Company would not have adequate protection if Executive were permitted
to work for any of its competitors since the Company would be unable to verify
whether its confidential information was being disclosed and/or misused, and
(iv) Executive's other businesses and background which are such that the
restraint will not impose any undue hardships upon Executive. Furthermore,
Executive recognizes and agrees that the restraints contained in this Section 9
are reasonable and enforceable in view of the Company's legitimate interests in
protecting its confidential information and customer goodwill and the
limitations contained therein on the duration and geographic scope of, and
activities prohibited by, such restraints.
9
<PAGE>
10. Confidential Information.
------------------------
(a) Without the express written consent of the Company, Executive agrees,
during the term of this Agreement and thereafter (including after the
termination of this Agreement for any reason) to keep secret and confidential,
and not to use or disclose to any third parties, any of the Company's and/or its
clients/customers' proprietary trade secret information or other confidential
information acquired by or disclosed to the Executive prior to, during the
course of, or in connection with, this Agreement.
(b) The Company and its clients/customers consider and treat as
confidential, proprietary and trade secret, among other things, their respective
marketing data, plans and strategies, internal financial information, customer
lists, costs, margins, pricing and policies, component sourcing and supply
information, planning methods, systems, processes, computer software (whether in
object code, source code, applications, machine readable form, printouts, or
human readable form), computer programs and documentation, computer hardware
designs and configurations, systems, research and development plans and
activities, ideas, drawings, photographs, models, prototypes, developments,
constructions, computer firmware, videotapes (including, but not limited to,
original, work and/or finished master tapes), manufacturing methods and
techniques, quality control procedures and methods, investigations, engineering,
test methods and data, technical data, security methods and procedures, designs,
plans and specifications, and actual and potential applications thereof,
business acquisition and expansion plans, product applications, information
provided to the Company in confidence by its clients and third parties, and the
like (collectively the "Confidential Information"), and Executive agrees to
treat any and all such information as secret, confidential and proprietary to
the Company and/or, as applicable, its customers/clients. Executive understands
that confidential information may or may not be labeled as "confidential" and
will treat all information as confidential whether or not labeled as such.
Confidential information shall not include information which (i) was already
available to the general public at the time of receipt by Executive, (ii)
subsequently becomes known to the general public through no fault or admission
of Executive, (iii) is subsequently disclosed by a third party which has the
bona fide right to make such disclosure; or (iv) is required to be disclosed by
law or by any court or authority.
(c) Executive acknowledges that any and all notes, records, sketches,
computer diskettes, programs, and other documents or things obtained by or
provided to Executive, or otherwise made, produced, generated or compiled during
the course of Executive's employment by the Company, which contain any of the
Company's Confidential Information, regardless of the type of medium in
10
<PAGE>
which it is preserved, are and shall remain the sole and exclusive property of
the Company and shall be surrendered by Executive to the Company upon the
termination of this Agreement and/or upon the request or demand of the Company.
11. Effect of Breach of Sections 9 or 10. So long as any stock options
held by the Executive shall not be vested or shall not have been exercised, the
exercise of such stock options shall each be subject to Executive's full
compliance with the terms and conditions of Section 9 (which shall continue to
apply for this purpose) and Section 10 herein; provided, however, that any such
breach will not have any effect on stock options exercised prior to the date of
such breach. Notwithstanding any other provision is this Agreement, Executive
further agrees that a breach of Sections 9 or 10 cannot adequately be
compensated by money damages and, therefore, Company shall be entitled, in
addition to any other right or remedy available to it (including, but not
limited to, an action for damages), to an injunction restraining such breach or
a threatened breach and to specific performance of either such provision, and
Executive hereby consents to the issuance of such injunction and to the ordering
of specific performance.
12. Legal Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 7, 8, 9, 10 or 11 of this Agreement if Company prevails in such
litigation or arbitration.
13. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.
14. Notices. All notices required or permitted under this Agreement shall
be in writing, may be made by personal delivery or facsimile transmission,
effective on the day of such delivery or receipt of such transmission, or may be
mailed by registered or certified mail, effective five (5) days after the date
of mailing, addressed as follows:
11
<PAGE>
to Company: TALX Corporation
1850 Borman Court
St. Louis, Missouri 63146
Attention: William W. Canfield
President and Chief Executive Officer
Facsimile number: (314) 434-5176
to Executive: John E. Tubbesing
280 Greenbriar Estates
St. Louis, Missouri 63122
or such other person or address as designated in writing to Executive at his
last known residence address or to such other addresses as designated by him in
writing to Company.
15. Successors. This Agreement may not be assigned by the Company (other
than by merger or operation of law) without the express written consent of
Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
16. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board of Directors of the
Company. No waiver by either party at any time of any breach by the party of,
or compliance with, any condition or provision of this Agreement to be performed
by the other party shall be deemed a waiver of similar or dissimilar provisions
or conditions at the same time or at any prior to subsequent time. The
validity, interpretation, construction and performance of this Agreement shall
be governed by the laws of the State of Missouri.
17. Invalidity of Provisions. In the event that any provision of this
Agreement is adjudicated to be invalid or unenforceable under applicable law in
any jurisdiction, the validity or enforceability of the remaining provisions
thereof shall be unaffected as to such jurisdiction and such adjudication shall
not affect the validity or enforceability of such provision in any other
jurisdiction. To the extent that any provision of this Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited to the extent required by applicable law and
enforced as so limited. The parties expressly acknowledge and agree that this
Section 18 is reasonable in view of the parties' respective interests.
12
<PAGE>
18. Arbitration
-----------
(a) Scope; Initiation. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of this Section 18.
Either party to this Agreement (each a "Party" and together the "Parties") may
commence proceedings hereunder by delivery of written notice providing a
reasonable description of the Dispute to the other, including a reference to
this Section 18 (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first attempt in
good faith to resolve promptly any Dispute by good faith negotiations. Not
later than three (3) business days after delivery of the Dispute Notice, the
Company shall appoint an executive to meet with the Executive or his or her
representative at a reasonably acceptable time and place, and thereafter as such
representatives deem reasonably necessary. The Parties shall exchange relevant
non-privileged information and endeavor to resolve the Dispute. Prior to any
such meeting, each Party or representative shall advise the other as to any
other individuals who will attend such meeting. All negotiations pursuant to
this Section 18(b) shall be confidential and shall be treated as compromise
negotiations for purposes of Rule 408 of the Federal Rules of Evidence and
similarly under other federal and state rules of evidence.
(c) Binding Arbitration. The Parties hereby agree to submit all
Disputes to arbitration under the following provisions, which arbitration shall
be final and binding upon the Parties, their successors and assigns, and that
the following provisions constitute a binding arbitration clause under
applicable law.
(i) Either Party may initiate arbitration of a Dispute by
delivery of a demand therefor (the "Arbitration Demand") to the other Party not
sooner than five (5) business days after the date of delivery of the Dispute
Notice but at any time thereafter.
(ii) The arbitration shall be conducted in the County of St.
Louis, Missouri, by three arbitrators (acting by majority vote, the "Panel")
selected by agreement of the Parties not later than 10 days after delivery of
the Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator becomes unable to serve,
his or her successor(s) shall be similarly selected or appointed.
13
<PAGE>
(iii) The arbitration shall be conducted pursuant to the Federal
Arbitration Act and the Missouri Uniform Arbitration Act, such procedures as the
Parties may agree or, in the absence of or failing such agreement, pursuant to
the AAA Rules. Notwithstanding the foregoing: (w) each party shall be allowed to
conduct discovery through written requests for information, document requests,
requests for stipulations of fact, and depositions; (x) the nature and extent of
such discovery shall be determined by the Panel, taking into account the needs
of the Parties and the desirability of making discovery expeditious and cost-
effective; (y) the Panel may issue orders to protect the confidentiality of
information, to be disclosed in discovery; and (z) the Panel's discovery rulings
may be enforced in any court of competent jurisdiction.
(iv) All hearings shall be conducted on an expedited schedule,
and all proceedings shall be confidential. Either Party may at its expense make
a stenographic record thereof.
(v) The Panel shall complete all hearings not later than twenty
(20) days after selection or appointment, and shall make a final award not later
than ten (10) days thereafter. The award shall be in writing and shall specify
the factual and legal bases for the award, and shall include a determination as
to whether any claim by the Executive of Good Reason was manifestly unreasonable
for purposes of the second-to-last sentence of Section 5. Notwithstanding
anything contained in Section 8, in circumstances where a Dispute has been
asserted by the Executive or defended against by the Executive on grounds that
the Panel deems manifestly unreasonable (whether related to a claim of Good
Reason or otherwise), the Panel may assess all or part of the costs and expenses
of the arbitration, including the Panel's fees and expenses and fees and
expenses of experts and legal counsel ("Arbitration Costs"), against the
Executive and may include in the award the Executive's and the Company's
attorney's fees and expenses in connection with any and all proceedings under
this Section 18. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages to either party.
(d) Confidentiality - Notice. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third person, if it
receives any request for access to confidential information or proceedings
hereunder.
(e) Injunctions. However, notwithstanding anything else in this
Section 18, the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any continuation of
any violation of this Agreement, and the Executive hereby consents that such
restraining order or injunction may be granted without the
14
<PAGE>
necessity of the Company posting any bond. The expense of such arbitration
shall be borne by the Company.
19. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of any
provision of this Agreement.
20. Entire Agreement. This Agreement (together with the Exhibit hereto)
constitutes the entire agreement between the parties, supersedes in all respects
any prior agreement between Company and Executive and may not be changed except
by a writing duly executed and delivered by Company and Executive in the same
manner as this Agreement; provided however, that the terms of any securities of
the Company (or any options, warrants or other securities convertible into, or
exchangeable or exercisable for, securities of the Company), which are held by
the Executive shall be governed by the agreements entered into upon issuance of
such securities (or such options, warrants or other securities convertible into,
or exchangeable or exercisable for, securities of the Company).
21. Counterparts. Company and Executive may execute this Agreement in any
number of counterparts, each of which shall be deemed to be an original but all
of which shall constitute but one instrument. In proving this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
TALX CORPORATION
By:
------------------------------
William W. Canfield
President and Chief Executive Officer
Executive
-------------------------------
John E. Tubbesing
16
<PAGE>
<TABLE>
<CAPTION>
Exhibit A
EFFECT OF AGREEMENT TERMINATION
-------------------------------
REASON FOR TERMINATION
----------------------
====================================================================================================================================
NORMAL DEATH OR
TYPE OF EXPIRATION DATE DISABILITY
COMPENSATION OF AGREEMENT OR BY EXECUTIVE FOR BY EMPLOYER RELATED TO (AS DEFINED IN
/BENEFIT RENEWAL PERIOD "GOOD REASON" FOR "CAUSE" CHANGE OF CONTROL AGREEMENT)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Salary Payable through Receives Base Amount Payable through Receives 100% of the Base Payable through
end of Employment (as defined in the date of early Amount in effect end of month in
Period (as Agreement) for a one termination. immediately prior to the which death or
defined in year period Change of Control, payable disability occurs.
Agreement) commencing on the in one lump sum cash
Executive's early payment.
termination date
(the "Continuation
Period"), payable
ratably over such
Continuation Period.
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Incentive Payable through Receives targeted Amount Receives 100% of the Amount earned
Compensation Employment incentive determined by targeted incentive (recommended by
Program Period; amount compensation (based Compensation compensation for the the Compensation
recommended by on estimated Committee in Continuation Period (based Committee based on
Compensation targeted incentive its sole on estimated targeted the Company's and
Committee based compensation for discretion; incentive compensation for Executive's
on Company's and year of termination) would likely be year of termination), performance for
Executive's for the Continuation zero. payable in one lump sum the year in which
performance. Period, payable over cash payment. death or
the Continuation disability occurs)
Period. will be prorated.
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employee Continue through Continue through end Continue through Continue through end of Continue through
Benefits end of of Continuation date of early the Continuation Period, end of month in
(excluding any Employment Period, subject to termination, subject to legal and which death or
benefits related to Period, subject legal and subject to legal contractual rights in disability occurs,
securities of the to legal and contractual rights and contractual plans to convert or extend subject to legal
Company or contractual in plans to convert rights in plans coverages; provided, and contractual
options, warrants rights in plans or extend coverages. to convert or further, if extension of rights to convert
or convertible into to convert or extend coverages. insurance coverage is not or extend
or exercisable or extend coverages. permitted, the Company coverages.
exchangeable for shall pay the premiums for
securities of the a new similar insurance
Company) plan which would allow
similar coverage of the
Executive through the
Continuation Period.
Additionally, Executive
entitled to reimbursement
of reasonable out-of-
pocket expenses related to
outplacement services.
====================================================================================================================================
</TABLE>
17
<PAGE>
EXHIBIT 10.23
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of September,
1996 by and between TALX Corporation, a Missouri corporation (the "Company"),
and Michael E. Smith ("Executive").
RECITALS
--------
A. The Company desires to employ Executive as Vice President of Business
Development.
B. In return for the compensation, bonuses and other consideration
provided for herein, Executive has agreed to become Vice President of Business
Development pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the representations,
warranties and covenants hereinafter, the parties hereto agree as follows (the
"Agreement"):
1. Employment. At all times during the Employment Period (as hereinafter
defined), Company shall employ Executive in the capacity of Vice President of
Business Development. In such capacity, Executive shall devote his full time
and professional efforts to such position, shall be assigned and undertake only
such duties and tasks as are appropriate for a person in the position of Vice
President of Business Development, and shall exercise such authority over all of
Company's operations and employees as is customarily exercised by a Vice
President of Business Development, subject to the overall supervision of the
Board of Directors of the Company (the "Board").
2. Employment Period. The term of the Executive's employment under this
Agreement shall commence on September 1, 1996 (the "Commencement Date") and
shall expire, subject to earlier termination of employment as hereinafter
provided, on August 31, 1997 (the "Employment Period"); provided, however, that
on September 1, 1997 and each anniversary of such date, the Employment Period
shall automatically be extended for an additional one year period unless prior
thereto either party has given 90-days prior written notice to the other that
such party does not wish to extend the term of this Agreement.
3. Compensation. Except as otherwise provided for herein, throughout the
Employment Period the Company shall pay or provide
<PAGE>
Executive with the following, and Executive shall accept the same, as
compensation for the performance of his undertakings and the services to be
rendered by him throughout the Employment Period under this Agreement:
(a) Annual Compensation.
-------------------
(i) Base Salary: $100,000 per year ("Base Amount"), to be reviewed
annually for increases only by the Management Compensation Committee
("Compensation Committee") of the Company's Board of Directors as such Base
Amount may not be reduced.
(ii) Annual Incentive Compensation Program: Executive will
participate in an annual incentive compensation program the terms and
conditions of which will have been reviewed by the Compensation Committee
and upon the recommendation of such Compensation Committee will have been
submitted to, and approved by, the Board.
(b) Benefits. Executive shall be entitled to participate in all benefit
plans and other applicable programs, practices and arrangements maintained by
the Company for its employees generally, to the extent that such plans,
programs, practices and arrangements do not conflict with the terms of this
Agreement.
4. Excise Tax Payments.
-------------------
(a) Notwithstanding anything contained in this Agreement to the contrary,
in the event that any payment (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended or replaced (the "Code")), or
distribution to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his or her employment with the
Company (a "Payment" or "Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, interest and
penalties collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all such taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments; provided,
that the Executive shall not be entitled to receive any additional payment
relating to any interest or penalties attributable to any action or omission by
the Executive in bad faith.
2
<PAGE>
(b) An initial determination shall be made by an accounting firm mutually
agreeable to the Company and the Executive and, if not agreed to within three
days after the Date of Termination, a national independent accounting firm
selected by the Executive (the "Accounting Firm"), as to whether a Gross-Up
Payment is required pursuant to this Section 4 and the amount of such Gross-Up
Payment. To permit the Accounting Firm to make the initial determination, the
Company shall furnish the Accounting Firm with all information reasonably
required for such firm to complete such determination as soon as practicable
after the Date of Termination, but in no event more than fifteen (15) days
thereafter. All fees, costs and expenses (including, but not limited to, the
cost of retaining experts) of the Accounting Firm shall be borne by the Company
and the Company shall pay such fees, costs and expenses as they become due. The
Accounting Firm shall provide detailed supporting calculations, reasonably
acceptable both to the Company and the Executive within thirty (30) days of the
Date of Termination, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that any
of the Payments may be subject to the Excise Tax). The Gross-Up Payment, if any,
as determined pursuant to this Section 4(b) shall be paid by the Company to the
Executive within five (5) business days of the receipt of the Accounting Firm's
determination. If the Accounting Firm determines that no Excise Tax is payable
by the Executive with respect to a Payment or Payments, it shall furnish the
Executive with an opinion reasonably satisfactory to the Executive that no
Excise Tax will be imposed with respect to any such Payment or Payments. Any
such initial determination by the Accounting Firm of the Gross-Up Payment shall
be binding upon the Company and the Executive subject to the application of
Section 4(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof)
will be paid which should not have been paid (an "Overpayment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will not have been
paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon
a "Final Determination" (as hereinafter defined) that the tax liability of the
Executive (whether in respect of the then current taxable year of the Executive
or in respect of any prior taxable year of the Executive) will be increased by
reason of the imposition of the Excise Tax on a Payment or Payments with respect
to which the Company has failed to make a sufficient Gross-Up Payment. An
Overpayment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed (or shall be
reduced) upon a Payment or Payments with respect to which the Executive had
previously received a Gross-Up Payment. A Final Determination shall be deemed to
have occurred when (i) in the case of an Overpayment, the Executive has received
from
3
<PAGE>
the applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment or, in
the case of an Underpayment, the Executive receives notice from a competent
governmental authority that his or her tax liability imposed as a result of a
Payment will be increased, and (ii) in the case of an Overpayment or an
Underpayment, upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or
in the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and either
all appeals have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the Executive's
applicable tax return has expired. If an Underpayment occurs, the Executive
shall promptly notify the Company and the Company shall promptly pay to the
Executive an additional Gross-Up Payment equal to the amount of the Underpayment
plus any interest and penalties imposed on the Underpayment (other than interest
and penalties attributable to any action or omission by the Executive in bad
faith). If an Overpayment occurs, the amount of the Overpayment shall be treated
as a loan by the Company to the Executive and the Executive shall, within ten
(10) business days of the occurrence of such Overpayment, pay the Company the
amount of the Overpayment, without interest.
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event it is determined that an Excise Tax will be imposed on any Payment
or Payments, the Company shall pay to the applicable governmental taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.
5. Expenses. During the Employment Period, the Company shall promptly pay
or reimburse Executive for all reasonable out-of-pocket expenses incurred by
Executive in the performance of duties hereunder in accordance with the
Company's policies and procedures then in effect.
6. Conditions of Employment. Throughout the Employment Period, (a) the
Company shall not require or assign duties to Executive which would require him
to have the location of his principal business office or his principal place of
residence other than the County of St. Louis, Missouri, and (b) the Company
shall not require or assign duties to Executive which would require him to spend
more than ninety (90) consecutive days away from his office during, any
consecutive twelve-month period.
4
<PAGE>
7. Termination.
(a) In addition to the termination rights in Section 2 of this Agreement,
this Agreement shall terminate upon the following circumstances:
(i) At any time at the election of Company for Cause. "Cause" for
this purpose shall mean (1) Executive commits a material breach of this
Agreement which has not been cured within 10 days of written notice from
the Company that such material breach has occurred; (2) Executive commits a
crime against moral turpitude, including, without limitation, committing an
act of fraud, dishonesty, disclosure of confidential information or the
commission of a felony, or direct and deliberate acts constituting a breach
of trust to Company; (3) Executive willfully violates the provisions of
this Agreement, including, without limitation, willfully or continuously
refusing to perform the duties reasonably assigned to him by the Board
which are consistent with the provisions of this Agreement; or (4)
Executive willfully engages in conduct that damages the Company's business
or reputation or materially injures the Company.
(ii) At any time at the election of Executive for Good Reason. "Good
Reason" for this purpose shall mean (1) a material breach of this Agreement
by the Company which has not been cured within 10 days of written notice
from Executive that such material breach has occurred; (2) the reduction of
salary, benefits or other perquisites provided to Executive under this
Agreement; (3) failure by the Company to obtain a successor's commitment to
perform the Company's obligations under this Agreement; or (4) the Company
providing written notice to Executive pursuant to Section 2 hereof that it
does not wish to extend the term of this Agreement.
(iii) Executive's death or his being unable to render the services
required to be rendered by him during the Employment Period for a period of
one hundred eighty (180) days during any twelve-month period
("Disability").
(b) In the event the Company or Executive intend to terminate this
Agreement for Cause or Good Reason, respectively, such termination may only be
accomplished upon compliance with the following procedures:
(i) The party seeking to terminate this Agreement (the "Notifying
Party") shall provide the other (the "Defaulting Party") with written
notice of its or his belief that Cause or Good Reason, as the case may be,
exists. The parties shall for a period of 30 days from the date of such
notice
5
<PAGE>
attempt to resolve to their mutual satisfaction whether or not Cause or
Good Reason exists, and, if so, the rights and obligations of the parties.
(ii) In the event the parties are unable to reach a mutually
acceptable resolution during such 30-day period, the Notifying Party shall
afford the Defaulting Party an additional 10 days or such longer period as
the Notifying Party in its or his sole discretion may determine to cure the
alleged breach.
(iii) In the event the Defaulting Party does not cure the breach
during the 10-day period, the Notifying Party shall be required to
institute an arbitration proceeding to determine whether Cause or Good
Reason existed and has not been cured in accordance with Section 18 herein.
(iv) This Agreement shall be terminated as of the date when the
Notifying Party institutes an arbitration proceeding in accordance with
subsection (iii) preceding; provided, however, that in the event Good
Reason exists as a result of the application of Section 7(a)(ii)(4), no
further employment services will be required or expected of Executive and
Executive and Company will coordinate the timing and press releases, if
any, of his departure. The sole decision of the arbitrator in such
proceeding shall be to determine whether Cause (if initiated by Company) or
Good Reason (if initiated by Executive) exists. Thereafter, the obligations
of the parties to each other shall be determined by applying the decision
of the arbitrator(s) in accordance with Exhibit A hereto.
(v) In the event the Company does not prevail in any such
proceeding initiated by it for Cause, Executive's termination shall be
deemed to have occurred for Good Reason. In the event Executive does not
prevail in any such proceeding initiated by him for Good Reason, Executive
shall be considered as having voluntarily terminated employment other than
for Good Reason, and his rights under this Agreement shall be determined as
if he had been terminated by Company for Cause.
(c) Upon expiration or termination of this Agreement under Section 2 or
Section 7 herein, Executive shall be entitled to receive compensation and other
benefits provided for herein in accordance with Exhibit A hereto. The parties
agree that, in the event of termination by Executive for Good Reason under
Section 7, such payments and benefits shall be deemed to constitute liquidated
damages for the breach of this Agreement by Company.
6
<PAGE>
8. Change of Control.
(a) If (i) Executive terminates his employment for Good Reason during the
period commencing with the date of a Change of Control (as hereinafter defined)
and ending twelve months following the Change of Control (the "Change of Control
Period"), (ii) the Company terminates Executive's employment without Cause
during the Change of Control Period, or (iii) Company terminates Executive's
employment without Cause within six months prior to a Change of Control and
Executive can reasonably demonstrate that such termination was in connection
with or in anticipation of a Change of Control, the Executive shall be entitled
to receive compensation and other benefits ("Change of Control Payments")
described on Exhibit A under the column heading "Related to Change of Control"
and such Change of Control Payments shall be in lieu of any other payments
described in Section 7 herein. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement shall relieve Employer of its
obligation of providing Employee with all retirement and deferred compensation
benefits in accordance with the terms of all retirement and deferred
compensation plans in which Employee participates.
(b) The term "Change of Control" shall mean a change of control of a
nature that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any
comparable successor provisions. Without limiting the foregoing, a "Change of
Control" also means for purposes of this Agreement, regardless of its meaning
under the provisions of the Exchange Act:
(i) The purchase or other acquisition (other than from the Company)
by any person, entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Exchange Act (excluding, for this purpose, the
Company or its subsidiaries or any employee benefit plan of the Company or
its subsidiaries), of beneficial ownership, (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either the then
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the Board,
provided that any person (other than a person whose election or nomination
or whose initial assumption of office is in connection with an actual or
threatened election contest relating to the
7
<PAGE>
election of directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
three-quarters of the directors then comprising the Incumbent Board shall
be, for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities or a
liquidation or dissolution of the Company or of the sale of all or
substantially all of the assets of the Company.
9. Non-Competition Agreement. Executive acknowledges, agrees and
recognizes that (i) the Company has spent substantial money, time and effort
over the years in developing and solidifying its relationships with its
customers and in developing its confidential, proprietary and trade secret
information; (ii) long-term customer relationships often can be difficult to
develop and require a significant investment of time, effort and expense; (iii)
the Company pays its employees to, among other things, develop and preserve the
Company's business, confidential and trade secret information, customer
goodwill, customer loyalty and customer contacts for and on behalf of the
Company; and (iv) the Company is hereby agreeing to hire Executive and pay
Executive based upon Executive's assurances and promises contained herein not to
divert the Executive's customers' goodwill or to put himself in a position
during or following the term of this Agreement in which the confidentiality of
the Company's information might somehow be compromised. Executive agrees that
during his employment by the Company and for the Restricted Period (as defined
below), Executive will not as an individual or as a partner, employee, agent,
advisor, consultant or in any other capacity of or to any person, firm,
corporation or other entity, on Executive's own behalf or on behalf of any other
person, firm corporation or entity, directly or indirectly:
(a) carry on any business, become involved in any business activity, or
render any products or services to any business, competitive with the business
of the Company or any of its subsidiaries, affiliates or related companies as
such business or businesses are presently conducted and as such business or
8
<PAGE>
businesses may evolve in the ordinary course during the Employment Period
anywhere in the United States or in any other jurisdiction in which the Company
shall conduct business during the Employment Period;
(b) provide any products or services similar to or related to those
products or services which the Company or any of its subsidiaries, affiliates or
related companies provide;
(c) knowingly and intentionally hire, or assist anyone else to hire, any
employee or distributor of the Company or seek to persuade, or assist anyone
else to seek to persuade, any employee or distributor of the Company to
discontinue his or her employment with the Company or business relationship with
the Company, as the case may be;
(d) knowingly and intentionally induce or attempt to induce, or assist
anyone else to induce or attempt to induce, any customer of the Company to
reduce or discontinue its business with the Company or disclose to anyone else
the name and/or requirements of any such customer; or
(e) knowingly and intentionally interfere with any relationships between
the Company and its vendors, customers, strategic partners, distributors or
other persons with whom the Company has business relations.
The "Restricted Period" shall during the term of the Executive's employment with
the Company, and for a period of one year after the termination of such
employment for whatever reason.
Executive expressly agrees that the covenants set forth in this Section 9
are reasonable and enforceable because, among other things, (i) the nature of
the markets in which the Company's products or services are marketed and sold;
(ii) the Executive will be exposed or have access to confidential information;
(iii) the Company would not have adequate protection if Executive were permitted
to work for any of its competitors since the Company would be unable to verify
whether its confidential information was being disclosed and/or misused, and
(iv) Executive's other businesses and background which are such that the
restraint will not impose any undue hardships upon Executive. Furthermore,
Executive recognizes and agrees that the restraints contained in this Section 9
are reasonable and enforceable in view of the Company's legitimate interests in
protecting its confidential information and customer goodwill and the
limitations contained therein on the duration and geographic scope of, and
activities prohibited by, such restraints.
9
<PAGE>
10. Confidential Information.
(a) Without the express written consent of the Company, Executive agrees,
during the term of this Agreement and thereafter (including after the
termination of this Agreement for any reason) to keep secret and confidential,
and not to use or disclose to any third parties, any of the Company's and/or its
clients/customers' proprietary trade secret information or other confidential
information acquired by or disclosed to the Executive prior to, during the
course of, or in connection with, this Agreement.
(b) The Company and its clients/customers consider and treat as
confidential, proprietary and trade secret, among other things, their respective
marketing data, plans and strategies, internal financial information, customer
lists, costs, margins, pricing and policies, component sourcing and supply
information, planning methods, systems, processes, computer software (whether in
object code, source code, applications, machine readable form, printouts, or
human readable form), computer programs and documentation, computer hardware
designs and configurations, systems, research and development plans and
activities, ideas, drawings, photographs, models, prototypes, developments,
constructions, computer firmware, videotapes (including, but not limited to,
original, work and/or finished master tapes), manufacturing methods and
techniques, quality control procedures and methods, investigations, engineering,
test methods and data, technical data, security methods and procedures, designs,
plans and specifications, and actual and potential applications thereof,
business acquisition and expansion plans, product applications, information
provided to the Company in confidence by its clients and third parties, and the
like (collectively the "Confidential Information"), and Executive agrees to
treat any and all such information as secret, confidential and proprietary to
the Company and/or, as applicable, its customers/clients. Executive understands
that confidential information may or may not be labeled as "confidential" and
will treat all information as confidential whether or not labeled as such.
Confidential information shall not include information which (i) was already
available to the general public at the time of receipt by Executive, (ii)
subsequently becomes known to the general public through no fault or admission
of Executive, (iii) is subsequently disclosed by a third party which has the
bona fide right to make such disclosure; or (iv) is required to be disclosed by
law or by any court or authority.
(c) Executive acknowledges that any and all notes, records, sketches,
computer diskettes, programs, and other documents or things obtained by or
provided to Executive, or otherwise made, produced, generated or compiled during
the course of Executive's employment by the Company, which contain any of the
Company's Confidential Information, regardless of the type of medium in
10
<PAGE>
which it is preserved, are and shall remain the sole and exclusive property of
the Company and shall be surrendered by Executive to the Company upon the
termination of this Agreement and/or upon the request or demand of the Company.
11. Effect of Breach of Sections 9 or 10. So long as any stock options
held by the Executive shall not be vested or shall not have been exercised, the
exercise of such stock options shall each be subject to Executive's full
compliance with the terms and conditions of Section 9 (which shall continue to
apply for this purpose) and Section 10 herein; provided, however, that any such
breach will not have any effect on stock options exercised prior to the date of
such breach. Notwithstanding any other provision is this Agreement, Executive
further agrees that a breach of Sections 9 or 10 cannot adequately be
compensated by money damages and, therefore, Company shall be entitled, in
addition to any other right or remedy available to it (including, but not
limited to, an action for damages), to an injunction restraining such breach or
a threatened breach and to specific performance of either such provision, and
Executive hereby consents to the issuance of such injunction and to the ordering
of specific performance.
12. Legal Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 7, 8, 9, 10 or 11 of this Agreement if Company prevails in such
litigation or arbitration.
13. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.
14. Notices. All notices required or permitted under this Agreement shall
be in writing, may be made by personal delivery or facsimile transmission,
effective on the day of such delivery or receipt of such transmission, or may be
mailed by registered or certified mail, effective five (5) days after the date
of mailing, addressed as follows:
11
<PAGE>
to Company: TALX Corporation
1850 Borman Court
St. Louis, Missouri 63146
Attention: William W. Canfield
President and Chief Executive Officer
Facsimile number: (314) 434-5176
to Executive: Michael E. Smith
1055 Riverwood Place Dr.
Florissant, Missouri 63031
or such other person or address as designated in writing to Executive at his
last known residence address or to such other addresses as designated by him in
writing to Company.
15. Successors. This Agreement may not be assigned by the Company (other
than by merger or operation of law) without the express written consent of
Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
16. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board of Directors of the
Company. No waiver by either party at any time of any breach by the party of, or
compliance with, any condition or provision of this Agreement to be performed by
the other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior to subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Missouri.
17. Invalidity of Provisions. In the event that any provision of this
Agreement is adjudicated to be invalid or unenforceable under applicable law in
any jurisdiction, the validity or enforceability of the remaining provisions
thereof shall be unaffected as to such jurisdiction and such adjudication shall
not affect the validity or enforceability of such provision in any other
jurisdiction. To the extent that any provision of this Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited to the extent required by applicable law and
enforced as so limited. The parties expressly acknowledge and agree that this
Section 18 is reasonable in view of the parties' respective interests.
12
<PAGE>
18. Arbitration
-----------
(a) Scope; Initiation. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of this Section 18.
Either party to this Agreement (each a "Party" and together the "Parties") may
commence proceedings hereunder by delivery of written notice providing a
reasonable description of the Dispute to the other, including a reference to
this Section 18 (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first attempt in
good faith to resolve promptly any Dispute by good faith negotiations. Not later
than three (3) business days after delivery of the Dispute Notice, the Company
shall appoint an executive to meet with the Executive or his or her
representative at a reasonably acceptable time and place, and thereafter as such
representatives deem reasonably necessary. The Parties shall exchange relevant
non-privileged information and endeavor to resolve the Dispute. Prior to any
such meeting, each Party or representative shall advise the other as to any
other individuals who will attend such meeting. All negotiations pursuant to
this Section 18(b) shall be confidential and shall be treated as compromise
negotiations for purposes of Rule 408 of the Federal Rules of Evidence and
similarly under other federal and state rules of evidence.
(c) Binding Arbitration. The Parties hereby agree to submit all
Disputes to arbitration under the following provisions, which arbitration shall
be final and binding upon the Parties, their successors and assigns, and that
the following provisions constitute a binding arbitration clause under
applicable law.
(i) Either Party may initiate arbitration of a Dispute by
delivery of a demand therefor (the "Arbitration Demand") to the other Party not
sooner than five (5) business days after the date of delivery of the Dispute
Notice but at any time thereafter.
(ii) The arbitration shall be conducted in the County of St.
Louis, Missouri, by three arbitrators (acting by majority vote, the "Panel")
selected by agreement of the Parties not later than 10 days after delivery of
the Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator becomes unable to serve,
his or her successor(s) shall be similarly selected or appointed.
13
<PAGE>
(iii) The arbitration shall be conducted pursuant to the Federal
Arbitration Act and the Missouri Uniform Arbitration Act, such procedures as the
Parties may agree or, in the absence of or failing such agreement, pursuant to
the AAA Rules. Notwithstanding the foregoing: (w) each party shall be allowed to
conduct discovery through written requests for information, document requests,
requests for stipulations of fact, and depositions; (x) the nature and extent of
such discovery shall be determined by the Panel, taking into account the needs
of the Parties and the desirability of making discovery expeditious and cost-
effective; (y) the Panel may issue orders to protect the confidentiality of
information, to be disclosed in discovery; and (z) the Panel's discovery rulings
may be enforced in any court of competent jurisdiction.
(iv) All hearings shall be conducted on an expedited schedule,
and all proceedings shall be confidential. Either Party may at its expense make
a stenographic record thereof.
(v) The Panel shall complete all hearings not later than twenty
(20) days after selection or appointment, and shall make a final award not later
than ten (10) days thereafter. The award shall be in writing and shall specify
the factual and legal bases for the award, and shall include a determination as
to whether any claim by the Executive of Good Reason was manifestly unreasonable
for purposes of the second-to-last sentence of Section 5. Notwithstanding
anything contained in Section 8, in circumstances where a Dispute has been
asserted by the Executive or defended against by the Executive on grounds that
the Panel deems manifestly unreasonable (whether related to a claim of Good
Reason or otherwise), the Panel may assess all or part of the costs and expenses
of the arbitration, including the Panel's fees and expenses and fees and
expenses of experts and legal counsel ("Arbitration Costs"), against the
Executive and may include in the award the Executive's and the Company's
attorney's fees and expenses in connection with any and all proceedings under
this Section 18. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages to either party.
(d) Confidentiality - Notice. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third person, if it
receives any request for access to confidential information or proceedings
hereunder.
(e) Injunctions. However, notwithstanding anything else in this
Section 18, the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any continuation of
any violation of this Agreement, and the Executive hereby consents that such
restraining order or injunction may be granted without the
14
<PAGE>
necessity of the Company posting any bond. The expense of such arbitration shall
be borne by the Company.
19. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of any
provision of this Agreement.
20. Entire Agreement. This Agreement (together with the Exhibit hereto)
constitutes the entire agreement between the parties, supersedes in all respects
any prior agreement between Company and Executive and may not be changed except
by a writing duly executed and delivered by Company and Executive in the same
manner as this Agreement; provided however, that the terms of any securities of
the Company (or any options, warrants or other securities convertible into, or
exchangeable or exercisable for, securities of the Company), which are held by
the Executive shall be governed by the agreements entered into upon issuance of
such securities (or such options, warrants or other securities convertible into,
or exchangeable or exercisable for, securities of the Company).
21. Counterparts. Company and Executive may execute this Agreement in any
number of counterparts, each of which shall be deemed to be an original but all
of which shall constitute but one instrument. In proving this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
TALX CORPORATION
By:_______________________________
William W. Canfield
President and Chief Executive
Officer
Executive
___________________________________
Michael E. Smith
16
<PAGE>
Exhibit A
EFFECT OF AGREEMENT TERMINATION
-------------------------------
REASON FOR TERMINATION
----------------------
<TABLE>
<CAPTION>
===================================================================================================================================
DEATH OR
TYPE OF NORMAL EXPIRATION BY EXECUTIVE FOR BY EMPLOYER FOR RELATED TO DISABILITY
COMPENSATION DATE OF AGREEMENT "GOOD REASON" "CAUSE" CHANGE OF CONTROL (AS DEFINED IN
/BENEFIT OR RENEWAL PERIOD AGREEMENT)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Salary Payable through Receives Base Payable through Receives 100% of Payable through
end of Employment Amount (as defined date of early the Base Amount in end of month in
Period (as defined in the Agreement) termination. effect immediately which death or
in Agreement) for a one year prior to the disability occurs.
period commencing Change of Control,
on the Executive's payable in one
early termination lump sum cash
date (the payment.
"Continuation
Period"), payable
ratably over such
Continuation Period.
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Incentive Payable through Receives targeted Amount determined Receives 100% of Amount earned
Compensation Program Employment Period; incentive by Compensation the targeted (recommended by
amount recommended compensation (based Committee in its incentive the Compensation
by Compensation on estimated sole discretion; compensation for Committee based
Committee based on targeted incentive would likely be the Continuation on the Company's
Company's and compensation for zero. Period (based on and Executive's
Executive's year of estimated targeted performance for
performance. termination) for incentive the year in which
the Continuation compensation for death or
Period, payable year of disability
over the termination), occurs) will be
Continuation Period. payable in one prorated.
lump sum cash
payment.
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employee Benefits Continue through Continue through Continue through Continue through Continue through
(excluding any benefits end of Employment end of Continuation date of early end of the end of month in
related to securities of Period, subject to Period, subject to termination, Continuation which death or
the Company or options, legal and legal and subject to legal Period, subject to disability
warrants or convertible contractual rights contractual rights and contractual legal and occurs, subject
into or exercisable or in plans to in plans to convert rights in plans to contractual rights to legal and
exchangeable for convert or extend or extend coverages. convert or extend in plans to contractual
securities of the Company) coverages. coverages. convert or extend rights to convert
coverages; or extend
provided, further, coverages.
if extension of
insurance coverage
is not permitted,
the Company shall
pay the premiums
for a new similar
insurance plan
which would allow
similar coverage
of the Executive
through the
Continuation
Period.
Additionally,
Executive entitled
to reimbursement
of reasonable
out-of-pocket
expenses related
to outplacement
services.
====================================================================================================================================
</TABLE>
17
<PAGE>
Exhibit 10.24
EMPLOYMENT AGREEMENT
--------------------
THIS EMPLOYMENT AGREEMENT is entered into as of the 1st day of September,
1996 by and between TALX Corporation, a Missouri corporation (the "Company"),
and Craig N. Cohen ("Executive").
RECITALS
--------
A. The Company desires to employ Executive as Chief Financial Officer.
B. In return for the compensation, bonuses and other consideration
provided for herein, Executive has agreed to become Chief Financial Officer
pursuant to the terms and conditions of this Agreement.
NOW THEREFORE, in consideration of the foregoing, and the representations,
warranties and covenants hereinafter, the parties hereto agree as follows (the
"Agreement"):
1. Employment. At all times during the Employment Period (as hereinafter
defined), Company shall employ Executive in the capacity of Chief Financial
Officer. In such capacity, Executive shall devote his full time and
professional efforts to such position, shall be assigned and undertake only such
duties and tasks as are appropriate for a person in the position of Chief
Financial Officer, and shall exercise such authority over all of Company's
operations and employees as is customarily exercised by a Chief Financial
Officer, subject to the overall supervision of the Board of Directors of the
Company (the "Board").
2. Employment Period. The term of the Executive's employment under this
Agreement shall commence on September 1, 1996 (the "Commencement Date") and
shall expire, subject to earlier termination of employment as hereinafter
provided, on August 31, 1997 (the "Employment Period"); provided, however, that
on September 1, 1997 and each anniversary of such date, the Employment Period
shall automatically be extended for an additional one year period unless prior
thereto either party has given 90-days prior written notice to the other that
such party does not wish to extend the term of this Agreement.
3. Compensation. Except as otherwise provided for herein, throughout the
Employment Period the Company shall pay or provide
<PAGE>
Executive with the following, and Executive shall accept the same, as
compensation for the performance of his undertakings and the services to be
rendered by him throughout the Employment Period under this Agreement:
(a) Annual Compensation.
(i) Base Salary: $93,000 per year ("Base Amount"), to be reviewed
annually for increases only by the Management Compensation Committee
("Compensation Committee") of the Company's Board of Directors as such Base
Amount may not be reduced.
(ii) Annual Incentive Compensation Program: Executive will
participate in an annual incentive compensation program the terms and
conditions of which will have been reviewed by the Compensation Committee
and upon the recommendation of such Compensation Committee will have been
submitted to, and approved by, the Board.
(b) Benefits. Executive shall be entitled to participate in all benefit
plans and other applicable programs, practices and arrangements maintained by
the Company for its employees generally, to the extent that such plans,
programs, practices and arrangements do not conflict with the terms of this
Agreement.
4. Excise Tax Payments.
(a) Notwithstanding anything contained in this Agreement to the contrary,
in the event that any payment (within the meaning of Section 280G(b)(2) of the
Internal Revenue Code of 1986, as amended or replaced (the "Code")), or
distribution to or for the benefit of the Executive, whether paid or payable or
distributed or distributable pursuant to the terms of this Agreement or
otherwise in connection with, or arising out of, his or her employment with the
Company (a "Payment" or "Payments"), would be subject to the excise tax imposed
by Section 4999 of the Code or any interest or penalties are incurred by the
Executive with respect to such excise tax (such excise tax, interest and
penalties collectively referred to as the "Excise Tax"), then the Executive
shall be entitled to receive an additional payment (a "Gross-Up Payment") in an
amount such that after payment by the Executive of all such taxes (including any
interest or penalties imposed with respect to such taxes), including any Excise
Tax imposed upon the Gross-Up Payment, the Executive retains an amount of the
Gross-Up Payment equal to the Excise Tax imposed upon the Payments; provided,
that the Executive shall not be entitled to receive any additional payment
relating to any interest or penalties attributable to any action or omission by
the Executive in bad faith.
2
<PAGE>
(b) An initial determination shall be made by an accounting firm mutually
agreeable to the Company and the Executive and, if not agreed to within three
days after the Date of Termination, a national independent accounting firm
selected by the Executive (the "Accounting Firm"), as to whether a Gross-Up
Payment is required pursuant to this Section 4 and the amount of such Gross-Up
Payment. To permit the Accounting Firm to make the initial determination, the
Company shall furnish the Accounting Firm with all information reasonably
required for such firm to complete such determination as soon as practicable
after the Date of Termination, but in no event more than fifteen (15) days
thereafter. All fees, costs and expenses (including, but not limited to, the
cost of retaining experts) of the Accounting Firm shall be borne by the Company
and the Company shall pay such fees, costs and expenses as they become due. The
Accounting Firm shall provide detailed supporting calculations, reasonably
acceptable both to the Company and the Executive within thirty (30) days of the
Date of Termination, if applicable, or such other time as requested by the
Company or by the Executive (provided the Executive reasonably believes that any
of the Payments may be subject to the Excise Tax). The Gross-Up Payment, if
any, as determined pursuant to this Section 4(b) shall be paid by the Company to
the Executive within five (5) business days of the receipt of the Accounting
Firm's determination. If the Accounting Firm determines that no Excise Tax is
payable by the Executive with respect to a Payment or Payments, it shall furnish
the Executive with an opinion reasonably satisfactory to the Executive that no
Excise Tax will be imposed with respect to any such Payment or Payments. Any
such initial determination by the Accounting Firm of the Gross-Up Payment shall
be binding upon the Company and the Executive subject to the application of
Section 4(c).
(c) As a result of the uncertainty in the application of Sections 4999 and
280G of the Code, it is possible that a Gross-Up Payment (or a portion thereof)
will be paid which should not have been paid (an "Overpayment") or a Gross-Up
Payment (or a portion thereof) which should have been paid will not have been
paid (an "Underpayment"). An Underpayment shall be deemed to have occurred upon
a "Final Determination" (as hereinafter defined) that the tax liability of the
Executive (whether in respect of the then current taxable year of the Executive
or in respect of any prior taxable year of the Executive) will be increased by
reason of the imposition of the Excise Tax on a Payment or Payments with respect
to which the Company has failed to make a sufficient Gross-Up Payment. An
Overpayment shall be deemed to have occurred upon a "Final Determination" (as
hereinafter defined) that the Excise Tax shall not be imposed (or shall be
reduced) upon a Payment or Payments with respect to which the Executive had
previously received a Gross-Up Payment. A Final Determination shall be deemed
to have occurred when (i) in the case of an Overpayment, the Executive has
received from
3
<PAGE>
the applicable governmental taxing authority a refund of taxes or other
reduction in his or her tax liability imposed as a result of a Payment or, in
the case of an Underpayment, the Executive receives notice from a competent
governmental authority that his or her tax liability imposed as a result of a
Payment will be increased, and (ii) in the case of an Overpayment or an
Underpayment, upon either (x) the date a determination is made by, or an
agreement is entered into with, the applicable governmental taxing authority
which finally and conclusively binds the Executive and such taxing authority, or
in the event that a claim is brought before a court of competent jurisdiction,
the date upon which a final determination has been made by such court and either
all appeals have been taken and finally resolved or the time for all appeals has
expired or (y) the statute of limitations with respect to the Executive's
applicable tax return has expired. If an Underpayment occurs, the Executive
shall promptly notify the Company and the Company shall promptly pay to the
Executive an additional Gross-Up Payment equal to the amount of the Underpayment
plus any interest and penalties imposed on the Underpayment (other than interest
and penalties attributable to any action or omission by the Executive in bad
faith). If an Overpayment occurs, the amount of the Overpayment shall be
treated as a loan by the Company to the Executive and the Executive shall,
within ten (10) business days of the occurrence of such Overpayment, pay the
Company the amount of the Overpayment, without interest.
(d) Notwithstanding anything contained in this Agreement to the contrary,
in the event it is determined that an Excise Tax will be imposed on any Payment
or Payments, the Company shall pay to the applicable governmental taxing
authorities as Excise Tax withholding, the amount of the Excise Tax that the
Company has actually withheld from the Payment or Payments.
5. Expenses. During the Employment Period, the Company shall promptly
pay or reimburse Executive for all reasonable out-of-pocket expenses incurred by
Executive in the performance of duties hereunder in accordance with the
Company's policies and procedures then in effect.
6. Conditions of Employment. Throughout the Employment Period, (a) the
Company shall not require or assign duties to Executive which would require him
to have the location of his principal business office or his principal place of
residence other than the County of St. Louis, Missouri, and (b) the Company
shall not require or assign duties to Executive which would require him to spend
more than ninety (90) consecutive days away from his office during, any
consecutive twelve-month period.
4
<PAGE>
7. Termination.
(a) In addition to the termination rights in Section 2 of this Agreement,
this Agreement shall terminate upon the following circumstances:
(i) At any time at the election of Company for Cause. "Cause" for
this purpose shall mean (1) Executive commits a material breach of this
Agreement which has not been cured within 10 days of written notice from
the Company that such material breach has occurred; (2) Executive commits a
crime against moral turpitude, including, without limitation, committing an
act of fraud, dishonesty, disclosure of confidential information or the
commission of a felony, or direct and deliberate acts constituting a breach
of trust to Company; (3) Executive willfully violates the provisions of
this Agreement, including, without limitation, willfully or continuously
refusing to perform the duties reasonably assigned to him by the Board
which are consistent with the provisions of this Agreement; or (4)
Executive willfully engages in conduct that damages the Company's business
or reputation or materially injures the Company.
(ii) At any time at the election of Executive for Good Reason. "Good
Reason" for this purpose shall mean (1) a material breach of this Agreement
by the Company which has not been cured within 10 days of written notice
from Executive that such material breach has occurred; (2) the reduction of
salary, benefits or other perquisites provided to Executive under this
Agreement; (3) failure by the Company to obtain a successor's commitment to
perform the Company's obligations under this Agreement; or (4) the Company
providing written notice to Executive pursuant to Section 2 hereof that it
does not wish to extend the term of this Agreement.
(iii) Executive's death or his being unable to render the services
required to be rendered by him during the Employment Period for a period of
one hundred eighty (180) days during any twelve-month period
("Disability").
(b) In the event the Company or Executive intend to terminate this
Agreement for Cause or Good Reason, respectively, such termination may only be
accomplished upon compliance with the following procedures:
(i) The party seeking to terminate this Agreement (the "Notifying
Party") shall provide the other (the "Defaulting Party") with written
notice of its or his belief that Cause or Good Reason, as the case may be,
exists. The parties shall for a period of 30 days from the date of such
notice
5
<PAGE>
attempt to resolve to their mutual satisfaction whether or not Cause or
Good Reason exists, and, if so, the rights and obligations of the parties.
(ii) In the event the parties are unable to reach a mutually
acceptable resolution during such 30-day period, the Notifying Party shall
afford the Defaulting Party an additional 10 days or such longer period as
the Notifying Party in its or his sole discretion may determine to cure the
alleged breach.
(iii) In the event the Defaulting Party does not cure the breach
during the 10-day period, the Notifying Party shall be required to
institute an arbitration proceeding to determine whether Cause or Good
Reason existed and has not been cured in accordance with Section 18 herein.
(iv) This Agreement shall be terminated as of the date when the
Notifying Party institutes an arbitration proceeding in accordance with
subsection (iii) preceding; provided, however, that in the event Good
Reason exists as a result of the application of Section 7(a)(ii)(4), no
further employment services will be required or expected of Executive and
Executive and Company will coordinate the timing and press releases, if
any, of his departure. The sole decision of the arbitrator in such
proceeding shall be to determine whether Cause (if initiated by Company) or
Good Reason (if initiated by Executive) exists. Thereafter, the
obligations of the parties to each other shall be determined by applying
the decision of the arbitrator(s) in accordance with Exhibit A hereto.
(v) In the event the Company does not prevail in any such proceeding
initiated by it for Cause, Executive's termination shall be deemed to have
occurred for Good Reason. In the event Executive does not prevail in any
such proceeding initiated by him for Good Reason, Executive shall be
considered as having voluntarily terminated employment other than for Good
Reason, and his rights under this Agreement shall be determined as if he
had been terminated by Company for Cause.
(c) Upon expiration or termination of this Agreement under Section 2 or
Section 7 herein, Executive shall be entitled to receive compensation and other
benefits provided for herein in accordance with Exhibit A hereto. The parties
agree that, in the event of termination by Executive for Good Reason under
Section 7, such payments and benefits shall be deemed to constitute liquidated
damages for the breach of this Agreement by Company.
6
<PAGE>
8. Change of Control.
(a) If (i) Executive terminates his employment for Good Reason during the
period commencing with the date of a Change of Control (as hereinafter defined)
and ending twelve months following the Change of Control (the "Change of Control
Period"), (ii) the Company terminates Executive's employment without Cause
during the Change of Control Period, or (iii) Company terminates Executive's
employment without Cause within six months prior to a Change of Control and
Executive can reasonably demonstrate that such termination was in connection
with or in anticipation of a Change of Control, the Executive shall be entitled
to receive compensation and other benefits ("Change of Control Payments")
described on Exhibit A under the column heading "Related to Change of Control"
and such Change of Control Payments shall be in lieu of any other payments
described in Section 7 herein. Notwithstanding anything to the contrary
contained herein, nothing in this Agreement shall relieve Employer of its
obligation of providing Employee with all retirement and deferred compensation
benefits in accordance with the terms of all retirement and deferred
compensation plans in which Employee participates.
(b) The term "Change of Control" shall mean a change of control of a
nature that would be required to be reported in response to Item 1(a) of the
Current Report on Form 8-K, as in effect on the date hereof, pursuant to Section
13 or 15(d) of the Securities Exchange Act of 1934 ("Exchange Act"), or any
comparable successor provisions. Without limiting the foregoing, a "Change of
Control" also means for purposes of this Agreement, regardless of its meaning
under the provisions of the Exchange Act:
(i) The purchase or other acquisition (other than from the Company)
by any person, entity or group of persons, within the meaning of Section
13(d) or 14(d) of the Exchange Act (excluding, for this purpose, the
Company or its subsidiaries or any employee benefit plan of the Company or
its subsidiaries), of beneficial ownership, (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 25% or more of either the then
outstanding shares of common stock or the combined voting power of the
Company's then outstanding voting securities entitled to vote in the
election of directors; or
(ii) Individuals who, as of the date hereof, constitute the Board of
Directors of the Company (as of the date hereof, the "Incumbent Board")
cease for any reason to constitute at least two-thirds of the Board,
provided that any person (other than a person whose election or nomination
or whose initial assumption of office is in connection with an actual or
threatened election contest relating to the
7
<PAGE>
election of directors of the Company, as such terms are used in Rule 14a-11
of Regulation 14A promulgated under the Exchange Act) who becomes a
director subsequent to the date hereof whose election, or nomination for
election by the Company's shareholders, was approved by a vote of at least
three-quarters of the directors then comprising the Incumbent Board shall
be, for purposes of this Agreement, considered as though such person were a
member of the Incumbent Board; or
(iii) Approval by the shareholders of the Company of a
reorganization, merger, or consolidation, in each case, with respect to
which persons who were the shareholders of the Company immediately prior to
such reorganization, merger or consolidation do not, immediately
thereafter, own more than 50% of the combined power entitled to vote
generally in the election of directors of the reorganized, merged or
consolidated company's then outstanding voting securities or a
liquidation or dissolution of the Company or of the sale of all or
substantially all of the assets of the Company.
9. Non-Competition Agreement. Executive acknowledges, agrees and
recognizes that (i) the Company has spent substantial money, time and effort
over the years in developing and solidifying its relationships with its
customers and in developing its confidential, proprietary and trade secret
information; (ii) long-term customer relationships often can be difficult to
develop and require a significant investment of time, effort and expense; (iii)
the Company pays its employees to, among other things, develop and preserve the
Company's business, confidential and trade secret information, customer
goodwill, customer loyalty and customer contacts for and on behalf of the
Company; and (iv) the Company is hereby agreeing to hire Executive and pay
Executive based upon Executive's assurances and promises contained herein not to
divert the Executive's customers' goodwill or to put himself in a position
during or following the term of this Agreement in which the confidentiality of
the Company's information might somehow be compromised. Executive agrees that
during his employment by the Company and for the Restricted Period (as defined
below), Executive will not as an individual or as a partner, employee, agent,
advisor, consultant or in any other capacity of or to any person, firm,
corporation or other entity, on Executive's own behalf or on behalf of any other
person, firm corporation or entity, directly or indirectly:
(a) carry on any business, become involved in any business activity, or
render any products or services to any business, competitive with the business
of the Company or any of its subsidiaries, affiliates or related companies as
such business or businesses are presently conducted and as such business or
8
<PAGE>
businesses may evolve in the ordinary course during the Employment Period
anywhere in the United States or in any other jurisdiction in which the Company
shall conduct business during the Employment Period;
(b) provide any products or services similar to or related to those
products or services which the Company or any of its subsidiaries, affiliates or
related companies provide;
(c) knowingly and intentionally hire, or assist anyone else to hire, any
employee or distributor of the Company or seek to persuade, or assist anyone
else to seek to persuade, any employee or distributor of the Company to
discontinue his or her employment with the Company or business relationship with
the Company, as the case may be;
(d) knowingly and intentionally induce or attempt to induce, or assist
anyone else to induce or attempt to induce, any customer of the Company to
reduce or discontinue its business with the Company or disclose to anyone else
the name and/or requirements of any such customer; or
(e) knowingly and intentionally interfere with any relationships between
the Company and its vendors, customers, strategic partners, distributors or
other persons with whom the Company has business relations.
The "Restricted Period" shall during the term of the Executive's employment with
the Company, and for a period of one year after the termination of such
employment for whatever reason.
Executive expressly agrees that the covenants set forth in this Section 9
are reasonable and enforceable because, among other things, (i) the nature of
the markets in which the Company's products or services are marketed and sold;
(ii) the Executive will be exposed or have access to confidential information;
(iii) the Company would not have adequate protection if Executive were permitted
to work for any of its competitors since the Company would be unable to verify
whether its confidential information was being disclosed and/or misused, and
(iv) Executive's other businesses and background which are such that the
restraint will not impose any undue hardships upon Executive. Furthermore,
Executive recognizes and agrees that the restraints contained in this Section 9
are reasonable and enforceable in view of the Company's legitimate interests in
protecting its confidential information and customer goodwill and the
limitations contained therein on the duration and geographic scope of, and
activities prohibited by, such restraints.
9
<PAGE>
10. Confidential Information.
(a) Without the express written consent of the Company, Executive agrees,
during the term of this Agreement and thereafter (including after the
termination of this Agreement for any reason) to keep secret and confidential,
and not to use or disclose to any third parties, any of the Company's and/or its
clients/customers' proprietary trade secret information or other confidential
information acquired by or disclosed to the Executive prior to, during the
course of, or in connection with, this Agreement.
(b) The Company and its clients/customers consider and treat as
confidential, proprietary and trade secret, among other things, their respective
marketing data, plans and strategies, internal financial information, customer
lists, costs, margins, pricing and policies, component sourcing and supply
information, planning methods, systems, processes, computer software (whether in
object code, source code, applications, machine readable form, printouts, or
human readable form), computer programs and documentation, computer hardware
designs and configurations, systems, research and development plans and
activities, ideas, drawings, photographs, models, prototypes, developments,
constructions, computer firmware, videotapes (including, but not limited to,
original, work and/or finished master tapes), manufacturing methods and
techniques, quality control procedures and methods, investigations, engineering,
test methods and data, technical data, security methods and procedures, designs,
plans and specifications, and actual and potential applications thereof,
business acquisition and expansion plans, product applications, information
provided to the Company in confidence by its clients and third parties, and the
like (collectively the "Confidential Information"), and Executive agrees to
treat any and all such information as secret, confidential and proprietary to
the Company and/or, as applicable, its customers/clients. Executive understands
that confidential information may or may not be labeled as "confidential" and
will treat all information as confidential whether or not labeled as such.
Confidential information shall not include information which (i) was already
available to the general public at the time of receipt by Executive, (ii)
subsequently becomes known to the general public through no fault or admission
of Executive, (iii) is subsequently disclosed by a third party which has the
bona fide right to make such disclosure; or (iv) is required to be disclosed by
law or by any court or authority.
(c) Executive acknowledges that any and all notes, records, sketches,
computer diskettes, programs, and other documents or things obtained by or
provided to Executive, or otherwise made, produced, generated or compiled during
the course of Executive's employment by the Company, which contain any of the
Company's Confidential Information, regardless of the type of medium in
10
<PAGE>
which it is preserved, are and shall remain the sole and exclusive property of
the Company and shall be surrendered by Executive to the Company upon the
termination of this Agreement and/or upon the request or demand of the Company.
11. Effect of Breach of Sections 9 or 10. So long as any stock options
held by the Executive shall not be vested or shall not have been exercised, the
exercise of such stock options shall each be subject to Executive's full
compliance with the terms and conditions of Section 9 (which shall continue to
apply for this purpose) and Section 10 herein; provided, however, that any such
breach will not have any effect on stock options exercised prior to the date of
such breach. Notwithstanding any other provision is this Agreement, Executive
further agrees that a breach of Sections 9 or 10 cannot adequately be
compensated by money damages and, therefore, Company shall be entitled, in
addition to any other right or remedy available to it (including, but not
limited to, an action for damages), to an injunction restraining such breach or
a threatened breach and to specific performance of either such provision, and
Executive hereby consents to the issuance of such injunction and to the ordering
of specific performance.
12. Legal Expenses. The Company shall pay to Executive all out-of-pocket
expenses, including reasonable attorneys' fees, incurred by Executive in
connection with any claim or legal action or proceeding brought under or
involving this Agreement, whether brought by Executive or by or on behalf of the
Company or by another party; provided, however, the Company shall not be
obligated to pay to Executive out-of-pocket expenses, including attorneys' fees,
incurred by Executive in any claim or legal action or proceeding involving
Sections 7, 8, 9, 10 or 11 of this Agreement if Company prevails in such
litigation or arbitration.
13. No Mitigation. The Executive shall not be required to mitigate the
amount of any payment provided for in this Agreement by seeking other employment
or otherwise and no such payment shall be offset or reduced by the amount of any
compensation or benefits provided to Executive in any subsequent employment.
14. Notices. All notices required or permitted under this Agreement shall
be in writing, may be made by personal delivery or facsimile transmission,
effective on the day of such delivery or receipt of such transmission, or may be
mailed by registered or certified mail, effective five (5) days after the date
of mailing, addressed as follows:
11
<PAGE>
to Company: TALX Corporation
1850 Borman Court
St. Louis, Missouri 63146
Attention: William W. Canfield
President and Chief Executive Officer
Facsimile number: (314) 434-5176
to Executive: Craig N. Cohen
25 Bon Hills Drive
St. Louis, Missouri 63132
or such other person or address as designated in writing to Executive at his
last known residence address or to such other addresses as designated by him in
writing to Company.
15. Successors. This Agreement may not be assigned by the Company (other
than by merger or operation of law) without the express written consent of
Executive, and the obligations of the Company provided for in this Agreement
shall be binding legal obligations of any successor to the Company or the
principal business of Company by purchase, merger, consolidation, or otherwise.
This Agreement may not be assigned by Executive during his life, and upon his
death will be binding upon and inure to the benefit of his heirs, legatees and
the legal representatives of his estate.
16. Waiver, Modification and Interpretation. No provisions of this
Agreement may be modified, waived or discharged unless such waiver, modification
or discharge is agreed to in a writing signed by Executive and an appropriate
officer of the Company empowered to sign same by the Board of Directors of the
Company. No waiver by either party at any time of any breach by the party of, or
compliance with, any condition or provision of this Agreement to be performed by
the other party shall be deemed a waiver of similar or dissimilar provisions or
conditions at the same time or at any prior to subsequent time. The validity,
interpretation, construction and performance of this Agreement shall be governed
by the laws of the State of Missouri.
17. Invalidity of Provisions. In the event that any provision of this
Agreement is adjudicated to be invalid or unenforceable under applicable law in
any jurisdiction, the validity or enforceability of the remaining provisions
thereof shall be unaffected as to such jurisdiction and such adjudication shall
not affect the validity or enforceability of such provision in any other
jurisdiction. To the extent that any provision of this Agreement is adjudicated
to be invalid or unenforceable because it is overbroad, that provision shall not
be void but rather shall be limited to the extent required by applicable law and
enforced as so limited. The parties expressly acknowledge and agree that this
Section 18 is reasonable in view of the parties' respective interests.
12
<PAGE>
18. Arbitration
-----------
(a) Scope; Initiation. Resolution of any and all disputes arising
from or in connection with this Agreement, whether based on contract, tort,
statute or otherwise, including disputes over arbitrability and disputes in
connection with claims by third persons ("Disputes") shall be exclusively
governed by and settled in accordance with the provisions of this Section 18.
Either party to this Agreement (each a "Party" and together the "Parties") may
commence proceedings hereunder by delivery of written notice providing a
reasonable description of the Dispute to the other, including a reference to
this Section 18 (the "Dispute Notice").
(b) Negotiations Between Parties. The Parties shall first attempt in
good faith to resolve promptly any Dispute by good faith negotiations. Not
later than three (3) business days after delivery of the Dispute Notice, the
Company shall appoint an executive to meet with the Executive or his or her
representative at a reasonably acceptable time and place, and thereafter as such
representatives deem reasonably necessary. The Parties shall exchange relevant
non-privileged information and endeavor to resolve the Dispute. Prior to any
such meeting, each Party or representative shall advise the other as to any
other individuals who will attend such meeting. All negotiations pursuant to
this Section 18(b) shall be confidential and shall be treated as compromise
negotiations for purposes of Rule 408 of the Federal Rules of Evidence and
similarly under other federal and state rules of evidence.
(c) Binding Arbitration. The Parties hereby agree to submit all
Disputes to arbitration under the following provisions, which arbitration shall
be final and binding upon the Parties, their successors and assigns, and that
the following provisions constitute a binding arbitration clause under
applicable law.
(i) Either Party may initiate arbitration of a Dispute by delivery
of a demand therefor (the "Arbitration Demand") to the other Party not sooner
than five (5) business days after the date of delivery of the Dispute Notice but
at any time thereafter.
(ii) The arbitration shall be conducted in the County of St.
Louis, Missouri, by three arbitrators (acting by majority vote, the "Panel")
selected by agreement of the Parties not later than 10 days after delivery of
the Arbitration Demand or, failing such agreement, appointed pursuant to the
Commercial Arbitration Rules of the American Arbitration Association, as amended
from time to time (the "AAA Rules"). If an arbitrator becomes unable to serve,
his or her successor(s) shall be similarly selected or appointed.
13
<PAGE>
(iii) The arbitration shall be conducted pursuant to the Federal
Arbitration Act and the Missouri Uniform Arbitration Act, such procedures as the
Parties may agree or, in the absence of or failing such agreement, pursuant to
the AAA Rules. Notwithstanding the foregoing: (w) each party shall be allowed
to conduct discovery through written requests for information, document
requests, requests for stipulations of fact, and depositions; (x) the nature and
extent of such discovery shall be determined by the Panel, taking into account
the needs of the Parties and the desirability of making discovery expeditious
and cost-effective; (y) the Panel may issue orders to protect the
confidentiality of information, to be disclosed in discovery; and (z) the
Panel's discovery rulings may be enforced in any court of competent
jurisdiction.
(iv) All hearings shall be conducted on an expedited schedule,
and all proceedings shall be confidential. Either Party may at its expense make
a stenographic record thereof.
(v) The Panel shall complete all hearings not later than twenty
(20) days after selection or appointment, and shall make a final award not later
than ten (10) days thereafter. The award shall be in writing and shall specify
the factual and legal bases for the award, and shall include a determination as
to whether any claim by the Executive of Good Reason was manifestly unreasonable
for purposes of the second-to-last sentence of Section 5. Notwithstanding
anything contained in Section 8, in circumstances where a Dispute has been
asserted by the Executive or defended against by the Executive on grounds that
the Panel deems manifestly unreasonable (whether related to a claim of Good
Reason or otherwise), the Panel may assess all or part of the costs and expenses
of the arbitration, including the Panel's fees and expenses and fees and
expenses of experts and legal counsel ("Arbitration Costs"), against the
Executive and may include in the award the Executive's and the Company's
attorney's fees and expenses in connection with any and all proceedings under
this Section 18. Notwithstanding the foregoing, in no event may the Panel award
multiple, punitive or exemplary damages to either party.
(d) Confidentiality - Notice. Each Party shall notify the other
promptly, and in any event prior to disclosure to any third person, if it
receives any request for access to confidential information or proceedings
hereunder.
(e) Injunctions. However, notwithstanding anything else in this
Section 18, the Company shall be entitled to seek a restraining order or
injunction in any court of competent jurisdiction to prevent any continuation of
any violation of this Agreement, and the Executive hereby consents that such
restraining order or injunction may be granted without the
14
<PAGE>
necessity of the Company posting any bond. The expense of such arbitration
shall be borne by the Company.
19. Headings. The headings contained herein are for reference purposes
only and shall not in any way affect the meaning or interpretation of any
provision of this Agreement.
20. Entire Agreement. This Agreement (together with the Exhibit hereto)
constitutes the entire agreement between the parties, supersedes in all respects
any prior agreement between Company and Executive and may not be changed except
by a writing duly executed and delivered by Company and Executive in the same
manner as this Agreement; provided however, that the terms of any securities of
the Company (or any options, warrants or other securities convertible into, or
exchangeable or exercisable for, securities of the Company), which are held by
the Executive shall be governed by the agreements entered into upon issuance of
such securities (or such options, warrants or other securities convertible into,
or exchangeable or exercisable for, securities of the Company).
21. Counterparts. Company and Executive may execute this Agreement in any
number of counterparts, each of which shall be deemed to be an original but all
of which shall constitute but one instrument. In proving this Agreement, it
shall not be necessary to produce or account for more than one such counterpart.
15
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first written above.
THIS AGREEMENT CONTAINS A BINDING ARBITRATION PROVISION WHICH MAY BE ENFORCED BY
THE PARTIES.
TALX CORPORATION
By:______________________________
William W. Canfield
President and Chief Executive
Officer
Executive
______________________________
Craig N. Cohen
16
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<TABLE>
<CAPTION>
Exhibit A
EFFECT OF AGREEMENT TERMINATION
-------------------------------
REASON FOR TERMINATION
----------------------
====================================================================================================================================
NORMAL DEATH OR
TYPE OF EXPIRATION DATE DISABILITY
COMPENSATION OF AGREEMENT OR BY EXECUTIVE FOR BY EMPLOYER RELATED TO (AS DEFINED IN
/BENEFIT RENEWAL PERIOD "GOOD REASON" FOR "CAUSE" CHANGE OF CONTROL AGREEMENT)
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Base Salary Payable through Receives Base Amount Payable through Receives 100% of the Base Payable through
end of Employment (as defined in the date of early Amount in effect end of month in
Period (as Agreement) for a one termination. immediately prior to the which death or
defined in year period Change of Control, payable disability occurs.
Agreement) commencing on the in one lump sum cash
Executive's early payment.
termination date
(the "Continuation
Period"), payable
ratably over such
Continuation Period.
- -----------------------------------------------------------------------------------------------------------------------------------
Annual Incentive Payable through Receives targeted Amount Receives 100% of the Amount earned
Compensation Employment incentive determined by targeted incentive (recommended by
Program Period; amount compensation (based Compensation compensation for the the Compensation
recommended by on estimated Committee in Continuation Period (based Committee based on
Compensation targeted incentive its sole on estimated targeted the Company's and
Committee based compensation for discretion; incentive compensation for Executive's
on Company's and year of termination) would likely be year of termination), performance for
Executive's for the Continuation zero. payable in one lump sum the year in which
performance. Period, payable over cash payment. death or
the Continuation disability occurs)
Period. will be prorated.
- -----------------------------------------------------------------------------------------------------------------------------------
Other Employee Continue through Continue through end Continue through Continue through end of Continue through
Benefits end of of Continuation date of early the Continuation Period, end of month in
(excluding any Employment Period, subject to termination, subject to legal and which death or
benefits related to Period, subject legal and subject to legal contractual rights in disability occurs,
securities of the to legal and contractual rights and contractual plans to convert or extend subject to legal
Company or contractual in plans to convert rights in plans coverages; provided, and contractual
options, warrants rights in plans or extend coverages. to convert or further, if extension of rights to convert
or convertible into to convert or extend coverages. insurance coverage is not or extend
or exercisable or extend coverages. permitted, the Company coverages.
exchangeable for shall pay the premiums for
securities of the a new similar insurance
Company) plan which would allow
similar coverage of the
Executive through the
Continuation Period.
Additionally, Executive
entitled to reimbursement
of reasonable out-of-
pocket expenses related to
outplacement services.
====================================================================================================================================
</TABLE>
17
<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
October 7, 1996
