U.S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended March 31, 1997
or
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from ____________ to ____________
Commission File Number 000-21465
TALX CORPORATION
(Exact name of registrant as specified in its charter)
MISSOURI
(State or other jurisdiction of incorporation or organization)
43-0988805
(I.R.S. Employer Identification No.)
1850 BORMAN COURT, ST. LOUIS, MO 63146
(Address of principal executive offices) (Zip Code)
(314) 434-0046
(Registrant's telephone number, including area code)
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
Title of each class Name of each exchange on which registered
- ------------------------------------- -----------------------------------------
None None
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
Common Stock, $.01 par value
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [x] Yes [ ]No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
As of June 18, 1997, the aggregate market value of the voting stock held by
non-affiliates of the Registrant was approximately $14,399,096. For purpose of
this calculation only, without determining whether the following are affiliates
of the Registrant, the Registrant has assumed that (i) its directors and
executive officers are affiliates and (ii) no party who has filed a Schedule 13D
or 13G is an affiliate.
As of June 18, 1997 there were 5,271,508 shares of the Registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Part III incorporates by reference portions of the definitive Proxy Statement
for the Registrant's 1997 Annual Meeting of Stockholders to be filed with the
Commission not later than 120 days after the end of the fiscal year covered by
this Form.
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PART I
This Form 10-K (including, without limitation, Item 1 -- "Business" and Item 7
- -- "Management's Discussion and Analysis of Financial Condition and Results of
Operations") includes "forward-looking statements" within the meaning of Section
27A of the Securities Act of 1933, as amended (the "Securities Act"), and
Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"). All statements other than statements of historical facts included herein
are "forward-looking statements." Although the Company believes that the
expectations reflected in such forward-looking statements are reasonable, it can
give no assurance that such expectations will prove to be correct. Factors that
have affected, and in the future could affect, the Company's actual results and
could cause such results during fiscal 1998 and beyond to differ materially from
those expressed in any forward-looking statements made by or on behalf of the
Company include, but are not limited to, those discussed under Item 1 --
"Business -- Risk Factors" hereinbelow.
ITEM 1. BUSINESS
GENERAL
TALX Corporation ("TALX" or the "Company") designs and implements interactive
communications solutions using technology such as interactive web and
interactive voice response, primarily for many Fortune 500 and other large
organizations other than telephone service providers. 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 that employ computer
telephony to integrate technologies such as interactive voice response ("IVR"),
facsimile, e-mail, Internet and corporate Intranet. 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 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 650 systems to over 375 customers during the last six
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 responsibilities 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. In January
1997, the document services business was sold.
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
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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. As indicated above,
these operations have been divested or 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.
SERVICES AND PRODUCTS
The Work Number
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 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.
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.
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 March 31, 1997, 139 employers had contracted for specified terms,
generally three years, to provide approximately 10.6 million employment records
of current and former employees. The Company's objective is to expand its
existing database of employment records by marketing to the approximately 910
private sector employers with 10,000 or more employees (based on Hunt-Scanlon's
Select Guide to Human Resource Executives 1997). These employers have an
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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.
Total Number of
Employment Records(1)
(000's)
--------------------------------
Total
Number of
Fiscal Quarter Employers On-line Backlog(2)
---------------- --------------- --------------- ---------------
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
2nd Quarter 1997 93 5,061 3,000
3rd Quarter 1997 117 5,682 4,250
4th Quarter 1997 139 7,017 3,621
---------------
(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.
In late calendar 1996, the Company established a pilot program in the State of
Texas, to provide automated public assistance verifications, as an extension of
The Work Number. The Company has begun to market this extension of The Work
Number to states and employers on a national basis.
Tailored Solutions
Tailored solutions are offered by TALX to its customers, primarily Fortune 500
and other large 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, 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).
Outsourced Services
The Company's outsourced services business provides tailored offsite interactive
communications services to Fortune 500 and other large 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
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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 availability and transaction-based fees.
Examples of the applications provided by the outsourced services business
include: benefit plan enrollment, receipt and validation of voting with respect
to employee benefit plan amendments, job posting and self-nomination process and
collection of time, attendance and labor data.
Customer Premises Systems
The Company has provided tailored interactive communications solutions for
installation at customers' premises since the early 1980s, and has shipped over
650 systems to over 375 customers during the last six 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
International Business Machine Corporation's ("IBM's") OS/2 operating system.
The Windows NT operating system will be supported beginning in fiscal 1998. The
software supports both Natural MicroSystems, Inc. ("NMS") and TALX computer
telephony ("CT") processing hardware. See "--Technology and Product
Development."
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 Company's interactive communications product 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 Windows NT operating system is expected to be supported
beginning in fiscal 1998. 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. 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, telephone device for the deaf ("TDD"),
Internet, corporate Intranet and other interactive communications technologies.
Allowing all devices to share a common set of centralized business rules can
leverage software development across the enterprise, reduce development time and
simplify making changes or adding enhancements. EasyScript is optional and
licensed on a per server basis.
TALXWare Runtime. The TALXWare Runtime software is licensed on a concurrent user
basis and is a required component of each TALX interactive communications
solution. The functions incorporated into the TALXWare Runtime software include
the management of interactive communications applications, physical resources
and network connections,
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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 NMS and TALX proprietary CT processing hardware
(the "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 ("lines") in a single system and
being networked to support over 240 lines. The NMS hardware is capable of
supporting 24 lines 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 extending the features and
capabilities of the Company's interactive web software solutions and introducing
a kiosk-based product. The Company also anticipates further enhancing its
computer telephony integration ("CTI") capabilities for call centers. For the
markets served by the Company's strategic marketing allies who offer
enterprise-wide client/server applications, the Company plans to continue 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 has
recently developed financial applications (e.g., accounts payable and accounts
receivable) and for SAP customers, intends to develop distribution/logistic
applications (e.g., order entry, order status and product information). In
particular, the Company intends to develop a suite of applications to integrate
with SAP's oil and gas industry solution called "IS/Oil." The Company intends to
develop similar offerings for distribution to PeopleSoft, SAP and Oracle
customers. There can be no assurance that these new enhancements or products
will progress beyond their current state of development or be successfully
marketed.
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 ("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. In fiscal 1997, the
Company became a reseller for IBM's CallPath and TADS CTI server software. See
"Risk Factors -- Risks Associated with Technological Change" for additional
risks associated with the Supplier Agreements.
Product development costs incurred were $1.5 million in fiscal 1995, $1.9
million in fiscal 1996 and $2.0 million in fiscal 1997. The total product
development staff consisted of 25 full-time employees as of March 31, 1997. The
Company believes that significant investments in product development are
required to remain competitive.
See "Risk Factors -- Risks Associated with Rapid Technological Change."
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MARKETING
The Company's marketing strategy is to focus on targeted markets through a
direct sales force in conjunction with strategic marketing alliances. The
Company's direct sales force is based in St. Louis with representatives also
located in Atlanta, Bethesda, Chicago, Massachusetts, New Jersey, Phoenix, San
Francisco, and London, England and is organized into two sales regions. The
sales force for each region is comprised of sales managers who are supported by
product consultants, client service representatives and business development
representatives. Historically, the direct sales force was responsible for
selling all of the Company's interactive communications product lines. Beginning
in late fiscal 1997, the Company designated certain members of the sales force
to focus solely on selling The Work Number service. The Company's sales force is
supported by a product management group which 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 an opportunity exists to expand sales and marketing efforts
in certain international markets. See "Risk Factors -- Risks Associated with
Increased International Sales." 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. In the last year, the Company has
entered into similar relationships with SAP and Oracle.
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 through industry business units
such as federal government, health care, financial services and retail.
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 has introduced a financial suite and plans
to introduce a distribution suite, for implementation at PeopleSoft
clients.
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. The Company intends to develop a suite of
applications to integrate with SAP's oil and gas industry solution called
"IS/Oil."
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.
Future customer premises systems revenues will be dependent to a significant
extent on the market success of companies
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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 650 systems for over 375 customers, many of which
are Fortune 500 firms. No single customer of the Company represented 10% or more
of the Company's interactive communications business revenues in fiscal 1995.
One customer, Kaiser Permanente, represented approximately 14% and 12% of
revenues in fiscal 1996 and 1997, respectively.
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 1997, sales to human resources departments represented approximately 45%
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
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
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services, including automated access services. See "Risk Factors -- Intense
Competition."
At present there are no significant competitors of the service provided by The
Work Number. However, there are no significant barriers to entry in this area
and, thus, there can be no assurance that other companies will not choose to
create similar employee database verification systems. The Company is aware of
one other company which is marketing a similar service. Additionally, the
Company is aware of a number of employers who have established similar systems
for their internal use. The Company anticipates that additional competitors will
emerge, but is unable to predict what its relative competitive position will be
in a more mature market. See "Risk Factors -- Certain Risks Associated with The
Work Number."
PROPRIETARY RIGHTS
The Company's success is heavily dependent upon its proprietary technology.
Although the Company copyrights certain elements of its products, the primary
means of protecting its interactive communications products and services is
through non-disclosure agreements, which provide only limited protection. As
part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and allies, 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
Industries, Inc. filed an action in the United States District Court for the
Southern District of Florida against the Company. The action alleged 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 Company resolved the matter with Elk during the fourth quarter
of fiscal 1997. 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 Work Number and TALX OnLine are service marks 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
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development and marketing of its products. See "Risk Factors -- Limited
Intellectual Property Protection."
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 Item 2 --
"Properties."
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 primary reason for
divesting these businesses was to enable the Company to focus its management and
financial resources towards its core interactive communications business. On
January 31, 1997, the Company sold substantially all of the assets of the
document services business to Sterling Direct, Inc., the largest customer of the
division. The Company is actively pursuing the divestiture of the database
services business. See Item 7 -- "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Discontinued Operations" and
Note 2 of the Notes to Consolidated Financial Statements contained in Item 8
herein.
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 database services business operates in a highly competitive market and any
of its competitors could use its superior financial resources, market power and
installed base of customers to compete effectively against it. Further,
competition for the customers of the database services businesses may increase
as a result of the Company's determination to pursue the divestiture of such
business. There can be no assurance that the database services business can
maintain its 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 its 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.
EMPLOYEES
As of March 31, 1997, the Company employed 162 full-time and 7 part-time
employees in addition to the 64 full-time and 57 part-time employees which are
employed by the database services business. 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. See "Risk
Factors -- Dependence on Key Personnel."
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RISK FACTORS
In addition to the other information included or incorporated by reference in
this Form 10-K, the following factors should be considered carefully.
HISTORY OF NET LOSSES
The Company has incurred net losses in each of the last three fiscal years. 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 fiscal 1997, the Company incurred losses only from discontinued operations
of $703,000 and $1,064,000, respectively. The Company's accumulated deficit as
of March 31, 1997 was $2,686,000. 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 Services
Business" and Item 7 -- "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. 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 Item 7 -- "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
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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 March 31,
1997, 139 employers had contracted to provide approximately 10.6 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 relatively new 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.
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 SERVICES BUSINESS
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 was recorded as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. On January 31, 1997, the Company sold
substantially all of the assets of the document services business. As of March
31, 1997, the Company provided an additional provision for loss in the amount of
$550,000. The Company has estimated that the proceeds from such divestiture of
the database business will approximate the net assets held for sale as of March
31, 1997. 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 Item 7 -- "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
Item 8 -- Note 2 of the Notes to Consolidated Financial Statements.
INTENSE COMPETITION
The markets in which the Company sells its interactive communications solutions
are rapidly evolving, extremely competitive and subject to rapid technological
change. The Company expects competition to increase in the future from existing
competitors and from companies that may enter the Company's existing or future
markets with similar or substitute solutions that may be less costly or provide
better performance or functionality than the Company's products. To be
successful in the future, the Company must continue to respond promptly and
effectively to the challenges of changing customer requirements, technological
change and competitors' innovations. Increased competition may result in price
reductions, reduced gross margins and loss of market share, any of which could
materially adversely affect the Company's business, financial condition, results
of operations and business prospects. Additionally, the Company may
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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 1997,
sales to human resources departments represented approximately 45% 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
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 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 IBM's 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, several modules of TALXWare are
available for Windows NT. The Company has also licensed a base Windows NT
product which is expected to be incorporated into TALXWare. Although such
product will not immediately offer customers the full range of features
currently available for the OS/2 operating system, the Company has directed
development efforts towards integrating additional features, including
EasyScript, into such base product during fiscal 1997 and commercial release of
such base product is expected to occur during fiscal 1998; however, due to
uncertainties with software development, no assurance can be given that such
release will occur. 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 the Windows NT operating system. Thus, the Company
has been 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 operations and business prospects. Further, when the Company markets
a Windows NT-based version of its TALXWare software, the Company will be
dependent upon the viability of that operating environment.
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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 NMS standards-based
computer telephony hardware boards and software drivers. The Company believes
that marketing this product as an alternative to the VP/2000-based TALX system
may provide a means to gain increased access to 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 a year 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 NMS 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
canceled 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 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
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extent that significant sales occur earlier than expected, operating results for
subsequent quarters may be adversely affected.
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
has entered into employment agreements with William W. Canfield, its Chairman,
President and Chief Executive Officer, and certain other senior management
members. See Item 10 -- "Directors and Executive Officers of the Registrant" and
Item 11 -- "Executive Compensation." 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 services business may become more difficult as a
result of the Company's determination to pursue the divestiture of such
business. 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.
Furthermore, litigation to determine the validity of any product liability
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. A
successful product liability claim in excess of the Company's insured limits
brought against the Company could have a material adverse effect on the
Company's business, financial condition, results of operations and business
prospects.
LIMITED INTELLECTUAL PROPERTY PROTECTION
The Company's success is heavily dependent upon its proprietary technology.
Although the Company copyrights certain elements of its products, the primary
means of protecting its interactive communications products and services is
through non-disclosure agreements, which provide only limited protection. As
part of its confidentiality procedures, the Company generally enters into
non-disclosure agreements with its employees, distributors and strategic
marketing 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
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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 alleged 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 Company resolved the matter with Elk in the fourth quarter of
fiscal 1997. 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
correspondingly reduce management attention and financial resources otherwise
available for domestic markets. The Company's ability to expand its business
internationally is limited by the general acceptance of interactive
communications in other countries and ability to obtain appropriate regulatory
approval of the third party telephony and connectivity hardware supported by
TALXWare, and potentially reduced needs for employee benefit applications. The
Company expects to commit additional time and development resources to
customizing its products for selected international markets and to developing
international sales and support channels. There can be no assurance that such
efforts will be successful.
International operations are subject to a number of risks, including costs of
customizing products for foreign countries, dependence on independent resellers,
multiple and conflicting regulations regarding communications, use of data and
control of Internet access, longer payment cycles, unexpected changes in
regulatory requirements, import and export restrictions and tariffs,
difficulties in staffing and managing foreign operations, greater difficulty or
delay in accounts receivable collection, potentially adverse tax consequences,
the burdens of complying with a variety of foreign laws, the impact of possible
recessionary environments in economies outside the United States, and political
and economic instability. In addition, the Company's ability to expand its
interactive communications business in certain countries will depend upon the
certification of third party hardware compatible with the TALX system. Because
the Company will depend on third party suppliers to certify such telephony and
connectivity hardware and obtain regulatory approval on a country by country
basis, there can be no assurance that such approval will exist or continue to
exist in the future.
16
<PAGE>
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 operations. 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.
SIGNIFICANT SHARE OWNERSHIP; CERTAIN ANTI-TAKEOVER PROVISIONS
The Company's directors, officers and principal (5% or more) shareholders, taken
as a group, beneficially own in the aggregate approximately 33.0% of the
Company's outstanding Common Stock, based on their holdings as of June 18, 1997.
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, as amended ("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.
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
companies. 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.
17
<PAGE>
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 Item 5 -- "Market for the Registrant's
Common Stock and Related Stockholder Matters."
ITEM 2. PROPERTIES
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 Atlanta, Bethesda, Chicago, Massachusetts, New
Jersey, Phoenix, and London, England for sales representatives. The Company
believes its facilities have been generally well maintained, are in good
operating condition and are adequate for its current requirements.
The Company's database services business currently occupies a portion of
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. The Company
has subleased approximately 21,500 square feet of the facility, through the end
of the lease term. In connection with the divestiture of the database business,
the Company may desire to sublease its rights and obligations under the
remaining space of the Des Peres Lease. Although the Company believes it will
not be difficult to enter into a sublease with respect to the remaining Des
Peres Lease space, 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.
ITEM 3. 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 Item 1 -- "Risk
Factors -- Limited Intellectual Property Protection" and "Business --
Proprietary Rights."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
18
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is listed on the Nasdaq National Market under the
symbol "TALX." The table below sets forth the high and low prices of the Common
Stock during the period subsequent to the Company's initial public offering.
Fiscal
1997
--------------
Period High Low
- ---------------------------------------------------------------- ------ ------
Third Quarter (since October 17, 1996) $ 9.50 $ 5.75
Fourth Quarter $ 9.88 $ 7.38
The approximate number of holders of record of the Company's Common Stock at
June 18, 1997 was 95. This number does not include shareholders for whom shares
are held in a "nominee" or "street" name.
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.
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
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 notes thereto.
<TABLE>
<CAPTION>
Years Ended March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In thousands, except share and per share data)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues
The Work Number .............................................. $ 1,642 $ 453 $ 74 $ -- $ --
Outsourced services .......................................... 2,173 998 515 776 60
Customer premises systems .................................... 11,013 9,442 6,957 8,497 6,868
Maintenance and support ...................................... 3,559 2,624 2,310 1,949 1,530
---------- ---------- ---------- ---------- ----------
Total revenues ........................................... 18,387 13,517 9,856 11,222 8,458
---------- ---------- ---------- ---------- ----------
Cost of revenues
The Work Number .............................................. 678 429 48 -- --
Outsourced services .......................................... 941 493 260 190 22
Customer premises systems .................................... 5,560 4,489 4,143 3,902 3,175
Maintenance and support ...................................... 1,025 619 793 767 558
---------- ---------- ---------- ---------- ----------
Total cost of revenues ................................... 8,204 6,030 5,244 4,859 3,755
---------- ---------- ---------- ---------- ----------
Gross margin ..................................... 10,183 7,487 4,612 6,363 4,703
---------- ---------- ---------- ---------- ----------
Operating expenses
Selling and marketing ........................................ 5,902 4,084 2,854 2,700 2,332
General and administrative ................................... 2,613 2,828 2,556 2,268 1,611
---------- ---------- ---------- ---------- ----------
Total operating expenses ................................. 8,515 6,912 5,410 4,968 3,943
---------- ---------- ---------- ---------- ----------
Operating income (loss) .......................... 1,668 575 (798) 1,395 760
Other expense, net ............................................. 409 395 284 153 140
Income tax expense (benefit) ................................... 466 57 (328) 7 235
---------- ---------- ---------- ---------- ----------
Earnings (loss) from continuing operations ..................... 793 123 (754) 1,235 385
---------- ---------- ---------- ---------- ----------
Discontinued operations:
Earnings (loss) from operations of discontinued
operations, net ............................................ (164) (703) (410) 474 575
Loss on disposal of discontinued operations, net ............. (900) -- -- -- --
---------- ---------- ---------- ---------- ----------
Earnings (loss) from discontinued operations, net .............. (1,064) (703) (410) 474 575
---------- ---------- ---------- ---------- ----------
Earnings (loss) before extraordinary item and cumulative
effect of change in accounting principle ..................... (271) (580) (1,164) 1,709 960
Extraordinary item ............................................. (971) -- -- -- --
---------- ---------- ---------- ---------- ----------
Net earnings (loss) before cumulative effect of change in
accounting principle ......................................... (1,242) (580) (1,164) 1,709 960
Cumulative effect of change in accounting principle ............ -- -- -- -- 461
---------- ---------- ---------- ---------- ----------
Net earnings (loss) ............................................ $ (1,242) $ (580) $ (1,164) $ 1,709 $ 1,421
========== ========== ========== ========== ==========
Net earnings (loss) per share (1):
Earnings from continuing operations .......................... $ .18 $ .04
Loss from discontinued operations ............................ (.25) (.21)
Extraordinary item ..................................... (.22) --
---------- ----------
Net loss ................................................. $ (.29) $ (.17)
========== ==========
Weighted average number of shares outstanding (1) .............. 4,330,239 3,391,621
20
<PAGE>
<CAPTION>
As of March 31,
--------------------------------------------------------------
1997 1996 1995 1994 1993
---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and short-term investments .................................. $ 5,801 $ 56 $ 27 $ 145 $ 258
Working capital .................................................. 13,351 (1,261) 183 2,449 1,582
Net assets of business held for sale ............................. 707 -- -- -- --
Total assets ..................................................... 24,072 15,844 14,476 12,824 10,103
Notes payable to bank ............................................ -- 4,243 2,654 1,100 757
Current installments of long-term debt and obligations
under capital leases ........................................... 36 726 722 602 499
Long-term debt and obligations under capital leases, less
current installments ........................................... -- 630 1,318 620 750
Stockholders' equity ............................................. 20,403 5,038 5,610 6,774 4,365
<FN>
- ---------------
(1) Net earnings (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
initial public offering price of $9.00 per share and stock options and warrants granted with exercise prices below the initial
public offering price during the twelve-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 such
shares, options and warrants were outstanding for all of fiscal 1996 and the first three quarters of fiscal 1997. Subsequent to
this period, the weighted average number of shares was based on common stock and common stock equivalents.
</TABLE>
21
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
OVERVIEW
The Company's revenues are derived from interactive communications, which
consist 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 still 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 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 fees from verifications
will be a greater percentage of The Work Number revenues than they have been
historically. 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.
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 interactive voice response,
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 $90,000. 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. Database services include
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. 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. In January 1997, the document services business was
sold.
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)
------------------------
Fiscal 1997 Fiscal 1996
over over
Years Ended March 31, Fiscal 1996 Fiscal 1995
---------------------------- ----------- -----------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
The Work Number ....................... 8.9% 3.3% 0.8% 262.5% 518.9%
Outsourced services ................... 11.8 7.4 5.2 117.7 93.9
Customer premises systems ............. 59.9 69.9 70.6 16.6 35.7
Maintenance and support ............... 19.4 19.4 23.4 35.6 13.6
-------- -------- --------
Total revenues .................... 100.0 100.0 100.0 36.0 37.2
-------- -------- --------
Cost of revenues:
The Work Number ....................... 3.7 3.2 0.5 58.0 796.5
Outsourced services ................... 5.1 3.6 2.6 90.9 89.5
Customer premises systems ............. 30.2 33.2 42.0 23.9 8.4
Maintenance and support ............... 5.6 4.6 8.1 65.6 (22.0)
-------- -------- --------
Total cost of revenues ........... 44.6 44.6 53.2 36.1 15.0
-------- -------- --------
Gross margin ............................ 55.4 55.4 46.8 36.0 62.4
-------- -------- --------
Operating expenses:
Selling and marketing ................. 32.1 30.2 29.0 44.5 43.1
General and administrative ............ 14.2 20.9 25.9 (7.6) 10.6
-------- -------- --------
Total operating expenses .......... 46.3 51.1 54.9 23.2 27.8
-------- -------- --------
Operating income (loss) ................. 9.1 4.3 (8.1) 190.1 *
Other income (expense), net ............. (2.3) (2.9) (2.9) 3.5 38.9
-------- -------- --------
Earnings (loss) from continuing
operations before income tax
expense (benefit) ..................... 6.8 1.4 (11.0) 599.4 *
Income tax expense (benefit) ............ 2.5 0.5 (3.3) 717.5 *
-------- -------- --------
Earnings (loss) from continuing
operations ............................ 4.3 0.9 (7.7) 544.7 *
Discontinued operations, net .......... (5.8) (5.2) (4.1) * *
Extraordinary item ..................... (5.3) -- -- * *
-------- -------- --------
Net loss ................................ (6.8)% (4.3)% (11.8)% (114.1) *
======== ======== ======== =========== ===========
<FN>
* Not meaningful.
</TABLE>
23
<PAGE>
Fiscal Years Ended March 31, 1997 and 1996
Revenues. Total revenues increased by 36.0%, from $13.5 million in fiscal 1996
to $18.4 million in fiscal 1997. Revenues from The Work Number increased by
262.5%, from $453,000 in fiscal 1996 to $1.6 million in fiscal 1997, due to the
expansion of marketing on a nationwide basis and an increase in the number of
employment records on the system. Revenues from outsourced services increased by
117.7%, from $1.0 million in fiscal 1996 to $2.2 million in fiscal 1997, due to
the Company capitalizing on the trend of some corporations to outsource their
non-core functions. Revenues from customer premises systems increased by 16.6%,
from $9.4 million in fiscal 1996 to $11.0 million in fiscal 1997. This revenue
growth is due to increases in sales and marketing resources, reflecting the
Company's efforts to increase historic revenue generation. 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 35.6%, from $2.6 million in fiscal 1996 to $3.6 million in
fiscal 1997, reflecting the support provided to an increased installed base of
customer premises systems.
Cost of Revenues. Total cost of revenues increased by 36.1%, from $6.0 million
in fiscal 1996 to $8.2 million in fiscal 1997. Cost of revenues from The Work
Number increased 58.0%, from $429,000 in fiscal 1996 to $678,000 in fiscal 1997,
due to the revenue growth, offset by a reduction in start-up costs. Due to the
relatively early stage of the service in its life cycle, 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 90.9%, from $493,000 in fiscal 1996 to $941,000 in fiscal 1997, due
to the revenue growth described above. Cost of revenues from customer premises
systems increased by 23.9%, from $4.5 million in fiscal 1996 to $5.6 million in
fiscal 1997. This increase is due to the increase in customer premises systems
revenue. Cost of revenues for customer premises systems as a percentage of
customer premises systems revenue increased from 47.5% in fiscal 1996 to 50.5%
in fiscal 1997. 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 65.6%, from $619,000 in fiscal 1996 to $1.0
million in fiscal 1997, due to the revenue growth and an increase in personnel
costs to provide a higher level of customer service.
Selling and Marketing Expenses. Selling and marketing expenses increased 44.5%
from $4.1 million in fiscal 1996 to $5.9 million in fiscal 1997. As a percentage
of revenues, such expenses increased from 30.2% in fiscal 1996 to 32.1% in
fiscal 1997. 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
decreased 7.6% from $2.8 million in fiscal 1996 to $2.6 million in fiscal 1997.
As a percentage of revenues, such expenses decreased from 20.9% in fiscal 1996
to 14.2% in fiscal 1997. The decrease 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. The Company
anticipates that general and administrative expenses will increase in dollar
amount and decrease as a percentage of revenues in future periods.
Other Income (Expense),net. Interest expense, which is the primary component of
other income (expense), net, increased from $343,000 in fiscal 1996 to $438,000
in fiscal 1997. 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 borrowings. The Company repaid most of its outstanding borrowings on
October 22, 1996, with the proceeds of its initial public offering. Interest
income on the invested net proceeds amounted to $151,000 during fiscal 1997.
Income Tax Expense. The Company's effective income tax rate was 31.7% in fiscal
1996 and 37.0% in fiscal 1997. See Note 9 of the Notes to Consolidated Financial
Statements.
Fiscal Years Ended March 31, 1996 and 1995
Revenues. Total revenues increased by 37.2%, from $9.9 million in fiscal 1995 to
$13.5 million in fiscal 1996. Revenues from The Work Number increased from
$74,000 in fiscal 1995 to $453,000 in fiscal 1996, due to the completion
24
<PAGE>
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 in fiscal 1996. 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 Income (Expense), net. Interest expense, which is the primary component of
other income (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.
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. A provision of
$350,000 was made as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. On January 31, 1997, the Company sold
substantially all of the assets of the document services business to Sterling
Direct, Inc., the largest customer of the division. The sales price, after
giving effect to the post-closing adjustments, was $1,241,000. Of this amount,
$200,000 is in the form of a subordinated note and the remainder was paid in
cash. The net assets related to this sale were approximately $566,000. As of
March 31, 1997, the Company determined that an additional provision for loss in
the amount of $550,000 was required to reflect the anticipated results from
operations and
25
<PAGE>
the estimated proceeds from the sale of the database business. The Comapny
anticipates disposition of the remaining operations through sale during fiscal
1998. See Note 2 of the Notes to Consolidated Financial Statements.
QUARTERLY RESULTS OF OPERATIONS
The following tables set forth certain unaudited statement of operations data
for each of the four quarters in fiscal 1996 and 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
report. 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,
1995 1995 1995 1996 1996 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
(In thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenues:
The Work Number ............ $ 42 $ 51 $ 75 $ 285 $ 251 $ 332 $ 449 $ 610
Outsourced services ........ 105 254 419 220 330 660 801 382
Customer premises systems .. 2,125 2,637 2,086 2,594 2,844 2,643 2,972 2,554
Maintenance and support .... 640 634 653 697 868 916 852 923
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues ......... 2,912 3,576 3,233 3,796 4,293 4,551 5,074 4,469
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Cost of revenues:
The Work Number ............ 99 104 122 104 111 137 171 259
Outsourced services ........ 106 121 180 86 128 215 292 306
Customer premises systems .. 984 1,173 966 1,366 1,447 1,325 1,497 1,291
Maintenance and support .... 166 144 176 133 237 244 255 289
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues.. 1,355 1,542 1,444 1,689 1,923 1,921 2,215 2,145
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin ................. 1,557 2,034 1,789 2,107 2,370 2,630 2,859 2,324
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses:
Selling and marketing ...... 884 937 1,010 1,253 1,369 1,509 1,550 1,474
General and administrative.. 659 821 735 613 637 658 680 638
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating
expenses ............. 1,543 1,758 1,745 1,866 2,006 2,167 2,230 2,112
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ...... 14 276 44 241 364 463 629 212
========== ========== ========== ========== ========== ========== ========== ==========
Earnings (loss) from
discontinued operations,
net ........................ (38) 55 (538) (182) (514) -- -- (550)
========== ========== ========== ========== ========== ========== ========== ==========
Extraordinary item -- loss on
debt extinguishment, net of
tax ....................... -- -- -- -- -- -- (971) --
========== ========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) .......... $ (83) $ 164 $ (582) $ (79) $ (373) $ 125 $ (587) $ (407)
========== ========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) per share:
Earnings from continuing
operations................ $ (.01) $ .03 $ (.01) $ .03 $ .04 $ .04 $ .08 $ .03
Loss from discontinued
operations................ (.01) .02 (.16) (.05) (.15) -- -- (.10)
Extraordinary loss ......... -- -- -- -- -- -- (.20) --
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Net earnings (loss) ........ $ (.02) $ .05 $ (.17) $ (.02) $ (.11) $ .04 $ (.12) $ (.07)
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------------------------------------------------
June 30, Sept. 30, Dec. 31, March 31, June 30, Sept. 30, Dec. 31, March 31,
1995 1995 1995 1996 1996 1996 1996 1997
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
PERCENT OF TOTAL REVENUES:
Revenues:
The Work Number ............. 1.4% 1.4% 2.3% 7.5% 5.8% 7.3% 8.8% 13.7%
Outsourced services ......... 3.6 7.1 13.0 5.8 7.7 14.5 15.8 8.5
Customer premises systems ... 73.0 73.8 64.5 68.3 66.3 58.1 58.6 57.1
Maintenance and support ..... 22.0 17.7 20.2 18.4 20.2 20.1 16.8 20.7
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total revenues .......... 100.0 100.0 100.0 100.0 100.0 100.0 100.0 100.0
========== ========== ========== ========== ========== ========== ========== ==========
Cost of revenues:
The Work Number............ 3.4 2.9 3.8 2.7 2.6 3.0 3.4 5.8
Outsourced services........ 3.6 3.4 5.6 2.3 3.0 4.7 5.8 6.8
Customer premises systems.. 33.8 32.8 29.9 36.0 33.7 29.1 29.5 28.9
Maintenance and support.... 5.7 4.0 5.4 3.5 5.5 5.4 5.0 6.5
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total cost of revenues... 46.5 43.1 44.7 44.5 44.8 42.2 43.7 48.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Gross margin................. 53.5 56.9 55.3 55.5 55.2 57.8 56.3 52.0
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating expenses
Selling and marketing ....... 30.4 26.2 31.2 33.0 31.9 33.1 30.5 33.0
General and administrative... 22.6 23.0 22.7 16.1 14.8 14.5 13.4 14.3
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total operating expenses. 53.0 49.2 53.9 49.1 46.7 47.6 43.9 47.3
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Operating income (loss) ....... 0.5 7.7 1.4 6.4 8.5 10.2 12.4 4.7
========== ========== ========== ========== ========== ========== ========== ==========
Earnings (loss) from
discontinued operations,
net ....................... (1.3) 1.5 (16.6) (4.8) (12.0) -- -- (12.3)
========== ========== ========== ========== ========== ========== ========== ==========
Extraordinary item -- loss
on debt extinguishment,
net of tax................. -- -- -- -- -- -- (19.1) --
========== ========== ========== ========== ========== ========== ========== ==========
Net earnings (loss) (2.9)% 4.6% (18.0)% (2.1)% (8.7)% 2.8% (11.6)% (9.1)%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
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. 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.
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 1997 over fiscal 1996, 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 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.
27
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Prior to its initial public offering, the Company had limited liquidity, due in
part to net losses in fiscal 1995 and 1996. The Company had financed its
operations primarily through cash flow from operations, private placements of
equity and debt securities and bank lines of credit. On October 16, 1996, the
Company completed its initial public offering of 2,000,000 shares of common
stock at a price of $9 per share, for gross proceeds of $18,000,000, and
proceeds net of underwriting discounts and expenses of approximately
$15,587,000.
The Company used a portion of the net proceeds of its initial public offering to
repay its outstanding indebtedness represented by (i) a Subordinated Note in the
aggregate principal amount of $4.0 million, which was due and payable in July
2001 and accrued interest at an annual rate of 13.25%, with an effective
interest rate of 19.25%, (ii) a promissory note in the principal amount of
approximately $417,000, which was due and payable through August 1997 and
accrued interest at the bank's prime rate plus 0.75%, and (iii) a demand note in
the amount of $3,080,000 representing borrowings under a revolving line of
credit which accrued interest at the bank's prime rate plus 0.875%.
The Company had a current ratio of 0.87 to 1, and 4.64 to 1 at March 31, 1996
and March 31, 1997, respectively. The Company's working capital was $(1,261,000)
and $13,351,000 at March 31, 1996 and 1997, respectively. Working capital at
March 31, 1997 reflects the reclassification of the working capital of the
discontinued operations to net assets of businesses held for sale. Total working
capital increased in fiscal 1997 principally due to the net proceeds from the
initial public offering.
The Company's accounts receivable increased from $5,918,000 at March 31, 1996 to
$8,441,000 at March 31, 1997. The increase is due to increased revenues in the
fourth quarter of fiscal 1997 compared to March 31, 1996, a greater percentage
of revenues occurring later in the quarter ended March 31, 1997, and extended
payment terms to certain customers, offset by the reclassification of the
working capital of the discontinued operations to net assets of businesses held
for sale. As a percentage of the Company's total revenues for the fourth quarter
of each fiscal year, including revenues from discontinued operations in 1996,
the accounts receivable at fiscal year-end increased from 94% at March 31, 1996
to 189% at March 31, 1996.
The Company's capital expenditures were $1,550,000 in fiscal 1997. At March 31,
1997, the Company has no significant capital spending or purchase commitments
other than normal purchase commitments and commitments under facilities and
operating leases. The Company believes that its working capital, together with
its anticipated cash flows from operations will be sufficient to meet its
working capital and capital expenditure requirements for at least the next 12
months.
The Company's net increase to capitalized software development costs was
$481,000 in fiscal 1997. 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 1998.
RECENT FINANCIAL ACCOUNTING STANDARDS BOARD STATEMENTS
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earning per Share." SFAS No. 128
established standards for the computation and presentation of earnings per share
for entities with publicly held common stock or potential common stock. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997, and requires retroactive restatement of all prior period
earnings per share data presented. The effect of SFAS No. 128 on the financial
periods presented is not material to the Company.
28
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
Page
Independent Auditors' Report............................................. 30
Consolidated Balance Sheets as of March 31, 1996 and 1997................ 31
Consolidated Statements of Operations for the years ended
March 31, 1995, 1996 and 1997.......................................... 32
Consolidated Statements of Stockholders' Equity for the years ended
March 31, 1995, 1996 and 1997.......................................... 33
Consolidated Statements of Cash Flows for the years ended
March 31, 1995, 1996 and 1997.......................................... 34
Notes to Consolidated Financial Statements............................... 35
See Item 7 -- "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Quarterly Results of Operations" for supplementary
financial information required by Item 302 of Regulation S-K.
29
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders
TALX Corporation:
We have audited the accompanying consolidated balance sheets of TALX Corporation
and subsidiaries as of March 31, 1996 and 1997, 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, 1997. 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, 1996 and 1997, and the results of their operations
and their cash flows for each of the years in the three-year period ended March
31, 1997, in conformity with generally accepted accounting principles.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
May 19, 1997
30
<PAGE>
<TABLE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 31, 1996 AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
March 31,
-----------------------
1997 1996
---------- ----------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ............................................................................. $ 1,684 $ 56
Short-term investments ................................................................................ 4,117 --
Trade receivables, net ................................................................................ 8,441 5,918
Inventories ........................................................................................... 1,378 1,389
Work in progress, less progress billings .............................................................. -- 761
Prepaid expenses and other current assets ............................................................. 694 306
Income tax refund receivable .......................................................................... 195 260
Deferred tax assets, net .............................................................................. 511 225
---------- ----------
Total current assets ........................................................................... 17,020 8,915
Property and equipment, net .............................................................................. 2,652 3,579
Capitalized software development costs, net of amortization of $3,817 in 1996 and $3,683 in 1997 ......... 3,102 2,621
Net assets of business held for sale ..................................................................... 707 --
Deferred tax assets, net ................................................................................. 372 466
Other assets ............................................................................................. 219 263
---------- ----------
$ 24,072 $ 15,844
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank ................................................................................. $ -- $ 4,243
Current installments of obligations under capital leases .............................................. 36 226
Current installments of long-term debt ................................................................ -- 500
Accounts payable ...................................................................................... 1,145 2,250
Accrued expenses and other liabilities ................................................................ 1,472 1,742
Progress billings in excess of work in progress ....................................................... 35 226
Deferred maintenance revenue .......................................................................... 981 989
---------- ----------
Total current liabilities ...................................................................... 3,669 10,176
Obligations under capital leases, less current installments .............................................. -- 463
Long-term debt, less current installments ................................................................ -- 167
---------- ----------
Total liabilities .............................................................................. 3,669 10,806
---------- ----------
Commitments and contingencies
Stockholders' equity:
Preferred stock, $.01 par value; authorized 5,000,000 shares and no shares issued or outstanding at
March 31, 1996 and 1997 .......................................................................... -- --
Series A convertible preferred stock, $.01 par value; authorized 2,373,000 shares, issued and
outstanding 1,776,479 shares at March 31, 1996 and none at March 31, 1997 ....................... -- 18
Series B convertible preferred stock, $.01 par value; authorized 327,000 shares, issued and outstanding
236,873 shares at March 31, 1996 and none at March 31, 1997 ...................................... -- 2
Series C convertible preferred stock, $.01 par value; authorized 6,000,000 shares, issued and
outstanding 615,745 shares at March 31, 1996 and none at March 31, 1997........................... -- 6
Common stock, $.01 par value; authorized 30,000,000 shares, issued and outstanding 2,478,214 shares at
March 31, 1996 and 5,263,455 shares at March 31, 1997 ............................................ 53 25
Additional paid-in capital ............................................................................ 23,036 6,431
Accumulated deficit ................................................................................... (2,686) (1,444)
---------- ----------
Total stockholders' equity ..................................................................... 20,403 5,038
---------- ----------
$ 24,072 $ 15,844
========== ==========
See accompanying notes to consolidated financial statements.
</TABLE>
31
<PAGE>
<TABLE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
YEARS ENDED MARCH 31, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
<CAPTION>
March 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Revenues:
The Work Number ................................................................................ $ 1,642 $ 453 $ 74
Outsourced services ............................................................................ 2,173 998 515
Customer premises systems ...................................................................... 11,013 9,442 6,957
Maintenance and support ........................................................................ 3,559 2,624 2,310
-------- -------- --------
Total revenues .......................................................................... 18,387 13,517 9,856
-------- -------- --------
Cost of revenues:
The Work Number ................................................................................ 678 429 48
Outsourced services ............................................................................ 941 493 260
Customer premises systems ...................................................................... 5,560 4,489 4,143
Maintenance and support ........................................................................ 1,025 619 793
-------- -------- --------
Total cost of revenues .................................................................. 8,204 6,030 5,244
-------- -------- --------
Gross margin ............................................................................ 10,183 7,487 4,612
-------- -------- --------
Operating expenses:
Selling and marketing .......................................................................... 5,902 4,084 2,854
General and administrative ..................................................................... 2,613 2,828 2,556
-------- -------- --------
Total operating expenses ................................................................ 8,515 6,912 5,410
-------- -------- --------
Operating income (loss) ................................................................. 1,668 575 (798)
-------- -------- --------
Other income (expense):
Interest income ................................................................................ 151 -- 5
Interest expense ............................................................................... (438) (343) (212)
Other, net ..................................................................................... (122) (52) (77)
-------- -------- --------
Total other income (expense), net ................................................................. (409) (395) (284)
-------- -------- --------
Earnings (loss) from continuing operations before
income tax expense (benefit) ......................................................... 1,259 180 (1,082)
Income tax expense (benefit) ...................................................................... 466 57 (328)
-------- -------- --------
Earnings (loss) from continuing operations .............................................. 793 123 (754)
-------- -------- --------
Discontinued operations:
Loss from operations of discontinued operations, net
of income taxes .............................................................................. (164) (703) (410)
Loss on disposal of discontinued operations, net of income
taxes ........................................................................................ (900) -- --
-------- -------- --------
Loss from discontinued operations, net of
income taxes ......................................................................... (1,064) (703) (410)
-------- -------- --------
Loss before extraordinary item .................................................... (271) (580) (1,164)
Extraordinary item - loss on extinguishment of debt, net of income taxes .......................... (971) -- --
-------- -------- --------
Net loss ................................................................................ $ (1,242) $ (580) $ (1,164)
======== ======== ========
Net earnings (loss) per share:
Earnings from continuing operations ............................................................ $ .18 $ .04
Loss from discontinued operations .............................................................. (.25) (.21)
Extraordinary loss ............................................................................. (.22) --
-------- --------
Net loss ................................................................................ $ (.29) $ (.17)
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
32
<PAGE>
<TABLE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
YEARS ENDED MARCH 31, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS, EXCEPT SHARE INFORMATION)
<CAPTION>
Retained
Earnings
Additional (Accum- Total
Common Paid-in ulated Stockholders'
Convertible Preferred Stock Stock Capital Deficit) Equity
------------------------------------ ---------- ---------- ---------- -------------
Series A Series B Series C
---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
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 .............. -- -- -- -- (1) -- (1)
Issuance of common stock warrants ....... -- -- -- -- 879 -- 879
Issuance of 2,000,000 shares of common
stock upon initial public offering ... -- -- -- 20 15,567 -- 15,587
Conversion of 1,776,441 shares of
Series A, 236,873 shares of Series B,
and 615,745 shares of Series C
preferred stock to 751,111 shares of
common stock upon initial public
offering ............................. (18) (2) (6) 8 18 -- --
Issuance of 30,989 shares of common
stock upon exercise of stock options.. -- -- -- -- 120 -- 120
Issuance of 3,285 shares of common stock
under employee stock purchase plan.... -- -- -- -- 22 -- 22
Net loss ................................ -- -- -- -- -- (1,242) (1,242)
---------- ---------- ---------- ---------- ---------- ---------- -------------
Balance at March 31, 1997 ............... $ -- $ -- $ -- $ 53 $ 23,036 $ (2,686) $ 20,403
========== ========== ========== ========== ========== ========== =============
See accompanying notes to consolidated financial statements.
</TABLE>
33
<PAGE>
<TABLE>
TALX CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED MARCH 31, 1995, 1996, AND 1997
(DOLLARS IN THOUSANDS)
<CAPTION>
Years ended March 31,
------------------------------
1997 1996 1995
-------- -------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net loss ....................................................................................... $ (1,242) $ (580) $ (1,164)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization ................................................................ 2,519 2,449 1,979
Extraordinary item - loss on extinguishment of debt .......................................... 971 -- --
Loss on disposal of discontinued operations, net ............................................. 515 -- --
Loss (gain) on sale of assets ................................................................ -- (7) 3
Gain on sale of marketable securities ........................................................ -- (106) --
Deferred taxes ............................................................................... (192) (39) (306)
Change in assets and liabilities:
Trade receivables ......................................................................... (4,550) (896) 863
Inventories ............................................................................... (171) (185) (182)
Work in progress, less progress billings, net ............................................. 137 (126) (287)
Prepaid expenses and other current assets ................................................. (661) 59 4
Income tax refund receivable .............................................................. 65 33 (293)
Other assets .............................................................................. 70 (14) 119
Accounts payable .......................................................................... (353) 293 (16)
Accrued expenses and other liabilities .................................................... 334 341 (118)
Deferred maintenance revenue .............................................................. (8) 315 674
Income taxes payable ...................................................................... -- -- (68)
-------- -------- --------
Net cash provided by (used in) operating activities ..................................... (2,566) 1,537 1,208
-------- -------- --------
Cash flows from investing activities:
Proceeds from sale of property and equipment ................................................... 1,041 9 --
Additions to property and equipment ............................................................ (1,550) (852) (1,701)
Capitalized software development costs ......................................................... (1,789) (1,712) (1,429)
Proceeds from sale of marketable securities .................................................... -- 187 --
Purchases of short-term investments ............................................................ (4,117) -- --
-------- -------- --------
Net cash used in investing activities ................................................... (6,415) (2,368) (3,130)
-------- -------- --------
Cash flows from financing activities:
Change in notes payable to bank ................................................................ (4,243) 1,588 1,554
Borrowings of long-term debt ................................................................... -- -- 1,500
Borrowings of subordinated notes payable and issuance of warrants .............................. 4,000 -- --
Repayments on long-term debt ................................................................... (667) (500) (1,042)
Repayment of subordinated notes payable ........................................................ (4,000) -- --
Payments on capitalized lease obligations ...................................................... (209) (235) (208)
Issuance of common stock ....................................................................... 15,729 7 --
Repurchase of common and preferred stock ....................................................... (1) -- --
-------- -------- --------
Net cash provided by financing activities ............................................... 10,609 860 1,804
-------- -------- --------
Net increase (decrease) in cash and cash equivalents .................................... 1,628 29 (118)
Cash and cash equivalents at beginning of year .................................................... 56 27 145
-------- -------- --------
Cash and cash equivalents at end of year .......................................................... $ 1,684 $ 56 $ 27
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
34
<PAGE>
TALX CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 1996 AND 1997
(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 web
and interactive voice response, primarily for Fortune 500 and other large
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
of the notes to consolidated financial statements.
(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) Short-term Investments
Short-term investments at March 31, 1997 consist of U.S. government agency debt
instruments. The Company classifies its debt and marketable equity securities in
one of two categories: available-for-sale or held-to maturity. Held-to-maturity
securities are those securities which the Company has the ability and intent to
hold until maturity. All other securities are classified as available-for-sale.
All of the Companies securities are classified as held-to-maturity. Interest
income is recognized when earned. Debt securities classified as held-to-maturity
are stated at amortized cost. The estimated fair
35
<PAGE>
value of the short-term investments is approximately the cost basis at
March 31, 1997.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Inventories consist primarily of hardware and spare parts.
(f) 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.
(g) 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.
Amortization of capitalized software development costs is the greater of the
amount computed using (I) the ratio that current gross revenues for a product
bear to the total of current and anticipated future gross revenues for that
product or (ii) straight-line method over the remaining estimated economic life
of the product. Amortization of capitalized software development costs starts
when the product is available for general release to customers.
(h) 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.
(I) Concentration of Credit Risk
The Company sells its interactive communications services in a variety of
industries. One customer represented approximately 12% and 14%, of revenues in
fiscal 1997 and 1996, respectively. 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.
(j) 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
36
<PAGE>
in tax rates is recognized in income in the period that includes the enactment
date.
(k) Fair Value of Financial Instruments
The Company discloses estimated fair values for its financial instruments. A
financial instrument is defined as cash or a contract that both imposes on one
entity a contractual obligation to deliver cash or another financial instrument
to a second entity and conveys to that second entity a contractual right to
receive cash or another financial instrument from the first entity.
(l) Stock Option Plans
On April 1, 1996, the Company adopted the Financial Accounting Standards Board
Statement of Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation," which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro forma
earnings per share disclosures for employee stock option grants made in 1995 and
later years as if the fair-value-based method defined in SFAS No. 123 had been
applied. The Company has elected to continue to apply the provisions of APB
Opinion No. 25 and provide the pro forma disclosure provisions of SFAS No. 123.
(m) 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.
(n) Effect of New Accounting Standards
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards (SFAS) No. 128, "Earning per Share." SFAS No. 128
establishes standards for the computation and presentation of earnings per share
for entities with publicly held common stock or potential common stock. This
Statement is effective for financial statements issued for periods ending after
December 15, 1997, and requires retroactive restatement of all prior period
earnings per share data presented. The effect of SFAS No. 128 on the financial
periods presented is not material to the Company.
(o) Reclassifications
Certain reclassifications have been made to the prior year consolidated
financial statements to conform with the current year presentation.
(p) Net Earnings (Loss) Per Share
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 751,111 shares of common stock. The weighted
average number of shares used in computing earnings (loss) per share was
3,391,621 for fiscal 1996 and 4,330,239 for fiscal 1997. Pursuant to Securities
and Exchange Commission Staff Accounting Bulletin No. 83, shares issued and
stock options and warrants granted at prices below the initial public offering
price of $9 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 for the first three quarters of
1997. Subsequent to this period, the weighted average number of shares was based
on common stock outstanding and common stock equivalents.
37
<PAGE>
(2) 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. A provision of
$350,000 was made as of June 30, 1996 to reflect the anticipated loss from
operations until the time of disposal. On January 31, 1997, the Company sold
substantially all of the assets of the document services business to Sterling
Direct, Inc., the largest customer of the division. The sales price, after
giving effect to the post-closing adjustments, was $1,241,000. Of the amount,
$200,000 is in the form of an 8%, three-year subordinated note and the remainder
was paid in cash. The net assets related to this sale were approximately
$566,000. As of March 31, 1997, the Company has determined that an additional
provision for loss in the amount of $550,000 is required to reflect the
anticipated results from operations and the estimated proceeds from the sale of
the database business.
The Company has classified the database and document services businesses as a
discontinued operation and has reclassified the prior period statements of
operations to reflect this change.
Summary balance sheet data as of March 31, 1997 is as follows:
(In thousands)
Current assets.................................. $ 1,740
Property and equipment, net..................... 732
Other assets.................................... 260
----------
Total assets.......................... 2,732
----------
Current liabilities, including provision for
loss of $1,190................................ 2,006
Noncurrent liabilities.......................... 19
----------
Total liabilities..................... 2,025
----------
Net assets of business held for sale.. $ 707
==========
The results of operations for the discontinued businesses for the years ended
March 31, 1995, 1996, and 1997 and the were as follows:
March 31,
---------------------------
1997 1996 1995
------- ------- -------
(In thousands)
Revenues....................................... $ 8,633 $11,149 $12,010
======= ======= =======
Loss from discontinued operations.............. (260) (1,052) (681)
Income tax benefit............................. (96) (349) (271)
------- ------- -------
Loss from operations of discontinued
operations................................ (164) (703) (410)
------- ------- -------
Loss on disposal............................... (1,428) -- --
Income tax benefit............................. (528) -- --
------- ------- -------
Loss on disposal, net....................... (900) -- --
------- ------- -------
Net loss....................................... $(1,064) $ (703) $ (410)
======= ======= =======
At March 31, 1997, the database business occupies office space with future
minimum lease payments, net of subleases as follows for future fiscal years
ending March 31: 1998, $160,000; 1999, $180,000; 2000, $182,000; 2001, $221,000;
2002, $238,000; and 2003, $20,000. Management believes that it will be able to
enter into a sublease with respect to the remaining spaces upon divestiture of
the database business.
38
<PAGE>
(3) TRADE RECEIVABLES
Trade receivables consist of the following:
March 31,
--------------
1997 1996
------ ------
(In thousands)
Billed receivables...................... $6,149 $5,211
Unbilled receivables.................... 2,311 951
------ -------
8,460 6,162
Less allowance for doubtful accounts.... 19 244
------ ------
$8,441 $5,918
====== ======
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:
Range of Estimated
Useful Lives
(in years) March 31,
------------------ --------------
1997 1996
------ ------
(In thousands)
Computer equipment........................... 3--5 $3,824 $7,092
Office furniture and equipment............... 5--7 926 1,552
Leasehold improvements....................... 3--10 878 665
Automobile................................... 3 -- 8
================== ------ ------
5,628 9,317
Less accumulated depreciation and
amortization............................... 2,976 5,738
------ ------
$2,652 $3,579
====== ======
(5) PRODUCT DEVELOPMENT AND CAPITALIZED SOFTWARE DEVELOPMENT COSTS
Product development and capitalized software development costs for the years
ended March 31, 1997, 1996, and 1995 were as follows:
March 31,
------------------------------
1997 1996 1995
-------- -------- --------
(In thousands)
Product development costs incurred............. $ 2,015 $ 1,894 $ 1,477
Additions to capitalized software development
costs........................................ (1,789) (1,712) (1,429)
-------- -------- --------
Product development costs charged to general
and administrative expenses.................. $ 226 $ 182 $ 48
======== ======== ========
Amortization of capitalized software
development costs............................ $ 1,161 $ 1,184 $ 876
======== ======== ========
39
<PAGE>
(6) ACCRUED EXPENSES AND OTHER LIABILITIES
Accrued expenses and other liabilities for the years ended March 31, 1997 and
1996 consist of the following:
March 31,
------------------
1997 1996
------- -------
(In thousands)
Accrued compensation and benefits..... $ 561 $ 855
Other................................. 911 887
------- -------
$ 1,472 $ 1,742
======= =======
(7) BANK FINANCING ARRANGEMENTS
Notes payable to bank at March 31, 1996 represented the amounts outstanding
under several 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 (8.25% at March 31, 1996).
Long-term debt at March 31, 1996 consisted of a note payable to bank, payable in
monthly principal installments of $41,667, maturing in August 1997, bearing
interest at a variable rate of prime plus 0.75%.
These agreements were 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.
In June 1996, the Company entered into a loan agreement to secure additional
debt of $4,000,000, through a subordinated note payable, $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 was due and payable on July 1, 2001, bore 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 issued warrants for 138,142 shares of common stock,
exercisable at $.01 per share, for which $879,000 of value was ascribed.
The Company used a portion of the net proceeds of its initial public offering to
repay the amounts outstanding under its various financing arrangements. The
repayment of the subordinated note payable resulted in an extraordinary loss on
early extinguishment of debt of $1,180,000 and a related tax benefit of
$209,000.
(8) LEASES
The Company is obligated for certain equipment under capital leases which expire
in fiscal 1998. Assets capitalized under capital lease obligations and included
in property and equipment at March 31, 1997 and 1996 are as follows:
March 31,
---------------
1997 1996
------ ------
(In thousands)
Computer equipment................ $ 168 $1,163
Less accumulated amortization..... 124 567
------ ------
$ 44 $ 596
====== ======
The Company has noncancellable operating leases, primarily for office space and
computer equipment, that expire through 2003 and provide for purchase or renewal
options. During 1991, a partnership, which included the president of the
Company, acquired the building where the Company's headquarters are housed. Rent
paid to the partnership amounted
40
<PAGE>
to $422,600 and $391,484 in 1996 and 1995, respectively. The partnership sold
the building to an unrelated party in March 1996.
Total rent expense for operating leases, including contingent rentals, was
$578,000 in 1997, $595,000 in 1996, and $520,000 in 1995.
Future minimum lease payments under capital leases and noncancellable operating
leases as of March 31, 1997 are as follows:
Capital Operating
--------- ---------
(In thousands)
Fiscal Year:
1998................................................... $ 39 $ 514
1999................................................... -- 467
2000................................................... -- 465
2001................................................... -- 421
2002................................................... -- 413
Thereafter............................................. -- 206
--------- ---------
Total minimum lease payments........................ 39 $ 2,486
=========
Less amount representing interest......................... 3
---------
Present value of net minimum capital lease
payments.......................................... 36
Less current installments of obligations under capital
leases.................................................. 36
---------
Obligations under capital leases, less current
installments...................................... $ --
=========
(9) INCOME TAXES
Income tax expense (benefit) consists of the following:
March 31,
------------------------
1997 1996 1995
------ ------ ------
(In thousands)
Current--federal .................................... $ -- $ -- $ --
Deferred:
Federal .......................................... 428 52 (283)
State and local .................................. 38 5 (45)
------ ------ ------
Income tax expense (benefit) before
discontinued operations ................. 466 57 (328)
Discontinued operations ............................. (624) (349) (271)
Extraordinary loss .................................. (209) -- --
------ ------ ------
Total income tax (benefit) ................ $ (367) $ (292) $ (599)
====== ====== ======
41
<PAGE>
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:
March 31,
------------------------
1997 1996 1995
------ ------ ------
(In thousands)
Computed "expected" tax expense (benefit) ......... $ 428 $ 61 $ (389)
Increase (decrease) in income taxes resulting from:
State and local income taxes, net of federal
income tax benefit.............................. 25 3 (30)
Other, net ....................................... 13 (7) 91
------ ------ ------
$ 466 $ 57 $ (328)
====== ====== ======
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at March 31, 1997 and
1996 are presented below:
March 31,
--------------
1997 1996
------ ------
(In thousands)
Deferred tax assets:
Allowance for doubtful accounts ............................. $ 31 $ 90
Valuation allowance on inventory ............................ 57 44
Accrual for compensated absences ............................ 42 61
Accrual for loss on discontinued operations ................. 440 --
Differences in depreciation ................................. 108 91
Differences in expense recognition methods .................. 97 85
Net operating loss and tax credit carryforwards ............. 1,472 1,374
------ ------
Total deferred tax assets ........................... 2,247 1,745
------ ------
Deferred tax liabilities:
Differences in capitalized software development cost methods 1,202 905
Differences in revenue recognition methods .................. 78 9
Differences in depreciation and amortization ................ 84 140
------ ------
Total deferred tax liabilities ...................... 1,364 1,054
------ ------
Net deferred tax assets ............................. $ 883 $ 691
====== ======
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 $4,000,000 prior to the
expiration of the net operating loss carryforwards in 2012. Taxable income
(loss) of TALX for the years ended March 31, 1997, 1996, and 1995 was
$(283,000), $(1,076,000), and $(1,914,000), respectively. Based upon the level
of historical taxable income and projections for future taxable income over the
periods which the deferred tax assets are deductible, management believes it is
more likely than not the Company will realize the benefits of these deductible
differences at March 31, 1997.
At March 31, 1997, the Company has net operating loss carryforwards for federal
income tax purposes of $3,500,000, which are available to offset future federal
taxable income, if any, through 2012. In addition, the Company has alternative
minimum tax credit carryforwards of approximately $39,000, which are available
to reduce future federal regular income taxes, if any, over an indefinite
period.
42
<PAGE>
(10) STOCKHOLDERS' EQUITY
In July 1996, 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 options
and warrants accordingly. The Board of Directors 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 consolidated financial statements have been revised to effect for the
reverse stock split and changes in par value.
In July 1996, 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.
All series of convertible preferred stock were converted into common stock upon
completion of the Company's initial public offering. Upon the closing, the
Company filed an amendment to its Articles of Incorporation to reduce the number
of authorized shares of preferred stock to 5,000,000.
TALX has adopted two incentive stock option plans for employees which provide
for the issuance of a maximum of 619,109 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, 1997 were 152,240. Activity under
the plan for the three years ended March 31, 1997 is as follows:
Shares Price
----------- -----------
Outstanding at March 31, 1994 ................... 119,000 $.88--4.38
Granted--1995 ................................... 210,429 3.85
Canceled--1995 .................................. (6,715) .88--4.38
-----------
Outstanding at March 31, 1995 ................... 322,714 .88--4.38
Canceled--1996 .................................. (22,714) .88--4.38
Exercised--1996 ................................. (1,714) 4.38
-----------
Outstanding at March 31, 1996 ................... 298,286 .88--4.38
Granted--1997 ................................... 88,117 7.00
Canceled--1997 .................................. (14,203) 3.85
Exercised--1997 ................................. (30,989) .88--7.00
-----------
Outstanding at March 31, 1997 ................... 341,211 $.88--7.00
=========== ===========
The Company has adopted the disclosure-only provisions of SFAS No. 123,
"Accounting for Stock-Based Compensation." Accordingly, no compensation cost has
been recognized for the stock option plans. Had compensation cost for the
Company's stock option plans been determined based on the fair value at the
grant date for awards in fiscal 1997 consistent with the provisions of SFAS No.
123, the Company's net loss and net loss per share would not have been impacted
by a material amount.
The Company made calculations reflecting only options granted in fiscal 1997.
Therefore, the full impact of calculating compensation cost for stock options
under SFAS No. 123 was not reflected in the determination of the impact, because
compensation cost is reflected over the options' vesting period of six years and
compensation cost for options granted prior to April 1, 1995 is not considered.
The fair value of option grants for 1997 is estimated on the date of grant using
the Black-Scholes option-pricing model with the following weighted-average
assumptions: expected volatility of 65%, risk-free interest rate of 6.44%,
expected life of 6 years; and an expected dividend yield of 0.0%.
This disclosure is provided for informational purposes only and is not
necessarily indicative of the results of operations that would have occurred or
of the future impact or anticipated results of operations of the Company.
43
<PAGE>
During fiscal 1997, the shareholders approved the TALX Corporation 1996 Employee
Stock Purchase Plan (ESPP). The ESPP allows eligible employees the right to
purchase common stock on a quarterly basis at the lower of 85% of the market
price at the beginning or end of each three-month offering period. As of March
31, 1997, there were 80,000 shares of common stock reserved for the ESPP and
there had been 3,285 shares issued to date.
(11) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts for the Company's cash and cash equivalents, short-term
investments, trade receivables, income tax refund receivable, accounts payable
and accrued expenses approximate fair value because of the short-term maturity
of these instruments. The carrying amounts of notes payable to bank, long-term
debt, and capital lease obligations approximate fair value because the interest
rates vary with or approximate market rates.
(12) EMPLOYEE BENEFIT PLANS
The Company sponsors a profit-sharing/401(k) plan. 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, 1997, 1996, and 1995 was $99,895,
$90,960, and $81,558, 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 $438,000, $503,109, and $319,868
for the years ended March 31, 1997, 1996, and 1995, respectively.
Cash paid during the year for income taxes totaled $0, $279, and $53,050 for the
years ended March 31, 1997, 1996, and 1995, respectively.
Additions to assets recorded under capital leases for the years ended March 31,
1997, 1996, and 1995 were $0, $51,000, and $568,367, respectively.
44
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not Applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information regarding directors and executive officers of the Company is
contained under the caption "Election of Directors" and "Section 16(a)
Beneficial Ownership Reporting Compliance" included in the Proxy Statement for
the 1997 Annual Meeting of Stockholders, which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is contained under the caption
"Executive Compensation," "Compensation Committee Interlocks and Insider
Participation" and "Election of Directors -- Director Compensation" included in
the Proxy Statement for the 1997 Annual Meeting of Stockholders, which is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Information regarding security ownership of certain beneficial owners and
management is contained under the captions "Common Stock Ownership of Directors,
Nominees, and Officers" and "Common Stock Ownership of Certain Benefical
Owners," included in the Proxy Statement for the 1997 Annual Meeting of
Stockholders, which is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Information regarding certain relationships and related transactions is
contained under the caption "Certain Relationships and Related Transactions,"
included in the Proxy Statement for the 1997 Annual Meeting of Stockholders,
which is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
See Item 8 - Index to Consolidated Financial Statements
(2) Financial Statement Schedules
None; such schedules have been omitted because of the absence of
conditions under which they are required or because the
information is included in the financial statements or notes
thereto.
(3) Exhibits
See Exhibit Index for the exhibits filed as part of or
incorporated by reference into this report.
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the Registrant during the fiscal
quarter ended March 31, 1997.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
TALX CORPORATION
(Registrant)
By /s/ William W. Canfield
-------------------------------------
William W. Canfield
Chairman, President, Chief
Executive Officer and Director
Date: June 27, 1997
Pursuant to the requirements of the Securities Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated:
/s/ William W. Canfield Chairman, President, Chief June 27, 1997
- ------------------------- Executive Officer and Director
William W. Canfield (Principal Executive Officer)
/s/ Richard F. Ford Director June 27, 1997
- -------------------------
Richard F. Ford
/s/ Craig E. LaBarge Director June 27, 1997
- -------------------------
Craig E. LaBarge
/s/ Eugene M. Toombs Director June 27, 1997
- -------------------------
Eugene M. Toombs
/s/ M. Steve Yoakum Director June 27, 1997
- -------------------------
M. Steve Yoakum
/s/ Craig N. Cohen Chief Financial Officer June 27, 1997
- ------------------------- (Principal Financial
Craig N. Cohen Officer and Principal
Accounting Officer)
46
<PAGE>
EXHIBIT INDEX
Exhibit Number Description
- -------------- ----------------------------------------------------------------
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, as amended
3.2 Intentionally Omitted
3.3* Bylaws of the Company
4.1 See Exhibits 3.1 and 3.2
4.2 Warrant Agreement dated as of October 22, 1996 among the
Company, First Albany Corporation and Principal Financial
Securities, Inc.
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* 13.25% $4.0 million Subordinated Promissory Note, dated June 28,
1996
10.9** Stock Purchase Warrant issued to Petra Capital, LLC and other
participants
10.10* Lease dated March 28, 1996 by and between the Company and
Stephen 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
Insurance Company of America, a New Jersey corporation and EKI
Incorporated
47
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Exhibit Number Description
- -------------- ----------------------------------------------------------------
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
Partnership, 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
10.15* Amendment and Waiver Agreement dated as of July 28, 1996 between
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** First Amendment to the Stock Purchase Warrant issued to Petra
Capital, LLC and other participants
10.21*** Employment Agreement between TALX Corporation and Mr. Canfield
++
10.22*** Employment Agreement between TALX Corporation and Mr. Tubbesing
++
10.23*** Employment Agreement between TALX Corporation and Mr. Smith ++
10.24*** Employment Agreement between TALX Corporation and Mr. Cohen ++
11.1 Statement re Computation of Per Share Earnings
21.1* Subsidiaries of the Company
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Exhibit Number Description
- -------------- ----------------------------------------------------------------
23.1 Consent of KPMG Peat Marwick LLP
27.1 Financial Data Schedule
- ---------------
* Incorporated by reference to exhibit with corresponding number to the
Company's Registration Statement on Form S-1 (File No. 333-10969)
** Incorporated by reference to exhibit with corresponding number to Amendment
No. 1 to the Company's Registration Statement on Form S-1 (File No.
333-10969)
*** Incorporated by reference to exhibit with corresponding number to Amendment
No. 2 to the Company's Registration Statement on Form S-1 (File No.
333-10969)
+ The registrant undertakes to furnish supplementally a copy of any omitted
schedule to the Commission upon request.
++ Represents management contract or compensatory plan or arrangement.
49
EXHIBIT 3.1
EXHIBIT A
RESTATED
ARTICLES OF INCORPORATION
OF
TALX CORPORATION
ARTICLE ONE - NAME
The name of the corporation (hereinafter referred to as "Corporation") is:
TALX Corporation.
ARTICLE TWO - REGISTERED OFFICE
The address of the Corporation's registered office in the State of Missouri
is 1850 Borman Court, St. Louis, Missouri 63146 and the name of its registered
agent at such address is Kathleen M. Lahrmann.
ARTICLE THREE - AUTHORIZED SHARES
A. CLASSES AND NUMBER OF SHARES.
The aggregate number of shares of capital stock which the Corporation is
authorized to issue is 43,700,000 shares, consisting of 30,000,000 shares of
Common Stock, par value $0.01 per share ("Common Stock"); and 13,700,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock"), of which
8,700,000 shares of Preferred Stock have been designated as the Designated
Preferred Stock in Paragraph E below.
B. TERMS OF THE COMMON STOCK.
Section 1. Voting Rights. Each holder of the Common Stock shall be entitled
to one vote per share of Common Stock on all matters to be voted on by the
shareholders.
Section 2. Dividends. If the Board of Directors shall elect to declare
dividends out of funds legally available therefor, such dividends shall be
declared on all Designated Preferred Stock, other Preferred Stock if the terms
of such series so provide, and Common Stock and the holders of Common Stock
shall share such dividends pro rata with (a) the holders of the Designated
Preferred Stock in accordance with the provisions set forth in Section E(2) of
this Article Three, (b) other Preferred Stock if the terms of such series so
provide, and (c) other holders of the Common Stock in accordance with the number
of shares of Common Stock held.
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Section 3. Liquidation. Subject to Section E(3) of this Article Three and
the terms of any other Preferred Stock, if applicable, in the event of any
liquidation, dissolution or winding up of the Corporation, either voluntary or
involuntary, after payment of all preferential liquidation payments on
outstanding Senior Securities (as defined below), the Designated Preferred Stock
and any other Preferred Stock if the terms of such series so provide, the
holders of the Common Stock shall be entitled to receive their pro rata share of
all of the remaining assets of the Corporation legally available for
distribution, if any, along with the holders of the Designated Preferred Stock
and, in the case of any other Preferred Stock, if the terms of such series so
provide, on the basis of their respective interests in the Common Stock on an
"as if converted basis" or, in the case of any other Preferred Stock, as the
terms of such series so provide.
Section 4. Rank. The Common Stock shall, upon liquidation, dissolution or
winding up of the affairs of the Corporation, rank (a) senior and prior to any
class or series of capital stock of the Corporation hereafter issued the terms
of which specifically provide that shares of such class or series shall rank
junior to the shares of Common Stock; (b) on a parity with any other class or
series of capital stock of the Corporation hereafter issued the terms of which
specifically provide that shares of such class or series shall rank on a parity
with the shares of Common Stock; and (c) junior to the shares of the Designated
Preferred Stock and to any other class or series of other Preferred Stock or
other capital stock of the Corporation hereafter issued unless the terms of such
class or series of other Preferred Stock or other capital stock of the
Corporation specifically provide that such series or class shall rank junior to
or on a parity with shares of the Common Stock.
C. NO PREEMPTIVE RIGHTS OR CUMULATIVE VOTING.
All preemptive rights and cumulative voting rights of shareholders are
hereby denied, so that no share or shares of Common Stock or Preferred Stock or
any other security or securities of the Corporation shall carry with it and no
holder or owner of any share or shares of stock or other security of the
Corporation shall have any preferential or preemptive right to acquire any
additional shares of stock of any class or series or any other security of the
Corporation or any right to vote cumulatively in the election of Directors or
for any other purpose.
D. TERMS OF PREFERRED STOCK.
The terms of the shares of each series of Preferred Stock shall be as
stated and expressed in these Articles of Incorporation or any amendment hereto,
or in the resolution or resolutions providing for the issuance of such series of
Preferred Stock adopted by the Board of Directors. Subject to the requirements
of The General and Business Corporation Law of Missouri (the "GBCL") and the
provisions of these Articles of Incorporation, the Board of Directors is
expressly authorized to cause any number of the authorized and undesignated
shares of Preferred Stock to be issued from time to time in one or more series
of Preferred Stock with such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, if any, as the Board of Directors may fix by resolution or resolutions,
prior to the issuance of any shares of such series of Preferred Stock, each of
which series may differ from any and all other series, including, without
limiting the generality of the foregoing, the following:
(a) The number of shares constituting such series of Preferred Stock
and the designation thereof;
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(b) The dividend rate, if any, on the shares of such series of
Preferred Stock, whether and the extent to which any such dividends shall
be cumulative or non-cumulative, the relative rights of priority, if any,
of payments of any dividends, and the time at which, and the terms and
conditions on which, any dividends shall be paid.
(c) The right, if any, of the holders of shares of such series of
Preferred Stock to vote and the manner of voting, except as may otherwise
be provided by the GBCL and the provisions of these Articles of
Incorporation;
(d) The right, if any, of the holders of shares of such series of
Preferred Stock to convert the same into, or the right, if any, of the
Corporation to exchange the same for, another class or series of capital
stock of the Corporation and the terms and conditions, including any
provision for future adjustment in the conversion or exchange rate, under
which said shares may be converted or exchanged;
(e) The redemption or purchase price or prices of the shares of such
series of Preferred Stock, if any, and the times at which, and the terms
and conditions under which, the shares of such series of Preferred Stock
may be redeemed or purchased;
(f) The terms of the sinking fund, if any, to be provided for such
series of Preferred Stock, and the terms and amount of any such sinking
fund;
(g) The rights of the holders of shares of such series of Preferred
Stock in the event of a voluntary or involuntary liquidation, dissolution
or winding up of the Corporation and the relative rights of priority, if
any, of such holders with respect thereto; and
(h) Any other relative powers, preferences and rights, and any
qualifications, limitations or restrictions, of such series of Preferred
Stock.
E. SERIES A, B AND C PREFERRED STOCK.
The Corporation has designated 8,700,000 shares of Preferred Stock as
follows:
(i) 2,373,000 shares of Series A Convertible Preferred Stock, par
value $0.01 per share (the "Series A Preferred Stock");
(ii) 327,000 shares of Series B Convertible Preferred Stock, par
value $0.01 per share (the "Series B Preferred Stock");
(iii) 6,000,000 shares of Series C Convertible Preferred Stock, par
value $0.01 per share (the "Series C Preferred Stock").
The Series A Preferred Stock, the Series B Preferred Stock and the Series C
Preferred Stock are collectively referred to hereinafter as the "Designated
Preferred Stock."
The preferences, powers, qualifications, special or relative rights or
privileges of the Designated Preferred Stock shall be as set forth in Sections 1
through 6, below.
Section 1. Rank. With respect to mandatory redemption payments and rights
upon liquidation, dissolution or winding up of the affairs of the Corporation:
(a) each share of Series C Preferred Stock shall rank senior and prior to the
shares of Series A Preferred Stock and
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<PAGE>
Series B Preferred Stock, and each share of Series B Preferred Stock, in turn,
shall rank senior and prior to the shares of Series A Preferred Stock; (b)
shares of a series of Designated Preferred Stock shall rank on a parity with any
other class or series of capital stock of the Corporation hereafter issued for
fair value as determined by the Board of Directors of the Corporation the terms
of which specifically provide that shares of such class or series shall rank on
a parity with the shares of such series of Designated Preferred Stock; (c)
shares of a series of Designated Preferred Stock shall rank senior and prior to
the Common Stock and to any other class or series of capital stock of the
Corporation hereafter issued unless the terms of such class or series of capital
stock of the Corporation specifically provide that shares of such class or
series shall rank prior to or on a parity with the shares of such series of
Designated Preferred Stock (shares of the Common Stock and any other class or
series of capital stock of the Corporation hereafter issued the terms of which
do not specifically provide that such shares shall rank prior to or on a parity
with shares of such series of Designated Preferred Stock are hereinafter
collectively referred to as "Junior Securities"); and (d) shares of a series of
Designated Preferred Stock shall rank junior to any other class or series of
capital stock of the Corporation hereafter issued with the consent of the
holders of at least 66-2/3% of the shares of the affected series of Designated
Preferred Stock (pursuant to Section E(6) hereof) the terms of which
specifically provide that shares of such class or series shall rank senior to
shares of such series of Designated Preferred Stock (shares of such class or
series are collectively referred to as "Senior Securities"). In the event the
proceeds of mandatory redemption, liquidation, dissolution or winding up of the
Corporation are insufficient to pay the holders of shares of a series of
Preferred Stock the full amount to which they would be entitled, such proceeds
shall be paid pro rata to the holders of such series of Preferred Stock based
upon the number of shares held.
Section 2. Dividends. If the Board of Directors shall elect to declare
dividends out of funds legally available therefor, such dividends shall be
declared on all Designated Preferred Stock and Common Stock and the holders of
the Designated Preferred Stock shall share such dividends pro rata with (a) the
holders of the Common Stock in accordance with the number of shares of Common
Stock held by such holders and (b) other holders of the Designated Preferred
Stock in accordance with the number of shares of Common Stock receivable upon
conversion of the Designated Preferred Stock held by such holders.
Section 3. Liquidation.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of Designated
Preferred Stock shall be entitled to receive, prior and in preference to any
distribution of any of the assets or surplus funds of the Corporation to the
holders of any Junior Securities by reason of their ownership thereof, (i) the
amount of (A) $1.90 per share for Series A or Series B Preferred Stock, and (B)
the issuance price per share of Series C Preferred Stock (in each case, the
"Issuance Price"); and (ii) an amount equal to all declared but unpaid dividends
on such shares. If upon the occurrence of such event the assets and funds
available for distribution to the holders of Designated Preferred Stock are
insufficient to permit the payment to such holders of the full preferential
liquidation amounts to which they are entitled, then the entire assets and funds
of the Corporation legally available for distribution shall be distributed
ratably among the holders of Designated Preferred Stock in proportion to the
respective liquidation amounts due to each holder in accordance with their rank
as provided in Section E(1) of this Article Three. After payment has been made
to the holders of the Designated Preferred Stock of the full preferential
liquidation amounts to which they are entitled, all remaining assets of the
Corporation legally available for distribution, if any, shall be distributed pro
rata among all holders of Designated Preferred Stock, Junior Securities and
capital stock convertible into Common Stock on the basis of their respective
interests in the Common Stock on an "as if converted" basis.
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<PAGE>
(b) Inclusion of Certain Transactions. For purposes of this Section 3, a
liquidation, dissolution or winding up of the Corporation shall be deemed to
include the Corporation's sale of all or substantially all of its assets or the
acquisition of the Corporation by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of this
Corporation for securities or consideration issued, or caused to be issued, by
the acquiring corporation or its subsidiary.
Section 4. Conversion.
(a) Conversion Rights. The holders of Designated Preferred Stock shall have
the following conversion rights ("Conversion Rights"):
(i) Voluntary Conversion. Subject to the provisions set forth in
Section E(5) below, every 3.5 shares of Designated Preferred Stock shall be
convertible, at the option of the holder thereof, at any time after the date of
issuance of such shares at the office of the Corporation or any transfer agent
for such stock, into one fully paid and nonassessable share of Common Stock (as
adjusted for the 1-for-3.5 reverse stock split previously effected on August 2,
1996); provided that if a fractional share of Common Stock would be deliverable
upon such conversion as a result of the aforementioned 1-for-3.5 reverse stock
split, the Corporation will pay an amount in cash equal to the fair market value
of such fractional interest, determined by the Board of Directors to be $2.00
per share (on a pre-split basis) to each holder of shares of Designated
Preferred Stock to whom such fractional interest would have been deliverable;
provided further, that if the outstanding number of shares of Common Stock are
increased or decreased through stock split, stock dividend, stock consolidation
or similar adjustment in the Corporation's outstanding capital stock, the number
of shares receivable upon conversion shall be adjusted appropriately and
proportionately such that the number of shares of Common Stock issuable after
such change shall be equal to the number and kind of shares the holder of such
Designated Preferred Stock would have held had the Designated Preferred Stock
been converted immediately prior to said event.
(ii) Automatic Conversion. Every 3.5 shares of Designated Preferred
Stock shall automatically be converted into one share of Common Stock (as
adjusted for the 1-for-3.5 reverse stock split previously effected on August 2,
1996) in the event that (A) the Corporation completes a firm-commitment
underwritten public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended, covering the offer and sale of
Common Stock for the account of the Corporation to the public with aggregate net
proceeds to the Corporation of not less than $5,000,000, or (B) the holders of
at least 66-2/3% of all outstanding shares of Designated Preferred Stock consent
to such conversion; provided that if a fractional share of Common Stock would be
deliverable upon such conversion as a result of the aforementioned 1-for-3.5
reverse stock split, the Corporation will pay an amount in cash equal to the
fair market value of such fractional interest, determined by the Board of
Directors to be $2.00 per share (on a pre-split basis) to each holder of shares
of Designated Preferred Stock to whom such fractional interest would have been
deliverable; and provided further, that if the outstanding number of shares of
Common Stock are increased or decreased through stock split, stock dividend,
stock consolidation or other similar adjustment to the Corporation's outstanding
capital stock, the number of shares receivable upon conversion shall be adjusted
appropriately and proportionately such that the number of shares of Common Stock
issuable after such change shall be equal to the number and kind of shares the
holder of such Designated Preferred Stock would have held had the Designated
Preferred Stock been converted immediately prior to said event. In the event of
conversion upon a public offering, the persons entitled to receive the Common
Stock issuable upon such conversion of the Designated Preferred Stock shall not
be deemed to have converted their shares until immediately prior to the closing
of the sale of such securities.
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<PAGE>
(b) Mechanics of Conversion. Before any holder of Designated Preferred
Stock shall be entitled to convert the same into full shares of Common Stock, he
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Designated Preferred
Stock, and shall give written notice to the Corporation at such office that he
elects to convert the same. The Corporation shall, as soon as practicable
thereafter, issue and deliver at such office to the holder, or to the nominee of
such holder, a certificate or certificates for the number of shares of Common
Stock to which such holder is entitled and a check payable to such holder in the
amount of any cash amounts payable as the result any declared and unpaid
dividends on the converted Designated Preferred Stock. Such conversion shall be
deemed to have been made immediately prior to the close of business on the date
of the surrender of the certificate representing the shares of the Designated
Preferred Stock to be converted, and the person or persons entitled to receive
the shares of Common Stock issuable upon such conversion shall be treated for
all purposes as the record holder or holders of such shares of Common Stock on
such date. If the conversion is in connection with an underwritten offering of
securities registered pursuant to the Securities Act of 1933, as amended, then
the conversion may, at the option of any holder tendering Designated Preferred
Stock for conversion, be conditioned upon the closing with the underwriter of
the sale of securities pursuant to such offering, in which event any person
entitled to receive the Common Stock issuable upon such conversion of the
Designated Preferred Stock shall not be deemed to have converted such Designated
Preferred Stock until immediately prior to the completion of such sale of
securities.
(c) Exercise of Voluntary Conversion Rights on Merger or Sale of Assets.
(i) Notice. The Corporation shall give each holder of record of
Designated Preferred Stock written notice of any merger of the Corporation with
any other corporation or any other corporate reorganization in which the
Corporation is not the continuing or surviving entity of such merger or
reorganization, or of any sale of substantially all of the assets of the
Corporation. Such notice shall be given not later than 20 days prior to the
shareholders' meeting called to approve such transaction or 20 days prior to the
completion of such transaction, whichever is earlier. Such notice shall describe
the material terms and conditions of the contemplated transaction, as well as
the terms and conditions of Section E(3) above and this Section E(4)(c), setting
forth the date on which the holders of shares of Common Stock shall be entitled
to exchange their shares of Common Stock for securities or other property
deliverable upon the occurrence of such event. The Corporation shall thereafter
give such holders prompt notice of any material changes in such terms and
conditions. The transaction shall in no event take place sooner than 20 days
after the mailing by the Corporation of the notice provided for in this Section
E(4)(c)(i); provided, however, that such period may be shortened or waived upon
the written consent of the holders of at least 66-2/3% of all outstanding shares
of Designated Preferred Stock.
(ii) Conditional Exercise of Conversion Rights. If subsequent to the
giving of notice pursuant to Section E(4)(c)(i) above but not later than 10 days
prior to the closing of such transaction, any holder of Designated Preferred
Stock elects to exercise its Conversion Rights, then the conversion may, at the
option of any holder tendering Designated Preferred Stock for conversion, be
conditioned upon the closing of such transaction, in which event the person
entitled to receive the Common Stock issuable upon such conversion of the
Designated Preferred Stock shall not be deemed to have converted such Designated
Preferred Stock until immediately prior to the closing of such transaction.
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<PAGE>
(d) Notices.
(i) Events Triggering Notices. In addition to any notices otherwise
required by this Section E(4), the following events shall also cause the
Corporation to issue notices in accordance with the provisions of Section
E(4)(d)(ii) below:
(1) a declaration by the Corporation of any dividend or
distribution upon shares of its Common Stock, whether in cash, property, stock
or other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus;
(2) a pro rata offering by the Corporation to the holders of any
class or series of its stock to subscribe for any additional shares of stock of
any class or series or other rights; or
(3) any reclassification or recapitalization by the Corporation
of its outstanding Common Stock.
(ii) Types of Notice. At least 20 days prior to the record date for
the dividend, distribution or subscription rights referred to in Sections
E(4)(d)(i)(1) and E(4)(d)(i)(2) above or for determining rights to vote with
regard to the matters referred to in Section E(4)(d)(i)(3) above, the
Corporation shall send a notice to each holder of Designated Preferred Stock
setting forth the record or voting date and the nature of the action. Each such
written notice shall be given by personal delivery or by first class mail,
postage prepaid, addressed to each holder of Designated Preferred Stock at the
address for each such holder as shown on the books of the Corporation.
Notwithstanding the foregoing, the obligation to provide notice pursuant to this
Section B(4)(d) shall not apply to a one for three and one-half reverse stock
split, the payment of cash in lieu of fractional shares in connection therewith,
a reduction in par value of the Company's capital stock or the reduction in the
stated capital account to an amount equal to the number of shares of capital
stock multiplied by the par value thereof.
(e) No Impairment. The Corporation will not, by amendment of its Articles
of Incorporation or through any reorganization, transfer of assets,
consolidation, merger, dissolution, issuance or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Corporation but will at
all times in good faith assist in the carrying out of all the provisions of this
Section E(4) and in the taking of all actions that may be necessary or
appropriate to protect the Conversion Rights of the holders of the Designated
Preferred Stock against impairment.
Section 5. Redemption.
(a) Mandatory Redemption of the Designated Preferred Stock. On July 1,
1995, the Corporation shall, to the extent it may lawfully do so, redeem each
share of Designated Preferred Stock which has not been converted to Common Stock
by paying in cash therefor an amount per share equal to (i) the greater of: (A)
the Issuance Price, or (B) 10 times the average of consolidated earnings per
share of Common Stock for the two full fiscal years immediately preceding July
1, 1995 for each share of Designated Preferred Stock; plus (ii) any dividends
declared but not then paid (such aggregate amount per share being referred to
herein as the "Redemption Price"). For purposes of this Section E(5)(a),
earnings per share of Common Stock shall be determined in accordance with
generally accepted accounting principles applied on a consistent basis. If the
funds of the Corporation available for redemption of Designated Preferred Stock
on the Redemption Date are insufficient to redeem the total number of shares of
Designated Preferred Stock to be redeemed on such date, then those funds that
are legally
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<PAGE>
available shall be used to redeem the maximum possible number of the shares
ratably among the holders of the shares to be redeemed in accordance with
Section E(1).
(b) Notice of Redemption. At least 45 days but no more than 60 days prior
to the date fixed for any redemption of Designated Preferred Stock (the
"Redemption Date"), written notice (the "Redemption Notice") shall be mailed,
postage prepaid, to each holder of record at the close of business on the
business day next preceding the day on which notice is given, at the address
last shown on the records of this Corporation for such holder (or at the address
given by the holder to the Corporation for the purpose of notice or if no such
address appears or is given, at the place where the principal executive office
of the Corporation is located), notifying such holder of (i) the Designated
Preferred Stock to be redeemed, (ii) specifying the Redemption Date, the
applicable Redemption Price, the place at which payment may be obtained, and the
date on which such holder's Conversion Rights as to such shares terminate and
(iii) calling upon such holder to surrender to the Corporation, in the manner
and at the place designated, his certificate or certificates representing the
shares to be redeemed. Except as provided in Section E(5)(c) below, on or after
the close of business on the Redemption Date, each holder of Designated
Preferred Stock to be redeemed shall surrender to the Corporation the
certificate or certificates representing such shares in the manner and at the
place designated in the Redemption Notice. Thereupon, the Redemption Price of
such shares shall be payable to the order of the person whose name appears on
such certificate or certificates as the owner thereof, and each surrendered
certificate shall be cancelled. If less than all the shares represented by such
certificate are redeemed, then a new certificate shall be issued representing
the unredeemed shares.
(c) Cessation of Rights. From and after the Redemption Date, unless there
has been a default in payment of the Redemption Price, all dividends, if any, on
the Designated Preferred Stock designated for redemption in the Redemption
Notice shall cease to accrue, all rights of the holders of such shares as
holders of shares of Designated Preferred Stock (except the right to receive the
Redemption Price without interest upon surrender of their certificate or
certificates) shall cease with respect to such shares and such shares shall not
thereafter be transferred on the books of this Corporation or be deemed to be
outstanding for any purpose whatsoever; provided, however, that any shares of
Designated Preferred Stock not redeemed shall remain outstanding and entitled to
all the rights and preferences provided herein (specifically including but not
limited to Conversion Rights) as if such shares had not been called for
redemption. At any time thereafter when additional funds of the Corporation are
legally available for the redemption of any unredeemed shares of Designated
Preferred Stock, such funds shall immediately be set aside for the redemption of
the balance of the shares that the Corporation was obligated to redeem on the
Redemption Date.
(d) Deposit of Redemption Price. Three days prior to the Redemption Date,
the Corporation shall deposit an amount equal to the total amount required to
redeem all outstanding shares of Designated Preferred Stock designated for
redemption in the Redemption Notice and not yet converted with a bank or trust
company having aggregate capital and surplus in excess of $50,000,000 as a trust
fund for the benefit of the respective holders of the shares to be redeemed.
Simultaneously, the Corporation shall provide such bank or trust company with
irrevocable instructions to pay to each holder for each share of Designated
Preferred Stock surrendered, on and after the Redemption Date, the Redemption
Price upon surrender of the certificate representing such a share. Any monies
deposited by the Corporation pursuant to this Section E(5)(d) for the redemption
of shares that are thereafter converted into shares of Common Stock shall be
returned to the Corporation forthwith upon such conversion. The balance of any
monies so deposited by the Corporation which have not been claimed by
stockholders or returned to the Corporation because the shares were converted at
the expiration of the 1-year period following the Redemption Date shall
thereafter be returned to the Corporation, provided that
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the shareholder to which such monies would be payable hereunder shall be
entitled, upon proof of its ownership of the Designated Preferred Stock and
payment of any bond requested by the Company, to receive such monies from the
Corporation. Monies deposited on or after the Redemption Date shall not bear
interest. The Corporation shall bear the administrative costs for the trust
fund.
(e) Waiver of Mandatory Redemption. The mandatory redemption obligation of
the Corporation contained in this Section 5 was waived prior to July 1, 1995 and
became and shall be null and void and without effect.
Section 6. Voting Rights. Except as otherwise required by law or these
Articles, in connection with all matters to be voted upon by the Corporation's
shareholders, all shareholders shall vote as a single class, with each share of
Designated Preferred Stock issued and outstanding having the number of votes
equal to the number of shares of Common Stock into which the share of Designated
Preferred Stock is convertible. Notwithstanding any other provision of this
Article Three to the contrary, in addition to any other rights provided by law,
so long as at least 250,000 shares of Designated Preferred Stock are
outstanding, the Corporation shall not, without first obtaining the affirmative
vote or written consent of the holders of not less than 66-2/3% of the shares of
Designated Preferred Stock outstanding, take any of the following actions:
(a) amend or repeat any provision of, or add any provision to, this
Corporation's Articles of Incorporation or Bylaws, if such action would
materially and adversely alter or change the preferences, rights, privileges or
powers of, or the restrictions provided for the benefit of the holders of shares
of the Designated Preferred Stock (this specifically includes but is not limited
to any change in the number of directors, indemnification of directors or change
in this Section E(6));
(b) authorize or issue shares of any class of stock having any preference
or priority as to dividends or assets superior to or on a parity with any such
preference or priority of the Designated Preferred Stock, or authorize or issue
shares of stock of any class or any convertible bonds, convertible debentures,
convertible notes or other obligations that are convertible into or exchangeable
for, or have option rights to purchase, any shares of stock of this Corporation
having any preference or priority as to dividends or assets superior to or on a
parity with any such preference or priority of the Designated Preferred Stock;
(c) reclassify any securities into shares having any preference or priority
as to dividends or assets superior to or on a parity with any such preference or
priority of any series of the Designated Preferred Stock;
(d) pay or declare any dividend on any Junior Securities (except dividends
payable solely in shares of Common Stock) or apply any of the Corporation's
assets to the redemption, retirement, purchase or acquisition, directly or
indirectly, through subsidiaries or otherwise, of any Junior Securities, except
from employees or directors or consultants of the Corporation upon termination
of employment or services pursuant to the terms of restrictive stock agreements
entered into with such employees, directors or consultants; or
(e) sell, convey or otherwise dispose of or encumber all or substantially
all of the Corporation's property or business or merge into or consolidate with
any other corporation (other than a wholly owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than 50%
of the voting power of the Corporation is disposed of.
9
<PAGE>
ARTICLE FOUR - INCORPORATOR
The name and place of residence of the incorporator of the Corporation is:
Name Address
---------------------------- ----------------------------
Joan M. Knoll 1454 A DeSoto
St. Louis, Missouri 63107
ARTICLE FIVE - DIRECTORS
A. NUMBER AND CLASSIFICATION.
The number of Directors to constitute the Board of Directors is five.
Hereafter, the number of Directors shall be fixed by or in the manner provided
in the Bylaws of the Corporation, but in no event shall there be less than three
(3) Directors. The Directors shall be divided into three classes, as nearly
equal in number as reasonably possible, with the mode of such classification to
be provided for in the Bylaws of the Corporation. Directors other than certain
Directors constituting the existing Board of Directors shall be elected to hold
office for a term of three years, with the term of office of one class expiring
each year. Notwithstanding the foregoing, whenever the holders of any one or
more classes or series of stock of the Corporation, other than shares of Common
Stock, shall have the right, voting separately by class or series, to elect
Directors, the election, term of office, filling of vacancies and other features
of such directorship shall be governed by the terms of the Articles of
Incorporation of the Corporation or any Certificate of Designation thereunder
applicable thereto; and such directors so elected shall not be divided into
classes pursuant to this Article 5A unless expressly provided by such terms. As
used in these Articles of Incorporation, the term "entire Board of Directors" or
the "entire Board" means the total number of Directors fixed by, or in
accordance with, these Articles of Incorporation and the Bylaws of the
Corporation.
B. REMOVAL OF DIRECTORS.
Subject to the rights, if any, of the holders of any class of capital stock
of the Corporation (other than the Common Stock) then outstanding or any
limitation imposed by law, (1) any Director, or the entire Board of Directors,
may be removed from office at any time prior to the expiration of his, her or
their term of office only for cause and only by the affirmative vote of the
holders of record of outstanding shares representing at least 85% of all of the
then outstanding shares of capital stock of the Corporation then entitled to
vote generally in the election of Directors, voting together as a single class
at a special meeting of shareholders called expressly for that purpose (such
vote being in addition to any required class or other vote); and (2) any
Director may be removed from office by the affirmative vote of a majority of the
entire Board of Directors at any time prior to the expiration of his or her term
of office, as provided by law, in the event that the Director fails to meet any
qualifications stated in the Bylaws for election as a Director or in the event
that the Director is in breach of any agreement between the Director and the
Corporation relating to the Director's service as a Director or employee of the
Corporation.
10
<PAGE>
C. VACANCIES.
Subject to the rights, if any, of the holders of any class of capital stock
of the Corporation (other than the Common Stock) then outstanding, any vacancies
in the Board of Directors which occur for any reason prior to the expiration of
the respective term of office of the class in which the vacancy occurs,
including vacancies which occur by reason of an increase in the number of
Directors, shall be filled only by the Board of Directors, acting by the
affirmative vote of a majority of the remaining Directors then in office
(although less than a quorum).
ARTICLE SIX - DURATION
The duration of the Corporation is perpetual.
ARTICLE SEVEN - PURPOSES
The Corporation is formed to engage in any lawful act or activity for which
a corporation now or hereafter may be organized under the laws of the State of
Missouri.
ARTICLE EIGHT - AMENDMENT OF BYLAWS
The Bylaws of the Corporation may be amended, altered, changed or repealed,
and a provision or provisions inconsistent with the provisions of the Bylaws as
they may exist from time to time may be adopted, only by a majority of the
entire Board of Directors.
ARTICLE NINE - INDEMNIFICATION
A. ACTIONS INVOLVING DIRECTORS AND OFFICERS.
The Corporation shall indemnify each person (other than a party plaintiff
suing on his or her own behalf or in the right of the Corporation) who at any
time is serving or has served as a Director or officer of the Corporation
against any claim, liability or expense incurred as a result of such service, or
as a result of any other service on behalf of the Corporation, or service at the
request of the Corporation as a director, officer, employee, member, or agent of
another corporation, partnership, joint venture, trust, trade or industry
association, or other enterprise (whether incorporated or unincorporated,
for-profit or not-for-profit), to the maximum extent permitted by law. Without
limiting the generality of the foregoing, the Corporation shall indemnify any
such person who was or is a party (other than a party plaintiff suing on his or
her behalf or in the right of the Corporation), or is threatened to be made a
party, to any threatened, pending or completed action, suit or proceeding,
whether civil, criminal, administrative or investigative (including, but not
limited to, an action by or in the right of the Corporation) by reason of such
service against expenses (including, without limitation, attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably incurred
by him or her in connection with such action, suit or proceeding.
11
<PAGE>
B. ACTIONS INVOLVING EMPLOYEES OR AGENTS.
1. Permissive Indemnification. The Corporation may, if it deems
appropriate and as may be permitted by this Article Nine, indemnify any person
(other than a party plaintiff suing on his or her own behalf or in the right of
the Corporation) who at any time is serving or has served as an employee or
agent of the Corporation against any claim, liability or expense incurred as a
result of such service, or as a result of any other service on behalf of the
Corporation, or service at the request of the Corporation as a director,
officer, employee, member, or agent of another corporation, partnership, joint
venture, trust, trade or industry association, or other enterprise (whether
incorporated or unincorporated, for-profit or not-for-profit), to the maximum
extent permitted by law or to such lesser extent as the Corporation, in its
discretion, may deem appropriate. Without limiting the generality of the
foregoing, the Corporation may indemnify any such person who was or is a party
(other than a party plaintiff suing on his or her own behalf or in the right of
the Corporation), or is threatened to be made a party, to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including, but not limited to, an action by or
in the right of the Corporation) by reason of such service, against expenses
(including, without limitation, attorneys' fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by him or her in connection
with such action, suit or proceeding.
2. Mandatory Indemnification. To the extent that an employee or agent
of the Corporation has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Section B.1 of this Article Nine,
or in defense of any claim, issue or matter therein, he or she shall be
indemnified against expenses (including attorneys' fees) actually and reasonably
incurred by him or her in connection with the action, suit or preceding.
C. DETERMINATION OF RIGHT TO INDEMNIFICATION IN CERTAIN CIRCUMSTANCES.
Any indemnification required under Section A of this Article Nine or
authorized by the Corporation in a specific case pursuant to Section B of this
Article Nine (unless ordered by a court) shall be made by the Corporation unless
a determination is made reasonably and promptly that indemnification of the
Director, officer, employee or agent is not proper under the circumstances
because he or she has not met the applicable standard of conduct set forth in or
established pursuant to this Article Nine. Such determination shall be made (1)
by the Board of Directors by a majority vote of a quorum consisting of Directors
who were not parties to such action, suit or proceeding, or (2) if such a quorum
is not obtainable, or even if obtainable a quorum of disinterested Directors so
directs, by independent legal counsel in a written opinion, or (3) by majority
vote of the shareholders; provided that no such determination shall preclude an
action brought in an appropriate court to challenge such determination.
D. ADVANCE PAYMENT OF EXPENSES.
Expenses incurred by a person who is or was a Director or officer of the
Corporation in defending a civil or criminal action, suit or proceeding shall be
paid by the Corporation in advance of the final disposition of an action, suit
or proceeding, and expenses incurred by a person who is or was an employee or
agent of the Corporation in defending a civil or criminal action, suit or
proceeding may be paid by the Corporation in advance of the final disposition of
such action, suit or proceeding as authorized by the Board of Directors, in
either case upon receipt of an undertaking by or on behalf of the Director,
officer, employee or agent to repay such amount if it shall ultimately be
determined that he or she is not entitled to be indemnified by the Corporation
as authorized in or pursuant to this Article Nine.
12
<PAGE>
E. ARTICLE NINE PROVISIONS NOT EXCLUSIVE RIGHT.
The indemnification provided by this Article Nine shall not be deemed
exclusive of any other rights to which those seeking indemnification may be
entitled, whether under the Bylaws of the Corporation or any statute, agreement,
vote of shareholders or disinterested Directors or otherwise, both as to action
in an official capacity and as to action in another capacity while holding such
office.
F. INDEMNIFICATION AGREEMENTS AUTHORIZED.
Without limiting the other provisions of this Article Nine, the Corporation
is authorized from time to time, without further action by the shareholders of
the Corporation, to enter into agreements with any Director, officer, employee
or agent of the Corporation providing such rights of indemnification as the
Corporation may deem appropriate, up to the maximum extent permitted by law. Any
agreement entered into by the Corporation with a Director may be authorized by
the other Directors, and such authorization shall not be invalid on the basis
that different or similar agreements may have been or may thereafter be entered
into with other Directors.
G. STANDARD OF CONDUCT.
Except as may otherwise be permitted by law, no person shall be indemnified
pursuant to this Article Nine (including without limitation pursuant to any
agreement entered into pursuant to Section F of this Article Nine) from or on
account of such person's conduct which is finally adjudged to have been
knowingly fraudulent, deliberately dishonest or willful misconduct. The
Corporation may (but need not) adopt a more restrictive standard of conduct with
respect to the indemnification of any employee or agent of the Corporation.
H. INSURANCE.
The Corporation may purchase and maintain insurance on behalf of any person
who is or was a Director, officer, employee or agent of the Corporation, or who
is or was otherwise serving on behalf or at the request of the Corporation in
any capacity against any claim, liability or expense asserted against him or her
and incurred by him or her in any such capacity, or arising out of his or her
status as such, whether or not the Corporation would have the power to indemnify
him or her against such liability under the provisions of this Article Nine.
13
<PAGE>
I. CERTAIN DEFINITIONS.
For the purposes of this Article Nine:
1. Service in Representative Capacity. Any Director or officer of the
Corporation who shall serve as a director, officer or employee of any other
corporation, partnership, joint venture, trust or other enterprise of which the
Corporation, directly or indirectly, is or was the owner of 20% or more of
either the outstanding equity interests or the outstanding voting stock (or
comparable interests), shall be deemed to be so serving at the request of the
Corporation, unless the Board of Directors of the Corporation shall determine
otherwise. In all other instances where any person shall serve as a director,
officer, employee or agent of another corporation, partnership, joint venture,
trust or other enterprise of which the Corporation is or was a stockholder or
creditor, or in which it is or was otherwise interested, if it is not otherwise
established that such person is or was serving as a director, officer, employee
or agent at the request of the Corporation, the Board of Directors of the
Corporation may determine whether such service is or was at the request of the
Corporation, and it shall not be necessary to show any actual or prior request
for such service.
2. Predecessor Corporations. References to a corporation include all
constituent corporations absorbed in a consolidation or merger as well as the
resulting or surviving corporation so that any person who is or was a director,
officer, employee or agent of a constituent corporation or is or was serving at
the request of a constituent corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise shall stand in the same position under the provisions of this Article
Nine with respect to the resulting or surviving corporation as he or she would
if he or she had served the resulting or surviving corporation in the same
capacity.
3. Service for Employee Benefit Plan. The term "other enterprise"
shall include, without limitation, employee benefit plans and voting or taking
action with respect to stock or other assets therein; the term "serving at the
request of the Corporation" shall include, without limitation, any service as a
director, officer, employee or agent of a corporation which imposes duties on,
or involves services by, a director, officer, employee or agent with respect to
any employee benefit plan, its participants, or beneficiaries; and a person who
acted in good faith and in a manner he or she reasonably believed to be in the
interest of the participants and beneficiaries of an employee benefit plan shall
be deemed to have satisfied any standard of care required by or pursuant to this
Article Nine in connection with such plan; the term "fines" shall include,
without limitation, any excise taxes assessed on a person with respect to an
employee benefit plan and shall also include any damages (including treble
damages) and any other civil penalties.
J. SURVIVAL.
Any indemnification rights provided pursuant to this Article Nine shall
continue as to a person who has ceased to be a Director, officer, employee or
agent and shall inure to the benefit of the heirs, executors and administrators
of such a person. Notwithstanding any other provisions in these Articles of
Incorporation, any indemnification rights arising under or granted pursuant to
this Article Nine shall survive amendment or repeal of this Article Nine with
respect to any acts or omissions occurring prior to the effective time of such
amendment or repeal and persons to whom such indemnification rights are given
shall be entitled to rely upon such indemnification rights with respect to such
acts or omissions as a binding contract with the Corporation.
14
<PAGE>
K. LIABILITY OF THE DIRECTORS.
It is the intention of the Corporation to limit the liability of the
Directors of the Corporation, in their capacity as such, whether to the
Corporation, its shareholders or otherwise, to the fullest extent permitted by
law. Consequently, should the GBCL or any other applicable law be amended or
adopted hereafter so as to permit the elimination or limitation of such
liability, the liability of the Directors of the Corporation shall be so
eliminated or limited without the need for amendment of these Articles or
further action on the part of the shareholders of the Corporation.
ARTICLE TEN - AMENDMENT OF ARTICLES OF INCORPORATION
The Corporation reserves the right to amend, alter, change or repeal any
provision contained in these Articles of Incorporation in the manner now or
hereafter prescribed by law, and all rights and powers conferred herein on the
shareholders, Directors and officers of the Corporation are subject to this
reserved power; provided, that (in addition to any required class or other vote)
the affirmative vote of the holders of record of outstanding shares representing
at least 85% of all of the outstanding shares of capital stock of the
Corporation then entitled to vote generally in the election of Directors, voting
together as a single class, shall be required to amend, alter, change or repeal,
or adopt any provision or provisions inconsistent with, Articles Five, Eight,
Nine, or this Article Ten of these Articles of Incorporation.
15
<PAGE>
AMENDMENT OF ARTICLES OF INCORPORATION
OF
TALX CORPORATION
Pursuant to the provisions of The General and Business Corporation Law of
Missouri, the undersigned corporation certifies the following:
(1) The present name of the corporation is TALX Corporation. The name under
which it was originally organized was Interface Technology, Inc.
(2) The following amendment to the corporation's Articles of Incorporation
was adopted by the shareholders on July 31, 1996.
(3) Article Three is hereby amended and is attached hereto as Exhibit A.
(4) Of the 11,302,355 shares outstanding, 11,302,355 shares were entitled
to vote on such amendment. The number of outstanding shares entitled to vote
thereon as a class was as follows:
Number of
Class Outstanding Shares
------------------------------------------ ------------------
Common.................................... 8,673,296
Series A Preferred........................ 1,776,441
Series B Preferred........................ 236,873
Series C Preferred........................ 615,745
(5) The number of shares voted for and against the amendment was as
follows:
Class No. Voted For No. Voted Against
----------------------------- ------------- -----------------
Common....................... 8,347,713 0
Series A Preferred........... 1,775,934 0
Series B Preferred........... 236,873 0
Series C Preferred........... 568,245 0
(6) If the amendment changed the number or par value of authorized shares
having a par value, the amount in dollars of authorized shares having a par
value as changed is:
$350,000
(7) If the amendment provides for an exchange, reclassification, or
cancellation of issued shares, or a reduction of the number of authorized shares
of any class below the number of issued shares of that class, the following is a
statement of the manner in which such reduction shall be effected:
N/A
<PAGE>
IN WITNESS WHEREOF, the undersigned President of the corporation has
executed this instrument and its Secretary has attested to said instrument on
the 23rd day of October, 1996.
TALX CORPORATION
(CORPORATE SEAL) [NONE]
ATTEST: By William W. Canfield
-------------------------------------
William W. Canfield
President and Chief Executive Officer
Craig N. Cohen
- ---------------------------------------
Craig N. Cohen
Secretary
STATE OF MISSOURI )
) SS.
COUNTY OF ST. LOUIS )
I, Linda K. Ensor, a notary public, do hereby certify that on this 23rd day
of October, 1996, personally appeared before me William W. Canfield who, being
by me first duly sworn, declared that he is the President of TALX Corporation,
that he signed the foregoing document as President of the corporation, and that
the statements therein contained are true.
[SEAL] Linda K. Ensor
----------------------------------------
Notary Public
My Commission Expires:
LINDA K. ENSOR
NOTARY PUBLIC STATE OF MISSOURI
ST. LOUIS COUNTY
MY COMMISSION EXP. NOV 29, 1998
FILED AND CERTIFICATE
ISSUED
OCT 25 1996
REBECCA MCDOWELL COOK
SECRETARY OF STATE
2
<PAGE>
EXHIBIT A
ARTICLE THREE--AUTHORIZED SHARES
A. Classes and Number of Shares
The aggregate number of shares of capital stock which the Corporation is
authorized to issue is 35,000,000 shares, consisting of 30,000,000 shares of
Common Stock, par value $0.01 per share ("Common Stock"); and 5,000,000 shares
of preferred stock, par value $0.01 per share ("Preferred Stock").
B. Voting Rights of the Common Stock
Each holder of the Common Stock shall be entitled to one vote per share of
Common Stock on all matters to be voted on by the shareholders.
C. No Preemptive Rights or Cumulative Voting
All preemptive rights and cumulative voting rights of shareholders are
hereby denied, so that no share or shares of Common Stock or Preferred Stock or
any other security or securities of the Corporation shall carry with it and no
holder or owner of any share or shares of stock or other security of the
Corporation shall heave any preferential or preemptive right to acquire any
additional shares of stock of any class or series or any other security of the
Corporation or any right to vote cumulatively in the election of Directors or
for any other purpose.
D. Terms of Preferred Stock
The terms of the shares of each series of Preferred Stock shall be as
stated and expressed in these Articles of Incorporation or any amendment hereto,
or in the resolution or resolutions providing for the issuance of such series of
Preferred Stock adopted by the Board of Directors. Subject to the requirements
of The General and Business Corporation Law of Missouri (the "GBCL") and the
provisions of these Articles of Incorporation, the Board of Directors is
expressly authorized to cause any number of the authorized and undesignated
shares of Preferred Stock to be issued from time to time in one or more series
of Preferred Stock with such voting powers, full or limited, or no voting
powers, and such designations, preferences and relative, participating, optional
or other special rights, and qualifications, limitations or restrictions
thereof, if any, as the Board of Directors may fix by resolution or resolutions,
prior to the issuance of any shares of such series of Preferred Stock, each of
which series may differ from any and all other series, including, without
limiting the generality of the foregoing, the following:
(a) The number of shares constituting such series of Preferred Stock and
the designation thereof;
<PAGE>
(b) The dividend rate, if any, on the shares of such series of Preferred
Stock, whether and the extent to which any such dividends shall be cumulative or
non-cumulative, the relative rights of priority, if any, of payments of any
dividends, and the time at which, and the terms and conditions on which, any
dividends shall be paid;
(c) The right, if any, of the holders of shares of such series of Preferred
Stock to vote and the manner of voting, except as may otherwise be provided by
the GBCL and the provisions of these Articles of Incorporation;
(d) The right, if any, of the holders of shares of such series of Preferred
Stock to convert the same into, or the right, if any, of the Corporation to
exchange the same for, another class or series of capital stock of the
Corporation and the terms and conditions, including any provision for future
adjustment in the conversion or exchange rate, under which said shares may be
converted or exchanged;
(e) The redemption or purchase price or prices of the shares of such series
of Preferred Stock, if any, and the times at which, and the terms and conditions
under which, the shares of such series of Preferred Stock may be redeemed or
purchased;
(f) The terms of the sinking fund, if any, to be provided for such series
of Preferred Stock, and the terms and amount of any such sinking fund;
(g) The rights of the holders of shares of such series of Preferred Stock
in the event of a voluntary or involuntary liquidation, dissolution or winding
up of the Corporation and the relative rights of priority, if any, of such
holders with respect thereto; and
(h) Any other relative powers, preferences and rights, and any
qualifications, limitations or restrictions, of such series of Preferred Stock.
2
EXHIBIT 4.2
TALX CORPORATION,
FIRST ALBANY CORPORATION
and
PRINCIPAL FINANCIAL SECURITIES, INC.
WARRANT AGREEMENT
Dated as of October 22, 1996
<PAGE>
WARRANT AGREEMENT
WARRANT AGREEMENT dated as of October 22, 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 $100 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 $50 and (b) 50,000 of the
Representatives' Warrants to Principal or its bona fide officers or partners for
an aggregate price of $50. 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 $10.80 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 each
2
<PAGE>
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 and applicable
state securities laws 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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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, 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.
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No shares of Common Stock 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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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 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 exercise of each Representatives'
Warrant; provided, however, that any adjustments which by
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<PAGE>
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 forth the computation by which
such adjustment was made. Such a certificate from a firm of
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<PAGE>
independent public accountants shall be conclusive evidence of the correctness
of such adjustment, and each Warrant Holder shall have the right to inspect on
reasonable prior written notice to the Company such certificate during
reasonable business hours.
(j) In case of any consolidation of the Company with or merger
of the Company with and 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
and in which the Company is the surviving corporation) 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 Warrant 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 Distribution Date,
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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 Warrant 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 Warrant
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 Warrant
Holder (which counsel may be an employee of the Warrant 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 Transfer
Agent), duly endorsed, or accompanied by a proper instrument of transfer,
subject to the terms and conditions hereof.
(c) Each of the Warrant Holders hereby acknowledges and agrees
that exercise of any Representatives' Warrants shall not be permitted until the
Company shall have received reasonably satisfactory documentation that such
exercise is exempt under applicable federal and state securities laws. Each of
the Warrant Holders agrees to execute such other documents and instruments as
counsel for the Company reasonably deems necessary to effect the compliance of
the issuance of any shares of Common Stock issuable upon exercise hereof with
any applicable federal and state securities laws.
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(d) The Company may deem and treat the person in whose name a
Representatives' Warrant is registered as the absolute owner thereof
(notwithstanding any notations of ownership or writing on such Representatives'
Warrant made by any person other than the Company) for all purposes whatsoever,
and the Company shall not be affected by any notice to the contrary.
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 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.
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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 "Warrant
Holders" and each a "Warrant Holder") that, upon written request (a
"Registration Request") of the then Warrant 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 reasonably practicable and, in any event,
within 45 days after receipt of such written request, at its sole expense, no
more than once, a registration statement or a Regulation A offering statement
(as requested by the Warrant Holders and if permitted under the Securities Act)
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 Warrant
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 Warrant Holders. The Company shall not be obligated to any such other
Warrant Holder unless such other Warrant 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 reasonable 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 (if permitted under the Securities Act) as promptly as
practicable and (A) if the Company is eligible to register the Shares on a
registration statement on Form S-3 (and the Company shall use its reasonable
best efforts to cause the Company to be so eligible), until the earlier of (i)
the Shares or other securities issued and issuable pursuant to the
Representatives' Warrants and covered by such registration statement have been
sold under such registration statement or under a registration statement
described in Section 12(b), or (ii) such time after the second anniversary of
the issuance of such Shares or other securities as such Shares or other
securities may be sold without registration under the Act, or (B) if the Company
is not eligible to register such Shares or other securities on a registration
statement on Form S-3, for a period of one year after effectiveness, to reflect
in the registration statement or Regulation A offering statement (if permitted
under the Securities Act) 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 Warrant Holders of a
majority of the Representatives' Warrants or Shares or other securities for
which the Representatives' Warrants become exercisable to be included in
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such registration which approval shall not be unreasonably withheld.
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 Warrant 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 the effective date of such filing) to each
Warrant Holder (regardless of whether the Warrant 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. 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; and
provided, further, that the Company shall not be required to include the other
securities to the extent such inclusion would violate or cause a breach of the
provisions of any registration rights granted to third parties prior to the date
of this Agreement (including, without limitation, the protection of the priority
of certain holders relating to the limitation on the amount of securities to be
included in an underwritten offering which right of protection was granted to
such holders pursuant to the Amended and Restated Preferred Stock Purchase
Agreement dated December 23, 1988 among the Company, Mitek Industries, Inc.
("Mitek"), Intech Group Inc. ("Intech"), Gateway Venture Partners, II, L.P.
("Gateway"), Zinsmeyer Trusts Partnership ("Zinsmeyer") and Missouri Venture
Partners, L.P.; the Securities Purchase Agreement dated November 28, 1990 among
the Company, Mitek, Intech, Gateway
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and Zinsmeyer; and the Registration Rights Agreement dated March 15, 1994 among
the Company, Intech and Intech Partners, L.P.). 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 Warrant 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 Warrant
Holder(s) thereof;
(ii) use its reasonable 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 Warrant Holders shall
reasonably request and to do any and all other acts and things which
may be necessary or advisable to enable the Warrant 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 Warrant 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 Warrant Holder
of securities included in such registration statement.
(d) Action to be Taken by the Warrant 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 Warrant Holders agree:
(i) as a condition precedent to the obligations of
the Company to register the Shares under this Section 12, that if the
Representatives have transferred
13
<PAGE>
this Warrant, the then current Warrant Holders furnish to the Company
such information and documents regarding such Warrant Holders and the
distribution of such securities as the Company may from time to time
reasonably request in connection with such registration;
(ii) that the Warrant Holder shall not have any right
to take any action to restrain, enjoin or otherwise delay any
registration contemplated by Section 12(b) relating to an underwritten
public offering as a result of any controversy that might arise with
respect to the interpretation or implementation of the Representatives'
Warrants;
(iii) that Warrant Holder agrees to provide two days'
notice to the Company prior to effecting any sales of Shares pursuant
to the prospectus or the registration statement covering the reoffer of
the Shares, in order to permit the Company to evaluate the adequacy of
the disclosure therein;
(iv) 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 Warrant Holder shall forthwith discontinue disposition of Shares
pursuant to the then current prospectus until (i) the Warrant 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 Warrant Holder receives copies of a
supplemented or amended prospectus, or (iii) until the Warrant 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 (iv); provided that the Company, upon
prompt written notice to the Warrant Holder, shall not be obligated to
promptly supplement or amend such prospectus if the Company shall
reasonably determine in good faith, after consultation with counsel,
that such amendment or supplement would (1) require disclosure in such
prospectus of the negotiation or completion of any transaction that is
being contemplated by the Company (whether or not a final decision has
been made to undertake such transaction) or (2) give rise to any
independent disclosure obligations that might not be in the best
interests of the shareholders of the Company. Notwithstanding the
foregoing, the Company shall so supplement or amend such prospectus
promptly following (x) public disclosure of or its abandonment of a
transaction described in clause (1) of the immediately preceding
sentence or (y) the Company becoming subject to disclosure obligations
not relating to or arising out of its obligations to supplement or
amend such prospectus, but in no event shall such supplement or
amendment be made later than 90 days after giving notice to the Warrant
Holder under this clause (iv) of its intention not to supplement or
amend such prospectus.
14
<PAGE>
(v) 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;
(vi) that any registrations rights that the Warrant
Holders possess in accordance with (a) or (b) above shall be of a lower
priority than the registration rights granted to Petra Capital, LLC,
the William W. Canfield Revocable Trust, Eugene M. Toombs, Gateway
Partners, L.P. and McFarland, Grossman & Company, Inc. pursuant to the
stock purchase warrants issued by the Company to such warrant holders
on June 28, 1996.
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 the Representative Warrants and any securities to be received by
such Warrant Holder upon exercise of such Representative Warrants are
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 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, the Representatives' Warrant or
any securities to be acquired upon exercise of the Warrant Holder's
Warrant.
(ii) The Warrant Holder hereof understands that the
issuance of the Representatives' Warrant and the 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. Such Warrant Holder realizes that the basis for the exemption
may not be present if, notwithstanding such representations and
warranties, such Warrant Holder hereof has in mind merely acquiring the
Representatives'
15
<PAGE>
Warrants for a fixed or determinable period in the future, or for a
market rise or for sale if the market does not rise and such Warrant
Holder hereby confirms that such Warrant Holder has no such intention.
(iii) Each Warrant Holder of any Representatives'
Warrant represents and warrants that such Warrant Holder is an
"accredited investor" as defined in Rule 501(b) promulgated under the
Securities Act 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.
(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
16
<PAGE>
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 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 10 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 Warrant Holder to the Company shall be sufficiently given or made as of
the third business day following mailing if sent by first-class mail, postage
prepaid, or as of the day after mailing is sent by a nationally recognized
overnight courier, addressed as follows (or to such other
17
<PAGE>
address as the Company may designate by notice given in accordance with this
Section 14 to the Warrant 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 Warrant Holder shall be sufficiently given or made (except as
otherwise provided in this Agreement) as of the third business day following
mailing if sent by first-class mail, postage prepaid, or as of the day after
mailing is sent by a nationally recognized overnight courier, addressed to such
Warrant Holder at the address of such Warrant 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. Assignment of Registration Rights. The registration rights under
this Warrant Agreement may not be assigned, pledged, hypothecated, sold, made
subject to a security interest, or otherwise transferred by the Warrant Holder
unless such transferee shall have agreed to the representations, warranties and
covenants set forth herein.
17. 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.
18. 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.
18
<PAGE>
19. 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.
20. Information Confidential. The Warrant Holder shall not use any
confidential information received by it pursuant to this or any other agreement
with the Company in violation of the Exchange Act or reproduce, disclose, or
disseminate such information to any other person (other than its employees or
agents having a need to know the contents of such information and its attorneys)
except to the extent reasonably related to the exercise of rights under this
Warrant Agreement, unless such information has been made available to the public
generally (other than by such recipient in violation of this Section 20) or such
recipient is required to disclose such information by a governmental body or
regulatory agency or by law in connection with a transaction that is not
otherwise prohibited hereby. Without limiting the generality of the foregoing,
in the event that the Company notifies the Warrant Holder to refrain from
selling Shares or otherwise trading in securities of the Company pursuant to
Section 12(d)(iv) hereof, the Warrant Holder agrees that it shall treat such
notice, and any related information relating to same, as confidential and not to
use or reproduce, disclose or disseminate such information, as provided herein.
21. Lockup Agreement. In consideration for the Company agreeing to its
obligations under Section 12 hereunder, the Warrant Holders each agree in
connection with any underwritten registration of the Company's securities that,
upon the request of the Company or the 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.
19
<PAGE>
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:
20
<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 22, 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 October 22, 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.
21
<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
October 22, 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.
22
<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
23
<PAGE>
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.
Reference is made to the representations and covenants of the Warrant
Holder in the Warrant Agreement dated October __, 1996 to which the within
Warrant Certificate relates. By its acceptance of this assignment, the
undersigned represents that it has reviewed and hereby acknowledges and agrees
with such representations and covenants.
Accepted:
_______________________________________
Assignee:
24
<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 reviewed and hereby reaffirms such representations.
Dated:_______________, 19__
________________________________________
Signature
Signature Guaranteed:
25
<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.
26
EXHIBIT 11.1
TALX CORPORATION AND SUBSIDIARIES
Statement Regarding Computation of Earnings Per Share
Years Ended March 31, 1996 and 1997
1997 1996
----------- -----------
Shares outstanding - beginning of period ........... 3,391,621 3,228,483
Weighted average number of common and
common equivalent shares issued (1) .............. 938,618 163,138
----------- -----------
Weighted average number of common and common
equivalent shares outstanding - end of period .... 4,330,239 3,391,621
=========== ===========
Years ended March 31, 1996 and 1997:
Earnings from continuing operations ................ $ 793,000 $ 123,000
Loss from discontinued operations .................. (1,064,000) (703,000)
Extraordinary item - loss on extinguishment of
debt ............................................. (971,000) --
----------- -----------
Net loss ........................................... $(1,242,000) $ (580,000)
=========== ===========
Earnings (loss) per common and common equivalent
share:
Earnings from continuing operations ................ $ .18 $ .04
Loss from discontinued operations .................. (.25) (.21)
Extraordinary item - loss on extinguishment of
debt ............................................. (.22) --
----------- -----------
Net loss ........................................... $ (.29) $ (.17)
=========== ===========
- ---------------
(1) Common and common equivalent shares issued consist of certain effects of
shares issued, stock options, warrants, and preferred stock. Common
equivalent shares from convertible preferred stock (using the if-converted
method) and stock options and warrants (using the treasury stock method)
have been included in the computation. Pursuant to the Securities and
Exchange Commission rules, convertible preferred stock that was
automatically converted at the date of the Company's initial public offering
is included even though inclusion may be antidilutive. Pursuant to the
Securities and Exchange Commission Staff Accounting Bulletin No. 83, shares
issued and stock options and warrants granted by the Company at prices below
the public offering price 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 fiscal 1996
and the first three quarters of fiscal 1997. Subsequent to this period, the
weighed average number of shares was based on common stock and common stock
equivalents.
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
The Board of Directors and Shareholders
TALX Corporation:
We consent to incorporation by reference in registration statements
No. 333-14619, No. 333-18389, and No. 333-18393 on Forms S-8 of TALX Corporation
of our report dated May 19, 1997, relating to the consolidated balance sheets of
TALX Corporation and subsidiaries as of March 31, 1996 and 1997, 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, 1997, which report
appears in the March 31, 1997 annual report on Form 10-K of TALX Corporation.
KPMG PEAT MARWICK LLP
St. Louis, Missouri
June 27, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
FINANCIAL STATEMENTS FOR TALX CORPORATION AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000917524
<NAME> TALX CORPORATION
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> MAR-31-1997
<PERIOD-START> APR-01-1996
<PERIOD-END> MAR-31-1997
<CASH> 1,684
<SECURITIES> 4,117
<RECEIVABLES> 8,460
<ALLOWANCES> 19
<INVENTORY> 1,378
<CURRENT-ASSETS> 17,020
<PP&E> 5,628
<DEPRECIATION> 2,976
<TOTAL-ASSETS> 24,072
<CURRENT-LIABILITIES> 3,669
<BONDS> 0
0
0
<COMMON> 53
<OTHER-SE> 20,350
<TOTAL-LIABILITY-AND-EQUITY> 24,072
<SALES> 18,387
<TOTAL-REVENUES> 18,387
<CGS> 8,204
<TOTAL-COSTS> 8,204
<OTHER-EXPENSES> 8,637
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 438
<INCOME-PRETAX> 1,259
<INCOME-TAX> 466
<INCOME-CONTINUING> 793
<DISCONTINUED> (1,064)
<EXTRAORDINARY> (971)
<CHANGES> 0
<NET-INCOME> (1,242)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
