<PAGE>
================================================================================
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 10-Q
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 31, 1999 or
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ____________ to _____________
Commission File Number 001-14505
__________________
KORN/FERRY INTERNATIONAL
(Exact name of registrant as specified in its charter)
Delaware 95-2623879
(State of other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
1800 Century Park East, Suite 900, Los Angeles, California 90067
(Address of principal executive offices) (zip code)
(310) 556-8503
(Registrant's telephone number, including area code)
------------------
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, and (2) has been subject to such filing
requirements for the past 90 days.
Yes (X) No ( )
The number of shares outstanding of the Company's Common Stock as of December
10, 1999 was 36,046,794.
================================================================================
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
Table of Contents
<TABLE>
<CAPTION>
PART I. FINANCIAL INFORMATION Page
----
<S> <C> <C>
Item 1. Financial Statements
Consolidated Balance Sheet as of October 31, 1999 (unaudited) and
April 30, 1999............................................................. 3
Unaudited Consolidated Statement of Operations for the three months
and six months ended October 31, 1999 and October 31, 1998................. 5
Unaudited Consolidated Statement of Cash Flows for the six months
ended October 31, 1999 and October 31, 1998................................ 6
Notes to Consolidated Financial Statements..................................... 7
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations...................................................... 11
Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 19
PART II. FINANCIAL INFORMATION
Item 2. Changes in Securities and Use of Proceeds..................................... 19
Item 4. Submission of Matters to a Vote of Security Holders........................... 19
Item 5. Other Information............................................................. 20
Item 6. Exhibits and Reports on Form 8-K............................................... 21
SIGNATURE..................................................................................... 22
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
------------------- ------------------
As of As of
October 31, 1999 April 30, 1999
------------------- ------------------
(unaudited)
ASSETS
------
<S> <C> <C>
Cash and cash equivalents $ 92,475 $113,741
Marketable securities 32,602 21,839
Receivables due from clients, net of allowance for doubtful accounts of
$11,976 and $7,847 86,938 63,139
Other receivables 2,499 3,337
Prepaid expenses 9,342 5,736
--------------- ---------------
Total current assets 223,856 207,792
--------------- ---------------
Property and equipment:
Computer equipment and software 24,692 17,554
Furniture and fixtures 15,162 14,646
Leasehold improvements 12,908 11,785
Automobiles 1,721 1,716
--------------- ---------------
54,483 45,701
Less - Accumulated depreciation and amortization (28,466) (24,591)
--------------- ---------------
Property and equipment, net 26,017 21,110
--------------- ---------------
Cash surrender value of company owned life insurance policies, net of loans 44,490 41,973
Marketable securities, guaranteed investment contracts and notes receivable 3,300 8,218
Deferred income taxes 18,327 18,182
Goodwill and other intangibles, net of accumulated amortization of $6,072
and $5,351 17,583 3,639
Other 3,809 3,210
--------------- ---------------
Total assets $337,382 $304,124
=============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
3
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET - (Continued)
(in thousands)
<TABLE>
<CAPTION>
------------------ --------------------
As of As of
October 31, 1999 April 30, 1999
------------------- --------------------
(unaudited)
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
<S> <C> <C>
Notes payable and current maturities of long-term debt $ 3,818 $ 1,356
Accounts payable 11,046 10,384
Income taxes payable 4,778 2,323
Accrued liabilities:
Compensation 33,572 35,212
Payroll taxes 18,316 20,546
Other accruals 29,479 21,910
------------------- -------------------
Total current liabilities 101,009 91,731
Deferred compensation 36,061 33,531
Long-term debt 3,532 2,360
Other 1,728 1,775
------------------- -------------------
Total liabilities 142,330 129,397
------------------- -------------------
Non-controlling shareholders' interests 2,406 2,041
------------------- -------------------
Shareholders' equity
Common stock, authorized 150,000 shares, 36,016 and
35,633 shares outstanding 259,229 253,021
Retained deficit (54,320) (66,426)
Accumulated other comprehensive loss (2,912) (2,360)
------------------- -------------------
Shareholders' equity 201,997 184,235
Less: Notes receivable from shareholders (9,351) (11,549)
------------------- -------------------
Total shareholders' equity 192,646 172,686
------------------- ------------------
Total liabilities and shareholders' equity $ 337,382 $ 304,124
=================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated
financial statements.
4
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended October 31, Six Months Ended October 31,
----------------------------------- ---------------------------------
Proforma Proforma
1999 1998 1998 (1) 1999 1998 1998 (1)
-------- --------- ----------- -------- --------- -----------
(unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues, net $116,322 $ 91,175 $ 91,175 $221,103 $ 175,921 $ 175,921
Compensation and benefits 68,725 60,297 55,049 133,459 116,381 106,195
General and administrative expenses 36,080 28,622 28,622 65,882 53,642 53,642
Interest and other income (expense) 793 (637) (637) 1,481 (1,133) (1,133)
-------- --------- ----------- -------- --------- -----------
Income before provision for income
taxes and non-controlling
shareholders' interests 12,310 1,619 6,867 23,243 4,765 14,951
Provision for income taxes 5,171 709 2,997 9,762 2,069 6,493
Non-controlling shareholders' interests 637 1,057 1,057 1,375 1,323 1,323
-------- --------- ----------- -------- --------- -----------
Net income (loss) $ 6,502 $ (147) $ 2,813 $ 12,106 $ 1,373 $ 7,135
======== ========= =========== ======== ========= ===========
Basic earnings (loss) per common share $ 0.18 $ (0.01) $ 0.11 $ 0.34 $ 0.05 $ 0.27
======== ========= =========== ======== ========= ===========
Basic weighted average common shares
outstanding 35,941 26,168 26,168 35,834 26,007 26,007
======== ========= =========== ======== ========= ===========
Diluted earnings (loss) per common
share $ 0.17 $ (0.01) $ 0.11 $ 0.33 $ 0.05 $ 0.26
======== ========= =========== ======== ========= ===========
Diluted weighted average common
shares outstanding 37,277 26,868 26,868 36,710 27,242 27,242
======== ========= =========== ======== ========= ===========
</TABLE>
(1) The proforma results for the three months and six months ended October 31,
1998 take into account a $5.3 million and $10.2 million reduction in
accrued bonus expense to reflect the revised compensation program effective
May 1, 1998 upon completion of the initial public offering in February 1999
and the related $2.3 million and $4.4 million, respectively, increase in
the provision for income taxes.
The accompanying notes are an integral part of these consolidated
financial statements.
5
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Six Months Ended October 31,
-----------------------------------------
Proforma
1999 1998 1998 (1)
-------- -------- --------
(unaudited)
<S> <C> <C> <C>
Cash from operating activities:
Net Income $ 12,106 $ 1,373 $ 7,135
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation 4,260 3,989 3,989
Amortization 721 544 544
Provision for doubtful accounts 5,694 3,307 3,307
Cash surrender value in excess of premiums paid (686) (256) (256)
Change in other assets and liabilities, net of acquisitions:
Deferred compensation 2,911 3,859 3,859
Receivables (27,945) (11,603) (11,603)
Prepaid expenses (3,546) (682) (682)
Income taxes payable 2,310 (6,396) (1,972)
Accounts payable and accrued liabilities 3,607 7,872 (2,314)
Non-controlling shareholders' interests and other, net (550) (3,676) (3,676)
-------- -------- --------
Net cash used in operating activities (1,118) (1,669) (1,669)
-------- -------- --------
Cash from investing activities:
Purchases of property and equipment (8,894) (4,898) (4,898)
Purchases of marketable securities (5,845) - -
Business acquisitions, net of cash acquired (4,304) (1,323) (1,323)
Premiums on life insurance (2,840) (3,816) (3,816)
-------- -------- --------
Net cash used in investing activities (21,883) (10,037) (10,037)
-------- -------- --------
Cash from financing activities:
Payment of debt (611) (750) (750)
Borrowings under life insurance policies 1,010 2,200 2,200
Purchase of common and preferred stock and payments on related notes (471) (2,160) (2,160)
Issuance of common stock and receipts on shareholders' notes 2,359 3,654 3,654
-------- -------- --------
Net cash provided by financing activities 2,287 2,944 2,944
-------- -------- --------
Effect of exchange rate changes on cash flows (552) (319) (319)
-------- -------- --------
Net decrease in cash and cash equivalents (21,266) (9,081) (9,081)
Cash and cash equivalents at beginning of the period 113,741 32,358 32,358
-------- -------- --------
Cash and cash equivalents at the end of the period $ 92,475 $ 23,277 $ 23,277
======== ======== ========
</TABLE>
(1) The proforma results for the six months ended October 31, 1998 take into
account a $10.2 million reduction in accrued bonus to reflect the revised
compensation program effective May 1, 1998 upon completion of the initial
public offering in February 1999 and the related $4.4 million increase in
the provision for income taxes.
The accompanying notes are an integral part of these consolidated financial
statements.
6
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
(in thousands, except per share amounts)
1. Summary of Significant Accounting Policies
Basis of Presentation
The consolidated financial statements for the three months and six months ended
October 31, 1999 and 1998 include the accounts of Korn/Ferry International, all
of its wholly owned domestic and international subsidiaries, and affiliated
companies in which the Company has effective control (collectively, the
"Company") and are unaudited but include all adjustments, consisting of normal
recurring accruals and any other adjustments, which management considers
necessary for a fair presentation of the results for these periods. These
financial statements have been prepared consistently with the accounting
policies described in the Company's fiscal year 1999 Annual Report on Form 10-K
as filed with the Securities and Exchange Commission ("SEC") on July 28, 1999
and should be read in conjunction with this Quarterly Report on Form 10-Q.
Use of Estimates in the Preparation of Financial Statements
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 revenues and expenses during the
reporting period. As a result, actual results could differ from these
estimates.
Proforma October 31, 1998 Results
The Company implemented a revised compensation program, effective for the
fiscal year commencing May 1, 1998, upon completion of its initial public
offering in February 1999. The revised compensation program is intended to
reduce the amount of consultants' annual cash performance bonus payments and
provides for the issuance of options to purchase up to 7.0 million shares of
common stock at the market value at the grant date. The proforma results for the
three months and six months ended October 31, 1998 give effect to the revised
compensation program, resulting in a reduction in accrued bonus expense of $5.3
million and $10.2 million, respectively, and an increase in the provision for
income taxes of $2.3 million and $4.4 million, respectively.
Reclassifications
Certain prior year reported amounts have been reclassified in order to
conform to the current year consolidated financial statement presentation.
New Accounting Pronouncements
During the first quarter ended July 31, 1999, the Company adopted
Statement of Position 98-1, "Accounting for the Cost of Computer Software
Developed or Obtained for Internal Use," ("SOP 98-1"). The adoption of SOP 98-1
did not materially change the Company's capitalization policy for software
costs.
2. Basic and Diluted Earnings Per Share
Basic earnings per common share ("Basic EPS") was computed by dividing
net income by the weighted average number of common shares outstanding during
the period. Diluted earnings per common and common equivalent share ("Diluted
EPS") reflects the potential dilution that would occur if the outstanding
options or other contracts to issue common stock were exercised or converted and
was computed by dividing the net income by the weighted average number of shares
of common stock outstanding and dilutive common equivalent shares. Following is
a reconciliation of the numerator (income) and denominator (shares) used in the
computation of Basic and Diluted EPS:
7
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended October 31,
--------------------------------------------------------------------------------------
1999 1998 Proforma 1998
--------------------------- --------------------------- ------------------------
Per Per Per Per
Income Share Income Share Income Share
(Loss) Shares Amount (Loss) Shares Amount (Loss) Shares Amount
------- ------ ------ ------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Basic EPS
Income (loss) available to common
shareholders........................... $ 6,502 35,941 $0.18 $ (147) 26,168 $(0.01) $2,813 26,168 $0.11
===== ======= =====
Effect of Dilutive Securities
Shareholder common stock
purchase commitments................... 374 700 700
Stock options............................. 962
------- ----- ------ ------ ------ ------
Diluted EPS
Income (loss) available to common
shareholders plus assumed conversions.. $ 6,502 37,277 $0.17 $ (147) 26,868 $(0.01) $2,813 26,868 $0.11
======= ====== ===== ======= ====== ====== ====== ====== =====
<CAPTION>
Six months ended October 31,
--------------------------------------------------------------------------------------
1999 1998 Proforma 1998
--------------------------- ---------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Per Per Per
Share Share Share
Income Shares Amount Income Shares Amount Income Shares Amount
------ ------ ------ ------ ------ ------ ------ ------ ------
Basic EPS
Income available to common shareholders... $12,106 35,834 $0.34 $1,373 26,007 $0.05 $7,135 26,007 $0.27
===== ===== =====
Effect of Dilutive Securities
Shareholder common stock
purchase commitments................... 374 700 700
Stock options............................. 502
Phantom stock units....................... 383 383
Stock appreciation rights................. 152 152
------- ------ ------ ------- ------ ------
Diluted EPS
Income available to common shareholders
plus assumed conversions............... $12,106 36,710 $0.33 $1,373 27,242 $0.05 $7,135 27,242 $0.26
======= ====== ===== ====== ====== ===== ====== ====== =====
</TABLE>
The share amounts in the table above reflect a four-to-one stock split
approved by the Board of Directors on July 24, 1998. The Company filed an
amendment to the existing Articles of Incorporation to increase the authorized
capital stock and effect the four-to-one split of the Common Stock on February
10, 1999. The financial statements have been retroactively restated for the
effects of this split.
The par value of common stock outstanding as of October 31, 1999 and
April 30, 1999 is $0.01 and no par, respectively.
3. Comprehensive income
The Company adopted Statement of Financial Accounting Standards No. 130
("SFAS 130"), "Reporting Comprehensive Income," during its fiscal year ended
April 30, 1998. Comprehensive income is comprised of net income and all changes
to stockholders' equity, except those changes resulting from investments by
owners (changes in paid in capital) and distributions to owners (dividends).
SFAS 130 requires disclosure of the components of comprehensive income in
interim periods.
8
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except per share amounts)
Total comprehensive income is as follows:
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
----------------------------- ----------------------------
1999 1998 1999 1998
-------------- ----------- ------------ -------------
<S> <C> <C> <C> <C>
Net income (loss)........................................ $ 6,502 $ (147) $ 12,106 $ 1,373
Foreign currency translation adjustment.................. (1,380) 530 (952) (564)
Related income tax benefit (provision)................... 579 (228) 400 245
-------------- ----------- ------------ ------------
Comprehensive income..................................... $ 5,701 $ 155 $ 11,554 $ 1,054
============== =========== ============ ============
</TABLE>
4. Business segments
The Company operates in one industry segment, retained executive
recruitment, on a global basis. Management views the operations by line of
business, executive search and Futurestep, and geography. For purposes of the
geographic information below, Mexico's operating results are included in Latin
America. In January 1998, the Company formed Futurestep, a 93 percent owned
subsidiary, to provide Internet-based retained recruitment services for middle-
management positions.
A summary of the Company's operations by business segment follows:
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
------------------------------ ----------------------------
1999 1998 1999 1998
----------- ---------- ------------ ------------
<S> <C> <C> <C> <C>
Revenues:
Executive Search:
North America....................................... $ 64,135 $ 47,751 $ 121,362 $ 91,549
Europe.............................................. 25,761 26,091 50,912 50,514
Asia/Pacific........................................ 12,727 8,420 23,866 16,642
Latin America....................................... 7,381 8,209 14,670 16,469
Futurestep........................................... 6,318 704 10,293 747
----------- ---------- ----------- -----------
Total revenues...................................... $ 116,322 $ 91,175 $ 221,103 $ 175,921
=========== ========== =========== ===========
<CAPTION>
Three months ended October 31, Six months ended October 31,
------------------------------ ----------------------------
1999 1998 1999 1998
----------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Operating Profit:
Executive Search:
North America...................................... $ 12,036 $ 3,106 $ 22,082 $ 6,423
Europe............................................. 2,918 1,104 6,087 1,785
Asia/Pacific....................................... 1,381 458 2,436 721
Latin America...................................... 1,966 2,167 3,602 4,031
Futurestep.......................................... (6,784) (4,579) (12,445) (7,062)
--------- --------- ---------- ---------
Total operating profit............................. $ 11,517 $ 2,256 $ 21,762 $ 5,898
========= ========= ========== =========
<CAPTION>
As of As of
October 31, 1999 April 30, 1999
---------------- --------------
<S> <C> <C>
Identifiable assets(1):
Executive Search:
North America...................................... $ 223,677 $ 208,627
Europe............................................. 58,662 54,910
Asia/Pacific....................................... 27,057 20,209
Latin America...................................... 17,947 17,104
Futurestep........................................... 10,039 3,274
--------------- --------------
Total identifiable assets.......................... $ 337,382 $ 304,124
=============== ==============
</TABLE>
(1) Corporate identifiable assets of $129,125 and $144,771 as of October 31,
1999 and April 30, 1999, respectively, are included in North America.
9
<PAGE>
KORN/FERRY INTERNATIONAL AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued)
(in thousands, except per share amounts)
5. Acquisitions
On June 11, 1999, the Company completed the acquisition of Amrop
International's Australian business for approximately $3.2 million in cash
payable over a four-year period and $0.6 million in common stock. The
acquisition has been accounted for as a purchase. Of the total purchase price of
$3.8 million, $2.0 million represents deferred compensation. The fair market
value of the net assets acquired was approximately $0.2 million and $1.6 million
has been recorded as goodwill.
On September 15, 1999, the Company completed the acquisition of Levy-Kerson, a
New York-based search firm specializing in the retail fashion industry with
revenues of approximately $6.0 million for the year ended December 31, 1998. The
purchase price was $7.3 million, of which $5.6 million was paid in common stock,
$0.7 million in cash and $1.0 million in notes payable through May 1, 2002. The
acquisition has been accounted for as a purchase and substantially all of the
cost has been recorded as goodwill.
On October 1, 1999, the Company completed the acquisition of Pearson, Caldwell
and Farnsworth, a California-based search firm focused on senior-level
assignments for the financial services industry, with estimated revenues of
approximately $4.0 million for the year ending December 31, 1999. The purchase
price was $4.3 million, of which $0.6 million was paid in common stock, $1.2
million in cash, and the balance of $2.5 million in notes payable over three
years. The acquisition has been accounted for as a purchase and the excess of
the consideration over the fair market value of the assets acquired and deferred
compensation, if any, will be recorded as goodwill.
In November 1999, the Company signed a revised letter of intent to acquire the
search and selection recruitment business of PA Consulting Group, a leading
management, systems and technology consulting firm based in London for $19.0
million denominated in U.S. dollars, payable in cash or substantially all in
cash. The acquisition is expected to close in the third quarter of fiscal 2000
subject to completion of the Company's due diligence, negotiation and execution
of definitive acquisition agreements, receipt of applicable regulatory approvals
and absence of adverse changes in the financial condition of this business. The
acquisition will be accounted for as a purchase and the fair market value of the
net assets acquired in excess of the consideration, if any, will be recorded as
goodwill.
On December 10, 1999, the Company completed the acquisition of Helstrom,
Turner & Associates, a California-based search firm focused on senior-level
assignments for the retail industry, with estimated revenues of approximately
$3.0 million for the year ending December 31, 1999. The purchase price was $3.0
million, of which $0.7 million was paid in cash, $1.5 million in common stock
and the balance in notes payable in equal annual installments over three years.
The acquisition will be accounted for as a purchase and substantially all of the
purchase price will be allocated to goodwill.
On December 13, 1999, the Company completed the acquisition of Crist Partners,
a Chicago-based search firm specializing in senior executive assignments for
Fortune 500 companies, for $15.0 million of which $8.0 million was paid in cash,
$2.0 million in common stock and the balance in notes payable. The acquisition
will be accounted for as a purchase and the fair market value of the net assets
acquired in excess of the consideration, if any, will be recorded as goodwill.
10
<PAGE>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Overview
Korn/Ferry International is the world's largest executive search firm and has
the broadest global presence in the industry with 432 consultants based in 72
offices across 40 countries. The Company's clients are many of the world's
largest and most prestigious public and private companies, middle-market and
emerging growth companies as well as governmental and not-for-profit
organizations.
On February 17, 1999, the Company completed the public offering of 11.8
million shares of its common stock at $14.00 per share, approximately 10.0
million of which were sold by the Company, with the balance sold by certain
selling shareholders of the Company. Net proceeds received by the Company from
the offering were approximately $124.3 million.
In May 1998, the Company introduced its Internet-based service, Futurestep.
Futurestep combines the Company's search expertise with exclusive candidate
assessment tools and the reach of the Internet to accelerate recruitment of
candidates for middle-management positions. Futurestep's operating losses
approximated $12.4 million, $12.6 million and $0.8 million for the six months
ended October 31, 1999 and the fiscal years ended April 30, 1999 and 1998,
respectively, and are primarily related to compensation expense, start-up costs
and advertising expense to promote and expand the business roll-out. The Company
believes Futurestep will generate net operating losses through the spring of
2000.
In March 1999, the Company completed its United States roll-out of Futurestep
expanding into the Midwest and Southwest regions. Futurestep launched its
international roll-out in the United Kingdom in May 1999, Canada in June 1999
and in 10 additional European countries, New Zealand and Australia in the
current fiscal quarter. The Company plans to expand in other selected foreign
markets through the remainder of the fiscal year. As of October 31, 1999,
approximately 450,000 candidates worldwide had completed a detailed on-line
profile. In July 1999, Futurestep entered into its first global management
recruitment agreement with Ernst & Young, LLP to provide a range of services in
addition to middle-management recruitment including managing on-line job
postings and campus recruitment programs. In the three months ending October 31,
1999, Futurestep established five additional preferred provider relationships to
provide a minmum number of annual search assignments and a variety of other
recruitment service alternatives.
As the world's largest global executive search firm, the Company believes it
has the resources to play a leading role in consolidating the highly-fragmented
search industry. The Company frequently evaluates opportunities to expand its
business through acquisitions, and from time to time, the Company engages in
discussions with potential targets. The Company views strategic acquisitions as
a key component of its long term growth strategy and intends to pursue future
acquisition opportunities. In the first quarter of fiscal 2000, the Company
completed the acquisition of the Australian business of Amrop International. In
the current fiscal quarter, the Company completed two North American
acquisitions: Levy-Kerson, a leading search firm specializing in the
retail/fashion industry and Pearson, Caldwell and Farnsworth, a leading search
firm focused on senior-level assignments for the financial services industry. In
December 1999, the Company completed two additional acquisitions in North
America: Helstrom Turner & Associates, specializing in retail and e-commerce
clients and Crist Partners, specializing in senior executive search assignments
for Fortune 500 companies. The Company has also signed a revised letter of
intent to acquire PA Consulting Group, a leading management, systems and
technology consulting firm based in London. See "Recent Events."
11
<PAGE>
Results of Operations
The following table summarizes the results of the Company's operations
for the three months and six months ended October 31, 1999 and 1998 as a
percentage of revenues.
<TABLE>
<CAPTION>
Three months ended October 31, Six months ended October 31,
----------------------------------- ---------------------------------
Proforma Proforma
1999 1998 1998(1) 1999 1998 1998(1)
------- ----- --------- ------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
Revenues, net.................................. 100% 100% 100% 100% 100% 100%
Compensation and benefits...................... 59 66 60 60 66 60
General and administrative expenses ........... 31 31 31 30 31 31
Operating profit............................... 10 3 8 10 3 9
Net income..................................... 6 0 3 6 1 4
</TABLE>
_________
(1) The proforma results for the three months and six months ended October 31,
1998 take into account a $5.3 million and $10.2 million reduction in accrued
bonus expense to reflect the revised compensation program effective May 1,
1998 upon completion of the initial public offering in February 1999 and the
resulting $2.3 million and $4.4 million increase in the provision for income
taxes.
The Company experienced strong growth in executive search revenues in
both the North America and Asia/Pacific geographic regions for the three months
ended October 31, 1999. The Europe and Latin America regions experienced
declines in the current three month period compared to the prior year quarter;
however, both regions reported positive growth over current year first quarter
results. For the six months ended October 31, 1999 the Company experienced
growth in all geographic regions, except for Latin America. The Company includes
revenues generated from its Mexican operations with its operations in Latin
America.
<TABLE>
<CAPTION>
Three Months Ended October 31, Six Months Ended October 31,
------------------------------------------------ ----------------------------------------------
1999 1998 1999 1998
------------------------------------------------ ----------------------------------------------
Dollars % Dollars % Dollars % Dollars %
----------- --------- -------------- -------- ---------- -------- ------------- -------
Executive Search:
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America.............. $ 64,135 55% $47,751 53% $121,362 55% $ 91,549 52%
Europe..................... 25,761 22 26,091 29 50,912 23 50,514 29
Asia/Pacific............... 12,727 11 8,420 9 23,866 11 16,642 10
Latin America.............. 7,381 6 8,209 9 14,670 7 16,469 9
Futurestep.................... 6,318 5 704 1 10,293 5 747 -
----------- --------- -------------- -------- ---------- -------- ------------- -------
Revenues................. $116,322 100% $91,175 100% $221,103 100% $175,921 100%
----------- --------- -------------- -------- ---------- -------- ------------- -------
</TABLE>
In the following comparative analysis, all percentages are calculated based on
dollars in thousands.
Three Months Ended October 31, 1999 Compared to Three Months Ended October 31,
1998
Revenues
Revenues increased $25.1 million, or 27.6%, to $116.3 million for the
three months ended October 31, 1999 from $91.2 million for the three months
ended October 31, 1998. The increase in revenues was primarily the result of a
7% increase in the number of executive search engagements, a 14% increase in the
average fee per executive search engagement and revenues from Futurestep in the
current three month period.
In North America revenues increased $16.4 million, or 34%, to $64.1
million for the three months ended October 31, 1999 from $47.8 million for the
comparable period in the prior year. In Asia/Pacific, revenues increased $4.3
million, or 51%, to $12.7 million for the three months ended October 31, 1999
from $8.4 million for the three months ended October 31, 1998. Revenue growth
in North America and Asia/Pacific was attributable mainly to a 9% and 50%
increase, respectively, in the number of engagements supported by an increase of
10% and 16%, respectively, in the average number of consultants. In North
America this revenue growth was also driven by an increase in the average
12
<PAGE>
fee per engagement of 23% while Asia/Pacific realized an increase in consultant
productivity of over 30%. Revenues in Europe decreased $0.3 million, or 1%, to
$25.8 million for the three months ended October 31, 1999 from $26.1 million for
the comparable period in the prior year due to the negative effects of foreign
currency translation into the U.S. dollar which more than offset revenue
increases on a constant dollar basis. The decline in revenues in Latin America
of $0.8 million, or 10%, to $7.4 million for the three months ended October 31,
1999 from $8.2 million for the comparable three month period in fiscal 1998 is
attributable to continued economic uncertainty in that region. Revenues are in
line with current year first quarter results and the Company believes the
continued uncertainty in Latin America will not have a significant impact on
revenues in the third quarter of fiscal 2000.
Futurestep revenue of $6.3 million for the three months ended October
31, 1999 is primarily attributable to 224 additional engagements opened during
the current fiscal quarter and reflects completion of the roll-out of the United
States operations at the end of prior fiscal year and the U.K. and Canada in the
current year first quarter.
Compensation and Benefits
Compensation and benefits expense increased $8.4 million, or 14%, to
$68.7 million for the three months ended October 31, 1999 from $60.3 million for
the comparable period ended October 31, 1998 due primarily to an increase in the
number of consultants offset by a $5.4 million decrease in bonus expense in the
most recent fiscal quarter under the revised compensation plan. On a proforma
basis, compensation and benefits expense for the three months ended October 31,
1998 reflects a $5.3 million reduction in bonus expense under the revised
compensation program. The $13.7 million increase for the three months ended
October 31, 1999, including Futurestep expenses of $3.6 million, versus the
proforma three months ended October 31, 1998, reflects a 15% and 6% increase in
the average number of consultants to 444 from 387 and average total employees to
1,554 from 1,471 for the three months ended October 31, 1999 over the comparable
period in 1998. On a comparable basis, excluding Futurestep and reflecting the
prior year three month period on a proforma basis, compensation and benefits
expense as a percentage of revenues decreased slightly to 59.2% in the most
recent three month period from 59.6% in the proforma three months ended October
31, 1998.
General and Administrative Expenses
General and administrative expenses consist of occupancy expense
associated with the Company's leased premises, investments in information and
technology infrastructure, marketing and other general office expenses. General
and administrative expenses increased $7.5 million, or 26%, to $36.1 million for
the three months ended October 31, 1999 from $28.6 million for the comparable
period ended October 31, 1998. This increase was attributable to an increase in
Futurestep expenses of $5.3 million, primarily related to advertising and
business development in the current three month period. As a percentage of
revenues, general and administrative expenses, excluding Futurestep related
expenses, declined to 24% for the three months ended October 31, 1999 from 27%
for the comparable period in 1998. The decrease primarily reflects the higher
percentage increase in revenues and the elimination of excess costs in the
current three month period resulting from office rationalization in late fiscal
1999.
Operating Profit
Operating profit increased $9.3 million in the three months ended
October 31, 1999, to $11.5 million, or 9.9% of revenues from $2.3 million, or
2.5% of revenues in the prior year three month period. On a comparable basis,
excluding the Futurestep loss of $6.8 million and assuming the favorable impact
of the new compensation plan in the three months ended October 31, 1998,
operating profit for the three months ended October 31, 1999 increased $6.2
million, or 52% to $18.3 million compared to the three months ended October 31,
1998. Operating profit, on a comparable basis, as a percentage of revenues was
16.6% and 13.4% for the three months ended October 31, 1999 and 1998,
respectively. For the current three month period, operating margins, on this
same basis, increased in all regions except in Latin America compared to the
prior year three month period due primarily to increased revenues in North
America and Asia/Pacific and a decline in general and administrative expense as
a percentage of revenues.
The percentage of the Company's executive search operating profit
contributed by North America increased to 66% for the current three month period
from 52% for the proforma three months ended October 31, 1998, driven primarily
by both an increase in volume and average fees. The Latin American region
contribution decreased to 11% for the three months ended October 31, 1999 from
23% on a proforma basis for the comparable prior year period mainly due to the
percentage decline in revenues commencing in the third quarter of fiscal 1999
while operating costs remained relatively constant. The percentage of the
Company's operating profit contributed by the European region decreased to
approximately 16% and the Asia/Pacific region increased to approximately 8%, in
the three months ended October 31, 1999 from 19% and 7%, respectively, in the
proforma three months ended October 31, 1998,
13
<PAGE>
primarily reflecting the decrease in revenues in the European region and the
elimination of excess costs in late fiscal 1999 resulting from office
rationalization in both the European and Asia/Pacific regions.
Interest and Other Income (Expense)
Interest and other income (expense) includes interest income of $1.4 million
and $0.6 million and interest expense of $0.8 million and $1.3 million for the
three months ended October 31, 1999 and 1998, respectively. The increase in
interest income of $0.8 million and decrease in interest expense of $0.5 million
is due primarily to interest income from the investment of proceeds received in
the initial public offering and a decrease in interest expense resulting from
payment of the outstanding balance on bank borrowings upon consummation of the
public offering.
Provision for Income Taxes
The provision for income taxes increased $4.5 million to $5.2 million for the
three months ended October 31, 1999 from $0.7 million for the comparable period
ended October 31, 1998. The effective tax rate was 42% for the current year
three month period as compared to 44% for the prior year three month period.
Non-controlling Shareholders' Interests
Non-controlling shareholders' interests are comprised of the non-
controlling shareholders' majority interests in the Company's Mexico
subsidiaries. Non-controlling shareholders' interests decreased $0.4 million to
$0.6 million in the current three month period from $1.1 million in the
comparable prior year period. In the three months ended October 31, 1998, the
Company ceased recording minority shareholders' interests in Futurestep losses
and reversed $0.3 million recorded in the three months ended July 31, 1998. The
decrease in non-controlling shareholder' interests from the prior year six month
period reflects this reversal.
Six Months Ended October 31, 1999 Compared to Six Months Ended October 31, 1998
Revenues
Revenues increased $45.2 million, or 26%, to $221.1 million for the six
months ended October 31, 1999 from $175.9 million for the six months ended
October 31, 1998. The increase in revenues was primarily the result of a 10%
increase in the number of executive search engagements supported by a 9%
increase in the average number of consultants, a 9% increase in the average fee
per executive search engagement and revenues from Futurestep in the current six
month period.
In North America, revenues increased $29.8 million, or 33%, to $121.4
million for the six months ended October 31, 1999 from $91.5 million for the
comparable period in the prior year. In Asia/Pacific, revenues increased $7.2
million, or 43%, to $23.9 million for the six months ended October 31, 1999 from
$16.6 million for the six months ended October 31, 1998. Revenue growth in
North America and Asia/Pacific was attributable mainly to a 13% and 48%
increase, respectively, in the average number of engagements and an increase of
11% and 14%, respectively, in the average number of consultants. In North
America this revenue growth was also driven by an increase in the average fee
per engagement of 17% over the year ago six month period. Revenues in Europe
remained relatively flat at $50.9 million for the six months ended October 31,
1999 compared to $50.5 million for the comparable period in the prior year due
primarily to the negative effects of foreign currency translation into the U.S.
dollar, which substantially offset revenue increases on a constant dollar basis.
The decline in revenues in Latin America of $1.8 million, or 11%, to $14.7
million for the six months ended October 31, 1999 from $16.5 million for the
comparable six month period in fiscal 1998 is attributable to continued economic
uncertainty in that region. The Company believes the continued uncertainty in
Latin America will not have a significant impact on revenues in the third
quarter of fiscal 2000.
Futurestep revenue of $10.3 million for the six months ended October 31,
1999 is primarily attributable to 344 additional engagements in the current six
month period and reflects completion of the roll-out of the North American
operations at the end of prior fiscal year and the U.K. in the current year
first fiscal quarter.
Compensation and Benefits
Compensation and benefits expense increased $17.1 million, or 15%, to
$133.5 million for the six months ended October 31, 1999 from $116.4 million for
the comparable period ended October 31, 1998 due primarily to an increase in the
number of consultants offset by a $11.1 million decrease in bonus expense in the
current six month period under the revised compensation plan. On a proforma
basis, compensation and benefits expense for the six months ended October 31,
1998 reflects a $10.2 million reduction in bonus expense under the revised
compensation program. The $27.3 million increase for the six months ended
October 31, 1999, including Futurestep expenses of $6.6 million, versus
14
<PAGE>
the proforma six months ended October 31, 1998, reflects a 13% and 15% increase
in the average number of consultants to 436 from 387 and average total employees
to 1,648 from 1,429, respectively, for the six months ended October 31, 1999
over the comparable period in 1998. On a comparable basis, excluding Futurestep
and reflecting the prior year six month period on a proforma basis, compensation
and benefits expense as a percentage of revenues increased slightly to 60.2% in
the most recent six month period from 59.6 % in the proforma six months ended
October 31, 1998.
General and Administrative Expenses
General and administrative expenses consist of occupancy expense
associated with the Company's leased premises, investments in information and
technology infrastructure, marketing and other general office expenses. General
and administrative expenses increased $12.2 million, or 23%, to $65.9 million
for the six months ended October 31, 1999 from $53.6 million for the comparable
period ended October 31, 1998. This increase was attributable primarily to an
increase in Futurestep expenses of $10.1 million, primarily related to
advertising and business development in the current six month period. As a
percentage of revenues, general and administrative expenses, excluding
Futurestep related expenses, declined to 24% for the six months ended October
31, 1999 from 27% for the comparable period in 1998. The decrease primarily
reflects the higher percentage increase in revenues and the elimination of
excess costs in the current six month period resulting from office
rationalization in late fiscal 1999.
Operating Profit
Operating profit increased $15.9 million in the six months ended October
31, 1999, to $21.8 million, or 10% of revenues from $5.9 million, or 3% of
revenues in the prior year six month period. On a comparable basis, excluding
the Futurestep loss of $12.4 million and assuming the favorable impact of the
new compensation plan in the six months ended October 31, 1998, operating profit
for the six months ended October 31, 1999 increased $11.1 million, or 48% to
$34.2 million compared to the six months ended October 31, 1998. Operating
profit, on a comparable basis, as a percentage of revenues was 16% and 13% for
the six months ended October 31, 1999 and 1998, respectively. For the current
six month period, operating margins, on this same basis, increased in all
regions except in Latin America compared to the prior year six month period due
primarily to the increase in revenues and decline in general and administrative
expense as a percentage of revenues.
The percentage of the Company's operating profit, excluding Futurestep,
contributed by North America increased to 65% for the current six month period
from 56% for the proforma six months ended October 31, 1998, driven primarily by
an increase in both volume and fees. The Latin American region contribution
decreased to 11% for the six months ended October 31, 1999 from 22% on a
proforma basis for the comparable prior year period mainly due to the percentage
decline in revenues commencing in the third quarter of fiscal 1999 while
operating costs remained relatively constant. The percentage of the Company's
operating profit contributed by the European and Asia/Pacific regions increased
to approximately 18% and 7%, respectively, in the six months ended October 31,
1999 from 17% and 6%, respectively, in the proforma six months ended October 31,
1998, primarily reflecting the elimination of excess costs in late fiscal 1999
resulting from office rationalization and in Asia/Pacific increases in both
revenues and consultant productivity.
Interest and Other Income (Expense)
Interest and other income (expense) includes interest income of $2.8 million
and $1.3 million and interest expense of $1.6 million and $2.6 million for the
six months ended October 31, 1999 and 1998, respectively. The increase in
interest income of $1.5 million and decrease in interest expense of $1.0 million
is due primarily to interest income from the investment of proceeds received in
the initial public offering and a decrease in interest expense resulting from
payment of the outstanding balance on bank borrowings upon consummation of the
public offering.
Provision for Income Taxes
The provision for income taxes increased $7.7 million to $9.8 million for the
six months ended October 31, 1999 from $2.1 million for the comparable period
ended October 31, 1998. The effective tax rate was 42% for the current year six
month period as compared to 43% for the prior year six month period.
Non-controlling Shareholders' Interests
Non-controlling shareholders' interests are comprised of the non-
controlling shareholders' majority interests in the Company's Mexico
subsidiaries. Non-controlling shareholders' interests remained relatively flat
in the current six month period at $1.4 million compared to $1.3 million in the
comparable prior year period and reflects the relatively constant net income
generated by the Mexico subsidiaries during both of these periods.
15
<PAGE>
Liquidity and Capital Resources
The Company maintained cash and cash equivalents of $92.5 million as of
October 31, 1999. During the six months ended October 31, 1999 and 1998, cash
used in operating activities was $1.1 million and $1.7 million, respectively.
Included in the operating cash flows for the six months ended October 31, 1999,
was approximately $1.1 million of cash used for non-recurring items consisting
of severance and benefit payments related to staff downsizing, modification to
existing stock repurchase agreements and office rationalization.
Capital expenditures totaled $8.9 million and $4.9 million for the six months
ended October 31, 1999 and 1998, respectively. These expenditures consisted
primarily of systems development costs, upgrades to information systems and
leasehold improvements. The $4.0 million increase in capital expenditures in
the six months ended October 31, 1999 compared to the prior year six month
period, primarily relates to installation of a new financial system. For the six
months ended October 31, 1999, the new financial system expenditures of
approximately $3.8 million have been capitalized. The new financial system has
an expected aggregate installation cost of approximately $11.0 million over
fiscal 2000 and 2001.
Included in cash flows from investing activities are premiums paid on
corporate-owned life insurance ("COLI") contracts. The Company purchases COLI
contracts to provide a funding vehicle for anticipated payments due under its
deferred executive compensation programs. Premiums on these COLI contracts were
$2.8 million and $3.8 million for the six months ended October 31, 1999 and
1998, respectively. Generally, the Company borrows against the available cash
surrender value of the COLI contracts to fund the COLI premium payments to the
extent interest expense on the borrowings is deductible for U.S. income tax
purposes. The decrease in premium payments is attributable to the timing of
payments. The Company also purchased $5.8 million of marketable securities in
the six months ended October 31, 1999.
On May 1, 1998, the Company acquired the assets and liabilities of Didier
Vuchot & Associates in France for approximately $6.0 million in cash, notes and
mandatorily redeemable stock of a subsidiary of the Company. On June 1, 1998,
the Company acquired all of the outstanding shares of Ray and Berndtson SA in
Switzerland for $3.6 million payable in cash, notes and mandatorily redeemable
common stock of the Company. The acquisitions resulted in a net cash outflow of
$1.3 million, comprised of an initial $2.5 million cash payment offset by $1.2
million of cash acquired.
During the six months ending October 31, 1999, the Company completed three
acquisitions resulting in a total cash outflow of $4.3 million. On June 11,
1999, the Company acquired the assets and liabilities of the Australian business
of Amrop International for $3.8 million, offset by deferred compensation of $2.0
million, resulting in a net cash outflow of $1.8 million. On September 15,
1999, the Company acquired Levy-Kerson in New York for $7.3 million, of which
$5.6 million was paid in common stock and $1.0 million in notes payable
resulting in an initial cash outflow of $0.7 million. On October 1, 1999, the
Company acquired Pearson, Caldwell and Farnsworth, in California for $4.3
million, of which $0.6 million was paid in common stock and $2.5 million in
notes payable resulting in an initial cash outflow of $1.2 million. The company
incurred $0.6 million of additional costs related to these acquisitions.
Cash provided by financing activities was approximately $2.3 million and $2.9
million during the six months ended October 31, 1999 and 1998, respectively,
which included borrowings under COLI contracts of $1.0 million and $2.2 million
in the six months ended October 31, 1999 and 1998, respectively, and proceeds
from sales of common stock of the Company to newly hired and promoted
consultants and payments on the related promissory notes of $2.2 million and
$3.7 million, respectively. Additionally, the Company paid $0.5 million and $2.2
million related to repurchases of common stock of the Company in the six months
ended October 31, 1999 and 1998, respectively.
Total outstanding borrowings under life insurance policies were $43.7 million
and $39.8 million for the six months ended October 31, 1999 and 1998,
respectively. Such borrowings are secured by the cash surrender value of the
life insurance policies, do not require principal payments and bear interest at
various variable rates.
The Company believes that cash on hand, funds from operations and its
credit facilities will be sufficient to meet its anticipated working capital,
capital expenditures, and general corporate requirements for the foreseeable
future.
Recent Events
In November 1999, the Company modified a letter of intent signed on
September 12, 1999 to acquire the search and selection recruitment business of
PA Consulting Group, a leading management, systems and technology consulting
firm based in London for $19.0 million.
16
<PAGE>
This acquisition is expected to close in the third quarter of fiscal 2000
subject to completion of the Company's due diligence, negotiation and execution
of definitive acquisition agreements, receipt of applicable regulatory approvals
and absence of adverse changes in the financial condition of these businesses.
The acquisitions will be accounted for as a purchase and the fair market value
of the net assets acquired in excess of the consideration, if any, will be
recorded as goodwill.
On December 10, 1999, the Company completed the acquisition of Helstrom,
Turner & Associates, a California-based search firm focused on senior-level
assignments for the retail industry for $3.0 million, of which $0.7 million was
paid in cash, $1.5 million in stock and the balance in notes payable.
On December 13, 1999, the Company completed the acquisition of Crist Partners,
a Chicago-based search firm specializing in senior executive assignments for
Fortune 500 companies, for $15.0 million of which $8.0 million was paid in cash,
$2.0 million in stock and the balance in notes payable.
Year 2000 Compliance
The Year 2000 issue is the result of computer programs being written to use
two digits to define year dates. Computer programs running date-sensitive
software may recognize a date using "00" as the year 1900 rather than the year
2000. This defect could result in systems failure or miscalculations causing
disruptions of operations. The Company utilizes information technology to
facilitate (i) its internal search processes and inter-office communications,
(ii) communications with candidates and clients and (iii) its financial
management systems and other support systems. The statements contained in this
section are "Year 2000 Readiness Disclosures" as provided for in the Year 2000
Information and Readiness Disclosure Act.
The following scenarios with respect to the Company's systems could occur: (i)
its software may not be Year 2000 compliant, (ii) integration of upgrades may
not be complete by the year 2000 and (iii) replacement of its non-compliant
systems may be complete by the year 2000 but not fully tested or monitored prior
to the year 2000 such that testing and monitoring will uncover problems that the
Company cannot remedy in a timely manner.
Failure of search-related systems to be Year 2000 compliant might force the
Company to use different Year 2000 compliant systems to conduct searches and
might decrease productivity. Any failure of the Company's financial systems to
be Year 2000 compliant could hinder timely reporting of financial data and
processing of financial information as these functions would have to be
performed manually using non-networked computers. If any non-information
technology systems is not Year 2000 compliant, the Company will need to repair
or replace such systems. The Company believes that failure to be Year 2000
compliant will not have a significant impact on its human resource systems. The
Company's interruption or loss of information processing capabilities due to
Year 2000 issues could have a material adverse effect on the Company's business,
results of operations and financial condition.
In fiscal 1999, the Company completed an inventory and Year 2000 assessment of
its principal computer systems, network elements, software applications and
other business systems. The Company incurred costs of approximately $0.4 million
through October 31, 1999 to resolve Year 2000 issues and expects to incur
approximately $0.1 million of additional costs in fiscal 2000. Expenses incurred
on the Year 2000 issues are being funded through operating cash flows. The
Company estimates full compliance by December 31, 1999. The costs relating to
the Year 2000 issues and the date on which the Company believes it will complete
the Year 2000 modifications are based on management's best estimates, which were
derived utilizing numerous assumptions of future events, including the continued
availability of certain resources, third-party modification plans and other
factors. Actual results could differ materially from those anticipated.
The Company's primary business does not depend on material relationships with
third party vendors but utilizes third party vendors for a number of functions,
including its automated payroll functions, insurance and investment of pension
funds. The Company has initiated formal communications with third party
providers to determine the extent to which these third parties are moving toward
Year 2000 compliance and believes these third parties will be Year 2000
compliant by December 31, 1999. The Company also utilizes third party on-line
information services and the Internet to communicate and to retrieve information
about potential candidates and clients. Failure of these third parties to have
their systems Year 2000 compliant may have a material adverse effect on the
Company's operations.
The Company has fully implemented and tested a disaster recovery plan that
includes the implementation of alternative services in the event of a business
disruption. The plan addresses critical resources for the Company and key
resources for its remote offices, including interruptions that are the result of
problems arising from the Year 2000
17
<PAGE>
issue. During and after any disaster, these back-up solutions are intended to
serve as temporary replacements for the Company's e-mail, Internet access and
proprietary applications, which are integral to the Company's business.
Euro Conversion
As of January 1, 1999, several member countries of the European Union
established fixed conversion rates among their existing local currencies, and
adopted the Euro as their new common legal currency. The Euro trades on
currency exchanges and the legacy currencies will remain legal tender in the
participating countries for a transition period which expires January 1, 2002.
The conversion to the Euro has not had a significant impact on the Company's
operations to date.
During the transition period, cashless payments can be made in the Euro, and
parties can elect to pay for goods and services and transact business using
either the Euro or a legacy currency. Between January 1, 2002 and October 1,
2002, the participating countries will introduce Euro notes and coins and
withdraw all legacy currencies so that they will no longer be available.
The Company is currently assessing its information technology systems to
determine whether they allow for transactions to take place in both the legacy
currencies and the Euro and accommodate the eventual elimination of the legacy
currencies. The Company's currency risk may be reduced as the legacy currencies
are converted to the Euro. Accounting, tax and governmental legal and regulatory
guidance generally has not been provided in final form and the Company will
continue to evaluate issues involving introduction of the Euro throughout the
transition period. The conversion to the Euro has not had a significant impact
on the Company's operations to date.
Recently Issued Accounting Standards
During 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for
Derivative Instruments and Hedging Activities," ("SFAS 133") which establishes
new standards for reporting derivative and hedging information. FASB issued
SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities -
Deferral of the Effective Date of FASB No. 133," in 1999, which deferred the
effective date of SFAS 133 for one year. The standard is effective for periods
beginning after June 15, 2000 and will be adopted by the Company as of May 1,
2001. It is not expected that the adoption of this standard will have any impact
on the consolidated financial statements nor require additional footnote
disclosure since the Company does not currently utilize derivative instruments
or participate in structured hedging activities.
Forward-looking Statements
This Management's Discussion and Analysis of Financial Condition and
Results of Operations and other sections of this Quarterly Report on Form 10-Q
contain forward looking statements that are based on the current beliefs and
expectations of the Company's management, as well as assumptions made by, and
information currently available to, the Company's management. Such statements
include those regarding general economic and executive search industry trends.
Because such statements involve risks and uncertainties, actual actions and
strategies and the timing and expected results thereof may differ materially
from those expressed or implied by such forward-looking statements, and the
Company's future results, performance or achievements could differ materially
from those expressed in, or implied by, any such forward-looking statements.
Future events and actual results could differ materially from those set forth in
or underlying the forward-looking statements.
Forward-looking statements are inherently subject to risks and
uncertainties, some of which cannot be predicted. These potential risks and
uncertainties include, but are not limited to, dependence on attracting and
retaining qualified executive search consultants, portability of client
relationships, risks associated with global operations, ability to manage
growth, restrictions imposed by off-limits agreements, competition,
implementation of an acquisition strategy, risks related to the development and
growth of Futurestep, reliance on information processing systems and the impact
of Year 2000 issues, and employment liability risk. In addition to the factors
noted above, other risks, uncertainties, assumptions, and factors that could
affect the Company's financial results are referenced in the Company's fiscal
year 1999 Annual Report on Form 10-K as filed with the SEC on July 28, 1999 and
should be read in conjunction with this Quarterly Report on Form 10-Q.
18
<PAGE>
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Currency Market Risk
As a result of its global operating activities, the Company is exposed
to certain market risks including changes in foreign currency fluctuations,
fluctuations in interest rate and variability in interest rate spread
relationships. The Company manages its exposure to these risks in the normal
course of its business as described below. The Company has not utilized
financial instruments for trading or other speculative purposes nor does it
trade in derivative financial instruments.
Foreign Currency Risk
Historically, the Company has not experienced any significant net
translation gains or losses on transactions involving U.S. dollars and other
currencies. This is primarily due to natural hedges of revenues and expenses in
the functional currencies of the countries in which its offices are located and
investment of excess cash balances in U.S. dollar denominated accounts.
Interest Rate Risk
The Company primarily manages its exposure to fluctuations in interest
rates through its regular financing activities that generally are short term and
provide for variable market rates. The Company has no outstanding balance on
either its term loan and revolving line of credit. As of October 31, 1999, the
Company had outstanding borrowings of $43.7 million against the cash surrender
value of COLI contracts bearing interest at various variable rates payable at
least annually and $0.6 million of long-term notes payable to former
shareholders payable through fiscal 2004 at variable market rates. The Company
has investments of approximately $98.9 million in interest bearing securities at
market rates with original maturities ranging from November 1999 to October
2001.
The Company has not experienced a material change in its primary market
risk exposures or how those exposures are managed compared to what was in effect
in fiscal 1999.
PART II. OTHER INFORMATION
Item 2. Changes in Securities and Use of Proceeds
(a) Changes in Securities
Effective September 22, 1999, the Company changed its state of
incorporation from California to Delaware. The reincorporation was
accomplished through a merger (the "Merger") of Korn/Ferry
International, a California corporation ("KFY California"), into its
wholly owned Delaware subsidiary of the same name ("KFY Delaware"). As
a result of the Merger, each outstanding share of KFY California
Common Stock, no par value per share, was automatically converted into
one share of KFY Delaware Common Stock, par value $0.01 per share. The
reincorporation proposal was approved by the Company's shareholders at
the Company's annual meeting of shareholders on September 22, 1999.
(b) Use of Proceeds
From May 1, 1999 until October 31, 1999, approximately $21.2
million of the net proceeds to the Company from the Company's February
1999 initial public offering was used primarily for Futurestep working
capital, three acquisitions aggregating $4.3 million, and capital
expenditures of $3.8 million relating to installation of a new
financial system.
Item 4. Submission of Matters to a Vote of Security Holders
The annual meeting of shareholders was held on September 22, 1999.
The business at the meeting was (i) to elect thirteen directors to
serve on the board, (ii) to approve the reincorporation of the Company
in Delaware from California, and (iii) to ratify the selection of
Arthur Andersen LLP as the Company's independent auditors for fiscal
2000. Each of the proposals was adopted.
19
<PAGE>
(i) The number of votes for and withheld for each director were as follows:
<TABLE>
<CAPTION>
For Withheld
---------- ---------
<S> <C> <C>
For terms expiring in the year 2000:
Paul Buchanan Barrow 25,369,243 2,714,567
Manuel A. Papayanopulos 26,068,690 2,015,120
Windle B. Priem 27,364,386 719,424
Michael A. Wellman 26,217,324 1,866,486
For terms expiring in the year 2001:
James E. Bartlett 27,280,566 803,244
Richard M. Ferry 27,321,110 762,700
Timothy K. Friar 26,570,084 1,513,726
Sakie Fukushima 26,364,664 1,719,146
Scott E. Kingdom 26,723,628 1,360,182
For terms expiring in the year 2002:
Frank V. Cahouet 27,023,750 1,060,060
Peter L. Dunn 26,897,480 1,186,330
Charles D. Miller 27,114,282 969,528
Gerhard Schulmeyer 27,380,706 703,104
</TABLE>
(ii) The number of votes for, against, abstaining, and broker non-vote for
the approval of the reincorporation of the Company in Delaware from
California were as follows:
<TABLE>
<CAPTION>
For Against Abstaining Broker Non-Vote
---------- --------- ---------- ---------------
<S> <C> <C> <C>
23,223,008 3,664,460 365,840 830,502
</TABLE>
(iii) The number of votes for, against, abstaining, and broker non-vote for the
ratification of Arthur Andersen LLP were as follows:
<TABLE>
<CAPTION>
For Against Abstaining Broker Non-Vote
---------- --------- ---------- ---------------
<S> <C> <C> <C>
27,874,506 96,740 112,560 0
</TABLE>
Item 5. Other Information
On September 12, 1999, the Company signed a letter of intent to
acquire the search and selection recruitment business of PA Consulting Group,
a leading management, systems and technology consulting firm based in London,
for an amount in cash or substantially all in cash equal to 1.05 times
trailing twelve months revenue, estimated to be approximately $35.0 million in
pounds sterling, subject to finalization of financial statements. In November
1999, the Company revised this letter of intent to reduce the purchase price
to $19.0 million U.S. dollars. The Company intends to fund the acquisition
with currently available cash. Consummation of the proposed transaction is
subject to completion of the Company's due diligence, negotiation and
execution of a definitive acquisition agreement, receipt of applicable
regulatory approvals and absence of adverse changes in the financial condition
of the search and selection recruitment business.
20
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
Exhibit
Number Description of Exhibit
------- ----------------------
3.1 Certificate of Incorporation
3.2 Bylaws
27.1 Financial Data Schedule for the six months ended
October 31, 1999
(b) Reports on Form 8-K
Current report event date September 22, 1999 (Item 5 and Item 7) was
filed with the SEC on September 22, 1999.
21
<PAGE>
SIGNATURE
Pursuant to the requirements of the Securities Act of 1934, the registrant has
duly caused this report to be signed on its behalf by the undersigned thereunto
duly authorized.
KORN/FERRY INTERNATIONAL
Date: December 14, 1999 By: /s/ Elizabeth S.C.S. Murray
-------------------------------
Elizabeth S.C.S. Murray
Chief Financial Officer and
Executive Vice President
22
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description of Exhibit
- ------- ----------------------
3.1 Certificate of Incorporation
3.2 Bylaws
27.1 Financial Data Schedule for the six months ended October 31,
1999
23
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
KORN/FERRY INTERNATIONAL
I, the undersigned, for the purposes of incorporating and organizing a
corporation under the General Corporation Law of the State of Delaware, do
execute this Certificate of Incorporation and do hereby certify as follows:
ARTICLE I: NAME
The name of the corporation is Korn/Ferry International (the
"Corporation").
ARTICLE II: REGISTERED OFFICE
The address of the registered office of the Corporation in the State of
Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New
Castle. The name of its registered agent at such address is Corporation Trust
Company.
ARTICLE III: PURPOSE
The purpose of the Corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of
the State of Delaware.
ARTICLE IV: STOCK
Section 1. Authorized Shares. The total number of shares of all classes
which the Corporation shall have the authority to issue shall be 200,000,000,
which shall be divided into two classes, one to be designated "Common Stock,"
which shall consist of 150,000,000 authorized shares, $0.01 par value per
share, and a second class to be designated as "Preferred Stock," which shall
consist of 50,000,000 authorized shares, $0.01 par value per share.
Section 2. Preferred Stock of the Corporation. The Preferred Stock may be
issued in one or more series, from time to time, each series to be
appropriately designated by a distinguishing number, letter or title, prior to
the issuance of any shares thereof.
Section 3. Authority of Board of Directors to Issue Stock. Each series of
Preferred Stock shall consist of such number of shares and have such voting
powers, full or limited, or no voting powers, and such designations,
preferences and relative, participating, optional or other special rights, and
the qualifications, limitations or restrictions thereof, as shall be stated in
the resolutions or resolutions providing for the issuance of such series
adopted by the Board of Directors of the Corporation (the "Board of
Directors"), and the Board of Directors is hereby expressly vested with
authority, to the full extent now or hereafter provided by law, to adopt any
such resolution or resolutions.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
(a) The number of shares constituting the series and the distinctive
designation of that series;
<PAGE>
(b) The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
(c) Whether that series shall have voting rights, in addition to the
voting rights provided by law, and, if so, the terms of such voting rights;
(d) Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such conversion, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
(e) Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
date upon or after which they shall be redeemable, and the amount per share
payable in case of redemption, which amount may vary under different
conditions and at different redemption dates;
(f) Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and amount of such
sinking fund;
(g) The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding-up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that
series; and
(h) Any other relative rights, preferences and limitations of that
series.
Section 4. No Preemptive or Preferential Rights. No holders of shares of
the Corporation of any class, now or hereafter authorized, shall have any
preferential or preemptive rights to subscribe for, purchase or receive any
shares of the Corporation of any class, now or hereafter authorized, or any
options or warrants to subscribe for such shares, or any rights to subscribe
for, purchase or receive any securities convertible to or exchangeable for
such shares, which may at any time be issued, sold or offered for sale by the
Corporation.
ARTICLE V: INCORPORATOR
The name and mailing address of the incorporator are as follows: Peter L.
Dunn, Korn/Ferry International, 1800 Century Park East, Suite 900, Los
Angeles, California 90067.
ARTICLE VI: BYLAWS
In furtherance and not in limitation of the powers conferred by the laws of
the State of Delaware, the Board of Directors is expressly authorized to
adopt, alter, amend and repeal the Bylaws of the Corporation, subject to the
power of the stockholders of the Corporation to alter or repeal any bylaw
whether adopted by them or otherwise; provided, however, that the affirmative
vote of 66 and 2/3 percent of the voting power of the capital stock of the
Corporation entitled to vote thereon shall be required for stockholders to
adopt, amend, alter or repeal any provision of the Bylaws of the Corporation.
ARTICLE VII: ELECTION OF DIRECTORS
Unless and except to the extent that the Bylaws of the Corporation shall so
require, the election of directors of the Corporation need not be by written
ballot.
2
<PAGE>
ARTICLE VIII: NUMBER OF DIRECTORS
Except as otherwise provided for or fixed by or pursuant to the provisions
of Article IV of this Certificate of Incorporation or any resolution or
resolutions of the Board of Directors providing the issuance of any class or
series of stock having a preference over the Common Stock as to dividends or
upon liquidation to elect additional directors under specified circumstances,
the Board of Directors shall consist of not fewer than 8 nor more than 15
directors, the exact number of directors within such limits to be determined
solely by the Board of Directors in the manner set forth in the Bylaws of the
Corporation. The directors, other than those who may be elected by the holders
of Preferred Stock or any other class or series of stock having a preference
over the Common Stock as to dividends or upon liquidation pursuant to the
terms of this Certificate of Incorporation or any resolution or resolutions
providing for the issuance of such class or series of stock adopted by the
Board of Directors, shall be divided into three classes, as nearly equal in
number as possible. The initial Class I, Class II and Class III Directors, or,
if applicable, their respective successors by reason of merger of the
Corporation with another corporation prior to the first annual meeting of the
stockholders following the filing of this Certificate of Incorporation, shall
serve for a term expiring at the first, second and third annual meetings of
the stockholders following the filing of this Certificate of Incorporation,
respectively. Each director in each of the initial classes of directors shall
hold office until his or her successor is duly elected and qualified. At each
annual meeting of the stockholders beginning with the first annual meeting of
the stockholders following the filing of this Certificate of Incorporation,
the successors of the class of directors whose term expires at that meeting
shall be elected to hold office for a term expiring at the annual meeting of
the stockholders to be held in the third year following the year of their
election, with each director in each such class to hold office until his or
her successor is duly elected and qualified.
ARTICLE IX: DIRECTOR LIABILITY
A director of the Corporation shall not be liable to the Corporation or its
stockholders for monetary damages for breach of fiduciary duty as a director,
except to the extent such exemption from liability or limitation thereof is
not permitted under the General Corporation Law of the State of Delaware as
the same exists or may hereafter be amended. Any amendment, modification or
repeal of the foregoing sentence shall not adversely affect any right or
protection of a director of the Corporation hereunder in respect of any act or
omission occurring prior to the time of such amendment, modification or
repeal.
ARTICLE X: REMOVAL OF DIRECTORS
Any or all directors may be removed for cause if such removal is approved
by the holders of a majority of the outstanding shares entitled to vote at an
election of directors.
ARTICLE XI: RESERVATION OF RIGHTS BY THE CORPORATION
The Corporation hereby reserves the right at any time and from time to time
to amend, alter, change or repeal any provisions contained in this Certificate
of Incorporation, and other provisions authorized by the laws of the State of
Delaware at the time in force may be added or inserted, in the manner now or
hereafter prescribed by law, and all rights, preferences and privileges of
whatsoever nature conferred upon stockholders, directors or any other persons
whomsoever by or pursuant to this Certificate of Incorporation in its present
form or as hereafter amended are granted subject to the right reserved in this
Article XI.
3
<PAGE>
ARTICLE XII: MEETINGS OF THE STOCKHOLDERS
Section 1. Place of Meetings. Meetings of the stockholders may be held
within or without the State of Delaware, as the Bylaws of the Corporation may
provide.
Section 2. Ability to Call Special Meetings. Special meetings of the
stockholders may be called only by the Board of Directors, the Chair of the
Board of Directors, the Chief Executive Officer or the President of the
Corporation, and may not be called by any other person or persons.
ARTICLE XIII: BOOKS OF THE CORPORATION
The books of the Corporation may be kept (subject to any provision
contained in the laws of the State of Delaware) outside of the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the Bylaws of the Corporation.
ARTICLE XIV: ACTION BY WRITTEN CONSENT OF STOCKHOLDERS PROHIBITED
No action that is required or permitted to be taken by the stockholders of
the Corporation at any annual or special meeting of the stockholders may be
effected by written consent of the stockholders in lieu of a meeting of the
stockholders, unless the action to be effected by written consent of
stockholders and the taking of such action by such written consent have
expressly been approved in advance by the Board of Directors of the
Corporation. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of at least 66 and 2/3
percent in voting power of the then outstanding voting stock of the
Corporation, voting together as a single class, shall be required to amend,
repeal or adopt any provision inconsistent with this Article XIV.
The undersigned Incorporator hereby acknowledges that the foregoing
Certificate of Incorporation is his act and deed on September 13, 1999.
/s/ Peter L. Dunn
-------------------------------------
Peter L. Dunn
Incorporator
4
<PAGE>
EXHIBIT 3.2
BYLAWS
OF
KORN/FERRY INTERNATIONAL,
A DELAWARE CORPORATION
<PAGE>
INDEX
<TABLE>
<C> <S> <C>
ARTICLE I--OFFICES.
Section 1. REGISTERED OFFICE........................................ 1
Section 2. PRINCIPAL EXECUTIVE OFFICE............................... 1
Section 3. OTHER OFFICES............................................ 1
ARTICLE II--STOCKHOLDERS.
Section 1. PLACE OF MEETINGS........................................ 1
Section 2. ANNUAL MEETINGS.......................................... 1
Section 3. BUSINESS WHICH MAY BE CONDUCTED AT MEETINGS OF THE
STOCKHOLDERS............................................ 1
Section 4. SPECIAL MEETINGS......................................... 3
Section 5. NOTICE OF ANNUAL OR SPECIAL MEETINGS..................... 3
Section 6. QUORUM--REQUIRED VOTES................................... 4
Section 7. ADJOURNED MEETINGS AND NOTICE THEREOF.................... 4
Section 8. VOTING................................................... 4
Section 9. RECORD DATE.............................................. 5
Section 10. CONSENT OF ABSENTEES..................................... 6
Section 11. PROXIES.................................................. 6
Section 12. INSPECTORS OF ELECTION................................... 7
Section 13. CONDUCT OF MEETING....................................... 7
Section 14. LIST OF STOCKHOLDERS ENTITLED TO VOTE.................... 7
Section 15. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING............... 7
ARTICLE III--DIRECTORS.
Section 1. POWERS................................................... 9
Section 2. NUMBER OF DIRECTORS...................................... 10
Section 3. NOMINATION, ELECTION, QUALIFICATION AND TERM OF OFFICE... 10
Section 4. VACANCIES................................................ 10
Section 5. PLACE OF MEETING......................................... 11
Section 6. REGULAR MEETINGS......................................... 11
Section 7. SPECIAL MEETINGS......................................... 11
Section 8. QUORUM................................................... 11
Section 9. PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT.... 11
Section 10. WAIVER OF NOTICE......................................... 12
Section 11. ADJOURNMENT.............................................. 12
Section 12. FEES AND COMPENSATION.................................... 12
Section 13. ACTION WITHOUT MEETING................................... 12
Section 14. RIGHTS OF INSPECTION..................................... 12
Section 15. COMMITTEES............................................... 12
Section 16. STANDING COMMITTEES...................................... 13
ARTICLE IV--OFFICERS.
Section 1. OFFICERS................................................. 14
Section 2. ELECTION OR APPOINTMENT.................................. 14
Section 3. ELECTED SENIOR OFFICERS.................................. 14
Section 4. REMOVAL AND RESIGNATION.................................. 15
Section 5. VACANCIES................................................ 15
ARTICLE V--OTHER PROVISIONS.
Section 1. INSPECTION OF CORPORATE RECORDS.......................... 15
Section 2. INSPECTION OF BYLAWS..................................... 16
Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS...................... 16
</TABLE>
i
<PAGE>
<TABLE>
<C> <S> <C>
Section 4. CERTIFICATES OF STOCK...................................... 16
Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS............. 16
Section 6. STOCK PURCHASE PLANS....................................... 17
Section 7. ELECTION OF FISCAL YEAR.................................... 17
Section 8. CONSTRUCTION AND DEFINITIONS............................... 17
Section 9. AMENDMENTS................................................. 17
Section 10. LOANS TO OFFICERS AND OTHER EMPLOYEES...................... 17
Section 11. EMERGENCY BYLAWS........................................... 17
ARTICLE VI--INDEMNIFICATION.
Section 1. RIGHT TO INDEMNIFICATION................................... 18
Section 2. PREPAYMENT OF EXPENSES..................................... 19
Section 3. CLAIMS..................................................... 19
Section 4. NON-EXCLUSIVITY OF RIGHTS.................................. 19
Section 5. OTHER SOURCES.............................................. 19
Section 6. AMENDMENT OR REPEAL........................................ 19
Section 7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES........... 19
</TABLE>
ii
<PAGE>
BYLAWS
FOR THE REGULATION, EXCEPT
AS OTHERWISE PROVIDED BY STATUTE OR
ITS CERTIFICATE OF INCORPORATION,
OF
KORN/FERRY INTERNATIONAL
ARTICLE I. OFFICES.
Section 1. Registered Office.
The registered office of the corporation in the State of Delaware shall be
fixed in the Certificate of Incorporation of the corporation.
Section 2. Principal Executive Office.
The corporation's principal executive office shall be fixed and located at
such place, either within or without the State of Delaware, as the Board of
Directors of the corporation (the "Board") shall determine. The Board is
granted full power and authority to change said principal executive office
from one location to another.
Section 3. Other Offices.
The corporation may have such other offices, either within or without the
State of Delaware, as the Board may designate or the business of the
corporation may from time to time require.
ARTICLE II. STOCKHOLDERS.
Section 1. Place of Meetings.
Meetings of the stockholders shall be held either at the principal
executive office of the corporation or at any other place within or without
the State of Delaware as may be designated by the Board and filed with the
Secretary of the corporation.
Section 2. Annual Meetings.
The annual meetings of the stockholders shall be held at such time, date
and place, either within or without the State of Delaware, as may be fixed by
the Board. At such meetings, directors shall be elected and any other proper
business may be transacted.
Section 3. Business Which May Be Conducted at Meetings of the Stockholders.
(a) Annual Meetings of the Stockholders.
(i) Nominations of persons for election to the Board and the proposal
of business to be considered by the stockholders may be made at an annual
meeting of the stockholders only (A) pursuant to the corporation's notice
of meeting (or any supplement thereto), (B) by or at the direction of the
Board or (C) by any stockholder of the corporation who was a stockholder of
record of the corporation at the time the notice provided for in this
Section 3 is delivered to the Secretary of the corporation, who is entitled
to vote at the meeting and who complies with the notice procedures set
forth in this Section 3.
(ii) For nominations or other business to be properly brought before
an annual meeting by a stockholder pursuant to clause (C) of paragraph
(a)(i) of this Section 3, the stockholder must have given timely notice
thereof in writing to the Secretary of the corporation and any such
proposed business other than the nominations of persons for election to the
Board must constitute a proper matter for stockholder action. To be timely,
a stockholder's notice shall be delivered to the Secretary at the principal
executive
1
<PAGE>
offices of the corporation not later than the close of business on the 90th
day nor earlier than the close of business on the 120th day prior to the
first anniversary of the preceding year's annual meeting (provided,
however, that in the event that the date of the annual meeting is more than
30 days before or more than 70 days after such anniversary date, notice by
the stockholder must be so delivered not earlier than the close of business
on the 120th day prior to such annual meeting and not later than the close
of business on the later of the 90th day prior to such annual meeting or
the 10th day following the day on which public announcement of the date of
such meeting is first made by the corporation). In no event shall the
public announcement of an adjournment or postponement of an annual meeting
commence a new time period (or extend any time period) for the giving of a
stockholder's notice as described above. Such stockholder's notice shall
set forth: (A) as to each person whom the stockholder proposes to nominate
for election as a director all information relating to such person that is
required to be disclosed in solicitations of proxies for election of
directors in an election contest, or is otherwise required, in each case
pursuant to Regulation 14A under the Securities Exchange Act of 1934, as
amended (the "Exchange Act") and Rule 14a-11 thereunder (and such person's
written consent to being named in the proxy statement as a nominee and to
serving as a director if elected); (B) as to any other business that the
stockholder proposes to bring before the meeting, a brief description of
the business desired to be brought before the meeting, the text of the
proposal or business (including the text of any resolutions proposed for
consideration and, in the event that such business includes a proposal to
amend the Bylaws of the corporation, the language of the proposed
amendment), the reasons for conducting such business at the meeting and any
material interest in such business of such stockholder and the beneficial
owner, if any, on whose behalf the proposal is made; and (C) as to the
stockholder giving the notice and the beneficial owner, if any, on whose
behalf the nomination or proposal is made (1) the name and address of such
stockholder, as they appear on the corporation's books, and of such
beneficial owner, (2) the class and number of shares of capital stock of
the corporation which are owned beneficially and of record by such
stockholder and such beneficial owner, (3) a representation that the
stockholder is a holder of record of stock of the corporation entitled to
vote at such meeting and intends to appear in person or by proxy at such
meeting to propose such business or nomination, and (4) a representation
whether the stockholder or beneficial owner, if any, intends or is part of
a group which intends (x) to deliver a proxy statement and/or form of proxy
to holders of at least the percentage of the corporation's outstanding
capital stock required to approve or adopt the proposal or elect the
nominee and/or (y) otherwise to solicit proxies from stockholders in
support of such proposal or nomination. The corporation may require any
proposed nominee to furnish such other information as it may reasonably
require to determine the eligibility of such proposed nominee to serve as a
director of the corporation.
(iii) Notwithstanding anything in the second sentence of paragraph
(a)(ii) of this Section 3 to the contrary, in the event that the number of
directors to be elected to the Board of the corporation at the annual
meeting is increased and there is no public announcement by the corporation
naming the nominees for the additional directorships at least 100 days
prior to the first anniversary of the preceding year's annual meeting, a
stockholder's notice required by this Section 3 shall also be considered
timely, but only with respect to nominees for the additional directorships,
if it shall be delivered to the Secretary of the corporation at the
principal executive offices of the corporation not later than the close of
business on the 10th day following the day on which such public
announcement is first made by the corporation.
(b) Special Meetings of the Stockholders. Only such business shall be
conducted at a special meeting of the stockholders as shall have been brought
before the meeting pursuant to the corporation's notice of meeting.
Nominations of persons for election to the Board may be made at a special
meeting of the stockholders at which directors are to be elected pursuant to
the corporation's notice of meeting (i) by or at the direction of the Board
or (ii) provided that the Board has determined that directors shall be
elected at such meeting, by any stockholder of the corporation who is a
stockholder of record at the time the notice provided for in this Section 3
is delivered to the Secretary of the corporation, who is entitled to vote at
the meeting and upon such election, and who complies with the notice
procedures set forth in this Section 3. In the event the corporation calls a
special meeting of the stockholders for the purpose of electing one or more
directors to the Board, any stockholder entitled to vote in such election of
directors may nominate a person or persons (as the
2
<PAGE>
case may be) for election to such position(s) as specified in the
corporation's notice of meeting, if the stockholder's notice required by
paragraph (a)(ii) of this Section 3 shall be delivered to the Secretary at
the principal executive offices of the corporation not earlier than the close
of business on the 120th day prior to such special meeting and not later than
the close of business on the later of the 90th day prior to such special
meeting or the 10th day following the day on which public announcement is
first made of the date of the special meeting and of the nominees proposed by
the Board to be elected at such meeting. In no event shall the public
announcement of an adjournment or postponement of a special meeting commence
a new time period (or extend any time period) for the giving of a
stockholder's notice as described above.
(c) General.
(i) Only persons who are nominated in accordance with the procedures set
forth in this Section 3 shall be eligible to be elected at an annual or
special meeting of the stockholders of the corporation to serve as
directors and only such business shall be conducted at a meeting of the
stockholders as shall have been brought before the meeting in accordance
with the procedures set forth in this Section 3. Except as otherwise
provided by law, the Chair of the Board, as chair of the meeting, shall
have the power and duty (A) to determine whether a nomination or any
business proposed to be brought before the meeting was made or proposed, as
the case may be, in accordance with the procedures set forth in this
Section 3 (including whether the stockholder or beneficial owner, if any,
on whose behalf the nomination or proposal is made or solicited (or is part
of a group which solicited) or did not so solicit, as the case may be,
proxies in support of such stockholder's nominee or proposal in compliance
with such stockholder's representation as required by clause (a)(ii)(C)(4)
of this Section 3) and (B) if any proposed nomination or business was not
made or proposed in compliance with the Section 3, to declare that such
nomination shall be disregarded or that such proposed business shall not be
transacted.
(ii) For purposes of this Section 3, "public announcement" shall include
disclosure in a press release reported by the Dow Jones News Service,
Associated Press or comparable national news service or in a document
publicly filed by the corporation with the Securities and Exchange
Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act.
(iii) Notwithstanding the foregoing provisions of this Section 3, a
stockholder shall also comply with all applicable requirements of the
Exchange Act and the rules and regulations thereunder with respect to the
matters set forth in this Section 3. Nothing in this Section 3 shall be
deemed to affect any rights (A) of stockholders to request inclusion of
proposals in the corporation's proxy statement pursuant to Rule 14a-8 under
the Exchange Act or (B) of the holders of any series of Preferred Stock to
elect directors pursuant to any applicable provisions of the Certificate of
Incorporation of the corporation.
Section 4. Special Meetings.
Special meetings of the stockholders may be called only by the Board, the
Chair of the Board, the Chief Executive Officer or the President, and may not
be called by any other person or persons. Upon written request delivered to
the Secretary of the corporation by any person or persons (other than the
Board) entitled to call a special meeting of the stockholders, the Secretary
shall cause notice to be given to the stockholders entitled to vote that a
meeting will be held at the time requested by the person or persons calling
the meeting. If notice of a special meeting of the stockholders is not given
within 20 days after the Secretary's receipt of the request, the person or
persons entitled to call the meeting may give the notice. Subject to the
provisions of applicable law, only such business shall be considered at a
special meeting of the stockholders as shall have been stated in the notice
for such meeting.
Section 5. Notice of Annual or Special Meetings.
(a) Time Periods. Written notice of each annual or special meeting of the
stockholders shall be given not less than 10 nor more than 60 days before the
date of the meeting to each stockholder entitled to vote at such meeting. Such
notice shall state the place, date and hour of the meeting and (i) in the case
of the annual meeting, those matters which the Board, at the time of the
mailing of the notice, intends to present for action by the stockholders (but,
subject to Section 3 of this Article II and the provisions of applicable law,
any other matters
3
<PAGE>
properly brought may be presented at the meeting for action) or (ii) in the
case of a special meeting, the purpose or purposes for which the meeting was
called. The notice of any meeting at which directors are to be elected shall
include the names of nominees intended at the time of the notice to be
presented by the Board for election.
(b) Method. Notice of a stockholders' meeting shall be given: (i) in
writing or (ii) by United States mail, addressed to the stockholder at the
address of such stockholder appearing on the books of the corporation or given
by the stockholder to the corporation for the purpose of notice.
Notice by mail shall be deemed to have been given at the time written
notice is deposited in the United States mail, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient, delivered to a common carrier for transmission or
actually transmitted by the person giving the notice by electronic means to
the recipient.
Section 6. Quorum--Required Votes.
Except as otherwise provided by law, the Certificate of Incorporation of
the corporation or these bylaws, at each meeting of the stockholders the
presence in person or by proxy of the holders of a majority in voting power of
the outstanding shares of stock entitled to vote at the meeting shall be
necessary and sufficient to constitute a quorum. In the absence of a quorum,
the stockholders so present may, by a majority in voting power thereof,
adjourn the meeting from time to time in the manner provided in Section 7 of
this Article II until a quorum shall attend.
Section 7. Adjourned Meetings and Notice Thereof.
Any meeting of the stockholders, annual or special, may adjourn from time
to time to reconvene at the same or some other place, and notice need not be
given of any such adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. At the adjourned
meeting the corporation may transact any business which might have been
transacted at the original meeting. If the adjournment is for more than 30
days, or if after the adjournment a new record date is fixed for the adjourned
meeting, notice of the adjourned meeting shall be given to each stockholder of
record entitled to vote at the meeting.
Section 8. Voting.
The stockholders entitled to notice of any meeting or to vote at any such
meeting shall be only those persons in whose name shares stand on the stock
records of the corporation on the record date determined in accordance with
Section 9 of this Article II.
Voting at meetings of the stockholders need not be by written ballot. At
all meetings of the stockholders for the election of directors, a plurality of
the votes cast shall be sufficient to elect. All other elections and questions
shall, unless otherwise provided by the Certificate of Incorporation of the
corporation, these bylaws, the rules or regulations of any stock exchange
applicable to the corporation or as otherwise provided by law or pursuant to
any regulation applicable to the corporation, be decided by the affirmative
vote of the holders of a majority in voting power of the shares of stock of
the corporation which are present in person or by proxy and entitled to vote
thereon.
Voting shall in all cases be subject to the following provisions:
(a) The stockholders of the corporation shall not have the right to
cumulate their votes for the election of directors of the corporation.
(b) Shares held by an administrator, executor, guardian, conservator or
custodian may be voted by such holder either in person or by proxy, without
a transfer of such shares into the holder's name; and shares standing in
the name of a trust may be voted by the trustee of such trust, either in
person or by proxy, but no trustee shall be entitled to vote shares held by
such trust without a transfer of such shares into the trust's name.
4
<PAGE>
(c) Shares standing in the name of a receiver may be voted by such
receiver, and shares held by or under the control of a receiver may be
voted by such receiver without the transfer thereof into the receiver's
name if authority to do so is contained in the order of the court by which
such receiver was appointed.
(d) Except where otherwise agreed in writing between the parties, a
stockholder whose shares are pledged shall be entitled to vote such shares
until the shares have been transferred into the name of the pledgee, and
thereafter the pledgee shall be entitled to vote the shares so transferred.
(e) Shares standing in the name of a minor may be voted by, and the
corporation may treat all rights incident thereto as exercisable by, the
minor, in person or by proxy, whether or not the corporation has notice,
actual or constructive, of the minor's actual age, unless a guardian of the
minor's property has been appointed and written notice of such appointment
has been given to the corporation.
(f) Shares standing in the name of another corporation, domestic or
foreign, may be voted by such officer, agent or proxyholder of such other
corporation as the bylaws of such other corporation may prescribe or, in
the absence of such provision, as the board of directors of such other
corporation may determine or, in the absence of such determination, by the
chair of the board of directors, president or any vice president of such
other corporation, or by any other person authorized to do so by the chair
of the board, president or any vice president of such other corporation.
Shares which are purported to be voted or any proxy purported to be
executed in the name of a corporation (whether or not any title of the
person signing is indicated) shall be presumed to be voted or the proxy
executed in accordance with the provisions of this clause, unless the
contrary is shown.
(g) Shares of the corporation owned by its subsidiaries shall not be
entitled to vote on any matter.
(h) If shares stand of record in the names of two or more persons,
whether fiduciaries, members of a partnership, joint tenants, tenants in
common, husband and wife as community property, tenants by the entirety,
voting trustees, persons entitled to vote under a stockholder voting
agreement or otherwise, or if two or more persons (including proxyholders)
have the same fiduciary relationship respecting the same shares, unless the
Secretary of the corporation is given written notice to the contrary and is
furnished with a copy of the instrument or order appointing them or
creating the relationship wherein it is so provided, their acts with
respect to voting shall have the following effect:
(i) If only one votes, such act binds all;
(ii) If more than one vote, the act of the majority so voting binds
all; or
(iii) If more than one vote, but the vote is evenly split on any
particular matter, each faction may vote the securities in question
proportionately.
If the instrument so filed or the registration of the shares shows that any
such tenancy is held in unequal interests, a majority or even split for the
purpose of this Section 8 shall be a majority or even split in interest.
Section 9. Record Date.
In order that the corporation may determine the stockholders entitled to
notice of or to vote at any meeting of the stockholders or any adjournment
thereof, or to express consent to corporate action in writing without a
meeting, or entitled to receive payment of any dividend or other distribution
or allotment of any rights, or entitled to exercise any rights in respect of
any change, conversion or exchange of stock or for the purpose of any other
lawful action, the Board may fix a record date, which record date shall not
precede the date upon which the resolution fixing the record date is adopted by
the Board, and which record date: (a) in the case of determination of
stockholders entitled to vote at any meeting of stockholders or adjournment
thereof, shall, unless otherwise required by law, not be more than 60 nor less
than 10 days before the date of such meeting; (b) in the case of determination
of stockholders entitled to express consent to corporate action in writing
without a meeting, shall not be more than 10 days from the date upon which the
resolution fixing the record date is adopted by the Board and (c) in the case
of any other action, shall not be more than 60 days prior to such other action.
If no record date is fixed: (a) the record date for determining stockholders
entitled to notice of or to vote at a meeting of
5
<PAGE>
stockholders shall be at the close of business on the day next preceding the
day on which notice is given, or, if notice is waived, at the close of
business on the day next preceding the day on which the meeting is held; (b)
the record date for determining stockholders entitled to express consent to
corporate action in writing without a meeting, when no prior action of the
Board is required by law or the Certificate of Incorporation of the
corporation, shall be the first date on which a signed written consent setting
forth the action taken or proposed to be taken is delivered to the corporation
in accordance with applicable law, or, if prior action by the Board is
required by law or the Certificate of Incorporation of the corporation, shall
be at the close of business on the day on which the Board adopts the
resolution taking such prior action and (c) the record date for determining
stockholders for any other purpose shall be at the close of business on the
day on which the Board adopts the resolution relating thereto. A determination
of stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board may fix a new record date for the adjourned meeting.
Section 10. Consent of Absentees.
The transactions of any meeting of the stockholders, however called and
noticed, and wherever held, are as valid as though conducted at a meeting duly
held after regular call and notice, if a quorum is present either in person or
by proxy, and if, either before or after the meeting, each of the persons
entitled to vote, not present in person or by proxy, signs a written waiver of
notice, or a consent to the holding of the meeting or an approval of the
minutes thereof. All such waivers, consents or approvals shall be filed with
the corporate records or made a part of the minutes of the meeting. Attendance
of a person at a meeting shall constitute a waiver of notice of and presence
at such meeting, except when the person objects, at the beginning of the
meeting, to the transaction of any business because the meeting is not
lawfully called or convened and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by the
General Corporation Law of the State of Delaware to be included in the notice
but not so included, if such objection is expressly made at the meeting.
Neither the business to be transacted at nor the purpose of any regular or
special meeting of the stockholders need be specified in any written waiver of
notice, consent to the holding of the meeting or approval of the minutes
thereof, except as provided in the General Corporation Law of the State of
Delaware.
Section 11. Proxies.
Each stockholder entitled to vote at a meeting of the stockholders or to
express consent or dissent to corporate action in writing without a meeting
may authorize another person or persons to act for such stockholder by proxy,
but no such proxy shall be voted or acted upon after three years from its
date, unless the proxy provides for a longer period. A proxy shall be
irrevocable if it states that it is irrevocable and if, and only as long as,
it is coupled with an interest sufficient in law to support an irrevocable
power. A stockholder may revoke any proxy which is not irrevocable by
attending the meeting and voting in person or by filing an instrument in
writing revoking the proxy or by delivering a proxy in accordance with
applicable law bearing a later date to the Secretary of the corporation.
A proxy or consent validly delivered to the corporation shall mean any
written authorization which is signed by the person executing the proxy, as
well as any electronic transmission (to include without limitation
transmissions by facsimile and by computer messaging systems), which is
authorized by a stockholder or the stockholder's attorney in fact, which gives
another person or persons power to vote with respect to the shares of such
stockholder. A stockholder may authorize another person or persons to act for
such stockholder as proxy by transmitting or authorizing the transmission of a
telegram, cablegram, or other means of electronic transmission to the person
who will be the holder of the proxy or to a proxy solicitation firm, proxy
support service organization or like agent duly authorized by the person who
will be the holder of the proxy to receive such transmission, provided that
any such telegram, cablegram or other means of electronic transmission must
either set forth or be submitted with information from which it can be
determined that the telegram, cablegram or other electronic transmission was
authorized by the stockholder. If it is determined that such telegrams,
cablegrams or other electronic transmissions are valid, the inspectors or, if
there are no inspectors, such other persons making that determination shall
specify the information upon which they relied. Any copy, facsimile
telecommunication
6
<PAGE>
or other reliable reproduction of the writing or transmission created pursuant
to this Section 11 may be substituted or used in lieu of the original writing
or transmission for any and all purposes for which the original writing or
transmission could be used, provided that such copy, facsimile
telecommunication or other reproduction shall be a complete reproduction of
the entire original writing or transmission.
Section 12. Inspectors of Election.
(a) Appointment of Inspectors. In advance of any meeting of the
stockholders, the Board shall appoint inspectors of election to act at such
meeting and any adjournment thereof. If inspectors of election are not so
appointed, or if any persons so appointed fail to appear or refuse to act, the
Chair of the Board presiding at any such meeting may, and on the request of
any stockholder or stockholder's proxy shall, make such appointment at the
meeting. The number of inspectors shall be either one or three. If appointed
at a meeting on the request of one or more stockholders' proxies, the majority
of shares present shall determine whether one or three inspectors are to be
appointed.
(b) Duties of Inspectors. The duties of such inspectors shall include:
determining the number of shares outstanding and the voting power of each;
determining the shares represented at the meeting; determining the existence
of a quorum; determining the authenticity, validity and effect of proxies;
receiving votes, ballots or consents; hearing and determining all challenges
and questions in any way arising in connection with the right to vote;
counting and tabulating all votes or consents; determining when the polls
shall close; determining the result; and doing such acts as may be proper to
conduct the election or vote with fairness to all stockholders. If there are
three inspectors, the decision, act or certificate of a majority is in all
respects the decision, act or certificate of all.
Section 13. Conduct of Meeting
The Chair of the Board shall preside at all meetings of the stockholders.
The Chair shall conduct each such meeting in a businesslike and fair manner,
but shall not be obligated to follow any technical, formal or parliamentary
rules or principles of procedure. The Chair's rulings on procedural matters
shall be conclusive and binding on all stockholders, unless at the time of a
ruling a request for a vote is made to the stockholders holding shares
entitled to vote and which are represented in person or by proxy at the
meeting, in which case the decision of a majority of such shares shall be
conclusive and binding on all stockholders. Without limiting the generality of
the foregoing, the Chair shall have all of the powers usually vested in the
chair of a meeting of stockholders.
Section 14. List of Stockholders Entitled to Vote.
The Secretary of the corporation shall prepare and make, at least 10 days
before every meeting of the stockholders, a complete list of the stockholders
entitled to vote at the meeting, arranged in alphabetical order and showing
the address of each stockholder and the number of shares registered in the
name of each stockholder. Such list shall be open to the examination of any
stockholder, for any purpose germane to the meeting, during ordinary business
hours, for a period of at least 10 days prior to the meeting, either at a
place within the city where the meeting is to be held, which place shall be
specified in the notice of the meeting or, if not so specified, at the place
where the meeting is to be held. The list shall also be produced and kept at
the time and place of the meeting during the whole time thereof and may be
inspected by any stockholder who is present. Upon the willful neglect or
refusal of the directors to produce such a list at any meeting for the
election of directors, such directors shall be ineligible for election to any
office at such meeting. Except as otherwise provided by law, the stock ledger
shall be the only evidence as to who are the stockholders entitled to examine
the stock ledger, the list of stockholders or the books of the corporation, or
to vote in person or by proxy at any meeting of the stockholders.
Section 15. Consent of Stockholders in Lieu of Meeting.
(a) Any action required to be taken at any annual or special meeting of the
stockholders of the corporation, or any action which may be taken at any
annual or special meeting of the stockholders duly called in accordance with
the Certificate of Incorporation of the corporation, may be taken without a
meeting, without prior notice and without a vote, if a consent or consents in
writing, setting for the action so taken, shall be signed by the
7
<PAGE>
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at which
all shares entitled to vote thereon were present and voted and shall be
delivered to the corporation by delivery to its registered office in Delaware,
its principal place of business, or an officer or agent of the corporation
having custody of the book in which proceedings of meetings of the
stockholders are recorded. Delivery made to the corporation's registered
office shall be made by hand or by certified or registered mail, return
receipt requested.
(b) Every written consent shall bear the date of signature of each
stockholder who signs the consent and no written consent shall be effective to
take the corporate action referred to therein unless, within 60 days of the
date the earliest dated consent is delivered to the corporation, a written
consent or consents signed by a sufficient number of holders to take action
are delivered to the corporation in the manner prescribed in paragraph (c) of
this Section 15.
(c) In order that the corporation may determine the stockholders entitled
to consent to corporate action in writing without a meeting, the Board may fix
a record date, which record date shall not precede the date upon which the
resolution fixing the record date is adopted by the Board, and which date
shall not be more than 10 days after the date upon which the resolution fixing
the record date is adopted by the Board. Any stockholder of record seeking to
have the stockholders authorize or take corporate action by written consent
shall, by written notice to the Secretary, request the Board to fix a record
date. The Board shall promptly, but in all events within 10 days after the
date on which such a request is received, adopt a resolution fixing the record
date. If no record date has been fixed by the Board within 10 days of the date
on which such a request is received, the record date for determining
stockholders entitled to consent to corporate action in writing without a
meeting, when no prior action by the Board is required by applicable law,
shall be the first date on which a signed written consent setting forth the
action taken or proposed to be taken is delivered to the corporation in
accordance with paragraphs (a) and (b) of this Section 15. If no record date
has been fixed by the Board and prior action by the Board is required by
applicable law, the record date for determining stockholders entitled to
consent to corporate action in writing without a meeting shall be at the close
of business on the date on which the Board adopts the resolution taking such
prior action.
(d) Within 5 business days after receipt of the earliest dated consent
delivered to the corporation in the manner provided in this Section 15, the
corporation, shall retain nationally recognized independent inspectors of
elections for the purposes of performing a ministerial review of the validity
of consents and any revocations thereof. The cost of retaining inspectors of
election shall be borne by the corporation.
(e) At any time that stockholders soliciting consents in writing to
corporate action have a good faith belief that the requisite number of valid
and unrevoked consents to authorize or take the action specified has been
received by them, the consents shall be delivered by the soliciting
stockholders of the corporation's registered office in the State of Delaware
or principal place of business or to the Secretary of the corporation,
together with a certificate stating their belief that the requisite number of
valid and unrevoked consents has been received as of a specific date, which
date shall be identified in the certificate. In the event that delivery shall
be made to the corporation's registered office in Delaware, such delivery
shall be made by hand or by certified or registered mail, return receipt
requested. Upon receipt of such consents, the corporation shall cause the
consents to be delivered promptly to the inspectors of election. The
corporation also shall deliver promptly to the inspectors of election any
revocations of consents in its possession, custody or control as of the time
of receipt of the consents.
(f) As promptly as practicable after the consents and revocations are
received by them, the inspectors of election shall issue a preliminary report
to the corporation stating: (i) the number of shares represented by valid and
unrevoked consents; (ii) the number of shares represented by invalid consents;
(iii) the number of shares represented by invalid revocations and (iv) the
number of shares entitled to submit consents as of the record date. Unless the
corporation and the soliciting stockholders agree to a shorter or longer
period, the corporation and the soliciting stockholders shall have 5 business
days to review the consents and revocations and to advise the inspectors and
the opposing party in writing as to whether they intend to challenge the
preliminary report. If no timely written notice of an intention to challenge
the preliminary report is received, the inspectors shall certify
8
<PAGE>
the preliminary report (as corrected or modified by virtue or the detection by
the inspectors of clerical errors) as their final report and deliver it to the
corporation. If the corporation or the soliciting stockholders give timely
written notice of an intention to challenge the preliminary report, a
challenge session shall be scheduled by the inspectors as promptly as
practicable. A transcript of the challenge session shall be recorded by a
certified court reporter. Following completion of the challenge session, the
inspectors shall issue as promptly as practicable their final report and
deliver it to the corporation. A copy of the final report shall be included in
the book in which the proceedings of meetings of the stockholders are
required.
(g) The corporation shall give prompt notice to the stockholders of the
results of any consent solicitation or the taking of corporate action without
a meeting by less than unanimous written consent.
(h) This Section 15 shall in no way impair or diminish the right of any
stockholder or director, or any officer whose title to office is contested, to
contest the validity of any consent or revocation thereof, or to take any
other action with respect thereto.
ARTICLE III. DIRECTORS.
Section 1. Powers.
Subject to limitations of the Certificate of Incorporation of the
corporation, of these bylaws and of the General Corporation Law of the State
of Delaware relating to action required to be approved by the stockholders or
by the outstanding shares, the business and affairs of the corporation shall
be managed by or under the direction of the Board and it shall have the final
authority in matters of strategy and policy matters for the corporation.
The Board may delegate management duties for the operation of the business
of the corporation to those persons to whom authority is properly delegated by
the Board, including officers of the company, provided that the business and
affairs of the corporation shall be managed and all corporate powers shall be
exercised under the ultimate direction of the Board. Without prejudice to such
general powers, but subject to the same limitations, it is hereby expressly
declared that the Board shall have the following powers in addition to the
other powers enumerated in these bylaws:
(a) To select and remove all the other officers (in accordance with the
provisions of these bylaws), agents and employees of the corporation;
prescribe the powers and duties for them as may not be inconsistent with
law, the Certificate of Incorporation of the corporation or these bylaws;
fix their compensation and require from them an affidavit providing for the
good faith exercise of their duties only in the best interests of the
corporation.
(b) To conduct, manage and control the affairs and business of the
corporation and to make such rules and regulations therefor not
inconsistent with law, the Certificate of Incorporation of the corporation
or these bylaws, as they may deem best.
(c) To adopt, alter, amend and repeal these bylaws from time to time as
they may deem best.
(d) To adopt, make and use a corporate seal, and to prescribe the forms
of certificates of stock, and to alter the form of such seal and of such
certificates from time to time as they may deem best.
(e) To authorize the issuance of shares of stock of the corporation from
time to time, upon such terms and for such consideration as may be lawful.
(f) To borrow money and incur indebtedness for the purposes of the
corporation, and to cause to be executed and delivered, in the corporate
name, promissory notes, bonds, debentures, deeds of trust, mortgages,
pledges, hypothecations or other evidences of debt and securities therefor.
9
<PAGE>
Section 2. Number of Directors.
The authorized number of directors shall be as set forth in the Certificate
of Incorporation of the corporation. The Board shall fix the exact number of
directors by resolution duly adopted by the Board.
Section 3. Nomination, Election, Qualification and Term of Office.
(a) Eligibility for Election as Director. Only persons who are nominated
by, or at the direction of the Board or the Chair of the Board, or by a
stockholder who has given timely written notice to the Secretary of the
corporation in accordance with Section 3 of Article II of these bylaws, will
be eligible for election as directors of the corporation.
(b) Meetings at which Directors May Be Elected. The directors shall be
elected at each annual meeting of the stockholders, but if any such annual
meeting is not held or the directors are not elected thereat, the directors
may be elected at any special meeting of the stockholders called for that
purpose.
(c) Classes of the Board of Directors. The Board shall be divided into
three classes in accordance with the provisions of the Certificate of
Incorporation of the corporation.
(d) Qualified Directors. For a person to be qualified to serve as a
director of the corporation, such person need not be an employee or
stockholder of the corporation during his or her directorship.
(e) Length of Term for Directors. At each annual meeting of the
stockholders beginning with the first annual meeting of the stockholders, the
successors of the class of directors whose term expires at that meeting shall
be elected to hold office for a term expiring at the annual meeting of
stockholders to be held in the third year following the year of their
election, with each director in each class to hold office until his or her
successor is duly elected and qualified or until his or her earlier death,
resignation or removal.
(f) Removal of Directors. Any director, or the entire Board, may be removed
only for cause, by the affirmative vote of a majority of the shares then
entitled to vote at the election of directors.
Section 4. Vacancies.
Any director may resign, to be effective upon giving written notice to the
Board or to the Chair of the Board, President or Secretary of the corporation,
unless the notice specifies a later time for the effectiveness of such
resignation. If the resignation is effective at a future time, a successor may
be elected to take office when the resignation becomes effective.
Any newly-created directorship resulting from an increase in the authorized
number of directors or any vacancies in the Board occurring by reason of
death, resignation, retirement, disqualification or removal may be filled by a
majority of the remaining directors, though less than a quorum, or by a sole
remaining director, and each director so elected shall hold office until the
next annual meeting at which the class of which he is a member becomes subject
to re-election and until such director's successor has been elected and
qualified.
A vacancy or vacancies in the Board shall be deemed to exist in case of the
death, resignation or removal of any director, or if the authorized number of
directors is increased, or if the stockholders fail, at any annual or special
meeting of the stockholders at which any director or directors are elected, to
elect the full authorized number of directors to be voted for at that meeting.
The stockholders may elect a director or directors at any time to fill any
vacancy or vacancies not filled by the directors.
No reduction of the authorized number of directors shall have the effect of
removing any director prior to the expiration of the director's term of
office.
10
<PAGE>
Section 5. Place of Meeting.
Regular or special meetings of the Board shall be held at any place within
or without the State of Delaware which has been designated from time to time
by the Board. In the absence of such designation, regular meetings shall be
held at the principal executive office of the corporation.
Section 6. Regular Meetings.
Following each annual meeting of the stockholders, the Board shall hold a
regular meeting for the purpose of organization, election of officers and the
transaction of other business.
Other regular meetings of the Board shall be held without call on such
dates and at such times as may be fixed by the Board. Call and notice of all
regular meetings of the Board are hereby dispensed with.
Section 7. Special Meetings.
Special meetings of the Board for any purpose or purposes may be called at
any time by the Chair, the Chief Executive Officer, any Vice Chair, the
President, the Secretary of the corporation or by any two directors.
Special meetings of the Board shall be held upon four days' written notice
or at least twenty-four hours' notice given personally or by telephone,
including a voice messaging system or other system or technology designed to
record and communicate messages, telegraph, facsimile, electronic mail or
other electronic means of communication. Any written notice shall be addressed
or delivered to each director at such director's address as it is shown upon
the records of the corporation or as may have been given to the corporation by
the director for purposes of notice or, if such address is not shown on such
records or is not readily ascertainable, at the place in which the meetings of
the directors are regularly held.
Notice by mail shall be deemed to have been given at the time a written
notice is deposited in the United States mails, postage prepaid. Any other
written notice shall be deemed to have been given at the time it is personally
delivered to the recipient or is delivered to a common carrier for
transmission, or actually transmitted by the person giving the notice by
electronic means to the recipient. Oral notice shall be deemed to have been
given at the time it is communicated, in person or by telephone or wireless,
to the recipient or to a person at the office of the recipient who the person
giving the notice has reason to believe will promptly communicate it to the
recipient.
Section 8. Quorum.
A majority of the whole Board constitutes a quorum of the Board for the
transaction of business, except to adjourn as provided in Section 11 of this
Article III. Every act or decision done or made by a majority of the directors
present at a meeting duly held at which a quorum is present shall be regarded
as the act of the Board, unless a greater number is required by law or by the
Certificate of Incorporation of the corporation. A meeting at which a quorum
is initially present may continue to transact business notwithstanding the
withdrawal of directors, if any action taken is approved by at least a
majority of the required quorum for such meeting.
Section 9. Participation in Meetings By Communications Equipment.
(a) Participation by Conference Telephone. Members of the Board, or any
committee thereof, may participate in a meeting through the use of conference
telephones. Participation in such a meeting shall constitute presence in
person at that meeting as long as all members participating in such meeting
are able to hear one another.
(b) Participation by Electronic Video Screen Equipment or Other Similar
Communications Equipment. Members of the Board may participate in a meeting
through the use of electronic video screen equipment or other similar
communications equipment. Participation in such a meeting shall constitute
presence in person at that meeting by a member of the Board if all of the
following apply:
(i) each member participating in the meeting can communicate with all of
the other members concurrently;
11
<PAGE>
(ii) each member is provided the means of participating in all matters
before the Board, including, without limitation, the capacity to propose,
or to interpose an objection to, a specific action to be taken by the
corporation; and
(iii) the corporation adopts and implements some means of verifying both
of the following: (x) a person participating in the meeting is a director
or other person entitled to participate in the Board meeting, and (y) all
actions of, or votes by, the Board are taken or cast only by the directors
and not by persons who are not directors.
Section 10. Waiver of Notice.
Notice of a meeting need not be given to any director who signs a waiver of
notice or a consent to holding the meeting or an approval of the minutes
thereof, whether before or after the meeting, or who attends the meeting
without protesting, prior thereto or at its commencement, the lack of notice
to such director. All such waivers, consents and approvals shall be filed with
the corporate records or made a part of the minutes of the meeting.
Section 11. Adjournment.
A majority of the directors present, whether or not a quorum is present,
may adjourn any directors' meeting to another time and place. Notice of the
time and place of an adjourned meeting need not be given to absent directors
if the time and place has been fixed at the meeting adjourned, except as
provided in the next sentence. If the meeting is adjourned for more than 24
hours, notice of any adjournment to another time or place shall be given prior
to the time of the commencement of the adjourned meeting to the directors who
were not present at the time of the adjournment.
Section 12. Fees and Compensation.
Directors and members of committees may receive such compensation, if any,
for their services, and such reimbursement for expenses, as may be fixed or
determined by the Board. The corporation shall not compensate directors or
committee members who are also employees of the corporation.
Section 13. Action Without Meeting.
Any action required or permitted to be taken by the Board may be taken
without a meeting if all members of the Board shall consent in writing to such
action. Such consent or consents shall have the same effect as a unanimous
vote of the Board and shall be filed with the minutes of the proceedings of
the Board.
Section 14. Rights of Inspection.
Every director shall have the right at any reasonable time to examine the
corporation's stock ledger, a list of the stockholders of the corporation and
the corporation's other books and records for any purpose reasonably related
to such director's position as a director and to make copies or extracts
therefrom. Such inspection by a director may be made in person or by such
director's agent or attorney.
Section 15. Committees.
The Board may appoint one or more committees, each consisting of one or
more directors, and delegate to such committees any of the powers and
authority of the Board, except no such committee shall have power or authority
in reference to the following:
(a) Approving, adopting or recommending to the stockholders any action
or matter expressly required by the General Corporation Law of the State of
Delaware to be submitted to the stockholders for approval; or
(b) Adopting, altering, amending or repealing these bylaws or any of
them.
12
<PAGE>
Any such committee must be designated, and the members or alternate members
thereof appointed, by resolution adopted by a majority of the whole Board and
any such committee may be designated an Executive Committee or by such other
name as the Board shall specify. Alternate members of a committee may replace
any absent member at any meeting of the committee. The Board shall have the
power to prescribe the manner in which proceedings of any such committee shall
be conducted. In the absence of any such prescription, such committee shall
have the power to prescribe the manner in which its proceedings shall be
conducted. Unless the Board or such committee shall otherwise provide, the
regular and special meetings and other action of any such committee shall be
governed by the provisions of this Article III applicable to meetings and
actions of the Board. Minutes shall be kept of each meeting of each committee.
Section 16. Standing Committees.
The Board may have the following standing committees: Audit, Executive,
Nominating and Compensation and Personnel.
(a) Audit Committee. The Audit Committee shall be responsible for reviewing
the activities of the corporation to ensure that such activities are being
conducted within the boundaries of corporate policy and appropriate regulatory
and legal requirements and for ensuring the integrity of financial information
supplied to the stockholders. The Audit Committee also shall make
recommendations to the Board after consultation with the Chief Financial
Officer as to the selection of independent public accountants to examine the
consolidated financial statements of the corporation and its subsidiaries. The
Audit Committee also shall discuss with the independent public accountants the
scope of their examination, recommend supplemental audit reviews or audit
steps as deemed desirable, and review the accounting policies of the
corporation. The Audit Committee also shall be available to receive reports,
suggestions, questions and recommendations from the independent public
accountants, the Chief Financial Officer and the General Counsel. It also
shall confer with those parties in order to assure the sufficiency and
effectiveness of the programs being followed by corporate officers in the area
of compliance with the law and conflicts of interest.
(b) Executive Committee of the Board. The Executive Committee of the Board
shall have all of the authority of the Board, except with respect to the
approval of any action which requires stockholder approval under the General
Corporation Law of the State of Delaware.
(c) Nominating Committee. The Nominating Committee shall recommend to the
Board criteria for the selection of candidates to serve on the Board, evaluate
all proposed candidates, recommend to the Board nominees to fill vacancies on
the Board, and prior to the annual meeting of the stockholders recommend to
the Board a slate of nominees for election to the Board by the stockholders of
the Corporation at the annual meeting. In carrying out its duties, the
committee shall seek possible candidates for the Board and otherwise aid in
attracting qualified candidates to the Board. The committee shall be available
to the Chair or President and other members of the Board for consultation
concerning candidates for the Board. The committee shall periodically review,
assess and make recommendations to the Board with regard to the size and
composition of the Board. The committee shall have all additional powers
necessary to carry out its responsibilities and such other duties as may be
assigned by the Board from time to time.
The Nominating Committee also shall have the authority to administer a
self-appraisal process by members of the Board and make a report thereon to
the Board, from time to time, or as designated by the Board.
(d) Compensation and Personnel Committee. The Compensation and Personnel
Committee shall have the responsibility for the compensation of the senior
executives of the Corporation including salaries and benefits. In carrying out
its duties, the committee shall review and approve overall executive
compensation programs which are market competitive for the officers of the
Corporation, and shall review the specific salaries of Executive Vice
Presidents and senior vice presidents subject to the ratification of the
salary programs established for the Chair and the Chief Executive Officer of
the Corporation by the Board acting as a whole. The committee shall also
review and make recommendations to the Board with respect to the Corporation's
overall compensation
13
<PAGE>
program for directors and officers, including salaries, employee benefit
plans, stock options granted, equity incentive plans and payment of bonuses.
The committee shall also have all additional powers necessary to carry out its
responsibilities and such other duties as may be assigned by the Board from
time to time.
ARTICLE IV. OFFICERS.
Section 1. Officers.
The senior officers of the corporation shall be a Chair of the Board, a
Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer
and a Secretary. The corporation may also have, at the discretion of the
Board, a President, a Chief Administrative Officer, one or more Vice Chairs of
the Board, one or more Vice Presidents, one or more Assistant Secretaries,
Treasurers, Assistant Treasurers, and such other officers as may be elected or
appointed in accordance with the provisions of Section 2 of this Article IV.
Section 2. Election or Appointment.
The senior officers of the corporation shall be elected by the Board on an
annual basis. In addition, other officers may be elected or appointed in
accordance with the provisions of Section 5 of this Article IV. All officers,
whether elected or appointed, shall be chosen annually by, and shall serve at
the pleasure of, the Board, and shall hold their respective offices until
their resignation, removal or other disqualification from service, or until
their respective successors shall be elected.
The Board may elect, and may empower the Chair or the Chief Executive
Officer to appoint, such other subordinate officers as the business of the
corporation may require, each of whom shall hold office for such period and
shall have such authority and perform such duties as are provided in these
bylaws or as the Board may from time to time determine.
Section 3. Elected Senior Officers.
The elected senior officers of the corporation shall have those positions
and those duties named below in this Section 3. Further, in each case, the
named officer also shall have the general powers and duties of governance or
management usually vested in that office and such other powers and duties as
may be prescribed by the Board.
In the case of the Chair of the Board, the Chair shall, if present, preside
at all meetings of the Board and shall preside at all meetings of the
stockholders. The Chair of the Board has the general powers and duties of
management usually vested in the office of chair of the board of a corporation
and such other powers and duties as may be prescribed by the Board. The Chief
Executive Officer shall be the senior executive officer of the corporation.
The President has the general powers and duties of management of the
corporation. The Chief Operating Officer shall have the general powers and
duties to carry out general administrative and financial management of the
corporation. The Board also may elect one or more Vice Chairs of the Board
who, in the absence of the Chair, will assume the duties of that position.
In the absence or disability of the Chief Executive Officer, the President,
the Chief Operating Officer, the Vice Chair, or any Executive Vice President
designated by the Board, shall perform all the duties of the Chief Executive
Officer and, when so acting, shall have all the powers of, and be subject to
all the restrictions upon, the Chief Executive Officer.
The Secretary shall keep or cause to be kept, at the principal executive
office and such other place as the Board may order, a book of minutes of all
meetings of stockholders, the Board and its committees, with the time and
place of holding, whether regular or special, and if special, how authorized,
the notice thereof given, the names of those present at Board and committee
meetings, the number of shares present or represented at stockholders'
meetings, and the proceedings thereof. The Secretary shall keep, or cause to
be kept, a copy of these bylaws of the corporation at the principal executive
office or such other place as the Board may order.
14
<PAGE>
The Secretary shall keep, or cause to be kept, at the principal executive
office or at the office of the corporation's transfer agent or registrar, if
one has been appointed, a share register, or a duplicate share register,
showing the names of the stockholders and their addresses, the number and
classes of shares held by each, the number and date of certificates issued for
the same, and the number and date of cancellation of every certificate
surrendered for cancellation.
The Secretary shall give, or cause to be given, notice of all meetings of
the stockholders and of the Board and any committees thereof required by these
bylaws or by law to be given, shall keep the seal of the corporation in safe
custody, and shall have such other powers and perform such other duties as may
be prescribed by the Board.
The Chief Financial Officer shall keep and maintain, or cause to be kept
and maintained, adequate and correct accounts of the properties and business
transactions of the corporation, and shall send or cause to be sent to the
stockholders of the corporation such financial statements and reports as are
by law or these bylaws required to be sent to them. The books of account shall
at all times be open to inspection by any director.
The Chief Financial Officer shall deposit all moneys and other valuables in
the name and to the credit of the corporation with such depositaries as may be
designated by the Board. The Chief Financial Officer shall disburse the funds
of the corporation as may be ordered by the Board, shall render to the Chair
of the Board, the Chief Executive Officer, the President and the directors,
whenever they request it, an account of all transactions as Chief Financial
Officer and of the financial condition of the corporation, and shall have such
other powers and perform such other duties as may be prescribed by the Board.
Section 4. Removal and Resignation.
Any officer elected by the Board may be removed only by the Board, either
with or without cause, at any time. In the case of an officer not elected by
the Board, such an officer may be removed by another officer upon whom such
power of removal may be conferred by the Board. Any removal shall be without
prejudice to the rights, if any, of the officer under any contract of
employment of the officer.
Any officer may resign at any time by giving written notice to the
corporation, subject to the rights of the corporation under any contract
between the corporation and the officer. Any such resignation shall take
effect at the date of the receipt of such notice or at any later time
specified therein and, unless otherwise specified therein, the acceptance of
such resignation shall not be necessary to make it effective.
Section 5. Vacancies.
A vacancy in any office because of death, resignation, removal,
disqualification or any other cause shall be filled in the manner prescribed
in these bylaws for regular election or appointment to such office.
ARTICLE V. OTHER PROVISIONS.
Section 1. Inspection of Corporate Records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books
and records and to make copies or extracts therefrom. A proper purpose shall
mean a purpose reasonably related to such person's interest as a stockholder.
In every instance where an attorney or other agent is the person who seeks the
right to inspection, the demand under oath shall be accompanied by a power of
attorney or such other writing that authorizes the attorney or other agent to
so act on behalf of the stockholder. The demand under oath shall be directed
to the corporation at its registered office in the State of Delaware or at its
principal executive office.
15
<PAGE>
Section 2. Inspection of Bylaws.
The corporation shall keep in its principal executive office in the State
of California, or if its principal executive office is not in such State at
its principal business office in such State, the original or a copy of these
bylaws as amended to date, which shall be open to inspection by stockholders
at all reasonable times during office hours. If the principal executive office
of the corporation is located outside the State of California and the
corporation has no principal business office in such state, it shall upon the
written request of any stockholder furnish to such stockholder a copy of these
bylaws as amended to date.
Section 3. Endorsement of Documents; Contracts.
Subject to the provisions of applicable law, any note, mortgage, evidence
of indebtedness, contract, share certificate, conveyance or other instrument
in writing and any assignment or endorsements thereat executed or entered into
between the corporation and any other person, when signed by the Chair of the
Board, the Chief Executive Officer, the Chief Operating Officer, the
President, the Vice Chair, an Executive Vice President, or any senior vice
president and the Secretary, any Assistant Secretary, the Chief Financial
Officer or any Assistant Treasurer of the corporation shall be valid and
binding on the corporation in the absence of actual knowledge on the part of
the other person that the signing officers had no authority to execute the
same. Any such instruments may be signed by any other person or persons and in
such manner as from time to time shall be determined by the Board, and, unless
so authorized by the Board, no officer, agent or employee shall have any power
or authority to bind the corporation by any contract or engagement or to
pledge its credit or to render it liable for any purpose or amount.
Section 4. Certificates of Stock.
Every holder of shares of the corporation shall be entitled to have a
certificate signed in the name of the corporation by the Chair of the Board,
the President, the Vice Chair and by the Chief Financial Officer or an
Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the
number of shares and the class or series of shares owned by the stockholder.
Any or all of the signatures on the certificate may be facsimile. If any
officer, transfer agent or registrar who has signed or whose facsimile
signature has been placed upon a certificate shall have ceased to be such
officer, transfer agent or registrar before such certificate is issued, it may
be issued by the corporation with the same effect as if such person were an
officer, transfer agent or registrar at the date of issue.
Certificates for shares may be issued prior to full payment under such
restrictions and for such purposes as the Board may provide; provided,
however, that on any certificate issued to represent any partly paid shares,
the total amount of the consideration to be paid therefor and the amount paid
thereon shall be stated.
Except as provided in this Section 4, no new certificate for shares shall
be issued in lieu of an old one unless the latter is surrendered and cancelled
at the same time. The Board may, however, if any certificate for shares is
alleged to have been lost, stolen or destroyed, authorize the issuance of a
new certificate in lieu thereof, and the corporation may require that the
corporation be given a bond or other adequate security sufficient to indemnify
it against any claim that may be made against it (including expense or
liability) on account of the alleged loss, theft or destruction of such
certificate or the issuance of such new certificate.
The Company shall not register the transfer of any securities issued in
reliance on Regulation S promulgated under the Securities Act of 1933, as
amended, unless the Company has received such assurances as it may reasonably
request that the transfer of such securities was made in accordance with the
provisions of such Regulation S.
Section 5. Representation of Shares of Other Corporations.
The Chair of the Board or any other officer or officers authorized by the
Board or the Chair of the Board are each authorized to vote, represent and
exercise on behalf of the corporation all rights incident to any and all
16
<PAGE>
shares of any other corporation or corporations standing in the name of the
corporation. The authority herein granted may be exercised either by any such
officer in person or by any other person authorized so to do by proxy or power
of attorney duly executed by said officer.
Section 6. Stock Purchase Plans.
The corporation may adopt and carry out a stock purchase plan or agreement
or stock option plan or agreement providing for the issue and sale for such
consideration as may be fixed of its unissued shares, or of issued shares
acquired or to be acquired, to one or more of the employees or directors of
the corporation or of a subsidiary or to a trustee on their behalf and for the
payment for such shares in installments or at one time, and may provide for
aiding any such persons in paying for such shares by compensation for services
rendered, promissory notes or otherwise.
Any such stock purchase plan or agreement or stock option plan or agreement
may include, among other features, the fixing of eligibility for participation
therein, the class and price of shares to be issued or sold under the plan or
agreement, the number of shares which may be subscribed for, the method of
payment therefor, the reservation of title until full payment therefor, the
effect of the termination of employment, an option or obligation on the part
of the corporation to repurchase the shares upon termination of employment,
restrictions upon transfer of the shares, the time limits of and termination
of the plan, and any other matters, not in violation of applicable law, as may
be included in the plan as approved or authorized by the Board or any
committee of the Board.
Section 7. Election of Fiscal Year.
Upon the election of the Board, the Board may authorize the change of the
current Fiscal Year of the Corporation to begin on January 1 of each year and
end on December 31 of each subsequent year.
Section 8. Construction and Definitions.
Unless the context otherwise requires, the general provisions, rules of
construction and definitions contained in the General Corporation Law of the
State of Delaware shall govern the construction of these bylaws.
Section 9. Amendments.
These bylaws may be altered, amended or repealed either by the approval of
66 and 2/3 percent of the outstanding shares of the corporation entitled to
vote on such action or, subject to the provisions of the General Corporation
Law of the State of Delaware, by the approval of the Board.
Section 10. Loans to Officers and Other Employees.
The corporation may lend money to, guarantee any obligation of or otherwise
assist any officer or other employee of the corporation or of any of its
subsidiaries, including any officer or employee who is director of the
corporation or any of its subsidiaries, whenever, in the judgment of the
Board, such loan, guaranty or assistance may reasonably be expected to benefit
the corporation. The loan, guaranty or other assistance may be with or without
interest and may be unsecured or secured in such manner as the Board shall
approve, including, without limitation, a pledge of shares of stock of the
corporation.
Section 11. Emergency Bylaws.
(a) The Board may adopt emergency bylaws, subject to repeal or change by
action of the stockholders, which shall, notwithstanding any different
provision in the General Corporation Law of the State of Delaware, the
Certificate of Incorporation of the corporation or these bylaws, be operative
during any emergency resulting from an attack on the United States or on a
locality in which the corporation conducts its business or customarily holds
meetings of the Board or its stockholders, or during any nuclear or atomic
disaster, or during the existence
17
<PAGE>
of any catastrophe, or other similar emergency condition, as a result of which
a quorum of the Board or a standing committee thereof cannot readily be
convened for action. The emergency bylaws may make any provision that may be
practical and necessary for the circumstances of the emergency, including
provisions that:
(i) A meeting of the Board or a committee thereof may be called by any
officer or director in such manner and under such conditions as shall be
prescribed in the emergency bylaws;
(ii) The director or directors in attendance at the meeting, or any
greater number fixed by the emergency bylaws, shall constitute a quorum;
and
(iii) The officers or other persons designated on a list approved by the
Board before the emergency, all in such order of priority and subject to
such conditions and for such period of time (not longer than reasonably
necessary after the termination of the emergency) as may be provided in the
emergency bylaws or in the resolution approving the list, shall, to the
extent required to provide a quorum at any meeting of the Board, be deemed
directors for such meeting.
(b) The Board, either before or during any such emergency, may provide, and
from time to time modify, lines of succession in the event that during such
emergency any or all officers or agents of the corporation shall for any
reason be rendered incapable of discharging their duties.
(c) The Board, either before or during any such emergency, may, effective
in the emergency, change the head office or designate several alternative head
offices or regional offices, or authorize the officers so to do.
(d) No officer, director or employee acting in accordance with any
emergency bylaws shall be liable except for willful misconduct.
(e) To the extent not inconsistent with any emergency bylaws so adopted,
these bylaws shall remain in effect during any emergency and upon its
termination the emergency bylaws shall cease to be operative.
(f) Unless otherwise provided in emergency bylaws, notice of any meeting of
the Board during such an emergency may be given only to such of the directors
as it may be feasible to reach at the time and by such means as may be
feasible at the time, including publication or radio.
(g) To the extent required to constitute a quorum at any meeting of the
Board during such an emergency, the officers of the corporation who are
present shall, unless otherwise provided in emergency bylaws, be deemed, in
order of rank and within the same rank in order of seniority, directors for
such meeting.
(h) Nothing contained in this Section 11 shall be deemed exclusive of any
other provisions for emergency powers consistent with the General Corporation
Law of the State of Delaware.
ARTICLE VI. INDEMNIFICATION.
Section 1. Right to Indemnification.
The corporation shall indemnify and hold harmless, to the fullest extent
permitted by applicable law as it presently exists or may hereafter be
amended, any person (an "Indemnitee") who was or is made or is threatened to
be made a party or is otherwise involved in any action, suit or proceeding,
whether civil, criminal, administrative or investigative (a "proceeding"), by
reason of the fact that he, or a person for whom he is the legal
representative, is or was a director or officer of the corporation or, while a
director or officer of the corporation, is or was serving at the written
request of the corporation as a director, officer, employee or agent of
another corporation or of a partnership, joint venture, trust, enterprise or
non-profit entity, including service with respect to employee benefit plans,
against all liability and loss suffered and expenses (including attorneys'
fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding
sentence, except as otherwise provided in Section 3 of this Article VI, the
corporation shall be required to indemnify an Indemnitee in
18
<PAGE>
connection with a proceeding (or part thereof) commenced by such Indemnitee
only if the commencement of such proceeding (or part thereof) by the
Indemnitee was authorized by the Board.
Section 2. Prepayment of Expenses.
The corporation shall pay the expenses (including attorneys' fees) incurred
by an Indemnitee in defending any proceeding in advance of its final
disposition, provided, however, that, to the extent required by law, such
payment of expenses in advance of the final disposition of the proceeding
shall be made only upon receipt of an undertaking by the Indemnitee to repay
all amounts advanced if it should be ultimately determined that the Indemnitee
is not entitled to be indemnified under this Article VI or otherwise.
Section 3. Claims.
If a claim for indemnification of advancement of expenses under this
Article VI is not paid in full within 60 days after a written claim therefor
by the Indemnitee has been received by the corporation, the Indemnitee may
file suit to recover the unpaid amount of such claim and, if successful in
whole or in part, shall be entitled to be paid the expense of prosecuting such
claim. In any such action the corporation shall have the burden of proving
that the Indemnitee is not entitled to the requested indemnification or
advancement of expenses under applicable law.
Section 4. Non-Exclusivity of Rights.
The rights conferred on any Indemnitee by this Article VI shall not be
exclusive of any other rights which such Indemnitee may have or hereafter
acquire under any statute, provision of the Certificate of Incorporation of
the corporation, these bylaws, agreement, vote of the stockholders or
disinterested directors or otherwise.
Section 5. Other Sources.
The corporation's obligation, if any, to indemnify or to advance expenses
to any Indemnitee who was or is serving at its request as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust,
enterprise or non-profit entity shall be reduced by any amount such Indemnitee
may collect as indemnification or advancement of expenses from such other
corporation, partnership, joint venture, trust, enterprise or non-profit
entity.
Section 6. Amendment or Repeal.
Any repeal or modification of the foregoing provisions of this Article VI
shall not adversely affect any right or protection hereunder of any Indemnitee
in respect of any act or omission occurring prior to the time of such repeal
or modification.
Section 7. Other Indemnification and Prepayment of Expenses.
This Article VI shall not limit the right of the corporation, to the extent
and in the manner permitted by law, to indemnify and to advance expenses to
persons other than Indemnitees when and as authorized by appropriate corporate
action.
19
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KORN/FERRY
INTERNATIONAL AND SUBSIDIARIES FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> OCT-31-1999
<CASH> 92,475
<SECURITIES> 32,602
<RECEIVABLES> 98,914
<ALLOWANCES> (11,976)
<INVENTORY> 0
<CURRENT-ASSETS> 223,856
<PP&E> 54,483
<DEPRECIATION> (28,466)
<TOTAL-ASSETS> 337,382
<CURRENT-LIABILITIES> 101,009
<BONDS> 0
0
0
<COMMON> 192,646
<OTHER-SE> 0
<TOTAL-LIABILITY-AND-EQUITY> 337,382
<SALES> 0
<TOTAL-REVENUES> 221,103
<CGS> 0
<TOTAL-COSTS> 199,341
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,596<F1>
<INCOME-PRETAX> 23,243
<INCOME-TAX> 9,762
<INCOME-CONTINUING> 13,481
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 12,106
<EPS-BASIC> 0.34
<EPS-DILUTED> 0.33
<FN>
<F1>Included in Interest and Other income(expense) of 1,481 offset by other
income of 3,077
</FN>
</TABLE>
