<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: June 30, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ___ to ___
Commission file number 0-16284
NATIONAL TECHTEAM, INC.
(Name of issuer in its charter)
DELAWARE 38-2774613
- -------- -------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
835 Mason Street, Suite 200, Dearborn, MI 48124
-----------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (313) 277-2277
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
[X] Yes [ ] No
The number of shares of the registrant's only class of common stock outstanding
at August 14, 1998 was 14,305,371.
THIS REPORT CONTAINS FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION
27A OF THE SERCURITIES EXCHANGE ACT OF 1934, AS AMENDED. ACTUAL RESULTS COULD
DIFFER FROM THOSE PROJECTED IN THE FORWARD-LOOKING STATEMENTS AS A RESULT OF
CERTAIN FACTORS DESCRIBED HEREIN INCLUDING THOSE SET FORTH UNDER "FACTORS
AFFECTING FUTURE RESULTS" UNDER "MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS" AND ELSEWHERE IN, OR INCORPORATED
BY REFERENCE INTO, THIS REPORT.
1
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NATIONAL TECHTEAM, INC.
FORM 10-Q
INDEX
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------
PAGE
INDEX NUMBER
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<S> <C>
PART I - FINANCIAL INFORMATION
Item 1.
Consolidated Statements of Operations 3
Three and Six Months Ended
June 30, 1998 and 1997
Consolidated Statements of Financial Position 4 - 5
June 30, 1998 and December 31, 1997
Consolidated Statements of Cash Flows 6
Six Months Ended
June 30, 1998 and 1997
Notes to the Consolidated Financial Statements - June 30, 1998 (Unaudited) 7 - 9
Item 2.
Management's Discussion and Analysis of Financial Condition and Results of Operations 10 - 21
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 4. Submission of Matters to a Vote of Security Holder 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
Signatures 24
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</TABLE>
2
<PAGE> 3
PART 1 -- FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
- ----------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
1998 1997 1998 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Corporate Services
Corporate help desk/call center services...... $ 6,811,010 $ 3,530,502 $ 12,869,962 $ 8,754,591
Technical staffing............................ 6,423,039 5,999,283 13,453,045 11,685,469
Systems integration........................... 2,655,925 2,758,783 5,406,875 5,038,111
Training programs............................. 1,772,836 1,860,837 3,621,075 3,304,033
------------- -------------- ------------- -------------
Total Corporate Services......................... 17,662,810 14,149,405 35,350,957 28,782,204
OEM Call Center Services......................... 6,641,207 5,283,793 13,301,001 9,227,586
TechTeam Capital Group........................... 3,362,157 -- 5,471,303 --
------------- -------------- ------------- -------------
TOTAL REVENUES....................................... 27,666,174 19,433,198 54,123,261 38,009,790
COST OF SERVICES DELIVERED........................... 22,251,403 16,336,848 44,795,397 32,378,132
------------- -------------- ------------- -------------
GROSS PROFIT......................................... 5,414,771 3,096,350 9,327,864 5,631,658
------------- -------------- ------------- -------------
OTHER EXPENSES
Selling, general and administrative.............. 3,646,832 4,146,302 7,393,481 7,721,071
Interest expense................................. 452,286 55,492 788,358 70,492
------------- -------------- ------------- -------------
TOTAL OTHER EXPENSES................................. 4,099,118 4,201,794 8,181,839 7,791,563
------------- -------------- ------------- -------------
INCOME/(LOSS) BEFORE INTEREST INCOME................. 1,315,653 (1,105,444) 1,146,025 (2,159,905)
INTEREST INCOME...................................... 368,964 771,747 983,051 1,495,345
------------- -------------- ------------- -------------
INCOME/(LOSS) BEFORE TAX PROVISIONS.................. 1,684,617 (333,697) 2,129,076 (664,560)
TAX PROVISIONS ...................................... 851,600 (107,300) 1,155,000 (73,810)
------------- -------------- ------------- -------------
NET INCOME/(LOSS).................................... $ 833,017 $ (226,397) $ 974,076 $ (590,750)
============= ============== ============= =============
BASIC EARNINGS PER SHARE............................. $ 0.06 $ (0.01) $ 0.06 $ (0.04)
============= ============== ============= =============
DILUTED EARNINGS PER SHARE........................... $ 0.05 $ (0.01) $ 0.06 $ (0.04)
============= ============== ============= =============
WEIGHTED AVERAGE NUMBER OF COMMON
SHARES AND COMMON SHARE EQUIVALENTS
OUTSTANDING......................................
Basic............................................ 15,059,884 15,636,473 15,592,523 15,597,147
Net effect of dilutive stock options -- based
on the treasury stock method using average
market price.................................. 160,328 278,693 178,647 314,056
------------- -------------
============= ==============
Diluted.......................................... 15,220,212 15,915,166 15,771,170 15,911,203
============= ============== ============= =============
</TABLE>
See accompanying notes.
3
<PAGE> 4
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
ASSETS JUNE 30, 1998 DECEMBER 31, 1997
- ------------------------------------------------------------------------ -------------------- -------------------
<S> <C> <C>
CURRENT ASSETS
Cash and cash equivalents.......................................... $ 17,046,266 $ 24,927,348
Securities available-for-sale...................................... 26,353,517 39,094,615
Accounts receivable (less allowances of $1,021,410 at
June 30, 1998 and $787,175 at December 31, 1997)................ 31,674,553 26,479,816
Refundable income tax.............................................. 217,511 2,466,777
Equipment leased to others......................................... 19,304,866 --
Net investment in direct finance leases............................ 7,218,173 --
Net investment in residuals........................................ 977,238 --
Inventories........................................................ 1,271,041 218,622
Prepaid expenses and other......................................... 1,550,799 2,781,777
Deferred income tax................................................ 338,532 338,532
------------------- -------------------
105,952,496 96,307,487
------------------- -------------------
PROPERTY, EQUIPMENT AND PURCHASED SOFTWARE
Office furniture and equipment..................................... 19,946,153 18,428,968
Purchased software................................................. 5,269,653 2,997,919
Leasehold improvements............................................. 2,025,180 1,600,133
Transportation equipment........................................... 371,134 297,154
------------------- -------------------
27,612,120 23,324,174
Less -- Accumulated depreciation and amortization.................. 13,306,613 9,599,982
------------------- -------------------
14,305,507 13,724,192
------------------- -------------------
OTHER ASSETS
Intangibles (less accumulated amortization of $3,483,532 at
June 30, 1998 and $3,035,071 at December 31, 1997).............. 8,755,007 7,324,064
Advance to TechTeam Capital Group, Inc............................. -- 604,002
Deferred income tax................................................ 1,689,334 1,689,334
Other.............................................................. 1,889,348 1,639,582
------------------- -------------------
12,333,689 11,256,982
=================== ===================
TOTAL ASSETS........................................................... $ 132,591,692 $ 121,288,661
=================== ===================
</TABLE>
See accompanying notes.
4
<PAGE> 5
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF FINANCIAL POSITION
(UNAUDITED)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY JUNE 30, 1998 DECEMBER 31,1997
- ------------------------------------------------------------------------ -------------------- -------------------
<S> <C> <C>
CURRENT LIABILITIES
Accounts payable................................................... $ 3,991,586 $ 3,707,985
Accrued payroll, related taxes and withholdings.................... 3,721,867 4,350,863
Deferred income tax................................................ 102,480 466,880
Deferred revenues and unapplied receipts........................... 2,992,872 1,353,398
Accrued expenses and taxes......................................... 538,164 533,391
Other.............................................................. 423,723 147,036
------------------- -------------------
11,770,692 10,559,553
------------------- -------------------
LONG-TERM LIABILITIES
Long-term debt..................................................... 20,613,145 --
Deferred Foundation Platform license fees.......................... 601,630 813,205
Deferred income tax................................................ 1,824,175 195,941
Other long-term liabilities........................................ -- 119,765
------------------- -------------------
23,038,950 1,128,911
------------------- -------------------
SHAREHOLDERS' EQUITY
Preferred stock, par value $.01
Authorized -- 5,000,000 shares
None issued
Common stock, par value $.01
Authorized -- 45,000,000 shares
Issued:
16,639,800 shares at June 30, 1998........................... 166,398
16,037,700 shares at December 31, 1997....................... 160,377
Additional paid-in capital......................................... 110,977,403 105,586,223
Retained earnings.................................................. 5,483,095 4,509,019
Other.............................................................. (85,085) (84,652)
-------------------- -------------------
Total.............................................................. 116,541,811 110,170,967
Less-- Treasury stock (2,025,608 shares at June 30, 1998 and
124,474 shares at December 31, 1997)............................ 18,759,761 570,770
-------------------- -------------------
Total shareholders' equity......................................... 97,782,050 109,600,197
-------------------- -------------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............................. $ 132,591,692 $ 121,288,661
==================== ===================
</TABLE>
See accompanying notes.
5
<PAGE> 6
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
----------------------------------------
1998 1997
------------------ ------------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income/(loss)................................................ $ 974,076 $ (590,751)
Adjustments to reconcile net income/(loss) to net cash
provided by/(used in) operating activities:
Depreciation and amortization.............................. 3,366,901 3,284,814
Provision for uncollectible accounts receivable............ 234,235 168,368
Provision for deferred income taxes........................ -- (1,083,100)
Deferred Foundation Platform license fees.................. (211,575) 3,373,805
Long-term accounts receivable from customer................ -- (2,019,788)
Treasury stock contributed to 401(k) plan.................. 339,621 60,456
Unrealized gain/(loss) on investments...................... (11,733) --
Minority interest in net loss of subsidiary................ -- (44,803)
Changes in current assets and liabilities:
Accounts receivable.................................... (3,543,796) (456,470)
Equipment leased to others............................. 2,245,113 --
Inventories............................................ (191,101) 3,471
Prepaid expenses....................................... 1,230,978 --
Advance to vendors..................................... -- (1,800,000)
Other current assets................................... 859,249 182,835
Accounts payable....................................... (9,360,535) (2,138,857)
Accrued payroll, related taxes and withholdings........ (628,996) (363,898)
Federal income tax..................................... 1,999,266 117,613
Deferred revenues and unapplied receipts............... 1,575,847 361,419
Accrued expenses and taxes............................. (84,354) (319,649)
Other current liabilities.............................. (333,571) (64,072)
----------------- -----------------
Net cash (used in) operating activities.................... (1,540,375) (1,328,607)
----------------- -----------------
INVESTING ACTIVITIES
Purchases of property, equipment and software.................... (2,802,313) (3,924,279)
Development of training manuals.................................. -- (284,767)
Proceeds from sales of securities available-for-sale............. 12,741,098 3,124,548
Cash paid in conjunction with purchase of WebCentric,
net of cash acquired.......................................... -- (1,645,086)
Loss from sales of property, equipment and software and other
assets........................................................ -- (29,024)
Other ........................................................... (161,855) (135,659)
----------------- -----------------
Net cash provided by/(used in) by investing activities........ 9,776,930 (2,894,267)
----------------- -----------------
FINANCING ACTIVITIES
Proceeds from Capital Lease Obligations.......................... 1,882,132 --
Purchase of Company stock........................................ (18,367,619) --
Proceeds from issuance of common stock........................... 367,850 962,724
Payments on long-term borrowings................................. -- (15,167)
----------------- -----------------
Net cash provided by/(used in) financing activities........... (16,117,637) 947,557
----------------- -----------------
Increase/(decrease) in cash and cash equivalents.............. (7,881,082) (3,275,317)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD..................... 24,927,348 46,812,397
----------------- -----------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD........................... $ 17,046,266 $ 43,537,080
================= =================
</TABLE>
See accompanying notes.
6
<PAGE> 7
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998
(UNAUDITED)
The Annual Report of the Company on Form 10-K for the year ended December 31,
1997 ("The 1997 Form 10-K") contains additional information and should be read
in conjunction with this report.
The consolidated financial statements included herein have been prepared by
National TechTeam, Inc. ("TechTeam" or "Company") without audit, pursuant to the
rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been omitted pursuant to such rules and regulations.
The information provided in this report reflects all adjustments consisting of
normal recurring accruals which are, in the opinion of management, necessary to
present fairly the results of operations for these periods. The results of
operations for these periods are not necessarily indicative of the results
expected for the full year.
NOTE A -- EARNINGS PER SHARE
Earnings per share is computed using the weighted average number of common
shares and common share equivalents outstanding. Common share equivalents
consist of stock options and are calculated using the treasury stock method.
NOTE B -- REVENUES FROM MAJOR CLIENTS
Revenues from clients for which revenues exceeded 5% of total revenues for any
of the periods presented are summarized as follows:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Chrysler Corporation................ $ 5,439,700 19.7% $ 2,321,759 12.5%
GE TechTeam, L.P.................... 4,505,868 16.3 -- 0.0
Ford Motor Company.................. 3,638,600 13.2 3,877,079 20.9
International provider of
shipping services.............. 1,670,646 6.0 1,466,799 7.9
Hewlett-Packard Company............. 766,352 2.8 4,871,420 26.2
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
SIX MONTHS ENDED JUNE 30,
---------------------------------------------------------------------------------
1998 1997
--------------------------------------- -----------------------------------------
AMOUNT PERCENT OF TOTAL AMOUNT PERCENT OF TOTAL
------------------- ------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Chrysler Corporation................ $ 11,132,213 20.6% $ 4,458,603 12.5%
GE TechTeam, L.P.................... 7,910,365 14.6 -- 0.0
Ford Motor Company.................. 7,398,938 13.7 7,637,839 21.3
Hewlett-Packard Company............. 4,300,178 7.9 9,967,456 27.8
International provider of
shipping services.............. 3,242,507 6.0 2,803,116 7.8
</TABLE>
7
<PAGE> 8
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998 (continued)
(UNAUDITED)
NOTE C -- LEGAL PROCEEDINGS
Commencing in August 1997, four putative class action complaints were filed
against the Company and two of its officers in the United States District Court
for the Eastern District of Michigan. On April 13, 1998, a Consolidated Class
Action Complaint, consolidating the claims asserted in those cases was filed.
Plaintiffs purport to represent a class of persons who purchased shares of the
Company's common stock between September 27, 1996 and November 14, 1997. The
Complaint alleges that the Company and the individual defendants engaged in a
scheme to artificially inflate the price of the Company's common stock by
improperly accelerating the recognition of revenue from the licensing of the
Company's proprietary software. Plaintiffs assert claims against all defendants
for alleged violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, as well as claims against the individual
defendants for alleged "controlling person" liability under Section 20(a) of the
Securities Exchange Act. The Company and the individual defendants believe that
they have meritorious defenses to plaintiffs' claims, and they have filed a
motion to dismiss the complaint. However, because of the early stage of this
litigation, it is impossible to predict the outcome of the litigation or a range
of possible recovery, if any, by the plaintiffs. Accordingly, no provision for
any such liability or the costs of defense has been made in the accompanying
financial statements. The Company believes that these costs will be covered, at
least in part, by insurance.
In addition, the Company is the subject of a related investigation initiated on
September 9, 1997 by the United States Securities and Exchange Commission
("SEC"). The SEC has stated that the purpose of the investigation is to
determine whether the Company may have violated certain provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with its recognition of revenue from the licensing of its proprietary software.
This investigation is ongoing and the outcome cannot be predicted at this time,
although the Company believes it has complied fully with all applicable
provisions of the federal securities laws.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any of these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.
NOTE D -- RECENT PRONOUNCEMENTS OF THE FINANCIAL ACCOUNTING STANDARDS BOARD
In June 1997, the Financial Accounting Standards Board issued Statement No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
statement established standards for reporting financial and descriptive
information about operating segments. Under Statement No. 131, information
pertaining to the Company's operating segments will be reported on the basis
that is used internally for evaluating segment performance and making resource
allocation determinations. The Company intends to provide financial and
descriptive information about its reportable operating segments to conform to
the requirements in its annual financial statements for 1998 and quarterly
thereafter.
NOTE E -- STOCK REPURCHASES
In February 1998, the Company announced a stock repurchase program to purchase
up to 1,500,000 shares of common stock during the period ending August 15, 1998,
unless extended. During the first half of 1998, the Company repurchased
1,500,000 shares for $14,863,799.
In May 1998, the Company announced a second stock repurchase program to purchase
up to an additional 1,000,000 shares of common stock during the period ending
November 26, 1998, unless extended. By June 30, 1998, the Company had
repurchased 390,280 shares for 3,503,820. The remaining shares authorized
under this program were repurchased by early August 1998; the total purchase
price aggregated $9,075,000.
8
<PAGE> 9
NATIONAL TECHTEAM, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - JUNE 30, 1998 (continued)
(UNAUDITED)
NOTE F -- COMPREHENSIVE INCOME
As of January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income. Statement 130 establishes new
rules for the reporting and display of comprehensive income and its components.
Statement 130 requires unrealized gains or losses on the Company's
available-for-sale securities and foreign currency translation adjustments,
which prior to adoption were reported as a separate component of shareholders'
equity, to be included in other comprehensive income.
Comprehensive income, net of related estimated tax, amounted to $835,574 and
$(189,331) for the quarters ended June 30, 1998 and 1997, and $888,991 and
$(553,684) for the six months ended June 30, 1998 and 1997, respectively.
NOTE G -- ACQUISITION OF TECHTEAM CAPITAL GROUP, INC.
In January 1998, TechTeam acquired all of the capital stock of Capricorn Capital
Group, Inc. (now TechTeam Capital Group, Inc.) in exchange for a base
consideration consisting of 350,000 unrestricted and 150,000 restricted shares
of TechTeam common stock plus a contingent payment based upon TechTeam Capital
Group, Inc.'s earnings performance in the three-year period following the
acquisition. The base consideration was valued at $4,875,000. The purchase
method of accounting will be used to record the transaction and goodwill will be
recorded.
Unaudited pro forma results of operations for the quarter and six month period
ended June 30, 1997, assuming the transaction took place on January 1, 1997 are
as follows:
<TABLE>
<CAPTION>
PERIODS ENDED JUNE 30, 1997
THREE MONTHS SIX MONTHS
----------------- -----------------
<S> <C> <C>
Net revenues........................ $ 24,486,729 $ 47,540,208
Gross profit........................ 4,658,588 8,436,899
Net loss............................ (169,596) (170,070)
Net income per common share......... (0.01) (0.01)
</TABLE>
The pro forma results are not necessarily indicative of the actual results if
the transactions had been in effect for the entire period presented. In
addition, they are not intended to be a projection of future results and do not
reflect, among other things, any synergies that might have been achieved from
combined operations.
9
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
This Management's Discussion and Analysis of Financial Condition and Results of
Operations contains trend analysis and a number of forward-looking statements.
These statements are based on current expectations and actual results may differ
materially. Among the factors that could cause actual results to vary are those
described in the subsection of this Item 7 entitled "Factors Affecting Future
Results."
RESULTS OF OPERATIONS
OVERVIEW
The Company originally commenced operations as a value added reseller of
computer hardware and software that also provided training for its computer
products. During the late 1980's the Company added IT staffing and systems
integration services as a complement to its existing training business. In 1993,
as a result of the Company's growing expertise in providing IT staffing of
on-site help desks, TechTeam entered the call center industry. Today, the
Company's IT outsourcing services cover a broad range of IT, including planning,
design, implementation and support. Although the Company's services are
complementary, TechTeam has divided its service offerings into three divisions,
Corporate Services (help desk/call center services, technical staffing, systems
integration and training programs), OEM Call Center Services, and TechTeam
Capital Group, Inc. Revenues from all service offerings are recognized as
services are performed.
Corporate help desk/call center services consist of telephone support for
corporate users of computer hardware, software products and services. TechTeam
provides these services from both its own call centers and at client sites
through on-site help desks to support end-user applications. Corporate help
desk/call center services are billed on a fee per call, fee per time spent on
calls or per agent basis, each as negotiated with clients. The Company licenses
clients to use its Foundation Platform, a software product developed by the
Company's wholly-owned subsidiary, WebCentric Communications, Inc. Revenues
from these licenses are recognized either: (1) on a usage basis, when the
licenses are granted in connection with on-going services; (2) as the expenses
of the transaction are recognized in those instances where the license was
granted in connection with a contemporaneous purchase; or (3) as lump sum fees
when the client acquires the rights to use and is allowed access to the
Foundation Platform without any on-going service obligation by the Company.
Technical staffing includes a variety of technical services, selected
programming and consulting services. Systems integration consists of database
design, computer product sales and networking services. Contracts for technical
staffing and systems integration are generally negotiated on an hourly rate
basis or are priced on a project basis. Training programs consist of
instructor-led, computer-based training for word processing, spreadsheets,
graphics, databases, desktop publishing, operating systems, and systems
administration for NetWare, JAVA, NT, Windows, OS/2, UNIX and mainframe
operating systems. For training programs, clients pay a fee per student
trained or a fee for classes offered, in some cases with an advance payment
for the cost of the necessary training materials.
OEM Call Center Services consist of national and international telephone
support for the end-user customers of TechTeam's clients. Through the end of
the First Quarter 1998, TechTeam provided OEM Call Center Services which were
billed on a fee per call, fee per time spent on calls or per agent basis, each
as negotiated with clients. Commencing in the Fourth Quarter 1997, TechTeam
also provided OEM Call Center Services on a per agent basis to a joint venture
formed with General Electric Appliances Division ("GEA"). Effective March 31,
1998, the OEM Call Center business conducted directly by TechTeam was
terminated as a result of: 1) The scheduled expiration of the two largest of
the Company's contracts with Hewlett-Packard; and 2) The sale to GEA of the
remaining unexpired contracts with Hewlett-Packard and a contract with 3Com
Corporation. The Company's decision to sell these OEM call center contracts was
consistent with its strategic direction to concentrate on corporate help desk
solutions. As a result, commencing in the Second Quarter 1998, revenues consist
of billings to the GE TechTeam joint venture and revenues recognized from the
sale of the contracts to GEA in March 1998.
10
<PAGE> 11
TechTeam Capital Group includes services offered by Capricorn Capital Group,
Inc. (now TechTeam Capital Group, Inc.) and its affiliate, Capricorn Integrated
Technologies Group ("CITG"). Since 1980, TechTeam Capital Group, Inc. has been
providing financing for high technology and capital equipment in the United
States. CITG provides all major brands of computers, peripherals, and
components for the corporate environment, as well as custom configurations,
installation, component level repair, monitor repair, and remarketing services.
Cost of services delivered consists of direct personnel compensation, statutory
and other benefits associated with such personnel, facility and computer
equipment costs, and other direct costs associated with providing services to
clients. Selling, general and administrative costs consist of sales, marketing
and administrative personnel compensation, statutory and other benefits
associated with such personnel, facility and equipment costs and other indirect
costs associated with the sales, marketing and administrative functions of the
Company.
The following table sets forth the percentage relationship to revenues of
certain items in the Company's Consolidated Statements of Operations:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, SIX MONTHS ENDED JUNE 30,
------------------------------- --------------------------------
1998 1997 1998 1997
-------------- --------------- -------------- --------------
<S> <C> <C> <C> <C>
REVENUES
Corporate Services
Corporate help desk/call center services...... 24.6% 18.2% 23.8% 23.0%
Technical staffing............................ 23.2 30.9 24.9 30.7
Systems integration........................... 9.6 14.2 10.0 13.3
Training programs............................. 6.4 9.5 6.7 8.7
------------- -------------- ------------- -------------
Total Corporate Services......................... 63.8 72.8 65.4 75.7
OEM Call Center Services......................... 24.0 27.2 24.6 24.3
TechTeam Capital Group........................... 12.2 -- 10.0 --
------------- -------------- ------------- -------------
TOTAL REVENUES....................................... 100.0 100.0 100.0 100.0
COST OF SERVICES DELIVERED........................... 80.4 84.1 82.8 85.2
------------- -------------- ------------- -------------
GROSS PROFIT......................................... 19.6 15.9 17.2 14.8
------------- -------------- ------------- -------------
OTHER EXPENSES
Selling, general and administrative.............. 13.2 21.3 13.7 20.3
Interest expense................................. 1.6 0.3 1.4 0.2
------------- -------------- ------------- -------------
TOTAL OTHER EXPENSES................................. 14.8 21.6 15.1 20.5
------------- -------------- ------------- -------------
INCOME/(LOSS) BEFORE INTEREST INCOME................. 4.8 (5.7) 2.1 (5.7)
INTEREST INCOME...................................... 1.3 4.0 1.8 3.9
------------- -------------- ------------- -------------
INCOME/(LOSS) BEFORE TAX PROVISIONS.................. 6.1 (1.7) 3.9 (1.8)
TAX PROVISIONS....................................... 3.1 (0.6) 2.1 (0.2)
------------- -------------- ------------- -------------
NET INCOME/(LOSS).................................... 3.0% (1.1)% 1.8% (1.6)%
============= ============== ============= =============
</TABLE>
Between 1994 and 1997, TechTeam's revenues increased at a compound annual rate
of 33.4%. The Company believes that its growth has benefited from the trend
among large corporations to outsource much of their information technology needs
and TechTeam's ability to provide integrated services that address a broad
range of those needs. The Company believes that the outsourcing trend will
continue and will provide continuing opportunities for all of its service
lines. TechTeam further believes that its service offerings are influenced
substantially by its clients' desires to focus on their core businesses and to
leave information technology needs to the Company for which information
technology is its core business. TechTeam's training programs have encountered
cyclical enrollment trends, influenced by the timing and extent to which clients
are upgrading desktop software.
11
<PAGE> 12
TechTeam's business is based on client relationships with major corporations.
See "Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Factors Affecting Future Results -- Impact of Business with Major
Clients."
COMPARATIVE PERFORMANCE -- SECOND QUARTER 1998 VERSUS 1997
TechTeam earned a net income of $833,017 or $0.06 per share, for the Second
Quarter 1998 as compared to a net loss of $226,397, or $0.01 per share, for the
Second Quarter 1997.
REVENUES
TechTeam's total revenues increased by $8,232,976 in 1998 to $27,666,174, a 43%
increase over revenues in 1997. Changes in revenues resulted from the following:
Corporate Services
Corporate help desk/call center services
Revenues from Corporate help desk/call center services increased by
$3,280,508 in 1998. This was a 93% increase over Corporate help
desk/call center services revenues in 1997. This increase was due to
new business with new and existing customers.
Technical staffing
Revenues from technical staffing increased by $423,756 in 1998. This was
a 7% increase over technical staffing revenues in 1997. This increase was
due to continued client demand for TechTeam's computer services personnel
at major accounts.
Systems integration
Revenues from systems integration decreased by $102,858 in 1998. This was
a 4% decrease from systems integration revenues in 1997. This decrease
was due to decreased hardware sales and related services.
Training programs
Revenues from training programs decreased by $88,001 in 1998. This was a
5% decrease from training revenues in 1997. This decrease was due to
decreased enrollments in the Company's training programs.
OEM Call Center Services
Revenues from OEM Call Center Services increased by $1,357,414 in 1998. This was
a 26% increase over OEM Call Center Services revenues in 1997. The increase was
primarily driven by revenues for services provided to the Company's joint
venture with GEA which aggregated $4,505,868 for the Second Quarter 1998. On
March 31, 1998, the Company sold its OEM call center contracts, consisting of
its remaining unexpired contracts with Hewlett-Packard Corporation and a
contract with 3Com Corporation, to GEA for $1.4 million. GEA then contributed
those contracts to the GE TechTeam joint venture for an agreed value of $1.4
million and an agreement that GEA shall receive all of the joint venture's
earnings until GEA has recovered the $1.4 million. First Quarter 1998 earnings
reflected no amounts related to this sale. TechTeam is recognizing the revenues
related to this sale as the joint venture records earnings.
TechTeam Capital Group
In January 1998, TechTeam acquired TechTeam Capital Group, Inc. The revenues
since acquisition are reported in this category.
12
<PAGE> 13
COST OF SERVICES DELIVERED
The cost of services delivered increased by $5,914,555 in 1998. This was a 36%
increase over the cost of services delivered in 1997. The increase was due
principally to compensation costs for an increased number of technical
personnel, statutory and other benefits associated with such personnel, facility
and computer equipment costs, and other direct costs associated with providing
an increased volume of services to clients. These costs were 80% and 84% of
revenues in 1998 and 1997, respectively. The decrease was due primarily to costs
incurred in 1997 for the start-up of new projects that did not recur in 1998.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased by $499,473 in 1998. This
was a 12% decrease from selling, general and administrative expenses in 1997.
The decrease was due principally to costs incurred in 1997 related to the
purchase of Compuflex Systems, Inc. which did not recur in 1998. These expenses
were 13% of revenues in 1998 compared with 21% of revenues in 1997. This
decrease was due primarily to growth in revenues without a corresponding
expansion of TechTeam's administrative infrastructure.
INTEREST EXPENSE
In January 1998, TechTeam acquired TechTeam Capital Group, Inc. which finances
its leasing activities through use of various forms of long-term and short-term
debt. The interest costs of this debt are reported in this category.
INTEREST INCOME
Commencing in October 1996, TechTeam began earning significant amounts of
interest income on cash generated by the 1996 public stock offering. For 1998,
interest income was $368,964 compared to $771,747 in 1997. The decline in
interest income between 1997 and 1998 results from increased use of cash for
operations and repurchase of Company's shares. (See Liquidity and Capital
Resources.)
TAX PROVISIONS
TechTeam recognized $558,500 of Federal income tax in 1998, resulting in an
effective tax rate of 40.1% compared to an effective tax rate of 61.2% for 1997.
The 1998 and 1997 effective tax rates differ due to changing amounts of
permanent book/tax differences, primarily goodwill and tax-exempt interest. The
Michigan single business tax and state income taxes in 1998 were $293,100, with
an effective tax rate of 17.4% compared to an effective rate of (349.3)% in
1997. These taxes are tied more closely to factors other than pre-tax income
which inflate the effective tax rate when income is lower, or negative as in
1997.
COMPARATIVE PERFORMANCE -- FIRST HALF 1998 VERSUS 1997
TechTeam earned a net income of $974,076 or $0.06 per share, for the First Half
1998 as compared to a net loss of $590,750, or $0.04 per share, for the First
Half 1997.
REVENUES
TechTeam's total revenues increased by $16,113,471 in 1998 to $54,123,261, a 42%
increase over revenues in 1997. Changes in revenues resulted from the following:
Corporate Services
Corporate help desk/call center services
Revenues from Corporate help desk/call center services increased by
$4,115,371 in 1998. This was a 47% increase over Corporate help
desk/call center services revenues in 1997. This increase was due to
new business with both existing and new customers.
13
<PAGE> 14
Technical staffing
Revenues from technical staffing increased by $1,767,576 in 1998. This
was a 15% increase over technical staffing revenues in 1997. This
increase was due to continued client demand for TechTeam's computer
services personnel at major accounts.
Systems integration
Revenues from systems integration increased by $368,764 in 1998. This was
a 7% increase over systems integration revenues in 1997. This increase
was due to increased hardware sales and related services.
Training programs
Revenues from training programs increased by $317,042 in 1998. This was a
10% increase over training revenues in 1997. This increase was due to
increased enrollments in the Company's training programs.
OEM Call Center Services
Revenues from OEM Call Center Services increased by $4,073,415 in 1998. This was
a 44% increase over OEM Call Center Services revenues in 1997. The increase was
primarily driven by revenues for services provided to the Company's joint
venture with GEA which aggregated $7,910,365 for the first half of 1998, offset
by reduced revenues related to the contracts discussed below. On March 31, 1998,
the Company sold its OEM call center contracts, consisting of its remaining
unexpired contracts with Hewlett-Packard Corporation and a contract with 3Com
Corporation, to GEA for $1.4 million. GEA then contributed those contracts to
the GE TechTeam joint venture for an agreed value of $1.4 million and an
agreement that GEA shall receive all of the joint venture's earnings until GEA
has recovered the $1.4 million. First Quarter 1998 earnings reflected no amounts
related to this sale. TechTeam is recognizing the earnings related to this sale
as the joint venture records earnings.
TechTeam Capital Group
In January 1998, TechTeam acquired TechTeam Capital Group, Inc. The revenues
since acquisition are reported in this category.
COST OF SERVICES DELIVERED
The cost of services delivered increased by $12,417,265 in 1998. This was a 38%
increase over the cost of services delivered in 1997. The increase was due
principally to compensation costs for an increased number of technical
personnel, statutory and other benefits associated with such personnel, facility
and computer equipment costs, and other direct costs associated with providing
an increased volume of services to clients. These costs were relatively
unchanged at 83% and 85% of revenues in 1998 and 1997, respectively.
SELLING, GENERAL AND ADMINISTRATIVE
Selling, general and administrative expenses decreased by $327,590 in 1998. This
was a 4% decrease from selling, general and administrative expenses in 1997. The
decrease was due principally to costs incurred in 1997 related to the purchase
of Compuflex Systems, Inc. which did not recur in 1998. These expenses were 14%
of revenues in 1998 compared with 20% of revenues in 1997. This decrease was due
primarily to growth in revenues without a corresponding expansion of TechTeam's
administrative infrastructure.
INTEREST EXPENSE
In January 1998, TechTeam acquired TechTeam Capital Group, Inc. which finances
its leasing activities through use of various forms of long-term and short-term
debt. The interest costs of this debt are reported in this category.
14
<PAGE> 15
INTEREST INCOME
Commencing in October 1996, TechTeam began earning significant amounts of
interest income on cash generated by the 1996 public stock offering. For 1998,
interest income was $983,051 compared to $1,495,345 in 1997. The decline in
interest income between 1997 and 1998 results from use of cash for operations
and repurchase of Company's shares. (See Liquidity and Capital Resources.)
TAX PROVISIONS
TechTeam recognized $633,100 of Federal income tax in 1998, resulting in an
effective tax rate of 39.4% compared to an effective tax rate of 41.6% for 1997.
The 1998 and 1997 effective tax rates differ due to changing amounts of
permanent book/tax differences, primarily goodwill and tax-exempt interest. The
Michigan single business tax and state income taxes in 1998 were $521,900, with
an effective tax rate of 24.5% compared to an effective rate of (18.8)% in 1997.
These taxes are tied more closely to factors other than pre-tax income which
inflate the effective tax rate when income is lower, or negative as in 1997.
15
<PAGE> 16
LIQUIDITY AND CAPITAL RESOURCES
Over the three year period commencing January 1, 1995, the Company's business
has been financed by cash provided by operations, shares issued throughout the
period under stock option plans and $77,851,500 from a public offering in 1996.
Indicators of the Company's financial strength are summarized below:
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------------------------------------------------
JUNE 30, 1998 DECEMBER 31, 1997
-------------------- --------------------
<S> <C> <C>
Working capital........................................................ $ 94,181,804 $ 85,747,934
Current ratio.......................................................... 9.0 9.1
Debt as a percentage of total capitalization........................... 17.4% 0.1%
Shareholders' equity................................................... $ 97,782,050 $ 109,600,197
</TABLE>
The Company's working capital was $94,181,804 at June 30, 1998, an increase of
9.8% from December 31, 1997. Available cash will be used for general corporate
purposes, including domestic and international call center expansion, capital
expenditures, working capital, acquisitions and stock repurchases under the
Company's stock repurchase program.
Early in 1998, TechTeam acquired TechTeam Capital Group, Inc. Currently, the
Company has no arrangements or understandings with respect to any acquisitions,
although it continually monitors acquisition opportunities.
As a result of the acquisition of TechTeam Capital Group, debt aggregating
$20,613,145 at June 30, 1998 is now included in the consolidated financial
statements. TechTeam Capital Group finances its leasing activities through use
of various forms of long-term and short-term debt. Prior to this acquisition
TechTeam had no significant debt outstanding.
In February 1998, the Board of Directors of the Company authorized a stock
repurchase program. The program provided for the open market and other purchase
of up to 1,500,000 shares of the Company's stock. During the first half of 1998,
the Company repurchased 1,500,000 shares for $14,863,799.
In May, 1998, the Board of Directors of the Company authorized another stock
repurchase program. The program provides for the open market and other purchase
of up to 1,000,000 shares of the Company's stock. Unless earlier curtailed or
extended, the program will be in effect until November 1998 and accordingly will
reduce the total shares outstanding and cash and cash equivalents. Through June
30, 1998, the Company repurchased 390,280 shares for 3,503,820 under this
program. The remaining shares authorized under this program were repurchased by
early August 1998; the total purchase price aggregated $9,075,000.
TechTeam has line-of-credit agreements with NBD Bank and Chase Manhattan Bank
which provide for short-term borrowings of up to $25,000,000 and $310,000,
respectively; both lines-of-credit are unsecured. NBD Bank borrowings are at the
prime rate and Chase Manhattan Bank borrowings are at prime plus 1.5%. There
were no borrowings under these lines at June 30, 1998.
YEAR 2000 DISCLOSURE
TechTeam is substantially complete in determining the extent to which its
software systems and hardware system are Year 2000 compliant. TechTeam will
complete this facet of its Year 2000 compliance program by year end 1998.
TechTeam has found it necessary to replace its accounting system to achieve Year
2000 compliance. The new system will be operational before year end 1998.
TechTeam has completed a survey of all its major internal system vendors to
determine the extent of their products Year 2000 readiness and has on file a
letter confirming compliance. TechTeam continues to make progress on its Year
2000 compliance program relative to hardware, vendors, and customers, and
expects these initiatives to be complete and fully Year 2000 compliant by First
Quarter 1999. However, due to TechTeam's dependence on vendors, including
telecommunications vendors, their failure to assure Year 2000 compliance could
have an adverse effect on TechTeam's ability to deliver its services.
16
<PAGE> 17
FACTORS AFFECTING FUTURE RESULTS
RESTATEMENT OF FINANCIAL STATEMENTS:
In November 1997, the Company announced that it was restating its results of
operations for the fourth quarter of 1996 and for the first two quarters of
1997, reflecting significant reductions in reported revenues and earnings and
resulting in reporting a net loss in each of the first two quarters of 1997 and
a significant reduction in net income for 1996. The cumulative effect of the
restatement negatively impacts the Company's December 31, 1997 financial
condition. See Notes to the Consolidated Financial Statements -- Note A,
Restatement of Previously Issued Financial Statements in The 1997 Form 10-K. In
addition, the Company's restated First Quarter and Second Quarter 1997 revenues
and operating results were not favorable when compared to the same 1996
quarters. The Company believes that there may continue to be negative impact on
the Company from the restatement.
LITIGATION:
Commencing in August 1997, four putative class action complaints were filed
against the Company and two of its officers in the United States District Court
for the Eastern District of Michigan. On April 13, 1998, a Consolidated Class
Action Complaint, consolidating the claims asserted in those cases was filed.
Plaintiffs purport to represent a class of persons who purchased shares of the
Company's common stock between September 27, 1996 and November 14, 1997. The
Complaint alleges that the Company and the individual defendants engaged in a
scheme to artificially inflate the price of the Company's common stock by
improperly accelerating the recognition of revenue from the licensing of the
Company's proprietary software. Plaintiffs assert claims against all defendants
for alleged violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, as well as claims against the individual
defendants for alleged "controlling person" liability under Section 20(a) of the
Securities Exchange Act. While Management believes that meritorious defenses
exist to plaintiffs' claims and has filed a motion to dismiss the complaint, the
final disposition of this litigation could have material adverse effect on the
Company's financial condition, results of operations and cash flows.
In addition, the Company is the subject of a related investigation initiated on
September 9, 1997 by the United States Securities and Exchange Commission
("SEC"). The SEC has stated that the purpose of the investigation is to
determine whether the Company may have violated certain provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with its recognition of revenue from the licensing of its proprietary software.
This investigation is ongoing and the outcome cannot be predicted at this time,
although the Company believes it has complied fully with all applicable
provisions of the federal securities laws.
IMPACT OF BUSINESS WITH MAJOR CLIENTS:
Historically, TechTeam has been heavily dependent upon major clients for a
substantial portion of its revenues. Any loss of (or failure to retain a
significant amount of business with) its key clients could have a material
adverse impact on the Company. Until 1996, Ford Motor Company ("Ford") was
TechTeam's largest client. Ford accounted for 33.1%, 22.6% and 21.3% of the
Company's revenue for the years ended December 31, 1995, 1996 and 1997,
respectively. Ford represented significantly higher proportions of TechTeam's
revenues in earlier years. In 1996, Hewlett-Packard became TechTeam's largest
client, representing 26.7% of TechTeam's revenues in that year. In 1997,
Hewlett-Packard accounted for 21.3% of the Company's revenues. In the past
several years, Chrysler Corporation ("Chrysler") has also become a major client,
representing between 5 and 10% of the Company's total revenues. In 1997, the
percentage of total revenues derived from Chrysler increased to 14.6%, and an
international provider of shipping services became a significant client
generating 6.5% of total revenues. Ford, Chrysler, and the international
provider of shipping services are expected to continue to constitute a high
percentage of TechTeam's revenues for the foreseeable future. Effective March
31, 1998, the OEM call center business conducted directly by TechTeam was
terminated as a result of: 1) The scheduled expiration of the two largest of the
Company's contracts with Hewlett-Packard; and 2) The sale to GEA of the
remaining unexpired contracts with Hewlett-Packard and a contract with 3Com
Corporation. The Company's decision to sell these OEM call center contracts was
consistent with its strategic direction to concentrate on corporate help desk
solutions.
17
<PAGE> 18
Management recognizes the need to diversify its client base from both a client
and industry perspective. TechTeam's services are not specific to any single
industry and can be beneficial to most large corporations. TechTeam's technical
staffing and training programs cover most of the popular software applications
and can be customized to improve the productivity of microcomputer users in most
companies.
MANAGEMENT OF GROWTH:
The Company's revenues have grown from $34.3 million in 1994 to $47.1 million in
1995, $72.2 million in 1996, $81.3 million in 1997 and $54.1 million in the
first six months of 1998. The Company intends to pursue the continued growth of
its business; however, there can be no assurance that such growth will be
achieved. The Company's future operating results will depend in part on
management's ability to manage any future growth and control expenses. An
unexpected decline in revenues without a corresponding and timely reduction in
staffing and other expenses, or a staffing increase that is not accompanied by a
corresponding increase in revenues, could have a material adverse effect on the
Company's operating results.
Although the market in which the Company participates has experienced
significant growth in recent years, continued growth in the industry may be
adversely impacted by, among other things, recessionary pressures or a slowdown
in the rate of technological advances. A slowdown or reversal of industry growth
could impact the Company's ability to grow.
COMPETITION:
The Company faces intense competition in both the call center and corporate
computer services markets. In the call center market, the Company competes with
other call center companies, some of which have substantially greater resources
including more call center locations, greater financial resources, a larger
client base and more name recognition. In the corporate computer services
market, the Company competes with many entities including systems implementation
firms, application software firms, staffing firms, large accounting firms,
facilities management firms and computer consulting firms. Many of these firms
have far greater resources, clients and name recognition than the Company.
The Company also faces significant competition in both markets from its own
clients and potential clients whose internal resources represent a fixed cost to
the client. Such competition may impose additional pricing pressures on the
Company. There can be no assurance that the Company will compete successfully
with its existing competitors or with any new competitors.
CONTRACT RISKS:
The great majority of the Company's contracts are terminable without cause on
short notice, often upon 90 days notice. Other of the Company's contracts expire
on set dates and may not be renewed or replaced. Terminations and non-renewals
of major contracts can have a significant impact upon the Company's revenues and
operating results.
RELIANCE ON KEY EXECUTIVES:
The success of the Company is highly dependent upon the efforts and abilities of
its executive officers, particularly William F. Coyro, Jr., the Company's
founder, Chairman and Chief Executive Officer. Other than Harry A. Lewis,
President and Chief Operating Officer, none of the Company's key executives are
subject to employment contracts, and the Company does not maintain key-man
insurance on its executives. The loss of the services of any of these key
executives for any reason could have a material adverse effect on the Company's
business, operating results and financial condition.
18
<PAGE> 19
ATTRACTION AND RETENTION OF EMPLOYEES:
The Company's business involves the delivery of professional services and is
labor-intensive. The Company's success depends in large part upon its ability to
attract, develop, motivate and retain highly skilled technical employees.
Qualified technical employees are in great demand and are likely to remain a
limited resource for the foreseeable future. There can be no assurance that the
Company will be able to attract and retain sufficient numbers of highly skilled
technical employees in the future. The loss of technical personnel could have a
material adverse effect on the Company's business, operating results and
financial condition, including its ability to secure and complete engagements.
PROJECT RISKS:
Many of the Company's engagements involve projects that are critical to the
operations of its clients' businesses and provide benefits that may be difficult
to quantify. The Company's failure or inability to meet a client's expectations
in the performance of its services could result in a material adverse change to
the client's operations and therefore could give rise to claims against the
Company or damage the Company's reputation, adversely affecting its relationship
with its client, its business, operating results and financial condition.
VARIABILITY OF QUARTERLY OPERATING RESULTS:
Variations in the Company's revenue and operating results occur from time to
time as a result of a number of factors, such as the significance of client
engagements commenced and completed during a quarter, the number of business
days in a quarter and employee hiring and utilization rates. The timing of
revenues is difficult to forecast because the Company's sales cycle can be
relatively long and may depend on factors such as the size and scope of
assignments and general economic conditions. Because a high percentage of the
Company's expenses are relatively fixed, a variation in the number of clients,
assignments or the timing of the initiation or the completion of client
assignments, particularly at or near the end of any quarter, can cause
significant variations in operating results from quarter to quarter and could
result in losses to the Company. In addition, the Company's engagements
generally are terminable by the client without penalty.
VOLATILITY OF STOCK PRICE:
The market price of the Company's stock has fluctuated over a wide range during
the past several years and may continue to do so in the future. The market price
of the common stock could be subject to significant fluctuations in response to
various factors or events, including among other things, the depth and liquidity
of the trading market of the common stock, quarterly variations and actual
anticipated operating results, growth rates, changes in estimates by analysts,
market conditions in the industry in which the Company competes, announcements
by competitors, regulatory actions, litigation including class action litigation
and general economic conditions. In addition, the stock market has from time to
time experienced significant price and volume fluctuations, which have
particularly affected the market prices of the stocks of high technology
companies. As result of the foregoing, the Company's operating results and
prospects from time to time may be below the expectations of public market
analysts and investors. Any such event would likely result in a material adverse
effect on the price of the common stock.
CYCLICALITY:
Certain of the Company's clients and potential clients are in industries, such
as the automobile and financial services industries, that experience cyclical
variations in profitability, which may in turn affect their willingness or
ability to fund systems projects such as those for which the Company may be
engaged. The Company's experience indicates, however, that competitive pressures
in cyclical industries could compel businesses to undertake projects even during
periods of losses or reduced profitability.
19
<PAGE> 20
INTERRUPTION OF TELECOMMUNICATIONS SERVICES:
The Company's operations are dependent on its ability to protect its call
centers against damage from fire, power loss, telecommunications failure or
similar event. The Company has taken precautions to protect itself from events
that could interrupt its operations, including off-site storage of back-up data,
contractual arrangements for back-up facilities with a leading disaster recovery
services company and Halon fire suppression systems in the data centers (which
are designed to extinguish a fire without damaging computer equipment). No
assurance can be given that such precautions will be adequate, and operations
may still be interrupted, even for extended periods. In addition, the on-line
services provided by the Company are dependent on telecommunications links to
the regional Bell operating companies for which the Company currently has no
back-up. Any damage to call centers or any failure of the Company's
telecommunication links that cause interruptions in the Company's operations
could have a material adverse effect on the Company's business, operating
results or financial condition. The Company's property and business interruption
insurance with current limits of $2 million may not be adequate to compensate
the Company for all losses that may occur.
GROWTH THROUGH ACQUISITIONS AND NEW PRODUCTS:
The Company's business strategy includes growth through acquisitions of
businesses and technology sources complementary to the Company's business. The
Company has acquired several significantly smaller companies in the past and
believes that it has been successful in integrating the acquired assets and
businesses into the Company's operations. There can be no assurance, however,
that future acquisitions will be consummated on acceptable terms or that any
acquired assets or business will be successfully integrated into the Company's
operations. Further, acquisitions may involve special risks such as diversion of
management's attention, unanticipated events, legal liabilities and amortization
of intangibles, any of which could have an adverse effect on the Company's
operations and earnings.
RISKS ASSOCIATED WITH INTERNATIONAL OPERATIONS:
Certain risks are inherent in the Company's business strategy which includes
plans for the global expansion of its operations. Among other things, the
Company may encounter difficulties in marketing, selling and delivering its
services due to differences in cultures, languages, labor and employment
policies and differing political and social systems. In addition, the Company
may encounter significant effects on its operations and financial condition as a
result of currency fluctuations and differing tax laws.
RAPID TECHNOLOGICAL CHANGES; DEPENDENCE ON NEW SOLUTIONS:
The Company's success will depend in part on its ability to develop IT solutions
that keep pace with continuing changes in IT, evolving industry standards and
changing client preferences. There can be no assurance that the Company will be
successful in adequately addressing these developments on a timely basis or
that, if these developments are addressed, the Company will be successful in the
marketplace. In addition, there can be no assurance that products or
technologies developed by others will not render the Company's services
uncompetitive or obsolete. The Company's failure to address these developments
could have a material adverse effect on the Company's business, operating
results and financial condition.
INTELLECTUAL PROPERTY RIGHTS:
The Company's success is dependent upon certain methodologies it utilizes in
designing, installing and integrating computer software and information systems
and other proprietary intellectual property rights. The Company's business
includes the development of custom software in connection with specific client
engagements. Ownership of such software is generally assigned to the client. The
Company also develops certain foundation and application software products, or
software "tools," which remain the property of the Company.
20
<PAGE> 21
The Company relies upon a combination of nondisclosure, other contractual
arrangements, trade secret, copyright and trademark laws to protect its
proprietary rights and the proprietary rights of third parties from whom the
Company licenses intellectual property. The Company enters into confidentiality
agreements with its employees and limits distribution of proprietary
information. There can be no assurance that the steps taken by the Company in
this regard will be adequate to deter misappropriation of proprietary
information or that the Company will be able to detect unauthorized use and take
appropriate steps to enforce its intellectual property rights.
Although the Company believes that its services do not infringe on the
intellectual property rights of others and that it has all rights necessary to
utilize the intellectual property employed in its business, the Company is
subject to the risk of litigation alleging infringement of third-party
intellectual property rights. Any such claims could require the Company to spend
significant sums in litigation, pay damages, develop non-infringing intellectual
property or acquire licenses of the intellectual property which is the subject
of asserted infringement.
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<PAGE> 22
PART II -- OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
Commencing in August 1997, four putative class action complaints were filed
against the Company and two of its officers in the United States District Court
for the Eastern District of Michigan. On April 13, 1998, a Consolidated Class
Action Complaint, consolidating the claims asserted in those cases was filed.
Plaintiffs purport to represent a class of persons who purchased shares of the
Company's common stock between September 27, 1996 and November 14, 1997. The
Complaint alleges that the Company and the individual defendants engaged in a
scheme to artificially inflate the price of the Company's common stock by
improperly accelerating the recognition of revenue from the licensing of the
Company's proprietary software. Plaintiffs assert claims against all defendants
for alleged violations of Section 10(b) of the Securities Exchange Act of 1934
and Rule 10b-5 promulgated thereunder, as well as claims against the individual
defendants for alleged "controlling person" liability under Section 20(a) of the
Securities Exchange Act. The Company and the individual defendants believe that
they have meritorious defenses to plaintiffs' claims, and they have filed a
motion to dismiss the complaint. However, because of the early stage of this
litigation, it is impossible to predict the outcome of the litigation or a range
of possible recovery, if any, by the plaintiffs. Accordingly, no provision for
any such liability or the costs of defense has been made in the accompanying
financial statements. The Company believes that these costs will be covered, at
least in part, by insurance.
In addition, the Company is the subject of a related investigation initiated on
September 9, 1997 by the United States Securities and Exchange Commission
("SEC"). The SEC has stated that the purpose of the investigation is to
determine whether the Company may have violated certain provisions of the
Securities Act of 1933 and the Securities Exchange Act of 1934 in connection
with its recognition of revenue from the licensing of its proprietary software.
This investigation is ongoing and the outcome cannot be predicted at this time,
although the Company believes it has complied fully with all applicable
provisions of the federal securities laws.
The Company is subject to various other legal proceedings and claims, either
asserted or unasserted, which arise in the ordinary course of business. While
the outcome of these claims cannot be predicted with certainty, management does
not believe that the outcome of any these legal matters will have a material
adverse effect on the Company's consolidated results of operations or
consolidated financial position.
ITEM 2. CHANGES IN SECURITIES
On April 28, 1998, the Company's Board of Directors amended Section 1 of the
Company's Bylaws to incorporate the requirement that any shareholder proposing
the conduct of business at any annual meeting of shareholders or proposing to
nominate any person for the board of directors provide advance notice of not
less than 90 nor more than 120 days in advance of the date specified in the
Company's proxy statement in connection with the previous year's annual meeting
to the Company. The Company's Restated By-laws, including the amended Section 1,
are included as Exhibit 3.3 to this report.
22
<PAGE> 23
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Shareholders on May 26, 1998. The holders
of 13,605,091 shares were present in person or by proxy, representing attendance
by at least 88% of the outstanding shares. The following is a summary of the
matters voted on at that meeting.
(a) The following persons were elected to the Company's Board of
Directors. The number of shares cast in favor and withheld were as
follows:
<TABLE>
<CAPTION>
Name For Withheld
---------- --------
<S> <C> <C>
Kim A. Cooper 13,500,935 103,956
William F. Coyro, Jr. 13,490,125 114,766
Wallace D. Riley 13,496,175 108,716
Richard G. Somerlott 13,487,085 107,806
LeRoy H. Wulfmeier 13,498,995 105,896
</TABLE>
(b) The shareholders ratified the appointment of Ernst & Young LLP as
auditors of the Company. The number of shares cast in favor,
against, and the number abstaining were as follows:
<TABLE>
<CAPTION>
For Against Abstain
--------- ------- -------
<S> <C> <C>
13,544,971 34,771 25,149
</TABLE>
ITEM 5. OTHER INFORMATION
SHAREHOLDER PROPOSALS OR NOMINATIONS
In accordance with the Company's Bylaws (see item 3), any shareholder proposal
or nomination of a person for election to the Board of Directors must be
submitted in writing to the Secretary of the Company not less than 90 nor more
than 120 days in advance of the date specified in the Company's proxy statement
in connection with the previous year's Annual Meeting of shareholders. The
submission must include certain specified information concerning the proposal or
nominee, as the case may be, and information about the proponent's ownership of
the Company's common stock. Proposals or nominations not meeting these
requirements will not be entertained at the Annual Meeting. A proponent should
contact the Secretary regarding the proper form and content of submissions.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3.2. Bylaws of National TechTeam, Inc., as Amended and Restated May
26, 1998.
27. Financial Data Schedule
(b) Reports on Form 8-K. May 1, 1998 - First Quarter 1998 Earnings.
ITEM 3 IS NOT APPLICABLE AND HAS BEEN OMITTED
23
<PAGE> 24
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
National TechTeam, Inc.
-----------------------
(Registrant)
Date: August 14, 1998 By: /s/William F. Coyro Jr.
-----------------------
William F. Coyro Jr.
Chairman of the Board and
Chief Executive Officer
Date: August 14, 1998 By: /s/Lawrence A. Mills
--------------------
Lawrence A. Mills
Vice President,
Chief Financial Officer and Treasurer
24
<PAGE> 25
Exhibit Index
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
Exh 3.(ii) ByLaws of National Techteam, Inc.
27 Financial Data Schedule
</TABLE>
<PAGE> 1
EXHIBIT 3.(ii)
BYLAWS OF
NATIONAL TECHTEAM, INC.
(A DELAWARE CORPORATION)
AS AMENDED AND RESTATED
MAY 26, 1998
ARTICLE I
SHAREHOLDERS
SECTION 1. ANNUAL MEETING
(a) The annual meeting of the shareholders for the election of
directors and for the transaction of such other business as may properly come
before the meeting shall be held on the regularly scheduled meeting day which
shall be the first Monday in May of each year (or if that day be a legal holiday
at the place where such meeting is to be held, then on the next succeeding
business day) at such time on said day at the registered office of the
Corporation or at such other place, either within or without the State of
Delaware, as the Board of Directors of the Corporation (hereinafter called the
Board) may designate in the notice therefor.
(b) At an annual meeting of the shareholders, only such business shall
be conducted as shall have been properly brought before the meeting. To be
properly brought before an annual meeting, business must be: (1) specified in
the notice of meeting (or any supplement thereto) given by or at the direction
of the Board, (2) otherwise properly brought before the meeting by or at the
direction of the Board, or (3) otherwise properly brought before the meeting by
a shareholder. For business to be properly brought before an annual meeting by a
shareholder, the shareholder must have given timely notice thereof in writing to
the Secretary of the Corporation. To be timely, a shareholder's notice must be
delivered to or mailed and received at the principal executive offices of the
Corporation not less than ninety (90) nor more than one hundred twenty (120)
calendar days in advance of the date specified in the Corporation's proxy
statement released to shareholders in connection with the previous year's annual
meeting of shareholders; provided, however, that in the event that no annual
meeting was held in the previous year or the date of the annual meeting has been
changed by more than thirty (30) days from the date contemplated at the time of
the previous year's proxy statement, notice by the shareholder to be timely must
be so received not later than the close of business on the later of ninety (90)
calendar days in advance of such annual meeting or ten (10) calendar days
following the date on which public announcement of the date of the meeting is
first made. A shareholder's notice to the Secretary shall set forth as to each
matter the shareholder proposes to bring before the annual meeting: (i) a brief
description of the business desired to be brought before the annual meeting and
the reasons for conducting such business at the annual meeting, (ii) the name
and address, as they appear on the corporation's books, of the shareholder
proposing such business, (iii) the class and number of shares of the Corporation
which are beneficially owned by the shareholder, (iv) any material interest of
the shareholder in such business, and (v) any other information that is required
to be
<PAGE> 2
provided by the shareholder pursuant to Regulation 14A under the Securities
Exchange Act of 1934, as amended (the "1934 Act"), in his capacity as a
proponent to a shareholder proposal. Notwithstanding the foregoing, in order to
include information with respect to a shareholder proposal in the proxy
statement and form of proxy for a shareholder's meeting, shareholders must
provide notice as required by the regulations promulgated under the 1934 Act.
Notwithstanding anything in these Bylaws to the contrary, no business shall be
conducted at any annual meeting except in accordance with the procedures set
forth in this paragraph (b). The Chairperson of the annual meeting shall, if the
facts, warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the provisions of
this paragraph (b), and, if he should so determine, he shall so declare at the
meeting that any such business not properly brought before the meeting shall not
be transacted.
(c) Only persons who are nominated in accordance with the procedures
set forth in this paragraph shall be eligible for election as directors.
Nominations of persons for election to the Board may be made at a meeting of
shareholders by or at the direction of the Board or by any shareholder of the
Corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this paragraph. Such
nominations, other than those made by or at the direction of the Board, shall be
made pursuant to timely notice in writing to the Secretary of the Corporation in
accordance with the provisions of paragraph (b) of this Section 1. Such
shareholder's notice shall set forth (i) as to each person, if any, whom the
shareholder proposes to nominate for election or re-election as a director: (A)
the name, age, business address and residence address of such person, (B) the
principal occupation or employment of such person, (C) the class and number of
shares of the Corporation which are beneficially owned by such person, (D) a
description of all arrangements or understandings between the shareholder and
each nominee and any other person or persons (naming such person or persons)
pursuant to which the nominations are to be made by the shareholder, and (E) any
other information relating to such person that is required to be disclosed in
solicitations of proxies for elections of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the 1934 Act (including without
limitation such person's written consent to being named in the proxy statement,
if any, as a nominee and to serving as a director if elected); and (ii) as to
such shareholder giving notice, the information required to be provided in
paragraph (b) of this Section 1. At the request of the Board, any person
nominated by a shareholder for election as a director shall furnish to the
Secretary of the Corporation that information required to be set forth in the
shareholder's notice of nomination which pertains to the nominee. No person
shall be eligible for election as a director of the Corporation unless nominated
in accordance with the procedures set forth in this paragraph. The Chairperson
of the meeting shall, if the facts warrants, determine and declare at the
meeting that a nomination was not made in accordance with the procedures
prescribed by these Bylaws, and if he should so determine, he shall so declare
at the meeting, and the defective nomination shall be disregarded.
2
<PAGE> 3
SECTION 2. SPECIAL MEETINGS
Special meetings of the shareholders for any purpose or purposes,
unless otherwise prescribed by statute or by the Certificate of Incorporation of
the Corporation, may be called by the Chairperson of the Board or by the
President, and shall be called by the President or Secretary upon the order of
the Board, or at the request in writing (stating the purpose or purposes of the
proposed meeting) of shareholders owning at least thirty (30%) percent of all of
the issued and outstanding capital stock of the Corporation and entitled to vote
at such meeting. The time and place of the special meeting, either within or
without the State of Delaware, shall be fixed by the Board unless it shall
refuse to so act, in which case the time and place shall be fixed by the
Chairperson of the Board or President, or in their absence by a Vice-President.
SECTION 3. NOTICE OF MEETINGS
Except as otherwise required by law or the Certificate of Incorporation
of the Corporation, written notice of each annual or special meeting of the
shareholders shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting to each shareholder of record entitled to vote at
such meeting which notice shall be transmitted to him/her in accordance with
Article VI, Section 6. No publication of any notice of a meeting of the
shareholders shall be required. Every such notice shall state the place, date
and hour of the meeting, and the purpose or purposes for which it was called.
Notice of any meeting need not be given to any shareholder who attends such
meeting in person or by proxy. Such attendance shall constitute the
shareholder's waiver of notice, except where a shareholder attends a meeting for
the express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. When a meeting is adjourned to another time or place, notice need not
be given of the adjourned meeting if the time and place thereof is announced at
the meeting at which the adjournment is taken, and at the adjourned meeting only
such business shall be transacted as might have been transacted at the original
meeting.
SECTION 4. QUORUM
Except as may be provided by the then existing law of the State of
Delaware and subject to any minimum vote requirements under Delaware law, at
each meeting of the shareholders, if shareholders holding not less than a
majority of the shares of capital stock of the Corporation issued, outstanding
and entitled to be voted thereat in any class or other aggregation of classes
voting in the aggregate and not by class are present in person or by proxy, they
shall constitute a quorum for the transaction of business.
SECTION 5. ADJOURNMENTS
Any shareholders' meeting, annual or special, may be adjourned from
time to time, regardless of whether a quorum was present, by a vote of a
majority of the shares present thereat in person or by proxy.
3
<PAGE> 4
SECTION 6. VOTING AND ACTION BY WRITTEN CONSENT
A shareholder shall at each meeting of the shareholders be entitled to
the vote attributed to his/her shares under the Certificate of Incorporation of
the Corporation for shares of capital stock of the Corporation which have voting
power on the matter in question and which were held by him/her and registered in
his/her name on the books of the Corporation on the date fixed pursuant to the
provisions of Section 4 of Article IV of these Bylaws as the record date for the
determination of shareholders who shall be entitled to receive notice of, and to
vote at, such meeting. The Corporation shall not vote shares of its own stock
belonging to the Corporation directly or indirectly. Any vote of the capital
stock of the Corporation may be given at any meeting of the shareholders by the
shareholder entitled thereto in person or by his proxy appointed by an
instrument in writing signed by such shareholder or his/her authorized agent or
representative which shall be delivered to the Secretary or an Assistant
Secretary or to the secretary of the meeting. Attendance at any meeting by a
shareholder who may theretofore have given a proxy shall not have the effect of
revoking the same unless he/she shall in writing so notify the secretary of the
meeting prior to the voting of the proxy. Except as otherwise provided under the
then existing law of the State of Delaware, in these Bylaws or in the
Certificate of Incorporation of this Corporation, at all meetings of
shareholders all elections and questions shall be decided by the vote of a
majority in voting interest of the shareholders present in person or by proxy
and entitled to vote thereon. The vote at any meeting of the shareholders on any
question need not be by ballot, unless so directed by the chairperson of the
meeting or by any shareholder. On a vote by ballot, each ballot shall be signed
by the shareholder voting, or by his/her proxy, if there be such proxy.
Unless otherwise provided in the certificate of incorporation, any
action required to be taken at any annual or special meeting of shareholders, or
any action which may be taken at any annual or special meeting, may be taken
without a meeting, without prior notice and without a vote, if a consent in
writing, setting forth the action so taken, shall be signed by the 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.
Prompt notice of the taking of the corporate action without a meeting
by less than unanimous written consent shall be given to those shareholders who
have not consented in writing. In the event that the action which is consented
to is such as would have required the filing of a certificate under the
provisions of the Delaware Corporation Law, if such action had been voted on by
shareholders at a meeting thereof, the certificate filed shall state, in lieu of
any statement required by such provision concerning any vote of shareholders,
that written consent and written notice have been given in accordance with the
provisions of the Delaware Corporation Law.
4
<PAGE> 5
SECTION 7. LIST OF SHAREHOLDERS
At least ten (10) days before every meeting of shareholders, the
officer or agent having charge of the stock transfer books for shares of the
Corporation shall make and certify a complete list of the shareholders entitled
to vote at a shareholders' meeting or any adjournment thereof. The list shall:
a) be arranged alphabetically within each class and
series, with the address of, and the number of
shares held by, each shareholder;
b) be open to the examination of any shareholder, for
any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten 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 meeting, or, if
not so specified, at the place where the meeting is
to be held;
c) be produced and kept at the time and place of the
meeting during the whole time thereof and open for
inspection by any shareholders; and
d) be prima facie evidence as to who are the
shareholders entitled to examine the list or to vote
at the meeting.
Upon the willful neglect or refusal of the directors to produce such a
list at any meeting for the election of directors, they shall be ineligible for
election to any office at such meeting.
SECTION 8. INSPECTORS OF ELECTION
The Board, in advance of a shareholders' meeting, may appoint one or
more inspectors to act at the meeting or any adjournment thereof. If inspectors
are not so appointed, the person presiding at a shareholders' meeting may, and
on request of a shareholder entitled to vote thereat shall, appoint one or more
inspectors. In case a person appointed fails to appear or act, the vacancy may
be filled by appointment made by the Board in advance of the meeting or at the
meeting by the person presiding thereat. The requirement of appointing
inspectors is waived unless compliance therewith is requested by a shareholder
present in person or by proxy and entitled to vote at the meeting.
SECTION 9. PRESIDING OFFICER
Meetings of the shareholders shall be presided over by the Chairperson
of the Board, if one has been elected, or in his or her absence by the
President, or if he or she is not present, by a Vice-President, or if neither
the Chairperson of the Board, the President nor a Vice-President is present, by
a chairperson of the meeting to be chosen by a majority of the shareholders
entitled to vote at the meeting who are present in person or by proxy. The
Secretary of the Corporation, or, in his or her absence, an Assistant Secretary,
shall act as secretary of every meeting, but if neither the Secretary nor an
5
<PAGE> 6
Assistant Secretary is present, the meeting shall, by a majority of the
shareholders entitled to vote, choose any person present to act as secretary of
the meeting.
ARTICLE II
BOARD OF DIRECTORS
SECTION 1. GENERAL POWERS
The properties, business and affairs of the Corporation shall be
managed by the Board to the full extent provided by the then existing law of the
State of Delaware, the Certificate of Incorporation, these Bylaws, and any other
applicable law.
SECTION 2. NUMBER AND QUALIFICATIONS
Subject to the requirements of the then existing law of the State of
Delaware, the Board may from time to time by the vote of a majority of the Board
determine the number of director positions on the Board, but in no case shall
the number be less than one (1) nor more than ten (10). Until the Board shall
otherwise so determine, the number of director positions on the Board shall be
seven (7). A director need not be a shareholder of the Corporation.
SECTION 3. TENURE AND ELECTION OF DIRECTORS
At each annual meeting of the shareholders for the election of
directors (or special meeting of shareholders in lieu thereof) at which a quorum
is present, the persons receiving the greatest number of votes shall be elected
as directors.
Upon organization of the Corporation, directors shall be elected by the
incorporators to hold office for a term expiring at the next succeeding annual
meeting. Whenever the holders of any series of preferred stock shall be
entitled, voting separately as a class, to elect directors, the initial term of
all directors elected by such holders shall expire at the next succeeding annual
meeting of shareholders. Subject to the foregoing, at each annual meeting of
shareholders the successors to the directors whose terms shall then expire shall
be elected to hold office for a term expiring at the next succeeding annual
meeting and until their successors shall be elected and qualified or until their
earlier death, resignation or removal. Vacancies that occur prior to the
expiration of the then current term (whether as a result of a newly created
director position on the board or otherwise), if filled by the Board, shall be
filled only until the next succeeding annual meeting.
SECTION 4. ORGANIZATION, ORDER OF BUSINESS AND PROCEDURE
At each meeting of the Board, one of the following shall act as
chairperson of the meeting and preside thereat, in the following order of
precedence:
a) The Chairperson of the Board;
b) The Vice Chairperson;
6
<PAGE> 7
c) The President; or
d) A director chosen by a majority of the directors
present thereat.
The Secretary of the Corporation, or if he/she shall be absent from such
meeting, the person whom the chairperson of such meeting shall appoint, shall
act as secretary of such meeting and keep the minutes thereof. The order of
business and rules of procedure at each meeting of the Board shall be determined
by the chairperson of such meeting, but the same may be changed by the vote of a
majority of those directors present at such meeting. The Board shall keep
regular minutes of its proceedings and all material action shall be reported to
the shareholders at the next annual meeting of shareholders.
SECTION 5. RESIGNATIONS
Any director may resign at any time by giving written notice of his/her
resignation to the Corporation through the Board, the President, Chairperson of
the Board, the Vice Chairperson or the Secretary. Any such resignation shall
take effect at the time specified therein, or if the time when it shall become
effective shall not be specified therein, then it shall take effect immediately
upon its receipt by any of the aforesaid parties. Except as specified therein,
acceptance of such resignation shall not be necessary to make it effective.
SECTION 6. VACANCIES
If any vacancies (as a result of death, resignation or removal) shall
occur among the directors, or if the number of directors shall at any time be
increased, the directors in office, although less than a quorum, may fill the
vacancies or newly created directorships by affirmative vote of a majority of
the remaining directors, or any such vacancies or newly created directorships
may be filled by the shareholders at any meeting. The tenure of directors
elected hereunder shall be as set forth under Article II, Section 3.
SECTION 7. LOCATION OF MEETING AND OFFICES
The Board may hold its meetings and have an office or offices at such
place or places within or without the State of Delaware as the Board may from
time to time by resolution determine or as shall be specified or fixed in the
respective notices or waivers of notice thereof. This section shall not govern
dates, times, places, notices or waivers of notice in connection with annual
meetings of the Board.
SECTION 8. ANNUAL MEETINGS
Unless the Board shall by resolution otherwise determine, immediately
after each annual election of directors the Board shall hold its annual meeting
at the place where such election was held within or without the State of
Delaware, for the purpose of the election of officers and the transaction of
other business. If the Board shall determine that such meeting shall be held at
a different place, date and hour than that for the shareholders' meeting for the
election of directors, notice thereof shall be given in the
7
<PAGE> 8
manner hereinafter provided for special meetings of the Board. Other than the
foregoing, notice shall not be required for this meeting.
SECTION 9. REGULAR MEETINGS
Regular meetings of the Board shall be held at such times as the Board
shall from time to time determine. Notices of regular meetings need not be
given. If any day fixed for a regular meeting shall be a legal holiday at the
place where the meeting is to be held, then the meeting which would otherwise be
held on that day shall be postponed until the same hour of the next succeeding
business day.
SECTION 10. SPECIAL MEETINGS; NOTICE AND WAIVER
Special meetings of the Board shall be held whenever called by the
Chairperson of the Board, the Vice Chairperson, the President or any three of
the directors. A notice of each such special meeting shall be given as
hereinafter in this Section provided, which notice shall specify the place, date
and hour of such meeting, but, except as otherwise expressly provided by law,
the business to be transacted at the special meeting and the purposes thereof
need not be stated in such notice. Notice of each such meeting shall be
transmitted to each director in accordance with Article VI, Section 6 at least
two (2) days before the day on which such meeting is to be held. Notice of any
meeting of the Board need not, however, be given to any director if waived by
him/her in writing in accordance with Article VII, Section 5, before, during or
after such meeting or if he/she shall be present at such meeting, except where
he/she attends a meeting for the express purposes of objecting, and does in fact
at the commencement of the meeting object to the transaction of any business
because the meeting is not lawfully called or convened. Any meeting of the Board
shall be a legal meeting without any notice thereof having been given if all the
directors of the Corporation then in office shall be present thereat or have
provided to the Corporation a written waiver of notice.
SECTION 11. QUORUM AND VOTING
Except as otherwise provided under the then existing law of the State
of Delaware or in these Bylaws, the majority of the directors shall be present
in person at any meeting of the Board in order to constitute a quorum for the
transaction of business at such meeting. The act of a majority of the directors
present at any such meeting at which a quorum is present shall be the act of the
Board. In the absence of a quorum, a majority of the directors present thereat
may adjourn such meeting from time to time until a quorum shall be obtained.
Except for announcement at the adjourned meeting, notice of any adjourned
meeting need not be given. The directors shall act only as a board and the
individual directors shall have no power as such.
A member of the Board may participate in a meeting by means of
conference telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other. Participation in a
meeting pursuant to this paragraph constitutes presence in person at the
meeting.
8
<PAGE> 9
SECTION 12. ACTION OF BOARD OR COMMITTEE BY CONSENT
Any action required, or permitted to be taken pursuant to authorization
voted at a meeting of the Board or a committee thereof, may be taken without a
meeting if, before or after the action, all members of the Board or of such
committee, as the case may be, consent thereto in writing and such writing is
filed with the minutes of proceedings of the Board or committee. Action by
consent may be taken in lieu of any annual or special meeting of the Board or
committee with the same effect as a vote thereof for all purposes.
SECTION 13. COMPENSATION
The Board, by affirmative vote of a majority of directors in office and
irrespective of any personal interest of any of them, may establish reasonable
compensation of directors for services to the Corporation as directors or
officers. In this regard the Board may authorize all the directors to be paid
their expenses, if any, of attendance at such meeting of the Board, and a fixed
sum for salary for their services. No such payment shall preclude any director
from serving the Corporation in any other capacity and receiving compensation
therefor over and above that authorized under this Section.
SECTION 14. REMOVAL
The shareholders may remove a director or the entire Board with or
without cause, at any time, by vote of the holders of a majority of the shares
entitled to vote at the election of directors.
SECTION 15. EXECUTIVE AND OTHER COMMITTEES
The Board may appoint from among its members an executive committee and
other committees composed of two (2) or more directors and delegate by
resolution to these committees any of the powers of the Board of Directors. A
majority of any such committee may determine its action and may fix the time and
place of its meetings, unless provided otherwise by the Board. The Board shall
have the power at any time to fill vacancies in, to change the size or
membership of and to discharge any such committee. Each committee shall keep a
written record of its acts and proceedings and shall submit such record to the
Board at such times as requested by the Board.
ARTICLE III
OFFICERS
SECTION 1. DESIGNATION
The officers of the Corporation shall be a Chairperson of the Board,
President, Treasurer and a Secretary and such other officers as the Board may
designate. A person may hold any number of offices, but an officer shall not
execute, acknowledge, or verify an instrument in more than one capacity if the
instrument is required by law, the Certificate of Incorporation or Bylaws of the
Corporation to be executed, acknowledged or verified by two or more officers.
Officers need not be directors.
9
<PAGE> 10
SECTION 2. ELECTION AND TERM
At its annual meeting after each annual meeting of shareholders (or
special meeting in lieu thereof), the Board shall elect the officers. The term
of each officer shall be until the next annual meeting of the Board and until
his/her successor is elected and qualified or until his/her death, resignation
or removal.
SECTION 3. SUBORDINATE OFFICERS AND AGENTS
The Board and, in the fields of their jurisdiction, the executive
committee and other standing committees, if any, may from time to time appoint
such subordinate officers as they may deem necessary, who shall hold office for
such period and have such authority and perform such duties as the Board, the
executive committee or the other standing committees respectively may prescribe.
The Board, the executive committee and the other standing committees may
likewise from time to time authorize any officer to appoint agents and employees
and to prescribe their powers and duties.
SECTION 4. COMPENSATION
The Board shall have power to fix the compensation of all officers of
the Corporation. It may authorize any officer, upon whom the power of appointing
subordinate officers may have been conferred, to fix the compensation of such
subordinate officers.
SECTION 5. BONDS, DUTIES AND RELIANCE
The Board may require any officer of the Corporation to give a bond to
the Corporation, conditional upon the faithful performance of his/her duties,
with one or more sureties and in such amount as may be satisfactory to the
Board.
An officer, as between himself/herself and other officers and the
Corporation, has such authority and shall perform such duties in the management
of the Corporation as may be provided in the Bylaws, or as may be determined by
resolution of the Board not inconsistent with the Bylaws.
SECTION 6. RESIGNATION
Any officer may resign at any time by giving written notice to the
Corporation through the Chairperson of the Board, the President or the
Secretary. Unless otherwise stated in such notice of resignation, acceptance
thereof shall not be necessary to make it effective; and such resignation shall
take effect at the time specified therein or, in the absence of such
specification, upon the receipt by any one of the aforesaid parties.
SECTION 7. REMOVAL
Except where otherwise expressly provided in a contract authorized by
the Board, any officer elected or appointed by the Board may be removed by the
Board, with or without cause, at any time. Any other officers, agents or
employees of the Corporation
10
<PAGE> 11
may be removed, with or without cause, at any time by a vote of the Board or by
any committee or superior officer appointing them.
SECTION 8. VACANCIES
A vacancy in any office may be filled for the unexpired portion of the
term by the Board or, where appropriate, by the executive committee or the other
standing committees.
SECTION 9. CHAIRPERSON OF THE BOARD
The Chairperson of the Board, if one is elected, shall preside at all
meetings of the Board and the shareholders at which he/she shall be present.
He/she shall have and may exercise such powers as are from time to time assigned
to him/her by resolution of the Board.
SECTION 10. PRESIDENT
The President shall be the chief operating officer of the Corporation
and, subject to the Board, the executive committee and the Chairperson of the
Board, shall be in general and active charge of the business of the Corporation.
In the absence or disability of the Chairperson of the Board as determined by
the Board or the executive committee (or where no such officers exist), he/she
shall perform all duties and functions and exercise all the powers of the
Chairperson of the Board. He/she shall have power to sign certificates and
documents referred to under Article VII. He/she shall have power to appoint and
remove all agents and employees not appointed or elected by the Board. He/she
shall perform such other duties as may be assigned him/her by the Board. The
Board from time to time may vary, add to and/or eliminate any and all of the
foregoing duties, powers and offices by resolution.
SECTION 11. VICE-PRESIDENTS
Each Vice-president, if any, shall have such powers and perform such
duties as may be assigned to him/her by the Board.
SECTION 12. TREASURER
The Treasurer shall have custody of all funds and securities of the
Corporation. When necessary or proper he/she shall endorse checks, drafts, and
other instruments for the payment of money and shall deposit them to the credit
of the Corporation in an authorized bank or depository. Whenever requested by
the Board, he/she shall prepare or cause to be prepared financial statements
which fairly present the financial position and results of the operations of the
Corporation. Whenever required by the Board of the executive committee, he/she
shall render an account of his/her transactions. He/she shall enter regularly in
the books to be kept by him/her a full and accurate account of all money
received and paid by him/her on behalf of the Corporation. He/she shall perform
all acts incident to the position of Treasurer, subject to the control of the
Board.
11
<PAGE> 12
SECTION 13. SECRETARY
The Secretary shall keep the seal of the Corporation, if there is one,
and the minutes of all meetings of shareholders and directors and of such
committees as may be directed. He/she shall attend to the giving of all notices
as directed. He/she may sign with the Chairperson of the Board, the President,
or a Vice-President, all contracts and instruments of conveyance when so ordered
by the board or the executive committee or other properly empowered standing
committees. He/she shall have charge of such books and papers as the Board, the
executive committee or other properly empowered standing committees may require.
He/she, assisted by any transfer agent(s) and registrar(s) which may be
appointed from time to time by the Corporation, shall keep records of all
outstanding capital stock and other securities issued by the Corporation. In the
absence of such appointments, he/she shall act as transfer clerk for the
Corporation and keep such records without assistance. He/she shall perform all
acts incident to the office of Secretary, subject to the control of the Board,
the executive committee and other standing committees.
ARTICLE IV
SHARES AND THEIR TRANSFER,
CERTIFICATES FOR SHARES, RECORD DATES, SHARE SUBSCRIPTIONS
AND FRACTIONAL SHARES
SECTION 1. CERTIFICATES FOR STOCK
Every owner of capital stock of the Corporation shall be entitled to
have a certificate or certificates, in such form or forms as the Board shall
prescribe, certifying the number, class and series, if any, of shares of stock
of the Corporation owned by him/her. The certificates representing shares of the
respective classes and series, if any, of such stock shall be numbered in the
order in which they shall be issued and shall be signed in the name of the
Corporation by a person who was at the time of signing the Chairperson or Vice
Chairperson of the Board, the President, or Vice-President and by a person who
was at the time of signing the Secretary or an Assistant Secretary or the
Treasurer or an Assistant Treasurer; provided, however, that where any such
certificate is countersigned (a) by a transfer agent or assistant transfer agent
or (b) by a transfer clerk acting on behalf of the Corporation and a registrar,
the signatures thereon of such officers may be a facsimile. Every certificate
surrendered to the Corporation for exchange or transfer shall first be
cancelled, and a new certificate or certificates shall be issued in exchange for
any existing certificate only after such existing certificate shall have been so
cancelled. The Corporation shall be entitled to treat the holder of record of
any share of capital stock as the holder in fact thereof, and accordingly shall
not be bound to recognize any equitable or other claim to or interest in any
such share on the part of any other person, whether or not it shall have express
or other notice thereof, except as required by the laws of Delaware.
12
<PAGE> 13
SECTION 2. TRANSFER OF STOCK
Transfers of shares of the capital stock of the Corporation shall be
made only on the books of the Corporation upon the direction of the registered
holder thereof, or of his attorney thereunto authorized by written power of
attorney duly executed and filed with the Secretary or with a transfer clerk or
a transfer agent that is appointed pursuant Section 3 of this Article IV. The
transfer of shares shall be made upon surrender of the certificate or
certificates for such shares in form required for the Corporation to register a
stock certificate presented to it for transfer under Section 1 of this Article
IV.
SECTION 3. TRANSFER AGENT; REGISTRAR
The Corporation may maintain one or more transfer and registry offices
or a transfer agent or registrar designated by the Board, where the shares of
capital stock of the Corporation shall be transferable and registered.
SECTION 4. RECORD DATE
a) For the purpose of determining shareholders entitled
to notice of and to vote at a meeting of shareholders
or an adjournment thereof, or to express consent to
or to dissent from a proposal without a meeting, or
for the purpose of determining shareholders entitled
to receive payment of a dividend or allotment of a
right, or for the purpose of any other action, the
Board may fix, in advance, a date as the record date
for any such determination of shareholders. The date
shall not be more than sixty (60) days nor less than
ten (10) days before the date of the meeting, nor
more than sixty (60) days before any other action.
b) If a record date is not fixed: (i) the record date
for determination of shareholders entitled to notice
of or to vote at a meeting of shareholders shall be
the close of business on the next day preceding the
day on which notice is given, or, if no notice is
given, the day next preceding the day on which the
meeting is held, and (ii) the record date for
determining shareholders for any purpose other than
that specified in subdivision (i) shall be the close
of business on the day on which the resolution of the
Board relating thereto is adopted.
c) When a determination of shareholders of record
entitled to notice of or to vote at a meeting of
shareholders has been made as provided in this
section, the determination applies to any adjournment
of the meeting, unless the Board fixes a new record
date under this section for the adjourned meeting.
13
<PAGE> 14
SECTION 5. SUBSCRIPTIONS FOR SHARES
Unless otherwise provided in the subscription agreement, subscriptions
for shares, whether made before or after the organization of the Corporation,
shall be paid in full at such time, or in such installments and at such times,
as shall be determined by the Board. Any call made the Board for the payment on
subscriptions shall be uniform as to all shares of the same class or as to all
shares of the same series, as the case may be.
SECTION 6. FRACTIONAL SHARES
The Corporation, with the approval of the Board, may issue certificates
for fractions of a share where necessary to effect share transfers, share
distributions or a reclassification, merger, consolidation, or reorganization,
which shall entitle the holders, in proportion to their fractional holdings, to
exercise voting rights, receive dividends, and participate in liquidating
distributions. As an alternative, the Corporation, with the approval of the
Board, may pay in cash the fair value of fractions of a share as of the time
when those entitled to receive the fractions of a share as of the time when
those entitled to receive the fractions are determined. As another alternative,
the Corporation, with the approval of the Board, may issue scrip in registered
or bearer form over the manual or facsimile signature of an officer of the
Corporation or of its agent, exchangeable as therein provided for full shares,
but such scrip shall not entitle the holder to any right of a shareholder,
except as therein provided. The scrip shall be issued subject to the condition
that it becomes void if not exchanged for certificates representing full shares
before a specified date. The scrip may be subject to the condition that the
shares for which the scrip is exchangeable may be sold by the Corporation and
the proceeds thereof distributed to the holders of the scrip, or subject to any
other condition which the Board may determine. The Corporation may provide
reasonable opportunity for persons entitled to fractions of a share or scrip to
sell them or to purchase additional fractions of a share or scrip needed to
acquire a full share.
SECTION 7. REGULATIONS
The Board shall have power and authority to make all such rules and
regulations as it may deem expedient or desirable concerning the issue,
transfer, conversion, registration, loss or replacement of certificates for
shares of the capital stock of the Corporation, not inconsistent with the laws
of the State of Delaware, the Certificate of Incorporation of the Corporation
and these Bylaws.
ARTICLE V
INDEMNIFICATION
SECTION 1. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS IN
ACTIONS BY THIRD PARTIES
To the extent permitted by Delaware law, the Corporation shall
indemnify any person who was or is a party or is threatened to be made a party
to any threatened, pending or completed action, suit or proceeding, whether
civil, criminal, administrative or
14
<PAGE> 15
investigative (other than an action by or in the right of the Corporation) by
reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by him or her in connection with the action, suit or proceeding if the
person acted in good faith and in a manner he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and with respect to
a criminal action or proceeding, had no reasonable cause to believe his or her
conduct was unlawful. The termination of an action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere or
its equivalent, shall not, of itself, create a presumption that the person did
not act in good faith and in a manner which he or she reasonably believed to be
in or not opposed to the best interests of the Corporation, and, with respect to
a criminal action or proceeding, had reasonable cause to believe that his or her
conduct was unlawful.
SECTION 2. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES OR AGENTS IN
ACTIONS BY OR IN RIGHT OF THE CORPORATION.
The Corporation shall indemnify any person who was or is a party to or
is threatened to be made a party to any threatened, pending or completed action
or suit by or in the right of the Corporation to procure a judgment in its favor
by reason of the fact that he or she is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against expenses (including attorneys'
fees) actually and reasonably incurred by the person in connection with the
defense or settlement of such action or suit, if the person acted in good faith
and in a manner he or she reasonably believed to be in or not opposed to the
best interests of the Corporation. However, indemnification shall not be made
for any claim, issue or matter in which the person shall have been adjudged to
be liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which the action or suit was brought has determined
upon application that, despite the adjudication of liability but in view of all
circumstances of the case, the person is fairly and reasonably entitled to
indemnification for the expenses which the Court of Chancery or such other court
shall deem proper.
SECTION 3. INDEMNIFICATION AGAINST EXPENSES UPON SUCCESSFUL
DEFENSE
To the extent that a director, officer, employee or agent of the
Corporation has been successful on the merits or otherwise in defense of an
action, suit or proceeding referred to in Section 1 or 2 of this Article, or in
defense of any claim, issue or matter in the action, suit or proceeding, he or
she shall be indemnified against expenses (including attorneys' fees) actually
and reasonably incurred by him or her in connection therewith.
15
<PAGE> 16
Any indemnification under Sections 1 or 2 of this Article (unless
ordered by a court) shall be made by the Corporation only as authorized in the
specific case upon a determination that indemnification of the director,
officer, employee or agent is proper in the circumstances because he or she has
met the applicable standard of conduct set forth in such Sections. This
determination shall be made in any of the following ways:
a) By a majority vote of a quorum of the Board
consisting of directors who were not parties to the
action, suit or proceeding.
b) If such quorum is not obtainable, or, even if
obtainable and a quorum of disinterested directors so
directs, by independent legal counsel in a written
opinion.
c) By the shareholders.
If a person is entitled to indemnification under Section 1 or 2 of this
Article for a portion of expenses including attorneys' fees, judgments,
penalties, fines, and amounts paid in settlement, but not for the total amount
thereof, the Corporation may indemnify the person for the portion of the
expenses, judgments, penalties, fines, or amounts paid in settlement for which
the person is entitled to be indemnified.
SECTION 4. PAYMENT OF DEFENSE EXPENSES IN ADVANCE
Expenses incurred by an officer or director in defending a civil or
criminal action, suit or proceeding described in Section 1 or 2 of this Article
may be paid by the Corporation in advance of the final disposition of the
action, suit or proceeding upon receipt of an undertaking by or on behalf of the
director or officer to repay the expenses if it is ultimately determined that
the person is not entitled to be indemnified by the Corporation. Such expenses
incurred by other employees and agents may be so paid upon such terms and
conditions, if any, as the board of directors deems appropriate.
SECTION 5. VALIDITY OF OTHER INDEMNIFICATION PROVISIONS; CONTINUING
EFFECT
The indemnification and advancement of expenses provided by, or granted
pursuant to this Article is not exclusive of other rights to which a person
seeking indemnification or advancement of expenses may be entitled under any
bylaw, vote of shareholders or disinterested directors or otherwise, both as to
action in his official capacity and as to action to another capacity while
holding such office. However, the total amount of expenses advanced or
indemnified from all sources combined shall not exceed the amount of actual
expenses incurred by the person seeking indemnification or advancement of
expenses.
The indemnification and advance of expenses provided by, or granted
pursuant to, this Article shall, unless otherwise provided when authorized or
ratified, continue as to a person who ceases to be a director, officer,
employee, or agent and shall inure to the benefit of the heirs, executors, and
administrators of the person.
16
<PAGE> 17
SECTION 6. LIABILITY INSURANCE
The Corporation shall have power to purchase and maintain insurance on
behalf of any person who is or was a director, officer, employee or agent of the
Corporation, or is or was serving at the request of the Corporation as a
director, officer, employee, or agent of another corporation, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity or arising out of his or her
status as such, whether or not the Corporation would have power to indemnify him
or her against such liability under this Article.
SECTION 7. EFFECT OF CONSOLIDATION OR MERGER UPON INDEMNIFICATION
PROVISIONS
For the purposes of this Article, references to "the Corporation" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, and employees or agents, so that
any person who is or was a director, officer, employee or agent of such
constituent corporation, or is or was serving at the request of such constituent
corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, shall stand in the same
position under the provisions of this Article with respect to the resulting or
surviving corporation as he would have with respect to such constituent
corporation if its separate existence had continued.
ARTICLE VI
MISCELLANEOUS
SECTION 1. BOOKS AND RECORDS AND SHAREHOLDER INSPECTION RIGHTS
The Corporation shall keep books and records of account and minutes of
the proceedings of its shareholders, Board and executive committee, if any. Any
shareholder, 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 shareholders, and its other books and records and to make copies
or extracts therefrom.
SECTION 2. DIVIDENDS AND NOTICE THEREOF
Subject to the provisions of the Delaware General Corporation Law, the
Certificate of Incorporation of the Corporation and these Bylaws, the Board may
declare and pay dividends upon the shares of the Corporation's capital stock in
cash, in property, in obligations of the Corporation, in shares of stock or in
any other form legally available for the payment of dividends and in any manner
the Board deems proper, whenever and in such amounts as, in the opinion of the
Board, the condition of the affairs of the Corporation shall render it
advisable.
17
<PAGE> 18
A share dividend or other distribution of shares of the Corporation
shall be accompanied by a written notice (a) disclosing the amounts by which the
distribution affects stated capital, capital surplus and earned surplus, or (b)
if such amounts are not determinable at the time of the notice, disclosing the
approximate effect of the distribution upon stated capital, capital surplus, and
earned surplus and stating that the amounts are not yet determinable.
SECTION 3. SEAL
The Board may provide a corporate seal, which shall be circular in form
and shall bear the full name of the Corporation and the words "Incorporated in
Delaware", or words of similar impact. The seal or a facsimile thereof may be
impressed or affixed or reproduced or other use made thereof by the Secretary,
any Assistant Secretary or any other officer authorized by the Board.
SECTION 4. FISCAL YEAR
The fiscal year of the Corporation shall end on 31st day of December in
each year. Such date may be changed for future fiscal years at any time and from
time to time by resolution of the Board.
SECTION 5. WAIVER OF NOTICE
Whenever any notice whatever is required to be given by these Bylaws or
by the Certificate of Incorporation of the Corporation or by the then existing
law of the State of Delaware, a waiver thereof in writing, signed by the person
or persons entitled to said notice, whether before or after the time stated
therein, shall be deemed equivalent thereto.
When, under the Delaware General Corporation Law or the Certificate of
Incorporation or Bylaws of the Corporation or by the terms of an agreement or
instrument, the Corporation or the Board or any committee thereof may take
action after notice to any person or after lapse of a prescribed period of time,
the action may be taken without notice and without lapse of the period of time,
if at any time before or after the action is completed the person entitled to
notice or to participate in the action to be taken or, in the case of a
shareholder, by his/her attorney-in-fact, submits a signed waiver of such
requirements.
SECTION 6. NOTICE
When a notice or communication is required or permitted to be given, it
shall be given in person or mailed to the person to whom it is directed at the
address designated by him/her for that purpose, or, if none is designated, at
his/her last address known to the Corporation. The notice or communication is
given when deposited, with postage thereon prepaid, in a post office or official
depository under the exclusive care and
18
<PAGE> 19
custody of the United States postal service. The mailing shall be registered,
certified or other first class mail.
In addition to notice sent by mail or given in person as prescribed
above, notice of meeting of the Board may be given by telephone or telegraph to
the person to whom it is directed or to his/her representative at his/her last
address as known to the Corporation.
SECTION 7. DEPOSITS
All funds of the Corporation not otherwise employed shall be deposited
from time to time to the credit of the Corporation or otherwise as the Board or
the President shall direct in such banks, trust companies or other depositories
as the Board may select or as may be selected by any executive officer, or other
officer or agent of the Corporation to whom power in that respect shall have
been delegated by the Board. For the purpose of deposit and for the purpose of
collection for the account of the Corporation, checks, drafts, and other orders
for the payment of money which are payable to the order of the Corporation may
be endorsed, assigned and delivered by any executive officer or other officer or
agent of the Corporation as thereunto authorized from time to time by the Board.
ARTICLE VII
SPECIAL CORPORATE ACTS,
NEGOTIABLE INSTRUMENTS, DEEDS AND CONTRACTS
SECTION 1. EXECUTION OF NEGOTIABLE INSTRUMENTS
All checks, drafts, notes, bonds, bills of exchange, and orders for the
payment of money shall, unless otherwise directed by the Board or unless
otherwise required by law, be signed by any two of the following officers: the
Chairperson of the Board, President, a Vice-President, Treasurer, or Secretary.
The Board may, however, authorize any one of such officers to sign checks,
drafts, and orders for the payment of money, which are for any amounts in any
instance; and may authorize any one of its officers or employees, other than
those named above, or different combinations of such officers and employees to
sign checks, drafts, and orders for the payment of money for any amounts. The
Board may authorize the use of facsimile signatures of any officer or employee
in lieu of manual signatures.
SECTION 2. EXECUTION OF DEEDS, CONTRACTS, ETC.
Subject always to the specific directions of the Board, all deeds and
mortgages made by the Corporation and all other written contracts and agreements
to which the Corporation shall be a party shall be executed in its name by the
President or one of the Vice-Presidents, and, when requested, the Secretary or
an Assistant Secretary shall attest to such signatures.
19
<PAGE> 20
SECTION 3. ENDORSEMENT OF STOCK CERTIFICATES
Subject always to the specific directions of the Board, any share or
shares of stock issued by any corporation and owned by the Corporation may, for
sale or transfer, be endorsed in the name of the Corporation by the President or
one of the Vice-Presidents, and, where required, his/her signature may be
attested to by the Secretary or an Assistant Secretary. This Section does not
govern signatures required in the initial issuance or the reissuance of the
Corporation's own shares, which is governed by Section 1 of Article V.
ARTICLE VIII
AMENDMENTS TO BYLAWS
These Bylaws may be altered or amended by the affirmative vote of a
majority of the capital stock of the Corporation issued and outstanding and
entitled to vote thereat, at any regular or special meeting of shareholders if
notice of the proposed alteration or amendment be contained in the notice of the
meeting. These Bylaws also may be altered or amended by a resolution adopted by
the affirmative vote of a majority of all directors of the Board then in office
at a regular or special meeting.
20
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