-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, ElOsNdZhjMHIOUHs3XCru/QED6k1t7SZvQ0BUW91pOJoCs8eX4VHlGnfNDM+rV6r nbYUJR3E1uxrlv/LdjmxFg== 0000944209-99-001905.txt : 19991216 0000944209-99-001905.hdr.sgml : 19991216 ACCESSION NUMBER: 0000944209-99-001905 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 19991031 FILED AS OF DATE: 19991215 FILER: COMPANY DATA: COMPANY CONFORMED NAME: KORN FERRY INTERNATIONAL CENTRAL INDEX KEY: 0000056679 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-EMPLOYMENT AGENCIES [7361] IRS NUMBER: 952623879 STATE OF INCORPORATION: DE FISCAL YEAR END: 0430 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14505 FILM NUMBER: 99774951 BUSINESS ADDRESS: STREET 1: 1800 CENTURY PARK EAST STREET 2: STE 900 CITY: LOS ANGELES STATE: CA ZIP: 90067 BUSINESS PHONE: 3105521834 MAIL ADDRESS: STREET 1: 1800 CENTURY PARK EAST STREET 2: STE 900 CITY: LOS ANGELES STATE: CA ZIP: 90067 10-Q 1 FORM 10-Q ================================================================================ UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 __________________ FORM 10-Q (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended October 31, 1999 or ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________ to _____________ Commission File Number 001-14505 __________________ KORN/FERRY INTERNATIONAL (Exact name of registrant as specified in its charter) Delaware 95-2623879 (State of other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) 1800 Century Park East, Suite 900, Los Angeles, California 90067 (Address of principal executive offices) (zip code) (310) 556-8503 (Registrant's telephone number, including area code) ------------------ Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months, and (2) has been subject to such filing requirements for the past 90 days. Yes (X) No ( ) The number of shares outstanding of the Company's Common Stock as of December 10, 1999 was 36,046,794. ================================================================================ KORN/FERRY INTERNATIONAL AND SUBSIDIARIES Table of Contents
PART I. FINANCIAL INFORMATION Page ---- Item 1. Financial Statements Consolidated Balance Sheet as of October 31, 1999 (unaudited) and April 30, 1999............................................................. 3 Unaudited Consolidated Statement of Operations for the three months and six months ended October 31, 1999 and October 31, 1998................. 5 Unaudited Consolidated Statement of Cash Flows for the six months ended October 31, 1999 and October 31, 1998................................ 6 Notes to Consolidated Financial Statements..................................... 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations...................................................... 11 Item 3. Quantitative and Qualitative Disclosures About Market Risk.................... 19 PART II. FINANCIAL INFORMATION Item 2. Changes in Securities and Use of Proceeds..................................... 19 Item 4. Submission of Matters to a Vote of Security Holders........................... 19 Item 5. Other Information............................................................. 20 Item 6. Exhibits and Reports on Form 8-K............................................... 21 SIGNATURE..................................................................................... 22
2 PART I. FINANCIAL INFORMATION Item 1. FINANCIAL STATEMENTS KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET (in thousands)
------------------- ------------------ As of As of October 31, 1999 April 30, 1999 ------------------- ------------------ (unaudited) ASSETS ------ Cash and cash equivalents $ 92,475 $113,741 Marketable securities 32,602 21,839 Receivables due from clients, net of allowance for doubtful accounts of $11,976 and $7,847 86,938 63,139 Other receivables 2,499 3,337 Prepaid expenses 9,342 5,736 --------------- --------------- Total current assets 223,856 207,792 --------------- --------------- Property and equipment: Computer equipment and software 24,692 17,554 Furniture and fixtures 15,162 14,646 Leasehold improvements 12,908 11,785 Automobiles 1,721 1,716 --------------- --------------- 54,483 45,701 Less - Accumulated depreciation and amortization (28,466) (24,591) --------------- --------------- Property and equipment, net 26,017 21,110 --------------- --------------- Cash surrender value of company owned life insurance policies, net of loans 44,490 41,973 Marketable securities, guaranteed investment contracts and notes receivable 3,300 8,218 Deferred income taxes 18,327 18,182 Goodwill and other intangibles, net of accumulated amortization of $6,072 and $5,351 17,583 3,639 Other 3,809 3,210 --------------- --------------- Total assets $337,382 $304,124 =============== ===============
The accompanying notes are an integral part of these consolidated financial statements. 3 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED BALANCE SHEET - (Continued) (in thousands)
------------------ -------------------- As of As of October 31, 1999 April 30, 1999 ------------------- -------------------- (unaudited) LIABILITIES AND SHAREHOLDERS' EQUITY ------------------------------------ Notes payable and current maturities of long-term debt $ 3,818 $ 1,356 Accounts payable 11,046 10,384 Income taxes payable 4,778 2,323 Accrued liabilities: Compensation 33,572 35,212 Payroll taxes 18,316 20,546 Other accruals 29,479 21,910 ------------------- ------------------- Total current liabilities 101,009 91,731 Deferred compensation 36,061 33,531 Long-term debt 3,532 2,360 Other 1,728 1,775 ------------------- ------------------- Total liabilities 142,330 129,397 ------------------- ------------------- Non-controlling shareholders' interests 2,406 2,041 ------------------- ------------------- Shareholders' equity Common stock, authorized 150,000 shares, 36,016 and 35,633 shares outstanding 259,229 253,021 Retained deficit (54,320) (66,426) Accumulated other comprehensive loss (2,912) (2,360) ------------------- ------------------- Shareholders' equity 201,997 184,235 Less: Notes receivable from shareholders (9,351) (11,549) ------------------- ------------------- Total shareholders' equity 192,646 172,686 ------------------- ------------------ Total liabilities and shareholders' equity $ 337,382 $ 304,124 =================== ==================
The accompanying notes are an integral part of these consolidated financial statements. 4 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENT OF OPERATIONS (in thousands, except per share amounts)
Three Months Ended October 31, Six Months Ended October 31, ----------------------------------- --------------------------------- Proforma Proforma 1999 1998 1998 (1) 1999 1998 1998 (1) -------- --------- ----------- -------- --------- ----------- (unaudited) (unaudited) Revenues, net $116,322 $ 91,175 $ 91,175 $221,103 $ 175,921 $ 175,921 Compensation and benefits 68,725 60,297 55,049 133,459 116,381 106,195 General and administrative expenses 36,080 28,622 28,622 65,882 53,642 53,642 Interest and other income (expense) 793 (637) (637) 1,481 (1,133) (1,133) -------- --------- ----------- -------- --------- ----------- Income before provision for income taxes and non-controlling shareholders' interests 12,310 1,619 6,867 23,243 4,765 14,951 Provision for income taxes 5,171 709 2,997 9,762 2,069 6,493 Non-controlling shareholders' interests 637 1,057 1,057 1,375 1,323 1,323 -------- --------- ----------- -------- --------- ----------- Net income (loss) $ 6,502 $ (147) $ 2,813 $ 12,106 $ 1,373 $ 7,135 ======== ========= =========== ======== ========= =========== Basic earnings (loss) per common share $ 0.18 $ (0.01) $ 0.11 $ 0.34 $ 0.05 $ 0.27 ======== ========= =========== ======== ========= =========== Basic weighted average common shares outstanding 35,941 26,168 26,168 35,834 26,007 26,007 ======== ========= =========== ======== ========= =========== Diluted earnings (loss) per common share $ 0.17 $ (0.01) $ 0.11 $ 0.33 $ 0.05 $ 0.26 ======== ========= =========== ======== ========= =========== Diluted weighted average common shares outstanding 37,277 26,868 26,868 36,710 27,242 27,242 ======== ========= =========== ======== ========= ===========
(1) The proforma results for the three months and six months ended October 31, 1998 take into account a $5.3 million and $10.2 million reduction in accrued bonus expense to reflect the revised compensation program effective May 1, 1998 upon completion of the initial public offering in February 1999 and the related $2.3 million and $4.4 million, respectively, increase in the provision for income taxes. The accompanying notes are an integral part of these consolidated financial statements. 5 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Six Months Ended October 31, ----------------------------------------- Proforma 1999 1998 1998 (1) -------- -------- -------- (unaudited) Cash from operating activities: Net Income $ 12,106 $ 1,373 $ 7,135 Adjustments to reconcile net income to net cash used in operating activities: Depreciation 4,260 3,989 3,989 Amortization 721 544 544 Provision for doubtful accounts 5,694 3,307 3,307 Cash surrender value in excess of premiums paid (686) (256) (256) Change in other assets and liabilities, net of acquisitions: Deferred compensation 2,911 3,859 3,859 Receivables (27,945) (11,603) (11,603) Prepaid expenses (3,546) (682) (682) Income taxes payable 2,310 (6,396) (1,972) Accounts payable and accrued liabilities 3,607 7,872 (2,314) Non-controlling shareholders' interests and other, net (550) (3,676) (3,676) -------- -------- -------- Net cash used in operating activities (1,118) (1,669) (1,669) -------- -------- -------- Cash from investing activities: Purchases of property and equipment (8,894) (4,898) (4,898) Purchases of marketable securities (5,845) - - Business acquisitions, net of cash acquired (4,304) (1,323) (1,323) Premiums on life insurance (2,840) (3,816) (3,816) -------- -------- -------- Net cash used in investing activities (21,883) (10,037) (10,037) -------- -------- -------- Cash from financing activities: Payment of debt (611) (750) (750) Borrowings under life insurance policies 1,010 2,200 2,200 Purchase of common and preferred stock and payments on related notes (471) (2,160) (2,160) Issuance of common stock and receipts on shareholders' notes 2,359 3,654 3,654 -------- -------- -------- Net cash provided by financing activities 2,287 2,944 2,944 -------- -------- -------- Effect of exchange rate changes on cash flows (552) (319) (319) -------- -------- -------- Net decrease in cash and cash equivalents (21,266) (9,081) (9,081) Cash and cash equivalents at beginning of the period 113,741 32,358 32,358 -------- -------- -------- Cash and cash equivalents at the end of the period $ 92,475 $ 23,277 $ 23,277 ======== ======== ========
(1) The proforma results for the six months ended October 31, 1998 take into account a $10.2 million reduction in accrued bonus to reflect the revised compensation program effective May 1, 1998 upon completion of the initial public offering in February 1999 and the related $4.4 million increase in the provision for income taxes. The accompanying notes are an integral part of these consolidated financial statements. 6 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) (in thousands, except per share amounts) 1. Summary of Significant Accounting Policies Basis of Presentation The consolidated financial statements for the three months and six months ended October 31, 1999 and 1998 include the accounts of Korn/Ferry International, all of its wholly owned domestic and international subsidiaries, and affiliated companies in which the Company has effective control (collectively, the "Company") and are unaudited but include all adjustments, consisting of normal recurring accruals and any other adjustments, which management considers necessary for a fair presentation of the results for these periods. These financial statements have been prepared consistently with the accounting policies described in the Company's fiscal year 1999 Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") on July 28, 1999 and should be read in conjunction with this Quarterly Report on Form 10-Q. Use of Estimates in the Preparation of Financial Statements The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. As a result, actual results could differ from these estimates. Proforma October 31, 1998 Results The Company implemented a revised compensation program, effective for the fiscal year commencing May 1, 1998, upon completion of its initial public offering in February 1999. The revised compensation program is intended to reduce the amount of consultants' annual cash performance bonus payments and provides for the issuance of options to purchase up to 7.0 million shares of common stock at the market value at the grant date. The proforma results for the three months and six months ended October 31, 1998 give effect to the revised compensation program, resulting in a reduction in accrued bonus expense of $5.3 million and $10.2 million, respectively, and an increase in the provision for income taxes of $2.3 million and $4.4 million, respectively. Reclassifications Certain prior year reported amounts have been reclassified in order to conform to the current year consolidated financial statement presentation. New Accounting Pronouncements During the first quarter ended July 31, 1999, the Company adopted Statement of Position 98-1, "Accounting for the Cost of Computer Software Developed or Obtained for Internal Use," ("SOP 98-1"). The adoption of SOP 98-1 did not materially change the Company's capitalization policy for software costs. 2. Basic and Diluted Earnings Per Share Basic earnings per common share ("Basic EPS") was computed by dividing net income by the weighted average number of common shares outstanding during the period. Diluted earnings per common and common equivalent share ("Diluted EPS") reflects the potential dilution that would occur if the outstanding options or other contracts to issue common stock were exercised or converted and was computed by dividing the net income by the weighted average number of shares of common stock outstanding and dilutive common equivalent shares. Following is a reconciliation of the numerator (income) and denominator (shares) used in the computation of Basic and Diluted EPS: 7 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share amounts)
Three months ended October 31, -------------------------------------------------------------------------------------- 1999 1998 Proforma 1998 --------------------------- --------------------------- ------------------------ Per Per Per Per Income Share Income Share Income Share (Loss) Shares Amount (Loss) Shares Amount (Loss) Shares Amount ------- ------ ------ ------ ------ ------ ------ ------ ------ Basic EPS Income (loss) available to common shareholders........................... $ 6,502 35,941 $0.18 $ (147) 26,168 $(0.01) $2,813 26,168 $0.11 ===== ======= ===== Effect of Dilutive Securities Shareholder common stock purchase commitments................... 374 700 700 Stock options............................. 962 ------- ----- ------ ------ ------ ------ Diluted EPS Income (loss) available to common shareholders plus assumed conversions.. $ 6,502 37,277 $0.17 $ (147) 26,868 $(0.01) $2,813 26,868 $0.11 ======= ====== ===== ======= ====== ====== ====== ====== ===== Six months ended October 31, -------------------------------------------------------------------------------------- 1999 1998 Proforma 1998 --------------------------- ---------------------------- ------------------------ Per Per Per Share Share Share Income Shares Amount Income Shares Amount Income Shares Amount ------ ------ ------ ------ ------ ------ ------ ------ ------ Basic EPS Income available to common shareholders... $12,106 35,834 $0.34 $1,373 26,007 $0.05 $7,135 26,007 $0.27 ===== ===== ===== Effect of Dilutive Securities Shareholder common stock purchase commitments................... 374 700 700 Stock options............................. 502 Phantom stock units....................... 383 383 Stock appreciation rights................. 152 152 ------- ------ ------ ------- ------ ------ Diluted EPS Income available to common shareholders plus assumed conversions............... $12,106 36,710 $0.33 $1,373 27,242 $0.05 $7,135 27,242 $0.26 ======= ====== ===== ====== ====== ===== ====== ====== =====
The share amounts in the table above reflect a four-to-one stock split approved by the Board of Directors on July 24, 1998. The Company filed an amendment to the existing Articles of Incorporation to increase the authorized capital stock and effect the four-to-one split of the Common Stock on February 10, 1999. The financial statements have been retroactively restated for the effects of this split. The par value of common stock outstanding as of October 31, 1999 and April 30, 1999 is $0.01 and no par, respectively. 3. Comprehensive income The Company adopted Statement of Financial Accounting Standards No. 130 ("SFAS 130"), "Reporting Comprehensive Income," during its fiscal year ended April 30, 1998. Comprehensive income is comprised of net income and all changes to stockholders' equity, except those changes resulting from investments by owners (changes in paid in capital) and distributions to owners (dividends). SFAS 130 requires disclosure of the components of comprehensive income in interim periods. 8 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share amounts) Total comprehensive income is as follows:
Three months ended October 31, Six months ended October 31, ----------------------------- ---------------------------- 1999 1998 1999 1998 -------------- ----------- ------------ ------------- Net income (loss)........................................ $ 6,502 $ (147) $ 12,106 $ 1,373 Foreign currency translation adjustment.................. (1,380) 530 (952) (564) Related income tax benefit (provision)................... 579 (228) 400 245 -------------- ----------- ------------ ------------ Comprehensive income..................................... $ 5,701 $ 155 $ 11,554 $ 1,054 ============== =========== ============ ============
4. Business segments The Company operates in one industry segment, retained executive recruitment, on a global basis. Management views the operations by line of business, executive search and Futurestep, and geography. For purposes of the geographic information below, Mexico's operating results are included in Latin America. In January 1998, the Company formed Futurestep, a 93 percent owned subsidiary, to provide Internet-based retained recruitment services for middle- management positions. A summary of the Company's operations by business segment follows:
Three months ended October 31, Six months ended October 31, ------------------------------ ---------------------------- 1999 1998 1999 1998 ----------- ---------- ------------ ------------ Revenues: Executive Search: North America....................................... $ 64,135 $ 47,751 $ 121,362 $ 91,549 Europe.............................................. 25,761 26,091 50,912 50,514 Asia/Pacific........................................ 12,727 8,420 23,866 16,642 Latin America....................................... 7,381 8,209 14,670 16,469 Futurestep........................................... 6,318 704 10,293 747 ----------- ---------- ----------- ----------- Total revenues...................................... $ 116,322 $ 91,175 $ 221,103 $ 175,921 =========== ========== =========== =========== Three months ended October 31, Six months ended October 31, ------------------------------ ---------------------------- 1999 1998 1999 1998 ----------- ---------- ---------- ----------- Operating Profit: Executive Search: North America...................................... $ 12,036 $ 3,106 $ 22,082 $ 6,423 Europe............................................. 2,918 1,104 6,087 1,785 Asia/Pacific....................................... 1,381 458 2,436 721 Latin America...................................... 1,966 2,167 3,602 4,031 Futurestep.......................................... (6,784) (4,579) (12,445) (7,062) --------- --------- ---------- --------- Total operating profit............................. $ 11,517 $ 2,256 $ 21,762 $ 5,898 ========= ========= ========== ========= As of As of October 31, 1999 April 30, 1999 ---------------- -------------- Identifiable assets(1): Executive Search: North America...................................... $ 223,677 $ 208,627 Europe............................................. 58,662 54,910 Asia/Pacific....................................... 27,057 20,209 Latin America...................................... 17,947 17,104 Futurestep........................................... 10,039 3,274 --------------- -------------- Total identifiable assets.......................... $ 337,382 $ 304,124 =============== ==============
(1) Corporate identifiable assets of $129,125 and $144,771 as of October 31, 1999 and April 30, 1999, respectively, are included in North America. 9 KORN/FERRY INTERNATIONAL AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (Continued) (in thousands, except per share amounts) 5. Acquisitions On June 11, 1999, the Company completed the acquisition of Amrop International's Australian business for approximately $3.2 million in cash payable over a four-year period and $0.6 million in common stock. The acquisition has been accounted for as a purchase. Of the total purchase price of $3.8 million, $2.0 million represents deferred compensation. The fair market value of the net assets acquired was approximately $0.2 million and $1.6 million has been recorded as goodwill. On September 15, 1999, the Company completed the acquisition of Levy-Kerson, a New York-based search firm specializing in the retail fashion industry with revenues of approximately $6.0 million for the year ended December 31, 1998. The purchase price was $7.3 million, of which $5.6 million was paid in common stock, $0.7 million in cash and $1.0 million in notes payable through May 1, 2002. The acquisition has been accounted for as a purchase and substantially all of the cost has been recorded as goodwill. On October 1, 1999, the Company completed the acquisition of Pearson, Caldwell and Farnsworth, a California-based search firm focused on senior-level assignments for the financial services industry, with estimated revenues of approximately $4.0 million for the year ending December 31, 1999. The purchase price was $4.3 million, of which $0.6 million was paid in common stock, $1.2 million in cash, and the balance of $2.5 million in notes payable over three years. The acquisition has been accounted for as a purchase and the excess of the consideration over the fair market value of the assets acquired and deferred compensation, if any, will be recorded as goodwill. In November 1999, the Company signed a revised letter of intent to acquire the search and selection recruitment business of PA Consulting Group, a leading management, systems and technology consulting firm based in London for $19.0 million denominated in U.S. dollars, payable in cash or substantially all in cash. The acquisition is expected to close in the third quarter of fiscal 2000 subject to completion of the Company's due diligence, negotiation and execution of definitive acquisition agreements, receipt of applicable regulatory approvals and absence of adverse changes in the financial condition of this business. The acquisition will be accounted for as a purchase and the fair market value of the net assets acquired in excess of the consideration, if any, will be recorded as goodwill. On December 10, 1999, the Company completed the acquisition of Helstrom, Turner & Associates, a California-based search firm focused on senior-level assignments for the retail industry, with estimated revenues of approximately $3.0 million for the year ending December 31, 1999. The purchase price was $3.0 million, of which $0.7 million was paid in cash, $1.5 million in common stock and the balance in notes payable in equal annual installments over three years. The acquisition will be accounted for as a purchase and substantially all of the purchase price will be allocated to goodwill. On December 13, 1999, the Company completed the acquisition of Crist Partners, a Chicago-based search firm specializing in senior executive assignments for Fortune 500 companies, for $15.0 million of which $8.0 million was paid in cash, $2.0 million in common stock and the balance in notes payable. The acquisition will be accounted for as a purchase and the fair market value of the net assets acquired in excess of the consideration, if any, will be recorded as goodwill. 10 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Overview Korn/Ferry International is the world's largest executive search firm and has the broadest global presence in the industry with 432 consultants based in 72 offices across 40 countries. The Company's clients are many of the world's largest and most prestigious public and private companies, middle-market and emerging growth companies as well as governmental and not-for-profit organizations. On February 17, 1999, the Company completed the public offering of 11.8 million shares of its common stock at $14.00 per share, approximately 10.0 million of which were sold by the Company, with the balance sold by certain selling shareholders of the Company. Net proceeds received by the Company from the offering were approximately $124.3 million. In May 1998, the Company introduced its Internet-based service, Futurestep. Futurestep combines the Company's search expertise with exclusive candidate assessment tools and the reach of the Internet to accelerate recruitment of candidates for middle-management positions. Futurestep's operating losses approximated $12.4 million, $12.6 million and $0.8 million for the six months ended October 31, 1999 and the fiscal years ended April 30, 1999 and 1998, respectively, and are primarily related to compensation expense, start-up costs and advertising expense to promote and expand the business roll-out. The Company believes Futurestep will generate net operating losses through the spring of 2000. In March 1999, the Company completed its United States roll-out of Futurestep expanding into the Midwest and Southwest regions. Futurestep launched its international roll-out in the United Kingdom in May 1999, Canada in June 1999 and in 10 additional European countries, New Zealand and Australia in the current fiscal quarter. The Company plans to expand in other selected foreign markets through the remainder of the fiscal year. As of October 31, 1999, approximately 450,000 candidates worldwide had completed a detailed on-line profile. In July 1999, Futurestep entered into its first global management recruitment agreement with Ernst & Young, LLP to provide a range of services in addition to middle-management recruitment including managing on-line job postings and campus recruitment programs. In the three months ending October 31, 1999, Futurestep established five additional preferred provider relationships to provide a minmum number of annual search assignments and a variety of other recruitment service alternatives. As the world's largest global executive search firm, the Company believes it has the resources to play a leading role in consolidating the highly-fragmented search industry. The Company frequently evaluates opportunities to expand its business through acquisitions, and from time to time, the Company engages in discussions with potential targets. The Company views strategic acquisitions as a key component of its long term growth strategy and intends to pursue future acquisition opportunities. In the first quarter of fiscal 2000, the Company completed the acquisition of the Australian business of Amrop International. In the current fiscal quarter, the Company completed two North American acquisitions: Levy-Kerson, a leading search firm specializing in the retail/fashion industry and Pearson, Caldwell and Farnsworth, a leading search firm focused on senior-level assignments for the financial services industry. In December 1999, the Company completed two additional acquisitions in North America: Helstrom Turner & Associates, specializing in retail and e-commerce clients and Crist Partners, specializing in senior executive search assignments for Fortune 500 companies. The Company has also signed a revised letter of intent to acquire PA Consulting Group, a leading management, systems and technology consulting firm based in London. See "Recent Events." 11 Results of Operations The following table summarizes the results of the Company's operations for the three months and six months ended October 31, 1999 and 1998 as a percentage of revenues.
Three months ended October 31, Six months ended October 31, ----------------------------------- --------------------------------- Proforma Proforma 1999 1998 1998(1) 1999 1998 1998(1) ------- ----- --------- ------- ------ --------- Revenues, net.................................. 100% 100% 100% 100% 100% 100% Compensation and benefits...................... 59 66 60 60 66 60 General and administrative expenses ........... 31 31 31 30 31 31 Operating profit............................... 10 3 8 10 3 9 Net income..................................... 6 0 3 6 1 4
_________ (1) The proforma results for the three months and six months ended October 31, 1998 take into account a $5.3 million and $10.2 million reduction in accrued bonus expense to reflect the revised compensation program effective May 1, 1998 upon completion of the initial public offering in February 1999 and the resulting $2.3 million and $4.4 million increase in the provision for income taxes. The Company experienced strong growth in executive search revenues in both the North America and Asia/Pacific geographic regions for the three months ended October 31, 1999. The Europe and Latin America regions experienced declines in the current three month period compared to the prior year quarter; however, both regions reported positive growth over current year first quarter results. For the six months ended October 31, 1999 the Company experienced growth in all geographic regions, except for Latin America. The Company includes revenues generated from its Mexican operations with its operations in Latin America.
Three Months Ended October 31, Six Months Ended October 31, ------------------------------------------------ ---------------------------------------------- 1999 1998 1999 1998 ------------------------------------------------ ---------------------------------------------- Dollars % Dollars % Dollars % Dollars % ----------- --------- -------------- -------- ---------- -------- ------------- ------- Executive Search: North America.............. $ 64,135 55% $47,751 53% $121,362 55% $ 91,549 52% Europe..................... 25,761 22 26,091 29 50,912 23 50,514 29 Asia/Pacific............... 12,727 11 8,420 9 23,866 11 16,642 10 Latin America.............. 7,381 6 8,209 9 14,670 7 16,469 9 Futurestep.................... 6,318 5 704 1 10,293 5 747 - ----------- --------- -------------- -------- ---------- -------- ------------- ------- Revenues................. $116,322 100% $91,175 100% $221,103 100% $175,921 100% ----------- --------- -------------- -------- ---------- -------- ------------- -------
In the following comparative analysis, all percentages are calculated based on dollars in thousands. Three Months Ended October 31, 1999 Compared to Three Months Ended October 31, 1998 Revenues Revenues increased $25.1 million, or 27.6%, to $116.3 million for the three months ended October 31, 1999 from $91.2 million for the three months ended October 31, 1998. The increase in revenues was primarily the result of a 7% increase in the number of executive search engagements, a 14% increase in the average fee per executive search engagement and revenues from Futurestep in the current three month period. In North America revenues increased $16.4 million, or 34%, to $64.1 million for the three months ended October 31, 1999 from $47.8 million for the comparable period in the prior year. In Asia/Pacific, revenues increased $4.3 million, or 51%, to $12.7 million for the three months ended October 31, 1999 from $8.4 million for the three months ended October 31, 1998. Revenue growth in North America and Asia/Pacific was attributable mainly to a 9% and 50% increase, respectively, in the number of engagements supported by an increase of 10% and 16%, respectively, in the average number of consultants. In North America this revenue growth was also driven by an increase in the average 12 fee per engagement of 23% while Asia/Pacific realized an increase in consultant productivity of over 30%. Revenues in Europe decreased $0.3 million, or 1%, to $25.8 million for the three months ended October 31, 1999 from $26.1 million for the comparable period in the prior year due to the negative effects of foreign currency translation into the U.S. dollar which more than offset revenue increases on a constant dollar basis. The decline in revenues in Latin America of $0.8 million, or 10%, to $7.4 million for the three months ended October 31, 1999 from $8.2 million for the comparable three month period in fiscal 1998 is attributable to continued economic uncertainty in that region. Revenues are in line with current year first quarter results and the Company believes the continued uncertainty in Latin America will not have a significant impact on revenues in the third quarter of fiscal 2000. Futurestep revenue of $6.3 million for the three months ended October 31, 1999 is primarily attributable to 224 additional engagements opened during the current fiscal quarter and reflects completion of the roll-out of the United States operations at the end of prior fiscal year and the U.K. and Canada in the current year first quarter. Compensation and Benefits Compensation and benefits expense increased $8.4 million, or 14%, to $68.7 million for the three months ended October 31, 1999 from $60.3 million for the comparable period ended October 31, 1998 due primarily to an increase in the number of consultants offset by a $5.4 million decrease in bonus expense in the most recent fiscal quarter under the revised compensation plan. On a proforma basis, compensation and benefits expense for the three months ended October 31, 1998 reflects a $5.3 million reduction in bonus expense under the revised compensation program. The $13.7 million increase for the three months ended October 31, 1999, including Futurestep expenses of $3.6 million, versus the proforma three months ended October 31, 1998, reflects a 15% and 6% increase in the average number of consultants to 444 from 387 and average total employees to 1,554 from 1,471 for the three months ended October 31, 1999 over the comparable period in 1998. On a comparable basis, excluding Futurestep and reflecting the prior year three month period on a proforma basis, compensation and benefits expense as a percentage of revenues decreased slightly to 59.2% in the most recent three month period from 59.6% in the proforma three months ended October 31, 1998. General and Administrative Expenses General and administrative expenses consist of occupancy expense associated with the Company's leased premises, investments in information and technology infrastructure, marketing and other general office expenses. General and administrative expenses increased $7.5 million, or 26%, to $36.1 million for the three months ended October 31, 1999 from $28.6 million for the comparable period ended October 31, 1998. This increase was attributable to an increase in Futurestep expenses of $5.3 million, primarily related to advertising and business development in the current three month period. As a percentage of revenues, general and administrative expenses, excluding Futurestep related expenses, declined to 24% for the three months ended October 31, 1999 from 27% for the comparable period in 1998. The decrease primarily reflects the higher percentage increase in revenues and the elimination of excess costs in the current three month period resulting from office rationalization in late fiscal 1999. Operating Profit Operating profit increased $9.3 million in the three months ended October 31, 1999, to $11.5 million, or 9.9% of revenues from $2.3 million, or 2.5% of revenues in the prior year three month period. On a comparable basis, excluding the Futurestep loss of $6.8 million and assuming the favorable impact of the new compensation plan in the three months ended October 31, 1998, operating profit for the three months ended October 31, 1999 increased $6.2 million, or 52% to $18.3 million compared to the three months ended October 31, 1998. Operating profit, on a comparable basis, as a percentage of revenues was 16.6% and 13.4% for the three months ended October 31, 1999 and 1998, respectively. For the current three month period, operating margins, on this same basis, increased in all regions except in Latin America compared to the prior year three month period due primarily to increased revenues in North America and Asia/Pacific and a decline in general and administrative expense as a percentage of revenues. The percentage of the Company's executive search operating profit contributed by North America increased to 66% for the current three month period from 52% for the proforma three months ended October 31, 1998, driven primarily by both an increase in volume and average fees. The Latin American region contribution decreased to 11% for the three months ended October 31, 1999 from 23% on a proforma basis for the comparable prior year period mainly due to the percentage decline in revenues commencing in the third quarter of fiscal 1999 while operating costs remained relatively constant. The percentage of the Company's operating profit contributed by the European region decreased to approximately 16% and the Asia/Pacific region increased to approximately 8%, in the three months ended October 31, 1999 from 19% and 7%, respectively, in the proforma three months ended October 31, 1998, 13 primarily reflecting the decrease in revenues in the European region and the elimination of excess costs in late fiscal 1999 resulting from office rationalization in both the European and Asia/Pacific regions. Interest and Other Income (Expense) Interest and other income (expense) includes interest income of $1.4 million and $0.6 million and interest expense of $0.8 million and $1.3 million for the three months ended October 31, 1999 and 1998, respectively. The increase in interest income of $0.8 million and decrease in interest expense of $0.5 million is due primarily to interest income from the investment of proceeds received in the initial public offering and a decrease in interest expense resulting from payment of the outstanding balance on bank borrowings upon consummation of the public offering. Provision for Income Taxes The provision for income taxes increased $4.5 million to $5.2 million for the three months ended October 31, 1999 from $0.7 million for the comparable period ended October 31, 1998. The effective tax rate was 42% for the current year three month period as compared to 44% for the prior year three month period. Non-controlling Shareholders' Interests Non-controlling shareholders' interests are comprised of the non- controlling shareholders' majority interests in the Company's Mexico subsidiaries. Non-controlling shareholders' interests decreased $0.4 million to $0.6 million in the current three month period from $1.1 million in the comparable prior year period. In the three months ended October 31, 1998, the Company ceased recording minority shareholders' interests in Futurestep losses and reversed $0.3 million recorded in the three months ended July 31, 1998. The decrease in non-controlling shareholder' interests from the prior year six month period reflects this reversal. Six Months Ended October 31, 1999 Compared to Six Months Ended October 31, 1998 Revenues Revenues increased $45.2 million, or 26%, to $221.1 million for the six months ended October 31, 1999 from $175.9 million for the six months ended October 31, 1998. The increase in revenues was primarily the result of a 10% increase in the number of executive search engagements supported by a 9% increase in the average number of consultants, a 9% increase in the average fee per executive search engagement and revenues from Futurestep in the current six month period. In North America, revenues increased $29.8 million, or 33%, to $121.4 million for the six months ended October 31, 1999 from $91.5 million for the comparable period in the prior year. In Asia/Pacific, revenues increased $7.2 million, or 43%, to $23.9 million for the six months ended October 31, 1999 from $16.6 million for the six months ended October 31, 1998. Revenue growth in North America and Asia/Pacific was attributable mainly to a 13% and 48% increase, respectively, in the average number of engagements and an increase of 11% and 14%, respectively, in the average number of consultants. In North America this revenue growth was also driven by an increase in the average fee per engagement of 17% over the year ago six month period. Revenues in Europe remained relatively flat at $50.9 million for the six months ended October 31, 1999 compared to $50.5 million for the comparable period in the prior year due primarily to the negative effects of foreign currency translation into the U.S. dollar, which substantially offset revenue increases on a constant dollar basis. The decline in revenues in Latin America of $1.8 million, or 11%, to $14.7 million for the six months ended October 31, 1999 from $16.5 million for the comparable six month period in fiscal 1998 is attributable to continued economic uncertainty in that region. The Company believes the continued uncertainty in Latin America will not have a significant impact on revenues in the third quarter of fiscal 2000. Futurestep revenue of $10.3 million for the six months ended October 31, 1999 is primarily attributable to 344 additional engagements in the current six month period and reflects completion of the roll-out of the North American operations at the end of prior fiscal year and the U.K. in the current year first fiscal quarter. Compensation and Benefits Compensation and benefits expense increased $17.1 million, or 15%, to $133.5 million for the six months ended October 31, 1999 from $116.4 million for the comparable period ended October 31, 1998 due primarily to an increase in the number of consultants offset by a $11.1 million decrease in bonus expense in the current six month period under the revised compensation plan. On a proforma basis, compensation and benefits expense for the six months ended October 31, 1998 reflects a $10.2 million reduction in bonus expense under the revised compensation program. The $27.3 million increase for the six months ended October 31, 1999, including Futurestep expenses of $6.6 million, versus 14 the proforma six months ended October 31, 1998, reflects a 13% and 15% increase in the average number of consultants to 436 from 387 and average total employees to 1,648 from 1,429, respectively, for the six months ended October 31, 1999 over the comparable period in 1998. On a comparable basis, excluding Futurestep and reflecting the prior year six month period on a proforma basis, compensation and benefits expense as a percentage of revenues increased slightly to 60.2% in the most recent six month period from 59.6 % in the proforma six months ended October 31, 1998. General and Administrative Expenses General and administrative expenses consist of occupancy expense associated with the Company's leased premises, investments in information and technology infrastructure, marketing and other general office expenses. General and administrative expenses increased $12.2 million, or 23%, to $65.9 million for the six months ended October 31, 1999 from $53.6 million for the comparable period ended October 31, 1998. This increase was attributable primarily to an increase in Futurestep expenses of $10.1 million, primarily related to advertising and business development in the current six month period. As a percentage of revenues, general and administrative expenses, excluding Futurestep related expenses, declined to 24% for the six months ended October 31, 1999 from 27% for the comparable period in 1998. The decrease primarily reflects the higher percentage increase in revenues and the elimination of excess costs in the current six month period resulting from office rationalization in late fiscal 1999. Operating Profit Operating profit increased $15.9 million in the six months ended October 31, 1999, to $21.8 million, or 10% of revenues from $5.9 million, or 3% of revenues in the prior year six month period. On a comparable basis, excluding the Futurestep loss of $12.4 million and assuming the favorable impact of the new compensation plan in the six months ended October 31, 1998, operating profit for the six months ended October 31, 1999 increased $11.1 million, or 48% to $34.2 million compared to the six months ended October 31, 1998. Operating profit, on a comparable basis, as a percentage of revenues was 16% and 13% for the six months ended October 31, 1999 and 1998, respectively. For the current six month period, operating margins, on this same basis, increased in all regions except in Latin America compared to the prior year six month period due primarily to the increase in revenues and decline in general and administrative expense as a percentage of revenues. The percentage of the Company's operating profit, excluding Futurestep, contributed by North America increased to 65% for the current six month period from 56% for the proforma six months ended October 31, 1998, driven primarily by an increase in both volume and fees. The Latin American region contribution decreased to 11% for the six months ended October 31, 1999 from 22% on a proforma basis for the comparable prior year period mainly due to the percentage decline in revenues commencing in the third quarter of fiscal 1999 while operating costs remained relatively constant. The percentage of the Company's operating profit contributed by the European and Asia/Pacific regions increased to approximately 18% and 7%, respectively, in the six months ended October 31, 1999 from 17% and 6%, respectively, in the proforma six months ended October 31, 1998, primarily reflecting the elimination of excess costs in late fiscal 1999 resulting from office rationalization and in Asia/Pacific increases in both revenues and consultant productivity. Interest and Other Income (Expense) Interest and other income (expense) includes interest income of $2.8 million and $1.3 million and interest expense of $1.6 million and $2.6 million for the six months ended October 31, 1999 and 1998, respectively. The increase in interest income of $1.5 million and decrease in interest expense of $1.0 million is due primarily to interest income from the investment of proceeds received in the initial public offering and a decrease in interest expense resulting from payment of the outstanding balance on bank borrowings upon consummation of the public offering. Provision for Income Taxes The provision for income taxes increased $7.7 million to $9.8 million for the six months ended October 31, 1999 from $2.1 million for the comparable period ended October 31, 1998. The effective tax rate was 42% for the current year six month period as compared to 43% for the prior year six month period. Non-controlling Shareholders' Interests Non-controlling shareholders' interests are comprised of the non- controlling shareholders' majority interests in the Company's Mexico subsidiaries. Non-controlling shareholders' interests remained relatively flat in the current six month period at $1.4 million compared to $1.3 million in the comparable prior year period and reflects the relatively constant net income generated by the Mexico subsidiaries during both of these periods. 15 Liquidity and Capital Resources The Company maintained cash and cash equivalents of $92.5 million as of October 31, 1999. During the six months ended October 31, 1999 and 1998, cash used in operating activities was $1.1 million and $1.7 million, respectively. Included in the operating cash flows for the six months ended October 31, 1999, was approximately $1.1 million of cash used for non-recurring items consisting of severance and benefit payments related to staff downsizing, modification to existing stock repurchase agreements and office rationalization. Capital expenditures totaled $8.9 million and $4.9 million for the six months ended October 31, 1999 and 1998, respectively. These expenditures consisted primarily of systems development costs, upgrades to information systems and leasehold improvements. The $4.0 million increase in capital expenditures in the six months ended October 31, 1999 compared to the prior year six month period, primarily relates to installation of a new financial system. For the six months ended October 31, 1999, the new financial system expenditures of approximately $3.8 million have been capitalized. The new financial system has an expected aggregate installation cost of approximately $11.0 million over fiscal 2000 and 2001. Included in cash flows from investing activities are premiums paid on corporate-owned life insurance ("COLI") contracts. The Company purchases COLI contracts to provide a funding vehicle for anticipated payments due under its deferred executive compensation programs. Premiums on these COLI contracts were $2.8 million and $3.8 million for the six months ended October 31, 1999 and 1998, respectively. Generally, the Company borrows against the available cash surrender value of the COLI contracts to fund the COLI premium payments to the extent interest expense on the borrowings is deductible for U.S. income tax purposes. The decrease in premium payments is attributable to the timing of payments. The Company also purchased $5.8 million of marketable securities in the six months ended October 31, 1999. On May 1, 1998, the Company acquired the assets and liabilities of Didier Vuchot & Associates in France for approximately $6.0 million in cash, notes and mandatorily redeemable stock of a subsidiary of the Company. On June 1, 1998, the Company acquired all of the outstanding shares of Ray and Berndtson SA in Switzerland for $3.6 million payable in cash, notes and mandatorily redeemable common stock of the Company. The acquisitions resulted in a net cash outflow of $1.3 million, comprised of an initial $2.5 million cash payment offset by $1.2 million of cash acquired. During the six months ending October 31, 1999, the Company completed three acquisitions resulting in a total cash outflow of $4.3 million. On June 11, 1999, the Company acquired the assets and liabilities of the Australian business of Amrop International for $3.8 million, offset by deferred compensation of $2.0 million, resulting in a net cash outflow of $1.8 million. On September 15, 1999, the Company acquired Levy-Kerson in New York for $7.3 million, of which $5.6 million was paid in common stock and $1.0 million in notes payable resulting in an initial cash outflow of $0.7 million. On October 1, 1999, the Company acquired Pearson, Caldwell and Farnsworth, in California for $4.3 million, of which $0.6 million was paid in common stock and $2.5 million in notes payable resulting in an initial cash outflow of $1.2 million. The company incurred $0.6 million of additional costs related to these acquisitions. Cash provided by financing activities was approximately $2.3 million and $2.9 million during the six months ended October 31, 1999 and 1998, respectively, which included borrowings under COLI contracts of $1.0 million and $2.2 million in the six months ended October 31, 1999 and 1998, respectively, and proceeds from sales of common stock of the Company to newly hired and promoted consultants and payments on the related promissory notes of $2.2 million and $3.7 million, respectively. Additionally, the Company paid $0.5 million and $2.2 million related to repurchases of common stock of the Company in the six months ended October 31, 1999 and 1998, respectively. Total outstanding borrowings under life insurance policies were $43.7 million and $39.8 million for the six months ended October 31, 1999 and 1998, respectively. Such borrowings are secured by the cash surrender value of the life insurance policies, do not require principal payments and bear interest at various variable rates. The Company believes that cash on hand, funds from operations and its credit facilities will be sufficient to meet its anticipated working capital, capital expenditures, and general corporate requirements for the foreseeable future. Recent Events In November 1999, the Company modified a letter of intent signed on September 12, 1999 to acquire the search and selection recruitment business of PA Consulting Group, a leading management, systems and technology consulting firm based in London for $19.0 million. 16 This acquisition is expected to close in the third quarter of fiscal 2000 subject to completion of the Company's due diligence, negotiation and execution of definitive acquisition agreements, receipt of applicable regulatory approvals and absence of adverse changes in the financial condition of these businesses. The acquisitions will be accounted for as a purchase and the fair market value of the net assets acquired in excess of the consideration, if any, will be recorded as goodwill. On December 10, 1999, the Company completed the acquisition of Helstrom, Turner & Associates, a California-based search firm focused on senior-level assignments for the retail industry for $3.0 million, of which $0.7 million was paid in cash, $1.5 million in stock and the balance in notes payable. On December 13, 1999, the Company completed the acquisition of Crist Partners, a Chicago-based search firm specializing in senior executive assignments for Fortune 500 companies, for $15.0 million of which $8.0 million was paid in cash, $2.0 million in stock and the balance in notes payable. Year 2000 Compliance The Year 2000 issue is the result of computer programs being written to use two digits to define year dates. Computer programs running date-sensitive software may recognize a date using "00" as the year 1900 rather than the year 2000. This defect could result in systems failure or miscalculations causing disruptions of operations. The Company utilizes information technology to facilitate (i) its internal search processes and inter-office communications, (ii) communications with candidates and clients and (iii) its financial management systems and other support systems. The statements contained in this section are "Year 2000 Readiness Disclosures" as provided for in the Year 2000 Information and Readiness Disclosure Act. The following scenarios with respect to the Company's systems could occur: (i) its software may not be Year 2000 compliant, (ii) integration of upgrades may not be complete by the year 2000 and (iii) replacement of its non-compliant systems may be complete by the year 2000 but not fully tested or monitored prior to the year 2000 such that testing and monitoring will uncover problems that the Company cannot remedy in a timely manner. Failure of search-related systems to be Year 2000 compliant might force the Company to use different Year 2000 compliant systems to conduct searches and might decrease productivity. Any failure of the Company's financial systems to be Year 2000 compliant could hinder timely reporting of financial data and processing of financial information as these functions would have to be performed manually using non-networked computers. If any non-information technology systems is not Year 2000 compliant, the Company will need to repair or replace such systems. The Company believes that failure to be Year 2000 compliant will not have a significant impact on its human resource systems. The Company's interruption or loss of information processing capabilities due to Year 2000 issues could have a material adverse effect on the Company's business, results of operations and financial condition. In fiscal 1999, the Company completed an inventory and Year 2000 assessment of its principal computer systems, network elements, software applications and other business systems. The Company incurred costs of approximately $0.4 million through October 31, 1999 to resolve Year 2000 issues and expects to incur approximately $0.1 million of additional costs in fiscal 2000. Expenses incurred on the Year 2000 issues are being funded through operating cash flows. The Company estimates full compliance by December 31, 1999. The costs relating to the Year 2000 issues and the date on which the Company believes it will complete the Year 2000 modifications are based on management's best estimates, which were derived utilizing numerous assumptions of future events, including the continued availability of certain resources, third-party modification plans and other factors. Actual results could differ materially from those anticipated. The Company's primary business does not depend on material relationships with third party vendors but utilizes third party vendors for a number of functions, including its automated payroll functions, insurance and investment of pension funds. The Company has initiated formal communications with third party providers to determine the extent to which these third parties are moving toward Year 2000 compliance and believes these third parties will be Year 2000 compliant by December 31, 1999. The Company also utilizes third party on-line information services and the Internet to communicate and to retrieve information about potential candidates and clients. Failure of these third parties to have their systems Year 2000 compliant may have a material adverse effect on the Company's operations. The Company has fully implemented and tested a disaster recovery plan that includes the implementation of alternative services in the event of a business disruption. The plan addresses critical resources for the Company and key resources for its remote offices, including interruptions that are the result of problems arising from the Year 2000 17 issue. During and after any disaster, these back-up solutions are intended to serve as temporary replacements for the Company's e-mail, Internet access and proprietary applications, which are integral to the Company's business. Euro Conversion As of January 1, 1999, several member countries of the European Union established fixed conversion rates among their existing local currencies, and adopted the Euro as their new common legal currency. The Euro trades on currency exchanges and the legacy currencies will remain legal tender in the participating countries for a transition period which expires January 1, 2002. The conversion to the Euro has not had a significant impact on the Company's operations to date. During the transition period, cashless payments can be made in the Euro, and parties can elect to pay for goods and services and transact business using either the Euro or a legacy currency. Between January 1, 2002 and October 1, 2002, the participating countries will introduce Euro notes and coins and withdraw all legacy currencies so that they will no longer be available. The Company is currently assessing its information technology systems to determine whether they allow for transactions to take place in both the legacy currencies and the Euro and accommodate the eventual elimination of the legacy currencies. The Company's currency risk may be reduced as the legacy currencies are converted to the Euro. Accounting, tax and governmental legal and regulatory guidance generally has not been provided in final form and the Company will continue to evaluate issues involving introduction of the Euro throughout the transition period. The conversion to the Euro has not had a significant impact on the Company's operations to date. Recently Issued Accounting Standards During 1998, the Financial Accounting Standards Board ("FASB") issued Statement of Financial Accounting Standard ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging Activities," ("SFAS 133") which establishes new standards for reporting derivative and hedging information. FASB issued SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities - Deferral of the Effective Date of FASB No. 133," in 1999, which deferred the effective date of SFAS 133 for one year. The standard is effective for periods beginning after June 15, 2000 and will be adopted by the Company as of May 1, 2001. It is not expected that the adoption of this standard will have any impact on the consolidated financial statements nor require additional footnote disclosure since the Company does not currently utilize derivative instruments or participate in structured hedging activities. Forward-looking Statements This Management's Discussion and Analysis of Financial Condition and Results of Operations and other sections of this Quarterly Report on Form 10-Q contain forward looking statements that are based on the current beliefs and expectations of the Company's management, as well as assumptions made by, and information currently available to, the Company's management. Such statements include those regarding general economic and executive search industry trends. Because such statements involve risks and uncertainties, actual actions and strategies and the timing and expected results thereof may differ materially from those expressed or implied by such forward-looking statements, and the Company's future results, performance or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Future events and actual results could differ materially from those set forth in or underlying the forward-looking statements. Forward-looking statements are inherently subject to risks and uncertainties, some of which cannot be predicted. These potential risks and uncertainties include, but are not limited to, dependence on attracting and retaining qualified executive search consultants, portability of client relationships, risks associated with global operations, ability to manage growth, restrictions imposed by off-limits agreements, competition, implementation of an acquisition strategy, risks related to the development and growth of Futurestep, reliance on information processing systems and the impact of Year 2000 issues, and employment liability risk. In addition to the factors noted above, other risks, uncertainties, assumptions, and factors that could affect the Company's financial results are referenced in the Company's fiscal year 1999 Annual Report on Form 10-K as filed with the SEC on July 28, 1999 and should be read in conjunction with this Quarterly Report on Form 10-Q. 18 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK Currency Market Risk As a result of its global operating activities, the Company is exposed to certain market risks including changes in foreign currency fluctuations, fluctuations in interest rate and variability in interest rate spread relationships. The Company manages its exposure to these risks in the normal course of its business as described below. The Company has not utilized financial instruments for trading or other speculative purposes nor does it trade in derivative financial instruments. Foreign Currency Risk Historically, the Company has not experienced any significant net translation gains or losses on transactions involving U.S. dollars and other currencies. This is primarily due to natural hedges of revenues and expenses in the functional currencies of the countries in which its offices are located and investment of excess cash balances in U.S. dollar denominated accounts. Interest Rate Risk The Company primarily manages its exposure to fluctuations in interest rates through its regular financing activities that generally are short term and provide for variable market rates. The Company has no outstanding balance on either its term loan and revolving line of credit. As of October 31, 1999, the Company had outstanding borrowings of $43.7 million against the cash surrender value of COLI contracts bearing interest at various variable rates payable at least annually and $0.6 million of long-term notes payable to former shareholders payable through fiscal 2004 at variable market rates. The Company has investments of approximately $98.9 million in interest bearing securities at market rates with original maturities ranging from November 1999 to October 2001. The Company has not experienced a material change in its primary market risk exposures or how those exposures are managed compared to what was in effect in fiscal 1999. PART II. OTHER INFORMATION Item 2. Changes in Securities and Use of Proceeds (a) Changes in Securities Effective September 22, 1999, the Company changed its state of incorporation from California to Delaware. The reincorporation was accomplished through a merger (the "Merger") of Korn/Ferry International, a California corporation ("KFY California"), into its wholly owned Delaware subsidiary of the same name ("KFY Delaware"). As a result of the Merger, each outstanding share of KFY California Common Stock, no par value per share, was automatically converted into one share of KFY Delaware Common Stock, par value $0.01 per share. The reincorporation proposal was approved by the Company's shareholders at the Company's annual meeting of shareholders on September 22, 1999. (b) Use of Proceeds From May 1, 1999 until October 31, 1999, approximately $21.2 million of the net proceeds to the Company from the Company's February 1999 initial public offering was used primarily for Futurestep working capital, three acquisitions aggregating $4.3 million, and capital expenditures of $3.8 million relating to installation of a new financial system. Item 4. Submission of Matters to a Vote of Security Holders The annual meeting of shareholders was held on September 22, 1999. The business at the meeting was (i) to elect thirteen directors to serve on the board, (ii) to approve the reincorporation of the Company in Delaware from California, and (iii) to ratify the selection of Arthur Andersen LLP as the Company's independent auditors for fiscal 2000. Each of the proposals was adopted. 19 (i) The number of votes for and withheld for each director were as follows:
For Withheld ---------- --------- For terms expiring in the year 2000: Paul Buchanan Barrow 25,369,243 2,714,567 Manuel A. Papayanopulos 26,068,690 2,015,120 Windle B. Priem 27,364,386 719,424 Michael A. Wellman 26,217,324 1,866,486 For terms expiring in the year 2001: James E. Bartlett 27,280,566 803,244 Richard M. Ferry 27,321,110 762,700 Timothy K. Friar 26,570,084 1,513,726 Sakie Fukushima 26,364,664 1,719,146 Scott E. Kingdom 26,723,628 1,360,182 For terms expiring in the year 2002: Frank V. Cahouet 27,023,750 1,060,060 Peter L. Dunn 26,897,480 1,186,330 Charles D. Miller 27,114,282 969,528 Gerhard Schulmeyer 27,380,706 703,104
(ii) The number of votes for, against, abstaining, and broker non-vote for the approval of the reincorporation of the Company in Delaware from California were as follows:
For Against Abstaining Broker Non-Vote ---------- --------- ---------- --------------- 23,223,008 3,664,460 365,840 830,502
(iii) The number of votes for, against, abstaining, and broker non-vote for the ratification of Arthur Andersen LLP were as follows:
For Against Abstaining Broker Non-Vote ---------- --------- ---------- --------------- 27,874,506 96,740 112,560 0
Item 5. Other Information On September 12, 1999, the Company signed a letter of intent to acquire the search and selection recruitment business of PA Consulting Group, a leading management, systems and technology consulting firm based in London, for an amount in cash or substantially all in cash equal to 1.05 times trailing twelve months revenue, estimated to be approximately $35.0 million in pounds sterling, subject to finalization of financial statements. In November 1999, the Company revised this letter of intent to reduce the purchase price to $19.0 million U.S. dollars. The Company intends to fund the acquisition with currently available cash. Consummation of the proposed transaction is subject to completion of the Company's due diligence, negotiation and execution of a definitive acquisition agreement, receipt of applicable regulatory approvals and absence of adverse changes in the financial condition of the search and selection recruitment business. 20 Item 6. Exhibits and Reports on Form 8-K (a) Exhibits Exhibit Number Description of Exhibit ------- ---------------------- 3.1 Certificate of Incorporation 3.2 Bylaws 27.1 Financial Data Schedule for the six months ended October 31, 1999 (b) Reports on Form 8-K Current report event date September 22, 1999 (Item 5 and Item 7) was filed with the SEC on September 22, 1999. 21 SIGNATURE Pursuant to the requirements of the Securities Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. KORN/FERRY INTERNATIONAL Date: December 14, 1999 By: /s/ Elizabeth S.C.S. Murray ------------------------------- Elizabeth S.C.S. Murray Chief Financial Officer and Executive Vice President 22 EXHIBIT INDEX Exhibit Number Description of Exhibit - ------- ---------------------- 3.1 Certificate of Incorporation 3.2 Bylaws 27.1 Financial Data Schedule for the six months ended October 31, 1999 23 EX-3.1 2 CERTIFICATE OF INCORPORATION EXHIBIT 3.1 CERTIFICATE OF INCORPORATION OF KORN/FERRY INTERNATIONAL I, the undersigned, for the purposes of incorporating and organizing a corporation under the General Corporation Law of the State of Delaware, do execute this Certificate of Incorporation and do hereby certify as follows: ARTICLE I: NAME The name of the corporation is Korn/Ferry International (the "Corporation"). ARTICLE II: REGISTERED OFFICE The address of the registered office of the Corporation in the State of Delaware is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The name of its registered agent at such address is Corporation Trust Company. ARTICLE III: PURPOSE The purpose of the Corporation is to engage in any lawful act or activity for which corporations may be organized under the General Corporation Law of the State of Delaware. ARTICLE IV: STOCK Section 1. Authorized Shares. The total number of shares of all classes which the Corporation shall have the authority to issue shall be 200,000,000, which shall be divided into two classes, one to be designated "Common Stock," which shall consist of 150,000,000 authorized shares, $0.01 par value per share, and a second class to be designated as "Preferred Stock," which shall consist of 50,000,000 authorized shares, $0.01 par value per share. Section 2. Preferred Stock of the Corporation. The Preferred Stock may be issued in one or more series, from time to time, each series to be appropriately designated by a distinguishing number, letter or title, prior to the issuance of any shares thereof. Section 3. Authority of Board of Directors to Issue Stock. Each series of Preferred Stock shall consist of such number of shares and have such voting powers, full or limited, or no voting powers, and such designations, preferences and relative, participating, optional or other special rights, and the qualifications, limitations or restrictions thereof, as shall be stated in the resolutions or resolutions providing for the issuance of such series adopted by the Board of Directors of the Corporation (the "Board of Directors"), and the Board of Directors is hereby expressly vested with authority, to the full extent now or hereafter provided by law, to adopt any such resolution or resolutions. The authority of the Board of Directors with respect to each series shall include, but not be limited to, determination of the following: (a) The number of shares constituting the series and the distinctive designation of that series; (b) The dividend rate on the shares of that series, whether dividends shall be cumulative, and, if so, from which date or dates, and the relative rights of priority, if any, of payment of dividends on shares of that series; (c) Whether that series shall have voting rights, in addition to the voting rights provided by law, and, if so, the terms of such voting rights; (d) Whether that series shall have conversion privileges, and, if so, the terms and conditions of such conversion, including provision for adjustment of the conversion rate in such events as the Board of Directors shall determine; (e) Whether or not the shares of that series shall be redeemable, and, if so, the terms and conditions of such redemption, including the date or date upon or after which they shall be redeemable, and the amount per share payable in case of redemption, which amount may vary under different conditions and at different redemption dates; (f) Whether that series shall have a sinking fund for the redemption or purchase of shares of that series, and, if so, the terms and amount of such sinking fund; (g) The rights of the shares of that series in the event of voluntary or involuntary liquidation, dissolution or winding-up of the Corporation, and the relative rights of priority, if any, of payment of shares of that series; and (h) Any other relative rights, preferences and limitations of that series. Section 4. No Preemptive or Preferential Rights. No holders of shares of the Corporation of any class, now or hereafter authorized, shall have any preferential or preemptive rights to subscribe for, purchase or receive any shares of the Corporation of any class, now or hereafter authorized, or any options or warrants to subscribe for such shares, or any rights to subscribe for, purchase or receive any securities convertible to or exchangeable for such shares, which may at any time be issued, sold or offered for sale by the Corporation. ARTICLE V: INCORPORATOR The name and mailing address of the incorporator are as follows: Peter L. Dunn, Korn/Ferry International, 1800 Century Park East, Suite 900, Los Angeles, California 90067. ARTICLE VI: BYLAWS In furtherance and not in limitation of the powers conferred by the laws of the State of Delaware, the Board of Directors is expressly authorized to adopt, alter, amend and repeal the Bylaws of the Corporation, subject to the power of the stockholders of the Corporation to alter or repeal any bylaw whether adopted by them or otherwise; provided, however, that the affirmative vote of 66 and 2/3 percent of the voting power of the capital stock of the Corporation entitled to vote thereon shall be required for stockholders to adopt, amend, alter or repeal any provision of the Bylaws of the Corporation. ARTICLE VII: ELECTION OF DIRECTORS Unless and except to the extent that the Bylaws of the Corporation shall so require, the election of directors of the Corporation need not be by written ballot. 2 ARTICLE VIII: NUMBER OF DIRECTORS Except as otherwise provided for or fixed by or pursuant to the provisions of Article IV of this Certificate of Incorporation or any resolution or resolutions of the Board of Directors providing the issuance of any class or series of stock having a preference over the Common Stock as to dividends or upon liquidation to elect additional directors under specified circumstances, the Board of Directors shall consist of not fewer than 8 nor more than 15 directors, the exact number of directors within such limits to be determined solely by the Board of Directors in the manner set forth in the Bylaws of the Corporation. The directors, other than those who may be elected by the holders of Preferred Stock or any other class or series of stock having a preference over the Common Stock as to dividends or upon liquidation pursuant to the terms of this Certificate of Incorporation or any resolution or resolutions providing for the issuance of such class or series of stock adopted by the Board of Directors, shall be divided into three classes, as nearly equal in number as possible. The initial Class I, Class II and Class III Directors, or, if applicable, their respective successors by reason of merger of the Corporation with another corporation prior to the first annual meeting of the stockholders following the filing of this Certificate of Incorporation, shall serve for a term expiring at the first, second and third annual meetings of the stockholders following the filing of this Certificate of Incorporation, respectively. Each director in each of the initial classes of directors shall hold office until his or her successor is duly elected and qualified. At each annual meeting of the stockholders beginning with the first annual meeting of the stockholders following the filing of this Certificate of Incorporation, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of the stockholders to be held in the third year following the year of their election, with each director in each such class to hold office until his or her successor is duly elected and qualified. ARTICLE IX: DIRECTOR LIABILITY A director of the Corporation shall not be liable to the Corporation or its stockholders for monetary damages for breach of fiduciary duty as a director, except to the extent such exemption from liability or limitation thereof is not permitted under the General Corporation Law of the State of Delaware as the same exists or may hereafter be amended. Any amendment, modification or repeal of the foregoing sentence shall not adversely affect any right or protection of a director of the Corporation hereunder in respect of any act or omission occurring prior to the time of such amendment, modification or repeal. ARTICLE X: REMOVAL OF DIRECTORS Any or all directors may be removed for cause if such removal is approved by the holders of a majority of the outstanding shares entitled to vote at an election of directors. ARTICLE XI: RESERVATION OF RIGHTS BY THE CORPORATION The Corporation hereby reserves the right at any time and from time to time to amend, alter, change or repeal any provisions contained in this Certificate of Incorporation, and other provisions authorized by the laws of the State of Delaware at the time in force may be added or inserted, in the manner now or hereafter prescribed by law, and all rights, preferences and privileges of whatsoever nature conferred upon stockholders, directors or any other persons whomsoever by or pursuant to this Certificate of Incorporation in its present form or as hereafter amended are granted subject to the right reserved in this Article XI. 3 ARTICLE XII: MEETINGS OF THE STOCKHOLDERS Section 1. Place of Meetings. Meetings of the stockholders may be held within or without the State of Delaware, as the Bylaws of the Corporation may provide. Section 2. Ability to Call Special Meetings. Special meetings of the stockholders may be called only by the Board of Directors, the Chair of the Board of Directors, the Chief Executive Officer or the President of the Corporation, and may not be called by any other person or persons. ARTICLE XIII: BOOKS OF THE CORPORATION The books of the Corporation may be kept (subject to any provision contained in the laws of the State of Delaware) outside of the State of Delaware at such place or places as may be designated from time to time by the Board of Directors or in the Bylaws of the Corporation. ARTICLE XIV: ACTION BY WRITTEN CONSENT OF STOCKHOLDERS PROHIBITED No action that is required or permitted to be taken by the stockholders of the Corporation at any annual or special meeting of the stockholders may be effected by written consent of the stockholders in lieu of a meeting of the stockholders, unless the action to be effected by written consent of stockholders and the taking of such action by such written consent have expressly been approved in advance by the Board of Directors of the Corporation. Notwithstanding anything contained in this Certificate of Incorporation to the contrary, the affirmative vote of at least 66 and 2/3 percent in voting power of the then outstanding voting stock of the Corporation, voting together as a single class, shall be required to amend, repeal or adopt any provision inconsistent with this Article XIV. The undersigned Incorporator hereby acknowledges that the foregoing Certificate of Incorporation is his act and deed on September 13, 1999. /s/ Peter L. Dunn ------------------------------------- Peter L. Dunn Incorporator 4 EX-3.2 3 BYLAWS EXHIBIT 3.2 BYLAWS OF KORN/FERRY INTERNATIONAL, A DELAWARE CORPORATION INDEX ARTICLE I--OFFICES. Section 1. REGISTERED OFFICE........................................ 1 Section 2. PRINCIPAL EXECUTIVE OFFICE............................... 1 Section 3. OTHER OFFICES............................................ 1 ARTICLE II--STOCKHOLDERS. Section 1. PLACE OF MEETINGS........................................ 1 Section 2. ANNUAL MEETINGS.......................................... 1 Section 3. BUSINESS WHICH MAY BE CONDUCTED AT MEETINGS OF THE STOCKHOLDERS............................................ 1 Section 4. SPECIAL MEETINGS......................................... 3 Section 5. NOTICE OF ANNUAL OR SPECIAL MEETINGS..................... 3 Section 6. QUORUM--REQUIRED VOTES................................... 4 Section 7. ADJOURNED MEETINGS AND NOTICE THEREOF.................... 4 Section 8. VOTING................................................... 4 Section 9. RECORD DATE.............................................. 5 Section 10. CONSENT OF ABSENTEES..................................... 6 Section 11. PROXIES.................................................. 6 Section 12. INSPECTORS OF ELECTION................................... 7 Section 13. CONDUCT OF MEETING....................................... 7 Section 14. LIST OF STOCKHOLDERS ENTITLED TO VOTE.................... 7 Section 15. CONSENT OF STOCKHOLDERS IN LIEU OF MEETING............... 7 ARTICLE III--DIRECTORS. Section 1. POWERS................................................... 9 Section 2. NUMBER OF DIRECTORS...................................... 10 Section 3. NOMINATION, ELECTION, QUALIFICATION AND TERM OF OFFICE... 10 Section 4. VACANCIES................................................ 10 Section 5. PLACE OF MEETING......................................... 11 Section 6. REGULAR MEETINGS......................................... 11 Section 7. SPECIAL MEETINGS......................................... 11 Section 8. QUORUM................................................... 11 Section 9. PARTICIPATION IN MEETINGS BY COMMUNICATIONS EQUIPMENT.... 11 Section 10. WAIVER OF NOTICE......................................... 12 Section 11. ADJOURNMENT.............................................. 12 Section 12. FEES AND COMPENSATION.................................... 12 Section 13. ACTION WITHOUT MEETING................................... 12 Section 14. RIGHTS OF INSPECTION..................................... 12 Section 15. COMMITTEES............................................... 12 Section 16. STANDING COMMITTEES...................................... 13 ARTICLE IV--OFFICERS. Section 1. OFFICERS................................................. 14 Section 2. ELECTION OR APPOINTMENT.................................. 14 Section 3. ELECTED SENIOR OFFICERS.................................. 14 Section 4. REMOVAL AND RESIGNATION.................................. 15 Section 5. VACANCIES................................................ 15 ARTICLE V--OTHER PROVISIONS. Section 1. INSPECTION OF CORPORATE RECORDS.......................... 15 Section 2. INSPECTION OF BYLAWS..................................... 16 Section 3. ENDORSEMENT OF DOCUMENTS; CONTRACTS...................... 16
i Section 4. CERTIFICATES OF STOCK...................................... 16 Section 5. REPRESENTATION OF SHARES OF OTHER CORPORATIONS............. 16 Section 6. STOCK PURCHASE PLANS....................................... 17 Section 7. ELECTION OF FISCAL YEAR.................................... 17 Section 8. CONSTRUCTION AND DEFINITIONS............................... 17 Section 9. AMENDMENTS................................................. 17 Section 10. LOANS TO OFFICERS AND OTHER EMPLOYEES...................... 17 Section 11. EMERGENCY BYLAWS........................................... 17 ARTICLE VI--INDEMNIFICATION. Section 1. RIGHT TO INDEMNIFICATION................................... 18 Section 2. PREPAYMENT OF EXPENSES..................................... 19 Section 3. CLAIMS..................................................... 19 Section 4. NON-EXCLUSIVITY OF RIGHTS.................................. 19 Section 5. OTHER SOURCES.............................................. 19 Section 6. AMENDMENT OR REPEAL........................................ 19 Section 7. OTHER INDEMNIFICATION AND PREPAYMENT OF EXPENSES........... 19
ii BYLAWS FOR THE REGULATION, EXCEPT AS OTHERWISE PROVIDED BY STATUTE OR ITS CERTIFICATE OF INCORPORATION, OF KORN/FERRY INTERNATIONAL ARTICLE I. OFFICES. Section 1. Registered Office. The registered office of the corporation in the State of Delaware shall be fixed in the Certificate of Incorporation of the corporation. Section 2. Principal Executive Office. The corporation's principal executive office shall be fixed and located at such place, either within or without the State of Delaware, as the Board of Directors of the corporation (the "Board") shall determine. The Board is granted full power and authority to change said principal executive office from one location to another. Section 3. Other Offices. The corporation may have such other offices, either within or without the State of Delaware, as the Board may designate or the business of the corporation may from time to time require. ARTICLE II. STOCKHOLDERS. Section 1. Place of Meetings. Meetings of the stockholders shall be held either at the principal executive office of the corporation or at any other place within or without the State of Delaware as may be designated by the Board and filed with the Secretary of the corporation. Section 2. Annual Meetings. The annual meetings of the stockholders shall be held at such time, date and place, either within or without the State of Delaware, as may be fixed by the Board. At such meetings, directors shall be elected and any other proper business may be transacted. Section 3. Business Which May Be Conducted at Meetings of the Stockholders. (a) Annual Meetings of the Stockholders. (i) Nominations of persons for election to the Board and the proposal of business to be considered by the stockholders may be made at an annual meeting of the stockholders only (A) pursuant to the corporation's notice of meeting (or any supplement thereto), (B) by or at the direction of the Board or (C) by any stockholder of the corporation who was a stockholder of record of the corporation at the time the notice provided for in this Section 3 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 3. (ii) For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (C) of paragraph (a)(i) of this Section 3, the stockholder must have given timely notice thereof in writing to the Secretary of the corporation and any such proposed business other than the nominations of persons for election to the Board must constitute a proper matter for stockholder action. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive 1 offices of the corporation not later than the close of business on the 90th day nor earlier than the close of business on the 120th day prior to the first anniversary of the preceding year's annual meeting (provided, however, that in the event that the date of the annual meeting is more than 30 days before or more than 70 days after such anniversary date, notice by the stockholder must be so delivered not earlier than the close of business on the 120th day prior to such annual meeting and not later than the close of business on the later of the 90th day prior to such annual meeting or the 10th day following the day on which public announcement of the date of such meeting is first made by the corporation). In no event shall the public announcement of an adjournment or postponement of an annual meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposes to nominate for election as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "Exchange Act") and Rule 14a-11 thereunder (and such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the text of the proposal or business (including the text of any resolutions proposed for consideration and, in the event that such business includes a proposal to amend the Bylaws of the corporation, the language of the proposed amendment), the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (1) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (2) the class and number of shares of capital stock of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, (3) a representation that the stockholder is a holder of record of stock of the corporation entitled to vote at such meeting and intends to appear in person or by proxy at such meeting to propose such business or nomination, and (4) a representation whether the stockholder or beneficial owner, if any, intends or is part of a group which intends (x) to deliver a proxy statement and/or form of proxy to holders of at least the percentage of the corporation's outstanding capital stock required to approve or adopt the proposal or elect the nominee and/or (y) otherwise to solicit proxies from stockholders in support of such proposal or nomination. The corporation may require any proposed nominee to furnish such other information as it may reasonably require to determine the eligibility of such proposed nominee to serve as a director of the corporation. (iii) Notwithstanding anything in the second sentence of paragraph (a)(ii) of this Section 3 to the contrary, in the event that the number of directors to be elected to the Board of the corporation at the annual meeting is increased and there is no public announcement by the corporation naming the nominees for the additional directorships at least 100 days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 3 shall also be considered timely, but only with respect to nominees for the additional directorships, if it shall be delivered to the Secretary of the corporation at the principal executive offices of the corporation not later than the close of business on the 10th day following the day on which such public announcement is first made by the corporation. (b) Special Meetings of the Stockholders. Only such business shall be conducted at a special meeting of the stockholders as shall have been brought before the meeting pursuant to the corporation's notice of meeting. Nominations of persons for election to the Board may be made at a special meeting of the stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board or (ii) provided that the Board has determined that directors shall be elected at such meeting, by any stockholder of the corporation who is a stockholder of record at the time the notice provided for in this Section 3 is delivered to the Secretary of the corporation, who is entitled to vote at the meeting and upon such election, and who complies with the notice procedures set forth in this Section 3. In the event the corporation calls a special meeting of the stockholders for the purpose of electing one or more directors to the Board, any stockholder entitled to vote in such election of directors may nominate a person or persons (as the 2 case may be) for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by paragraph (a)(ii) of this Section 3 shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the 120th day prior to such special meeting and not later than the close of business on the later of the 90th day prior to such special meeting or the 10th day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board to be elected at such meeting. In no event shall the public announcement of an adjournment or postponement of a special meeting commence a new time period (or extend any time period) for the giving of a stockholder's notice as described above. (c) General. (i) Only persons who are nominated in accordance with the procedures set forth in this Section 3 shall be eligible to be elected at an annual or special meeting of the stockholders of the corporation to serve as directors and only such business shall be conducted at a meeting of the stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 3. Except as otherwise provided by law, the Chair of the Board, as chair of the meeting, shall have the power and duty (A) to determine whether a nomination or any business proposed to be brought before the meeting was made or proposed, as the case may be, in accordance with the procedures set forth in this Section 3 (including whether the stockholder or beneficial owner, if any, on whose behalf the nomination or proposal is made or solicited (or is part of a group which solicited) or did not so solicit, as the case may be, proxies in support of such stockholder's nominee or proposal in compliance with such stockholder's representation as required by clause (a)(ii)(C)(4) of this Section 3) and (B) if any proposed nomination or business was not made or proposed in compliance with the Section 3, to declare that such nomination shall be disregarded or that such proposed business shall not be transacted. (ii) For purposes of this Section 3, "public announcement" shall include disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the Exchange Act. (iii) Notwithstanding the foregoing provisions of this Section 3, a stockholder shall also comply with all applicable requirements of the Exchange Act and the rules and regulations thereunder with respect to the matters set forth in this Section 3. Nothing in this Section 3 shall be deemed to affect any rights (A) of stockholders to request inclusion of proposals in the corporation's proxy statement pursuant to Rule 14a-8 under the Exchange Act or (B) of the holders of any series of Preferred Stock to elect directors pursuant to any applicable provisions of the Certificate of Incorporation of the corporation. Section 4. Special Meetings. Special meetings of the stockholders may be called only by the Board, the Chair of the Board, the Chief Executive Officer or the President, and may not be called by any other person or persons. Upon written request delivered to the Secretary of the corporation by any person or persons (other than the Board) entitled to call a special meeting of the stockholders, the Secretary shall cause notice to be given to the stockholders entitled to vote that a meeting will be held at the time requested by the person or persons calling the meeting. If notice of a special meeting of the stockholders is not given within 20 days after the Secretary's receipt of the request, the person or persons entitled to call the meeting may give the notice. Subject to the provisions of applicable law, only such business shall be considered at a special meeting of the stockholders as shall have been stated in the notice for such meeting. Section 5. Notice of Annual or Special Meetings. (a) Time Periods. Written notice of each annual or special meeting of the stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting. Such notice shall state the place, date and hour of the meeting and (i) in the case of the annual meeting, those matters which the Board, at the time of the mailing of the notice, intends to present for action by the stockholders (but, subject to Section 3 of this Article II and the provisions of applicable law, any other matters 3 properly brought may be presented at the meeting for action) or (ii) in the case of a special meeting, the purpose or purposes for which the meeting was called. The notice of any meeting at which directors are to be elected shall include the names of nominees intended at the time of the notice to be presented by the Board for election. (b) Method. Notice of a stockholders' meeting shall be given: (i) in writing or (ii) by United States mail, addressed to the stockholder at the address of such stockholder appearing on the books of the corporation or given by the stockholder to the corporation for the purpose of notice. Notice by mail shall be deemed to have been given at the time written notice is deposited in the United States mail, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient, delivered to a common carrier for transmission or actually transmitted by the person giving the notice by electronic means to the recipient. Section 6. Quorum--Required Votes. Except as otherwise provided by law, the Certificate of Incorporation of the corporation or these bylaws, at each meeting of the stockholders the presence in person or by proxy of the holders of a majority in voting power of the outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. In the absence of a quorum, the stockholders so present may, by a majority in voting power thereof, adjourn the meeting from time to time in the manner provided in Section 7 of this Article II until a quorum shall attend. Section 7. Adjourned Meetings and Notice Thereof. Any meeting of the stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of any such adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. Section 8. Voting. The stockholders entitled to notice of any meeting or to vote at any such meeting shall be only those persons in whose name shares stand on the stock records of the corporation on the record date determined in accordance with Section 9 of this Article II. Voting at meetings of the stockholders need not be by written ballot. At all meetings of the stockholders for the election of directors, a plurality of the votes cast shall be sufficient to elect. All other elections and questions shall, unless otherwise provided by the Certificate of Incorporation of the corporation, these bylaws, the rules or regulations of any stock exchange applicable to the corporation or as otherwise provided by law or pursuant to any regulation applicable to the corporation, be decided by the affirmative vote of the holders of a majority in voting power of the shares of stock of the corporation which are present in person or by proxy and entitled to vote thereon. Voting shall in all cases be subject to the following provisions: (a) The stockholders of the corporation shall not have the right to cumulate their votes for the election of directors of the corporation. (b) Shares held by an administrator, executor, guardian, conservator or custodian may be voted by such holder either in person or by proxy, without a transfer of such shares into the holder's name; and shares standing in the name of a trust may be voted by the trustee of such trust, either in person or by proxy, but no trustee shall be entitled to vote shares held by such trust without a transfer of such shares into the trust's name. 4 (c) Shares standing in the name of a receiver may be voted by such receiver, and shares held by or under the control of a receiver may be voted by such receiver without the transfer thereof into the receiver's name if authority to do so is contained in the order of the court by which such receiver was appointed. (d) Except where otherwise agreed in writing between the parties, a stockholder whose shares are pledged shall be entitled to vote such shares until the shares have been transferred into the name of the pledgee, and thereafter the pledgee shall be entitled to vote the shares so transferred. (e) Shares standing in the name of a minor may be voted by, and the corporation may treat all rights incident thereto as exercisable by, the minor, in person or by proxy, whether or not the corporation has notice, actual or constructive, of the minor's actual age, unless a guardian of the minor's property has been appointed and written notice of such appointment has been given to the corporation. (f) Shares standing in the name of another corporation, domestic or foreign, may be voted by such officer, agent or proxyholder of such other corporation as the bylaws of such other corporation may prescribe or, in the absence of such provision, as the board of directors of such other corporation may determine or, in the absence of such determination, by the chair of the board of directors, president or any vice president of such other corporation, or by any other person authorized to do so by the chair of the board, president or any vice president of such other corporation. Shares which are purported to be voted or any proxy purported to be executed in the name of a corporation (whether or not any title of the person signing is indicated) shall be presumed to be voted or the proxy executed in accordance with the provisions of this clause, unless the contrary is shown. (g) Shares of the corporation owned by its subsidiaries shall not be entitled to vote on any matter. (h) If shares stand of record in the names of two or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, husband and wife as community property, tenants by the entirety, voting trustees, persons entitled to vote under a stockholder voting agreement or otherwise, or if two or more persons (including proxyholders) have the same fiduciary relationship respecting the same shares, unless the Secretary of the corporation is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (i) If only one votes, such act binds all; (ii) If more than one vote, the act of the majority so voting binds all; or (iii) If more than one vote, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionately. If the instrument so filed or the registration of the shares shows that any such tenancy is held in unequal interests, a majority or even split for the purpose of this Section 8 shall be a majority or even split in interest. Section 9. Record Date. In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of the stockholders or any adjournment thereof, or to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which record date: (a) in the case of determination of stockholders entitled to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than 60 nor less than 10 days before the date of such meeting; (b) in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than 10 days from the date upon which the resolution fixing the record date is adopted by the Board and (c) in the case of any other action, shall not be more than 60 days prior to such other action. If no record date is fixed: (a) the record date for determining stockholders entitled to notice of or to vote at a meeting of 5 stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held; (b) the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting, when no prior action of the Board is required by law or the Certificate of Incorporation of the corporation, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with applicable law, or, if prior action by the Board is required by law or the Certificate of Incorporation of the corporation, shall be at the close of business on the day on which the Board adopts the resolution taking such prior action and (c) the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board may fix a new record date for the adjourned meeting. Section 10. Consent of Absentees. The transactions of any meeting of the stockholders, however called and noticed, and wherever held, are as valid as though conducted at a meeting duly held after regular call and notice, if a quorum is present either in person or by proxy, and if, either before or after the meeting, each of the persons entitled to vote, not present in person or by proxy, signs a written waiver of notice, or a consent to the holding of the meeting or an approval of the minutes thereof. All such waivers, consents or approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Attendance of a person at a meeting shall constitute a waiver of notice of and presence at such meeting, except when the person objects, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened and except that attendance at a meeting is not a waiver of any right to object to the consideration of matters required by the General Corporation Law of the State of Delaware to be included in the notice but not so included, if such objection is expressly made at the meeting. Neither the business to be transacted at nor the purpose of any regular or special meeting of the stockholders need be specified in any written waiver of notice, consent to the holding of the meeting or approval of the minutes thereof, except as provided in the General Corporation Law of the State of Delaware. Section 11. Proxies. Each stockholder entitled to vote at a meeting of the stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. A proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A stockholder may revoke any proxy which is not irrevocable by attending the meeting and voting in person or by filing an instrument in writing revoking the proxy or by delivering a proxy in accordance with applicable law bearing a later date to the Secretary of the corporation. A proxy or consent validly delivered to the corporation shall mean any written authorization which is signed by the person executing the proxy, as well as any electronic transmission (to include without limitation transmissions by facsimile and by computer messaging systems), which is authorized by a stockholder or the stockholder's attorney in fact, which gives another person or persons power to vote with respect to the shares of such stockholder. A stockholder may authorize another person or persons to act for such stockholder as proxy by transmitting or authorizing the transmission of a telegram, cablegram, or other means of electronic transmission to the person who will be the holder of the proxy or to a proxy solicitation firm, proxy support service organization or like agent duly authorized by the person who will be the holder of the proxy to receive such transmission, provided that any such telegram, cablegram or other means of electronic transmission must either set forth or be submitted with information from which it can be determined that the telegram, cablegram or other electronic transmission was authorized by the stockholder. If it is determined that such telegrams, cablegrams or other electronic transmissions are valid, the inspectors or, if there are no inspectors, such other persons making that determination shall specify the information upon which they relied. Any copy, facsimile telecommunication 6 or other reliable reproduction of the writing or transmission created pursuant to this Section 11 may be substituted or used in lieu of the original writing or transmission for any and all purposes for which the original writing or transmission could be used, provided that such copy, facsimile telecommunication or other reproduction shall be a complete reproduction of the entire original writing or transmission. Section 12. Inspectors of Election. (a) Appointment of Inspectors. In advance of any meeting of the stockholders, the Board shall appoint inspectors of election to act at such meeting and any adjournment thereof. If inspectors of election are not so appointed, or if any persons so appointed fail to appear or refuse to act, the Chair of the Board presiding at any such meeting may, and on the request of any stockholder or stockholder's proxy shall, make such appointment at the meeting. The number of inspectors shall be either one or three. If appointed at a meeting on the request of one or more stockholders' proxies, the majority of shares present shall determine whether one or three inspectors are to be appointed. (b) Duties of Inspectors. The duties of such inspectors shall include: determining the number of shares outstanding and the voting power of each; determining the shares represented at the meeting; determining the existence of a quorum; determining the authenticity, validity and effect of proxies; receiving votes, ballots or consents; hearing and determining all challenges and questions in any way arising in connection with the right to vote; counting and tabulating all votes or consents; determining when the polls shall close; determining the result; and doing such acts as may be proper to conduct the election or vote with fairness to all stockholders. If there are three inspectors, the decision, act or certificate of a majority is in all respects the decision, act or certificate of all. Section 13. Conduct of Meeting The Chair of the Board shall preside at all meetings of the stockholders. The Chair shall conduct each such meeting in a businesslike and fair manner, but shall not be obligated to follow any technical, formal or parliamentary rules or principles of procedure. The Chair's rulings on procedural matters shall be conclusive and binding on all stockholders, unless at the time of a ruling a request for a vote is made to the stockholders holding shares entitled to vote and which are represented in person or by proxy at the meeting, in which case the decision of a majority of such shares shall be conclusive and binding on all stockholders. Without limiting the generality of the foregoing, the Chair shall have all of the powers usually vested in the chair of a meeting of stockholders. Section 14. List of Stockholders Entitled to Vote. The Secretary of the corporation shall prepare and make, at least 10 days before every meeting of the stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least 10 days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting or, if not so specified, at the place where the meeting is to be held. The list shall also be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. Upon the willful neglect or refusal of the directors to produce such a list at any meeting for the election of directors, such directors shall be ineligible for election to any office at such meeting. Except as otherwise provided by law, the stock ledger shall be the only evidence as to who are the stockholders entitled to examine the stock ledger, the list of stockholders or the books of the corporation, or to vote in person or by proxy at any meeting of the stockholders. Section 15. Consent of Stockholders in Lieu of Meeting. (a) Any action required to be taken at any annual or special meeting of the stockholders of the corporation, or any action which may be taken at any annual or special meeting of the stockholders duly called in accordance with the Certificate of Incorporation of the corporation, may be taken without a meeting, without prior notice and without a vote, if a consent or consents in writing, setting for the action so taken, shall be signed by the 7 holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, its principal place of business, or an officer or agent of the corporation having custody of the book in which proceedings of meetings of the stockholders are recorded. Delivery made to the corporation's registered office shall be made by hand or by certified or registered mail, return receipt requested. (b) Every written consent shall bear the date of signature of each stockholder who signs the consent and no written consent shall be effective to take the corporate action referred to therein unless, within 60 days of the date the earliest dated consent is delivered to the corporation, a written consent or consents signed by a sufficient number of holders to take action are delivered to the corporation in the manner prescribed in paragraph (c) of this Section 15. (c) In order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board, and which date shall not be more than 10 days after the date upon which the resolution fixing the record date is adopted by the Board. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board to fix a record date. The Board shall promptly, but in all events within 10 days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board within 10 days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation in accordance with paragraphs (a) and (b) of this Section 15. If no record date has been fixed by the Board and prior action by the Board is required by applicable law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the date on which the Board adopts the resolution taking such prior action. (d) Within 5 business days after receipt of the earliest dated consent delivered to the corporation in the manner provided in this Section 15, the corporation, shall retain nationally recognized independent inspectors of elections for the purposes of performing a ministerial review of the validity of consents and any revocations thereof. The cost of retaining inspectors of election shall be borne by the corporation. (e) At any time that stockholders soliciting consents in writing to corporate action have a good faith belief that the requisite number of valid and unrevoked consents to authorize or take the action specified has been received by them, the consents shall be delivered by the soliciting stockholders of the corporation's registered office in the State of Delaware or principal place of business or to the Secretary of the corporation, together with a certificate stating their belief that the requisite number of valid and unrevoked consents has been received as of a specific date, which date shall be identified in the certificate. In the event that delivery shall be made to the corporation's registered office in Delaware, such delivery shall be made by hand or by certified or registered mail, return receipt requested. Upon receipt of such consents, the corporation shall cause the consents to be delivered promptly to the inspectors of election. The corporation also shall deliver promptly to the inspectors of election any revocations of consents in its possession, custody or control as of the time of receipt of the consents. (f) As promptly as practicable after the consents and revocations are received by them, the inspectors of election shall issue a preliminary report to the corporation stating: (i) the number of shares represented by valid and unrevoked consents; (ii) the number of shares represented by invalid consents; (iii) the number of shares represented by invalid revocations and (iv) the number of shares entitled to submit consents as of the record date. Unless the corporation and the soliciting stockholders agree to a shorter or longer period, the corporation and the soliciting stockholders shall have 5 business days to review the consents and revocations and to advise the inspectors and the opposing party in writing as to whether they intend to challenge the preliminary report. If no timely written notice of an intention to challenge the preliminary report is received, the inspectors shall certify 8 the preliminary report (as corrected or modified by virtue or the detection by the inspectors of clerical errors) as their final report and deliver it to the corporation. If the corporation or the soliciting stockholders give timely written notice of an intention to challenge the preliminary report, a challenge session shall be scheduled by the inspectors as promptly as practicable. A transcript of the challenge session shall be recorded by a certified court reporter. Following completion of the challenge session, the inspectors shall issue as promptly as practicable their final report and deliver it to the corporation. A copy of the final report shall be included in the book in which the proceedings of meetings of the stockholders are required. (g) The corporation shall give prompt notice to the stockholders of the results of any consent solicitation or the taking of corporate action without a meeting by less than unanimous written consent. (h) This Section 15 shall in no way impair or diminish the right of any stockholder or director, or any officer whose title to office is contested, to contest the validity of any consent or revocation thereof, or to take any other action with respect thereto. ARTICLE III. DIRECTORS. Section 1. Powers. Subject to limitations of the Certificate of Incorporation of the corporation, of these bylaws and of the General Corporation Law of the State of Delaware relating to action required to be approved by the stockholders or by the outstanding shares, the business and affairs of the corporation shall be managed by or under the direction of the Board and it shall have the final authority in matters of strategy and policy matters for the corporation. The Board may delegate management duties for the operation of the business of the corporation to those persons to whom authority is properly delegated by the Board, including officers of the company, provided that the business and affairs of the corporation shall be managed and all corporate powers shall be exercised under the ultimate direction of the Board. Without prejudice to such general powers, but subject to the same limitations, it is hereby expressly declared that the Board shall have the following powers in addition to the other powers enumerated in these bylaws: (a) To select and remove all the other officers (in accordance with the provisions of these bylaws), agents and employees of the corporation; prescribe the powers and duties for them as may not be inconsistent with law, the Certificate of Incorporation of the corporation or these bylaws; fix their compensation and require from them an affidavit providing for the good faith exercise of their duties only in the best interests of the corporation. (b) To conduct, manage and control the affairs and business of the corporation and to make such rules and regulations therefor not inconsistent with law, the Certificate of Incorporation of the corporation or these bylaws, as they may deem best. (c) To adopt, alter, amend and repeal these bylaws from time to time as they may deem best. (d) To adopt, make and use a corporate seal, and to prescribe the forms of certificates of stock, and to alter the form of such seal and of such certificates from time to time as they may deem best. (e) To authorize the issuance of shares of stock of the corporation from time to time, upon such terms and for such consideration as may be lawful. (f) To borrow money and incur indebtedness for the purposes of the corporation, and to cause to be executed and delivered, in the corporate name, promissory notes, bonds, debentures, deeds of trust, mortgages, pledges, hypothecations or other evidences of debt and securities therefor. 9 Section 2. Number of Directors. The authorized number of directors shall be as set forth in the Certificate of Incorporation of the corporation. The Board shall fix the exact number of directors by resolution duly adopted by the Board. Section 3. Nomination, Election, Qualification and Term of Office. (a) Eligibility for Election as Director. Only persons who are nominated by, or at the direction of the Board or the Chair of the Board, or by a stockholder who has given timely written notice to the Secretary of the corporation in accordance with Section 3 of Article II of these bylaws, will be eligible for election as directors of the corporation. (b) Meetings at which Directors May Be Elected. The directors shall be elected at each annual meeting of the stockholders, but if any such annual meeting is not held or the directors are not elected thereat, the directors may be elected at any special meeting of the stockholders called for that purpose. (c) Classes of the Board of Directors. The Board shall be divided into three classes in accordance with the provisions of the Certificate of Incorporation of the corporation. (d) Qualified Directors. For a person to be qualified to serve as a director of the corporation, such person need not be an employee or stockholder of the corporation during his or her directorship. (e) Length of Term for Directors. At each annual meeting of the stockholders beginning with the first annual meeting of the stockholders, the successors of the class of directors whose term expires at that meeting shall be elected to hold office for a term expiring at the annual meeting of stockholders to be held in the third year following the year of their election, with each director in each class to hold office until his or her successor is duly elected and qualified or until his or her earlier death, resignation or removal. (f) Removal of Directors. Any director, or the entire Board, may be removed only for cause, by the affirmative vote of a majority of the shares then entitled to vote at the election of directors. Section 4. Vacancies. Any director may resign, to be effective upon giving written notice to the Board or to the Chair of the Board, President or Secretary of the corporation, unless the notice specifies a later time for the effectiveness of such resignation. If the resignation is effective at a future time, a successor may be elected to take office when the resignation becomes effective. Any newly-created directorship resulting from an increase in the authorized number of directors or any vacancies in the Board occurring by reason of death, resignation, retirement, disqualification or removal may be filled by a majority of the remaining directors, though less than a quorum, or by a sole remaining director, and each director so elected shall hold office until the next annual meeting at which the class of which he is a member becomes subject to re-election and until such director's successor has been elected and qualified. A vacancy or vacancies in the Board shall be deemed to exist in case of the death, resignation or removal of any director, or if the authorized number of directors is increased, or if the stockholders fail, at any annual or special meeting of the stockholders at which any director or directors are elected, to elect the full authorized number of directors to be voted for at that meeting. The stockholders may elect a director or directors at any time to fill any vacancy or vacancies not filled by the directors. No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of the director's term of office. 10 Section 5. Place of Meeting. Regular or special meetings of the Board shall be held at any place within or without the State of Delaware which has been designated from time to time by the Board. In the absence of such designation, regular meetings shall be held at the principal executive office of the corporation. Section 6. Regular Meetings. Following each annual meeting of the stockholders, the Board shall hold a regular meeting for the purpose of organization, election of officers and the transaction of other business. Other regular meetings of the Board shall be held without call on such dates and at such times as may be fixed by the Board. Call and notice of all regular meetings of the Board are hereby dispensed with. Section 7. Special Meetings. Special meetings of the Board for any purpose or purposes may be called at any time by the Chair, the Chief Executive Officer, any Vice Chair, the President, the Secretary of the corporation or by any two directors. Special meetings of the Board shall be held upon four days' written notice or at least twenty-four hours' notice given personally or by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, telegraph, facsimile, electronic mail or other electronic means of communication. Any written notice shall be addressed or delivered to each director at such director's address as it is shown upon the records of the corporation or as may have been given to the corporation by the director for purposes of notice or, if such address is not shown on such records or is not readily ascertainable, at the place in which the meetings of the directors are regularly held. Notice by mail shall be deemed to have been given at the time a written notice is deposited in the United States mails, postage prepaid. Any other written notice shall be deemed to have been given at the time it is personally delivered to the recipient or is delivered to a common carrier for transmission, or actually transmitted by the person giving the notice by electronic means to the recipient. Oral notice shall be deemed to have been given at the time it is communicated, in person or by telephone or wireless, to the recipient or to a person at the office of the recipient who the person giving the notice has reason to believe will promptly communicate it to the recipient. Section 8. Quorum. A majority of the whole Board constitutes a quorum of the Board for the transaction of business, except to adjourn as provided in Section 11 of this Article III. Every act or decision done or made by a majority of the directors present at a meeting duly held at which a quorum is present shall be regarded as the act of the Board, unless a greater number is required by law or by the Certificate of Incorporation of the corporation. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for such meeting. Section 9. Participation in Meetings By Communications Equipment. (a) Participation by Conference Telephone. Members of the Board, or any committee thereof, may participate in a meeting through the use of conference telephones. Participation in such a meeting shall constitute presence in person at that meeting as long as all members participating in such meeting are able to hear one another. (b) Participation by Electronic Video Screen Equipment or Other Similar Communications Equipment. Members of the Board may participate in a meeting through the use of electronic video screen equipment or other similar communications equipment. Participation in such a meeting shall constitute presence in person at that meeting by a member of the Board if all of the following apply: (i) each member participating in the meeting can communicate with all of the other members concurrently; 11 (ii) each member is provided the means of participating in all matters before the Board, including, without limitation, the capacity to propose, or to interpose an objection to, a specific action to be taken by the corporation; and (iii) the corporation adopts and implements some means of verifying both of the following: (x) a person participating in the meeting is a director or other person entitled to participate in the Board meeting, and (y) all actions of, or votes by, the Board are taken or cast only by the directors and not by persons who are not directors. Section 10. Waiver of Notice. Notice of a meeting need not be given to any director who signs a waiver of notice or a consent to holding the meeting or an approval of the minutes thereof, whether before or after the meeting, or who attends the meeting without protesting, prior thereto or at its commencement, the lack of notice to such director. All such waivers, consents and approvals shall be filed with the corporate records or made a part of the minutes of the meeting. Section 11. Adjournment. A majority of the directors present, whether or not a quorum is present, may adjourn any directors' meeting to another time and place. Notice of the time and place of an adjourned meeting need not be given to absent directors if the time and place has been fixed at the meeting adjourned, except as provided in the next sentence. If the meeting is adjourned for more than 24 hours, notice of any adjournment to another time or place shall be given prior to the time of the commencement of the adjourned meeting to the directors who were not present at the time of the adjournment. Section 12. Fees and Compensation. Directors and members of committees may receive such compensation, if any, for their services, and such reimbursement for expenses, as may be fixed or determined by the Board. The corporation shall not compensate directors or committee members who are also employees of the corporation. Section 13. Action Without Meeting. Any action required or permitted to be taken by the Board may be taken without a meeting if all members of the Board shall consent in writing to such action. Such consent or consents shall have the same effect as a unanimous vote of the Board and shall be filed with the minutes of the proceedings of the Board. Section 14. Rights of Inspection. Every director shall have the right at any reasonable time to examine the corporation's stock ledger, a list of the stockholders of the corporation and the corporation's other books and records for any purpose reasonably related to such director's position as a director and to make copies or extracts therefrom. Such inspection by a director may be made in person or by such director's agent or attorney. Section 15. Committees. The Board may appoint one or more committees, each consisting of one or more directors, and delegate to such committees any of the powers and authority of the Board, except no such committee shall have power or authority in reference to the following: (a) Approving, adopting or recommending to the stockholders any action or matter expressly required by the General Corporation Law of the State of Delaware to be submitted to the stockholders for approval; or (b) Adopting, altering, amending or repealing these bylaws or any of them. 12 Any such committee must be designated, and the members or alternate members thereof appointed, by resolution adopted by a majority of the whole Board and any such committee may be designated an Executive Committee or by such other name as the Board shall specify. Alternate members of a committee may replace any absent member at any meeting of the committee. The Board shall have the power to prescribe the manner in which proceedings of any such committee shall be conducted. In the absence of any such prescription, such committee shall have the power to prescribe the manner in which its proceedings shall be conducted. Unless the Board or such committee shall otherwise provide, the regular and special meetings and other action of any such committee shall be governed by the provisions of this Article III applicable to meetings and actions of the Board. Minutes shall be kept of each meeting of each committee. Section 16. Standing Committees. The Board may have the following standing committees: Audit, Executive, Nominating and Compensation and Personnel. (a) Audit Committee. The Audit Committee shall be responsible for reviewing the activities of the corporation to ensure that such activities are being conducted within the boundaries of corporate policy and appropriate regulatory and legal requirements and for ensuring the integrity of financial information supplied to the stockholders. The Audit Committee also shall make recommendations to the Board after consultation with the Chief Financial Officer as to the selection of independent public accountants to examine the consolidated financial statements of the corporation and its subsidiaries. The Audit Committee also shall discuss with the independent public accountants the scope of their examination, recommend supplemental audit reviews or audit steps as deemed desirable, and review the accounting policies of the corporation. The Audit Committee also shall be available to receive reports, suggestions, questions and recommendations from the independent public accountants, the Chief Financial Officer and the General Counsel. It also shall confer with those parties in order to assure the sufficiency and effectiveness of the programs being followed by corporate officers in the area of compliance with the law and conflicts of interest. (b) Executive Committee of the Board. The Executive Committee of the Board shall have all of the authority of the Board, except with respect to the approval of any action which requires stockholder approval under the General Corporation Law of the State of Delaware. (c) Nominating Committee. The Nominating Committee shall recommend to the Board criteria for the selection of candidates to serve on the Board, evaluate all proposed candidates, recommend to the Board nominees to fill vacancies on the Board, and prior to the annual meeting of the stockholders recommend to the Board a slate of nominees for election to the Board by the stockholders of the Corporation at the annual meeting. In carrying out its duties, the committee shall seek possible candidates for the Board and otherwise aid in attracting qualified candidates to the Board. The committee shall be available to the Chair or President and other members of the Board for consultation concerning candidates for the Board. The committee shall periodically review, assess and make recommendations to the Board with regard to the size and composition of the Board. The committee shall have all additional powers necessary to carry out its responsibilities and such other duties as may be assigned by the Board from time to time. The Nominating Committee also shall have the authority to administer a self-appraisal process by members of the Board and make a report thereon to the Board, from time to time, or as designated by the Board. (d) Compensation and Personnel Committee. The Compensation and Personnel Committee shall have the responsibility for the compensation of the senior executives of the Corporation including salaries and benefits. In carrying out its duties, the committee shall review and approve overall executive compensation programs which are market competitive for the officers of the Corporation, and shall review the specific salaries of Executive Vice Presidents and senior vice presidents subject to the ratification of the salary programs established for the Chair and the Chief Executive Officer of the Corporation by the Board acting as a whole. The committee shall also review and make recommendations to the Board with respect to the Corporation's overall compensation 13 program for directors and officers, including salaries, employee benefit plans, stock options granted, equity incentive plans and payment of bonuses. The committee shall also have all additional powers necessary to carry out its responsibilities and such other duties as may be assigned by the Board from time to time. ARTICLE IV. OFFICERS. Section 1. Officers. The senior officers of the corporation shall be a Chair of the Board, a Chief Executive Officer, a Chief Operating Officer, a Chief Financial Officer and a Secretary. The corporation may also have, at the discretion of the Board, a President, a Chief Administrative Officer, one or more Vice Chairs of the Board, one or more Vice Presidents, one or more Assistant Secretaries, Treasurers, Assistant Treasurers, and such other officers as may be elected or appointed in accordance with the provisions of Section 2 of this Article IV. Section 2. Election or Appointment. The senior officers of the corporation shall be elected by the Board on an annual basis. In addition, other officers may be elected or appointed in accordance with the provisions of Section 5 of this Article IV. All officers, whether elected or appointed, shall be chosen annually by, and shall serve at the pleasure of, the Board, and shall hold their respective offices until their resignation, removal or other disqualification from service, or until their respective successors shall be elected. The Board may elect, and may empower the Chair or the Chief Executive Officer to appoint, such other subordinate officers as the business of the corporation may require, each of whom shall hold office for such period and shall have such authority and perform such duties as are provided in these bylaws or as the Board may from time to time determine. Section 3. Elected Senior Officers. The elected senior officers of the corporation shall have those positions and those duties named below in this Section 3. Further, in each case, the named officer also shall have the general powers and duties of governance or management usually vested in that office and such other powers and duties as may be prescribed by the Board. In the case of the Chair of the Board, the Chair shall, if present, preside at all meetings of the Board and shall preside at all meetings of the stockholders. The Chair of the Board has the general powers and duties of management usually vested in the office of chair of the board of a corporation and such other powers and duties as may be prescribed by the Board. The Chief Executive Officer shall be the senior executive officer of the corporation. The President has the general powers and duties of management of the corporation. The Chief Operating Officer shall have the general powers and duties to carry out general administrative and financial management of the corporation. The Board also may elect one or more Vice Chairs of the Board who, in the absence of the Chair, will assume the duties of that position. In the absence or disability of the Chief Executive Officer, the President, the Chief Operating Officer, the Vice Chair, or any Executive Vice President designated by the Board, shall perform all the duties of the Chief Executive Officer and, when so acting, shall have all the powers of, and be subject to all the restrictions upon, the Chief Executive Officer. The Secretary shall keep or cause to be kept, at the principal executive office and such other place as the Board may order, a book of minutes of all meetings of stockholders, the Board and its committees, with the time and place of holding, whether regular or special, and if special, how authorized, the notice thereof given, the names of those present at Board and committee meetings, the number of shares present or represented at stockholders' meetings, and the proceedings thereof. The Secretary shall keep, or cause to be kept, a copy of these bylaws of the corporation at the principal executive office or such other place as the Board may order. 14 The Secretary shall keep, or cause to be kept, at the principal executive office or at the office of the corporation's transfer agent or registrar, if one has been appointed, a share register, or a duplicate share register, showing the names of the stockholders and their addresses, the number and classes of shares held by each, the number and date of certificates issued for the same, and the number and date of cancellation of every certificate surrendered for cancellation. The Secretary shall give, or cause to be given, notice of all meetings of the stockholders and of the Board and any committees thereof required by these bylaws or by law to be given, shall keep the seal of the corporation in safe custody, and shall have such other powers and perform such other duties as may be prescribed by the Board. The Chief Financial Officer shall keep and maintain, or cause to be kept and maintained, adequate and correct accounts of the properties and business transactions of the corporation, and shall send or cause to be sent to the stockholders of the corporation such financial statements and reports as are by law or these bylaws required to be sent to them. The books of account shall at all times be open to inspection by any director. The Chief Financial Officer shall deposit all moneys and other valuables in the name and to the credit of the corporation with such depositaries as may be designated by the Board. The Chief Financial Officer shall disburse the funds of the corporation as may be ordered by the Board, shall render to the Chair of the Board, the Chief Executive Officer, the President and the directors, whenever they request it, an account of all transactions as Chief Financial Officer and of the financial condition of the corporation, and shall have such other powers and perform such other duties as may be prescribed by the Board. Section 4. Removal and Resignation. Any officer elected by the Board may be removed only by the Board, either with or without cause, at any time. In the case of an officer not elected by the Board, such an officer may be removed by another officer upon whom such power of removal may be conferred by the Board. Any removal shall be without prejudice to the rights, if any, of the officer under any contract of employment of the officer. Any officer may resign at any time by giving written notice to the corporation, subject to the rights of the corporation under any contract between the corporation and the officer. Any such resignation shall take effect at the date of the receipt of such notice or at any later time specified therein and, unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. Section 5. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filled in the manner prescribed in these bylaws for regular election or appointment to such office. ARTICLE V. OTHER PROVISIONS. Section 1. Inspection of Corporate Records. Any stockholder of record, in person or by attorney or other agent, shall, upon written demand under oath stating the purpose thereof, have the right during the usual hours for business to inspect for any proper purpose the corporation's stock ledger, a list of its stockholders, and its other books and records and to make copies or extracts therefrom. A proper purpose shall mean a purpose reasonably related to such person's interest as a stockholder. In every instance where an attorney or other agent is the person who seeks the right to inspection, the demand under oath shall be accompanied by a power of attorney or such other writing that authorizes the attorney or other agent to so act on behalf of the stockholder. The demand under oath shall be directed to the corporation at its registered office in the State of Delaware or at its principal executive office. 15 Section 2. Inspection of Bylaws. The corporation shall keep in its principal executive office in the State of California, or if its principal executive office is not in such State at its principal business office in such State, the original or a copy of these bylaws as amended to date, which shall be open to inspection by stockholders at all reasonable times during office hours. If the principal executive office of the corporation is located outside the State of California and the corporation has no principal business office in such state, it shall upon the written request of any stockholder furnish to such stockholder a copy of these bylaws as amended to date. Section 3. Endorsement of Documents; Contracts. Subject to the provisions of applicable law, any note, mortgage, evidence of indebtedness, contract, share certificate, conveyance or other instrument in writing and any assignment or endorsements thereat executed or entered into between the corporation and any other person, when signed by the Chair of the Board, the Chief Executive Officer, the Chief Operating Officer, the President, the Vice Chair, an Executive Vice President, or any senior vice president and the Secretary, any Assistant Secretary, the Chief Financial Officer or any Assistant Treasurer of the corporation shall be valid and binding on the corporation in the absence of actual knowledge on the part of the other person that the signing officers had no authority to execute the same. Any such instruments may be signed by any other person or persons and in such manner as from time to time shall be determined by the Board, and, unless so authorized by the Board, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or amount. Section 4. Certificates of Stock. Every holder of shares of the corporation shall be entitled to have a certificate signed in the name of the corporation by the Chair of the Board, the President, the Vice Chair and by the Chief Financial Officer or an Assistant Treasurer or the Secretary or an Assistant Secretary, certifying the number of shares and the class or series of shares owned by the stockholder. Any or all of the signatures on the certificate may be facsimile. If any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the corporation with the same effect as if such person were an officer, transfer agent or registrar at the date of issue. Certificates for shares may be issued prior to full payment under such restrictions and for such purposes as the Board may provide; provided, however, that on any certificate issued to represent any partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Except as provided in this Section 4, no new certificate for shares shall be issued in lieu of an old one unless the latter is surrendered and cancelled at the same time. The Board may, however, if any certificate for shares is alleged to have been lost, stolen or destroyed, authorize the issuance of a new certificate in lieu thereof, and the corporation may require that the corporation be given a bond or other adequate security sufficient to indemnify it against any claim that may be made against it (including expense or liability) on account of the alleged loss, theft or destruction of such certificate or the issuance of such new certificate. The Company shall not register the transfer of any securities issued in reliance on Regulation S promulgated under the Securities Act of 1933, as amended, unless the Company has received such assurances as it may reasonably request that the transfer of such securities was made in accordance with the provisions of such Regulation S. Section 5. Representation of Shares of Other Corporations. The Chair of the Board or any other officer or officers authorized by the Board or the Chair of the Board are each authorized to vote, represent and exercise on behalf of the corporation all rights incident to any and all 16 shares of any other corporation or corporations standing in the name of the corporation. The authority herein granted may be exercised either by any such officer in person or by any other person authorized so to do by proxy or power of attorney duly executed by said officer. Section 6. Stock Purchase Plans. The corporation may adopt and carry out a stock purchase plan or agreement or stock option plan or agreement providing for the issue and sale for such consideration as may be fixed of its unissued shares, or of issued shares acquired or to be acquired, to one or more of the employees or directors of the corporation or of a subsidiary or to a trustee on their behalf and for the payment for such shares in installments or at one time, and may provide for aiding any such persons in paying for such shares by compensation for services rendered, promissory notes or otherwise. Any such stock purchase plan or agreement or stock option plan or agreement may include, among other features, the fixing of eligibility for participation therein, the class and price of shares to be issued or sold under the plan or agreement, the number of shares which may be subscribed for, the method of payment therefor, the reservation of title until full payment therefor, the effect of the termination of employment, an option or obligation on the part of the corporation to repurchase the shares upon termination of employment, restrictions upon transfer of the shares, the time limits of and termination of the plan, and any other matters, not in violation of applicable law, as may be included in the plan as approved or authorized by the Board or any committee of the Board. Section 7. Election of Fiscal Year. Upon the election of the Board, the Board may authorize the change of the current Fiscal Year of the Corporation to begin on January 1 of each year and end on December 31 of each subsequent year. Section 8. Construction and Definitions. Unless the context otherwise requires, the general provisions, rules of construction and definitions contained in the General Corporation Law of the State of Delaware shall govern the construction of these bylaws. Section 9. Amendments. These bylaws may be altered, amended or repealed either by the approval of 66 and 2/3 percent of the outstanding shares of the corporation entitled to vote on such action or, subject to the provisions of the General Corporation Law of the State of Delaware, by the approval of the Board. Section 10. Loans to Officers and Other Employees. The corporation may lend money to, guarantee any obligation of or otherwise assist any officer or other employee of the corporation or of any of its subsidiaries, including any officer or employee who is director of the corporation or any of its subsidiaries, whenever, in the judgment of the Board, such loan, guaranty or assistance may reasonably be expected to benefit the corporation. The loan, guaranty or other assistance may be with or without interest and may be unsecured or secured in such manner as the Board shall approve, including, without limitation, a pledge of shares of stock of the corporation. Section 11. Emergency Bylaws. (a) The Board may adopt emergency bylaws, subject to repeal or change by action of the stockholders, which shall, notwithstanding any different provision in the General Corporation Law of the State of Delaware, the Certificate of Incorporation of the corporation or these bylaws, be operative during any emergency resulting from an attack on the United States or on a locality in which the corporation conducts its business or customarily holds meetings of the Board or its stockholders, or during any nuclear or atomic disaster, or during the existence 17 of any catastrophe, or other similar emergency condition, as a result of which a quorum of the Board or a standing committee thereof cannot readily be convened for action. The emergency bylaws may make any provision that may be practical and necessary for the circumstances of the emergency, including provisions that: (i) A meeting of the Board or a committee thereof may be called by any officer or director in such manner and under such conditions as shall be prescribed in the emergency bylaws; (ii) The director or directors in attendance at the meeting, or any greater number fixed by the emergency bylaws, shall constitute a quorum; and (iii) The officers or other persons designated on a list approved by the Board before the emergency, all in such order of priority and subject to such conditions and for such period of time (not longer than reasonably necessary after the termination of the emergency) as may be provided in the emergency bylaws or in the resolution approving the list, shall, to the extent required to provide a quorum at any meeting of the Board, be deemed directors for such meeting. (b) The Board, either before or during any such emergency, may provide, and from time to time modify, lines of succession in the event that during such emergency any or all officers or agents of the corporation shall for any reason be rendered incapable of discharging their duties. (c) The Board, either before or during any such emergency, may, effective in the emergency, change the head office or designate several alternative head offices or regional offices, or authorize the officers so to do. (d) No officer, director or employee acting in accordance with any emergency bylaws shall be liable except for willful misconduct. (e) To the extent not inconsistent with any emergency bylaws so adopted, these bylaws shall remain in effect during any emergency and upon its termination the emergency bylaws shall cease to be operative. (f) Unless otherwise provided in emergency bylaws, notice of any meeting of the Board during such an emergency may be given only to such of the directors as it may be feasible to reach at the time and by such means as may be feasible at the time, including publication or radio. (g) To the extent required to constitute a quorum at any meeting of the Board during such an emergency, the officers of the corporation who are present shall, unless otherwise provided in emergency bylaws, be deemed, in order of rank and within the same rank in order of seniority, directors for such meeting. (h) Nothing contained in this Section 11 shall be deemed exclusive of any other provisions for emergency powers consistent with the General Corporation Law of the State of Delaware. ARTICLE VI. INDEMNIFICATION. Section 1. Right to Indemnification. The corporation shall indemnify and hold harmless, to the fullest extent permitted by applicable law as it presently exists or may hereafter be amended, any person (an "Indemnitee") who was or is made or is threatened to be made a party or is otherwise involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (a "proceeding"), by reason of the fact that he, or a person for whom he is the legal representative, is or was a director or officer of the corporation or, while a director or officer of the corporation, is or was serving at the written request of the corporation as a director, officer, employee or agent of another corporation or of a partnership, joint venture, trust, enterprise or non-profit entity, including service with respect to employee benefit plans, against all liability and loss suffered and expenses (including attorneys' fees) reasonably incurred by such Indemnitee. Notwithstanding the preceding sentence, except as otherwise provided in Section 3 of this Article VI, the corporation shall be required to indemnify an Indemnitee in 18 connection with a proceeding (or part thereof) commenced by such Indemnitee only if the commencement of such proceeding (or part thereof) by the Indemnitee was authorized by the Board. Section 2. Prepayment of Expenses. The corporation shall pay the expenses (including attorneys' fees) incurred by an Indemnitee in defending any proceeding in advance of its final disposition, provided, however, that, to the extent required by law, such payment of expenses in advance of the final disposition of the proceeding shall be made only upon receipt of an undertaking by the Indemnitee to repay all amounts advanced if it should be ultimately determined that the Indemnitee is not entitled to be indemnified under this Article VI or otherwise. Section 3. Claims. If a claim for indemnification of advancement of expenses under this Article VI is not paid in full within 60 days after a written claim therefor by the Indemnitee has been received by the corporation, the Indemnitee may file suit to recover the unpaid amount of such claim and, if successful in whole or in part, shall be entitled to be paid the expense of prosecuting such claim. In any such action the corporation shall have the burden of proving that the Indemnitee is not entitled to the requested indemnification or advancement of expenses under applicable law. Section 4. Non-Exclusivity of Rights. The rights conferred on any Indemnitee by this Article VI shall not be exclusive of any other rights which such Indemnitee may have or hereafter acquire under any statute, provision of the Certificate of Incorporation of the corporation, these bylaws, agreement, vote of the stockholders or disinterested directors or otherwise. Section 5. Other Sources. The corporation's obligation, if any, to indemnify or to advance expenses to any Indemnitee who was or is serving at its request as a director, officer, employee or agent of another corporation, partnership, joint venture, trust, enterprise or non-profit entity shall be reduced by any amount such Indemnitee may collect as indemnification or advancement of expenses from such other corporation, partnership, joint venture, trust, enterprise or non-profit entity. Section 6. Amendment or Repeal. Any repeal or modification of the foregoing provisions of this Article VI shall not adversely affect any right or protection hereunder of any Indemnitee in respect of any act or omission occurring prior to the time of such repeal or modification. Section 7. Other Indemnification and Prepayment of Expenses. This Article VI shall not limit the right of the corporation, to the extent and in the manner permitted by law, to indemnify and to advance expenses to persons other than Indemnitees when and as authorized by appropriate corporate action. 19 EX-27.1 4 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM KORN/FERRY INTERNATIONAL AND SUBSIDIARIES FOR THE SIX MONTHS ENDED OCTOBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS APR-30-2000 MAY-01-1999 OCT-31-1999 92,475 32,602 98,914 (11,976) 0 223,856 54,483 (28,466) 337,382 101,009 0 0 0 192,646 0 337,382 0 221,103 0 199,341 0 0 1,596 23,243 9,762 13,481 0 0 0 12,106 0.34 0.33 Included in Interest and Other income(expense) of 1,481 offset by other income of 3,077
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