<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- -----------------
Commission file number 0-27512
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0783182
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7887 East Belleview, Suite 1000
Englewood, Colorado 80111
(Address of principal executive offices, including zip code)
(303) 796-2850
(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 (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
Shares of common stock outstanding at August 8, 1997: 25,505,204
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
FORM 10-Q For the Quarter Ended June 30, 1997
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C> <C>
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of June 30, 1997
and December 31, 1996............................................. 3
Condensed Consolidated Statements of Operations for the Three and
Six Months Ended June 30, 1997 and 1996........................... 4
Condensed Consolidated Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996...................................... 5
Notes to Condensed Consolidated Financial Statements.............. 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations............................................. 8
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders............... 14
Item 6. Exhibits and Reports on Form 8-K.................................. 16
Signatures........................................................ 18
Index to Exhibits................................................. 19
</TABLE>
2
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1997 1996
-------------- -------------
ASSETS (unaudited)
------
<S> <C> <C>
Current Assets:
Cash and cash equivalents.................................................................... $ 2,020 $ 6,134
Accounts receivable-
Trade-
Billed, net of allowance of $837 and $819............................................. 36,297 33,141
Unbilled.............................................................................. 2,906 5,220
Other..................................................................................... 1,810 1,342
Deferred income taxes........................................................................ 117 45
Other current assets......................................................................... 3,126 2,574
------------ -----------
Total current assets...................................................................... 46,276 48,456
------------ -----------
Property and equipment, net of depreciation of $15,717 and $10,664............................. 15,797 13,093
Investment in discontinued operations.......................................................... 732 732
Software, net of amortization of $28,941 and $22,924........................................... 14,487 13,629
Noncompete agreements and goodwill, net of amortization of $16,031 and $12,572................. 22,141 25,730
Client contracts and related intangibles, net of amortization of $10,574 and $8,528............ 7,706 9,752
Deferred income taxes.......................................................................... 3,657 1,356
Other assets................................................................................... 2,273 2,162
------------ --------------
Total assets.............................................................................. $ 113,069 $ 114,910
============ ==============
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
Current Liabilities:
Current maturities of long-term debt......................................................... $ 9,000 $ 10,000
Customer deposits............................................................................ 6,801 6,450
Trade accounts payable....................................................................... 10,331 12,620
Accrued liabilities.......................................................................... 7,096 8,177
Deferred revenue............................................................................. 6,100 5,384
Accrued income taxes......................................................................... 1,365 945
Other current liabilities.................................................................... 335 450
------------ -------------
Total current liabilities................................................................. 41,028 44,026
------------ -------------
Long-term debt, net of current maturities...................................................... 18,500 22,500
Deferred revenue............................................................................... 8,546 6,420
Stockholders' Equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
zero shares issued and outstanding........................................................ - -
Common stock, par value $.01 per share; 100,000,000 shares authorized;
25,501,348 shares and 25,488,876 shares issued and outstanding............................ 255 255
Additional paid-in capital................................................................... 111,696 111,367
Deferred employee compensation............................................................... (896) (1,207)
Notes receivable from employee stockholders.................................................. (861) (861)
Accumulated translation adjustments.......................................................... 69 573
Accumulated deficit.......................................................................... (65,268) (68,163)
------------ --------------
Total stockholders' equity................................................................ 44,995 41,964
------------ --------------
Total liabilities and stockholders' equity................................................ $ 113,069 $ 114,910
============= ==============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
3
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
Quarter ended Six months ended
---------------------------- -----------------------------
June 30, June 30, June 30, June 30,
1997 1996 1997 1996
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Total revenues................................................... $ 41,030 $ 30,431 $ 79,612 $ 57,188
Expenses:
Cost of revenues:
Direct costs................................................. 18,253 14,369 36,834 27,200
Amortization of acquired software............................ 2,892 2,751 5,776 5,501
Amortization of client contracts and related intangibles..... 1,023 1,023 2,046 2,046
------------- ------------- ------------- -------------
Total cost of revenues................................. 22,168 18,143 44,656 34,747
------------- ------------- ------------- -------------
Gross margin................................................... 18,862 12,288 34,956 22,441
------------- ------------- ------------- -------------
Operating expenses:
Research and development..................................... 5,799 4,792 10,654 9,348
Selling and marketing........................................ 2,760 1,570 5,101 2,990
General and administrative:
General and administrative................................ 4,658 3,146 8,787 6,428
Amortization of noncompete agreements and goodwill........ 1,732 1,519 3,463 2,939
Stock-based employee compensation......................... 85 97 287 3,374
Depreciation................................................. 1,711 1,246 3,220 2,436
------------- ------------- ------------- -------------
Total operating expenses................................ 16,745 12,370 31,512 27,515
------------- ------------- ------------- -------------
Operating income (loss).......................................... 2,117 (82) 3,444 (5,074)
------------- ------------- ------------- -------------
Other income (expense):
Interest expense............................................. (616) (870) (1,257) (2,610)
Interest income.............................................. 166 256 377 485
Other........................................................ 64 - 331 -
------------- ------------- ------------- -------------
Total other............................................. (386) (614) (549) (2,125)
------------- ------------- ------------- -------------
Income (loss) before income taxes and extraordinary item......... 1,731 (696) 2,895 (7,199)
Income tax (provision) benefit................................. - - - -
------------- ------------- ------------- -------------
Income (loss) before extraordinary item.......................... 1,731 (696) 2,895 (7,199)
Extraordinary loss from early extinguishment of debt........... - - - (1,260)
------------- ------------- ------------- -------------
Net income (loss)................................................ $ 1,731 $ (696) $ 2,895 $ (8,459)
============= ============= ============= =============
Net income (loss) per common and equivalent share:
Income (loss) before extraordinary item........................ $ 0.07 $ (0.03) $ 0.11 $ (0.30)
Extraordinary loss from early extinguishment of debt........... - - - (0.05)
------------- ------------- ------------- -------------
Net income (loss).............................................. $ 0.07 $ (0.03) $ 0.11 $ (0.35)
============= ============= ============= =============
Weighted average common and equivalent shares.................... 25,492,658 25,532,945 25,490,958 24,490,889
============= ============= ============= =============
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
4
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CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Six months ended
----------------------
June 30, June 30,
1997 1996
-------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)...................................................... $ 2,895 $ (8,459)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities-
Depreciation....................................................... 3,220 2,436
Amortization....................................................... 11,773 10,901
Stock-based employee compensation.................................. 287 3,374
Extraordinary loss from early extinguishment of debt............... - 1,260
Changes in operating assets and liabilities:
Trade accounts receivable, net.................................... (924) (5,999)
Other receivables................................................. (468) 835
Deferred income taxes............................................. (2,373) (1,446)
Other current and noncurrent assets............................... (896) (1,374)
Customer deposits................................................. 351 472
Trade accounts payable and accrued liabilities.................... (2,890) 3,315
Deferred revenue.................................................. 2,855 4,329
Other current liabilities......................................... (115) 71
-------- --------
Net cash provided by operating activities....................... 13,715 9,715
-------- --------
Cash flows from investing activities:
Purchases of property and equipment, net............................... (5,964) (2,715)
Acquisition of businesses, net of cash acquired........................ - (3,518)
Additions to software.................................................. (6,875) -
Net investment in discontinued operations.............................. - 2,000
-------- --------
Net cash used in investing activities........................... (12,839) (4,233)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock................................. 377 44,794
Purchase and cancellation of common stock.............................. (24) (20)
Payment of dividends for redeemable convertible preferred stock........ - (4,497)
Payments on long-term debt............................................. (5,000) (45,068)
-------- --------
Net cash used in financing activities........................... (4,647) (4,791)
-------- --------
Effect of exchange rate fluctuations on cash............................. (343) -
-------- --------
Net increase (decrease) in cash and cash equivalents..................... (4,114) 691
Cash and cash equivalents, beginning of period........................... 6,134 3,603
-------- --------
Cash and cash equivalents, end of period................................. $ 2,020 $ 4,294
======== ========
Supplemental disclosures of cash flow information:
Cash paid (received) during the period for-
Interest............................................................. $ 1,049 $ 2,666
Income taxes......................................................... $ 1,958 $ (653)
Supplemental disclosure of noncash financing activities:
During March 1996, the Company converted 8,999,999 shares of redeemable convertible preferred stock into 17,999,998 shares of
common stock.
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
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CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements at June 30, 1997, and for the
three and six months then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1996, filed with the
Securities and Exchange Commission. The results of operations for the three and
six months ended June 30, 1997, are not necessarily indicative of the results
for the entire year ending December 31, 1997.
2. STOCKHOLDERS' EQUITY
The Company completed an initial public offering (IPO) of its common stock in
March 1996. The Company sold 3,335,000 shares of common stock at an initial
public offering price of $15 per share, resulting in net proceeds to the
Company, after deducting underwriting discounts and offering expenses, of
approximately $44,794,000. As of the closing of the IPO, all of the 8,999,999
outstanding shares of redeemable convertible Series A Preferred Stock were
automatically converted into 17,999,998 shares of common stock.
3. NET INCOME PER SHARE
Net income per common and equivalent share is based on the weighted average
number of shares of common stock and common equivalent shares outstanding, which
includes redeemable convertible Series A Preferred Stock prior to the conversion
into common stock in March 1996. Common equivalent shares related to stock
options have been excluded from the weighted average number of shares as the
dilutive effect is not significant.
4. EXTRAORDINARY LOSS
The Company used $40.3 million of the IPO proceeds to repay a portion of
outstanding bank indebtedness (the Indebtedness). Upon repayment of the
Indebtedness, the Company recorded an extraordinary loss of $1.3 million for the
write-off of deferred financing costs.
5. BYTEL ACQUISITION
In June 1996, the Company acquired all of the outstanding capital stock of Bytel
Limited (Bytel), a United Kingdom-based company which provides customer
management software systems to the cable and telecommunications industries in
the United Kingdom. The acquisition was accounted for using the purchase method
of accounting. The Company's condensed consolidated financial statements
include Bytel's results of operations since the acquisition date.
6
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6. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128),
which specifies the computation, presentation and disclosure requirements for
earnings per share (EPS). SFAS No. 128 is effective for periods ending after
December 15, 1997, and requires retroactive restatement of EPS for all prior
periods presented. The statement replaces the current "primary earnings per
share" computation with a "basic earnings per share" and redefines the "dilutive
earnings per share" computation. Adoption of the statement is not expected to
have a significant effect on the Company's reported EPS.
7
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
- ---------------------
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated (in thousands). The
Company acquired Bytel Limited (Bytel) on June 28, 1996. The results of Bytel's
operations since the acquisition are included in the following table and
considered in the discussion of the Company's operations that follow:
<TABLE>
<CAPTION>
Quarter ended June 30, Six Months ended June 30,
---------------------------------------- -------------------------------------
1997 1996 1997 1996
------------------ ------------------ ----------------- -----------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
------- -------- ------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues.................................. $41,030 100.0% $30,431 100.0% $79,612 100% $57,188 100%
Expenses:
Cost of revenues:
Direct costs............................. 18,253 44.5% 14,369 47.2% 36,834 46.3% 27,200 47.6%
Amortization of acquired software........ 2,892 7.0% 2,751 9.0% 5,776 7.3% 5,501 9.6%
Amortization of client contracts and
related intangibles................. 1,023 2.5% 1,023 3.4% 2,046 2.6% 2,046 3.6%
------- -------- ------- -------- ------- -------- ------- --------
Total cost of revenues.............. 22,168 54.0% 18,143 59.6% 44,656 56.2% 34,747 60.8%
------- -------- ------- -------- ------- -------- ------- --------
Gross margin.................................. 18,862 46.0% 12,288 40.4% 34,956 43.8% 22,441 39.2%
------- -------- ------- -------- ------- -------- ------- --------
Operating expenses:
Research and development................... 5,799 14.1% 4,792 15.7% 10,654 13.4% 9,348 16.3%
Selling and marketing...................... 2,760 6.7% 1,570 5.2% 5,101 6.4% 2,990 5.2%
General and administrative:
General and administrative .............. 4,658 11.4% 3,146 10.3% 8,787 11.0% 6,428 11.2%
Amortization of noncompete agreements
and goodwill....................... 1,732 4.2% 1,519 5.0% 3,463 4.3% 2,939 5.1%
Stock-based employee compensation........ 85 0.2% 97 0.3% 287 0.4% 3,374 5.9%
Depreciation............................... 1,711 4.2% 1,246 4.1% 3,220 4.0% 2,436 4.3%
------- -------- ------- -------- ------- -------- ------- --------
Total operating expenses................. 16,745 40.8% 12,370 40.6% 31,512 39.5% 27,515 48.0%
------- -------- ------- -------- ------- -------- ------- --------
Operating income (loss)......................... 2,117 5.2% (82) (0.2)% 3,444 4.3% (5,074) (8.8)%
------- -------- ------- -------- ------- -------- ------- --------
Other income (expense):
Interest expense........................... (616) (1.5)% (870) (2.9)% (1,257) (1.6)% (2,610) (4.6)%
Interest income............................ 166 0.4% 256 0.8% 377 0.5% 485 0.8%
Other...................................... 64 0.2% - - 331 0.4% - -
------- -------- ------- -------- ------- -------- ------- --------
Total other.............................. (386) (0.9)% (614) (2.1)% (549) (0.7)% (2,125) (3.8)%
------- -------- ------- -------- ------- -------- ------- --------
Income (loss) before income taxes and
extraordinary item......................... 1,731 4.3% (696) (2.3)% 2,895 3.6% (7,199) (12.6)%
Income tax (provision) benefit................ - - - - - - - -
------- -------- ------- -------- ------- -------- ------- --------
Income (loss) before extraordinary item......... 1,731 4.3% (696) (2.3)% 2,895 3.6% (7,199) (12.6)%
Extraordinary loss from early extinguishment
of debt.................................. - - - - - - (1,260) (2.2)%
------- -------- ------- -------- ------- -------- ------- --------
Net income (loss)............................... $ 1,731 4.3% $ (696) (2.3)% $ 2,895 3.6% $(8,459) (14.8)%
======= ======== ======= ======== ======= ======== ======= ========
</TABLE>
8
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Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996
Revenues. Total revenues for the three months ended June 30, 1997, increased
34.8% to $41.0 million, from $30.4 million for the three months ended June 30,
1996, due primarily to i) increased revenue from the Company's processing and
related services, and ii) increased revenue from the Company's software and
related product sales and professional consulting services.
Revenues from processing and related services for the three months ended June
30, 1997, increased 16.8% to $32.2 million, from $27.6 million for the three
months ended June 30, 1996. This increase is due primarily to an increase in
the number of customers of the Company's clients which were serviced by the
Company and increased revenue per customer. Customers serviced as of June 30,
1997, and 1996, respectively, were 20.0 million and 18.1 million, an increase of
10.8%. The increase in the number of customers was due to internal customer
growth experienced by existing clients and the addition of new clients. Revenue
per customer increased due primarily to price increases included in client
contracts and increased usage of ancillary services by clients.
Revenues from software and related product sales and professional consulting
services for the three months ended June 30, 1997, were $8.8 million, compared
to $2.8 million for the three months ended June 30, 1996. This increase relates
to the introduction of the Company's new software products and professional
consulting services in early 1996 with continued expansion throughout 1996, and
the inclusion of revenues from Bytel's operations for the three months ended
June 30, 1997, with no comparable amounts included for Bytel for the second
quarter of 1996.
Gross Margin. Gross margin for the three months ended June 30, 1997, increased
53.5% to $18.9 million, from $12.3 million for the three months ended June 30,
1996, due primarily to revenue growth. The gross margin percentage increased to
46.0% for the three months ended June 30, 1997, compared to 40.4% for the three
months ended June 30, 1996. The overall increase in the gross margin percentage
is due primarily to i) the increase in revenues while the amount of amortization
of acquired software and amortization of client contracts and related
intangibles remained approximately the same, and ii) the improvement in gross
margin from processing and related services, due primarily to the increase in
revenue per customer while controlling the cost of delivering such services.
Research and Development Expense. Research and development (R&D) expense for
the three months ended June 30, 1997, increased 21.0% to $5.8 million, from $4.8
million for the three months ended June 30, 1996. As a percentage of total
revenues, R&D expense decreased to 14.1% for the three months ended June 30,
1997, from 15.7% for the three months ended June 30, 1996. The Company
capitalized software development costs, related to CSG Phoenix(TM), of
approximately $3.7 million during the three months ended June 30, 1997, which
consisted of $2.8 million of internal development costs and $0.9 million of
purchased software. No software development costs were capitalized during the
three months ended June 30, 1996. As a result, total R&D expenditures (i.e.,
the total R&D costs expensed, plus the capitalized internal development costs)
for the three months ended June 30, 1997, and 1996, were $8.6 million, or 21.0%
of total revenues, and $4.8 million, or 15.7% of total revenues, respectively.
The overall increase in the R&D expenditures is due primarily to continued
efforts on several products which are in development, principally CSG Phoenix,
and to enhancements of the Company's existing products. The increased R&D
expenditures consist primarily of increases in salaries, benefits, and other
programming-related expenses.
Selling and Marketing Expense. Selling and marketing expense for the three
months ended June 30, 1997, increased 75.8% to $2.8 million, from $1.6 million
for the three months ended June 30, 1996. As a percentage of total revenues,
selling and marketing expense increased to 6.7% for the three months ended June
30, 1997, from 5.2% for the three months ended June 30, 1996. The increase in
expense is due primarily to continued growth of the Company's direct sales
force. The Company began building a new direct sales force in mid-1995 and has
continued to expand its sales force since that time.
General and Administrative Expense. General and administrative (G&A) expense
for the three months ended June 30, 1997, increased 48.1% to $4.7 million, from
$3.1 million for the three months ended June 30, 1996. As a percentage of total
revenues, G&A expense increased to 11.4% for the three months ended June 30,
1997, from 10.3% for the three months ended June 30, 1996. The increase in
expense relates primarily to i) the continued development of the
9
<PAGE>
Company's management team and related administrative staff, added throughout
1996 and during the first six months of 1997, to support the Company's revenue
growth, ii) an increase in facility costs to support employee growth, including
the cost of relocating the Company's corporate headquarters from Englewood to
Denver, Colorado, iii) an increase in costs associated with the Company's annual
report and other public reporting requirements, and iv) the inclusion of G&A
expenses from Bytel's operations for the three months ended June 30, 1997, with
no comparable amounts included for Bytel for the second quarter of 1996.
Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete
agreements and goodwill for the three months ended June 30, 1997, increased
14.0% to $1.7 million, from $1.5 million for the three months ended June 30,
1996. The increase in expense relates to amortization of goodwill from the
Bytel acquisition and amortization of an additional noncompete agreement
acquired in April 1996.
Depreciation Expense. Depreciation expense for the three months ended June 30,
1997, increased 37.3% to $1.7 million, from $1.2 million for the three months
ended June 30, 1996. The increase in expense relates to capital expenditures
made throughout 1996 and the first six months of 1997 in support of the overall
growth of the Company.
Operating Income. Operating income for the three months ended June 30, 1997,
was $2.1 million, compared to an operating loss of $0.1 million for the three
months ended June 30, 1996. The increase between years relates to the factors
discussed above.
The Company incurred certain one-time or acquisition-related charges
(Acquisition Charges) in connection with its leveraged buy-out of CSG Systems,
Inc. in November 1994. The Acquisition Charges include amortization of acquired
software, client contracts and related intangibles, noncompete agreement,
goodwill, and stock-based compensation. Operating income for the three months
ended June 30, 1997, and 1996, excluding Acquisition Charges of $5.4 million and
$5.3 million, was $7.6 million or 18.4% of total revenues, and $5.2 million or
17.1% of total revenues, respectively. See the Company's "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
contained in the Company's Annual Report on Form 10-K for the year ended
December 31, 1996, for additional discussion regarding the Acquisition Charges
and the impact of such charges on operations.
Interest Expense. Interest expense for the three months ended June 30, 1997,
decreased 29.2% to $0.6 million, from $0.9 million for the three months ended
June 30, 1996, with the decrease attributable primarily to scheduled principal
payments on the Company's long-term debt.
Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996
Revenues. Total revenues for the six months ended June 30, 1997, increased
39.2% to $79.6 million, from $57.2 million for the six months ended June 30,
1996, due primarily to i) increased revenue from the Company's processing and
related services, and ii) increased revenue from the Company's software and
related product sales and professional consulting services.
Revenues from processing and related services for the six months ended June 30,
1997, increased 16.0% to $63.0 million, from $54.3 million for the six months
ended June 30, 1996. This increase is due primarily to an increase in the
number of customers of the Company's clients which were serviced by the Company
and increased revenue per customer. The increase in the number of customers was
due to internal customer growth experienced by existing clients and the addition
of new clients. Revenue per customer increased due primarily to price increases
included in client contracts and increased usage of ancillary services by
clients.
Revenues from software and related product sales and professional consulting
services for the six months ended June 30, 1997, were $16.6 million, compared to
$2.9 million for the six months ended June 30, 1996. This increase relates to
the introduction of the Company's new software products and professional
consulting services in early 1996 with continued expansion throughout 1996, and
the inclusion of revenues from Bytel's operations for the six months ended June
30, 1997, with no comparable amounts included for Bytel for the first six months
of 1996.
10
<PAGE>
Gross Margin. Gross margin for the six months ended June 30, 1997, increased
55.8% to $35.0 million, from $22.4 million for the six months ended June 30,
1996, due primarily to revenue growth. The gross margin percentage increased to
43.8% for the six months ended June 30, 1997, compared to 39.2% for the six
months ended June 30, 1996. The overall increase in the gross margin percentage
is due primarily to i) the increase in revenues while the amount of amortization
of acquired software and amortization of client contracts and related
intangibles remained approximately the same, and ii) the improvement in gross
margin from processing and related services, due primarily to the increase in
revenue per customer while controlling the cost of delivering such services.
Research and Development Expense. Research and development (R&D) expense for
the six months ended June 30, 1997, increased 14.0% to $10.7 million, from $9.3
million for the six months ended June 30, 1996. As a percentage of total
revenues, R&D expense decreased to 13.4% for the six months ended June 30, 1997,
from 16.3% for the six months ended June 30, 1996. The Company capitalized
software development costs, related to CSG Phoenix, of approximately $6.8
million during the six months ended June 30, 1997, which consisted of $5.6
million of internal development costs and $1.2 million of purchased software.
No software development costs were capitalized during the six months ended June
30, 1996. As a result, total R&D expenditures (i.e., the total R&D costs
expensed, plus the capitalized internal development costs) for the six months
ended June 30, 1997, and 1996, were $16.3 million, or 20.4% of total revenues,
and $9.3 million, or 16.3% of total revenues, respectively. The overall
increase in the R&D expenditures is due primarily to continued efforts on
several products which are in development, principally CSG Phoenix, and to
enhancements of the Company's existing products. The increased R&D expenditures
consist primarily of increases in salaries, benefits, and other programming-
related expenses.
Selling and Marketing Expense. Selling and marketing expense for the six months
ended June 30, 1997, increased 70.6% to $5.1 million, from $3.0 million for the
six months ended June 30, 1996. As a percentage of total revenues, selling and
marketing expense increased to 6.4% for the six months ended June 30, 1997, from
5.2% for the six months ended June 30, 1996. The increase in expense is due
primarily to continued growth of the Company's direct sales force. The Company
began building a new direct sales force in mid-1995 and has continued to expand
its sales force since that time.
General and Administrative Expense. General and administrative (G&A) expense
for the six months ended June 30, 1997, increased 36.7% to $8.8 million, from
$6.4 million for the six months ended June 30, 1996. As a percentage of total
revenues, G&A expense decreased to 11.0% for the six months ended June 30, 1997,
from 11.2% for the six months ended June 30, 1996. The increase in expense
relates primarily to i) the continued development of the Company's management
team and related administrative staff, added throughout 1996 and during the
first six months of 1997, to support the Company's revenue growth, ii) an
increase in facility costs to support employee growth, including the cost of
relocating the Company's corporate headquarters from Englewood to Denver,
Colorado, iii) an increase in costs associated with the Company's annual report
and other public reporting requirements, and iv) the inclusion of G&A expenses
from Bytel's operations for the six months ended June 30, 1997, with no
comparable amounts included for Bytel for the first six months of 1996.
Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete
agreements and goodwill for the six months ended June 30, 1997, increased 17.8%
to $3.5 million, from $2.9 million for the six months ended June 30, 1996. The
increase in expense relates to amortization of goodwill from the Bytel
acquisition and amortization of an additional noncompete agreement acquired in
April 1996.
Stock-Based Employee Compensation. Stock-based employee compensation of $3.4
million in the six months ended June 30, 1996, relates to purchases of the
Company's common stock through performance stock purchase agreements with
executive officers and key employees. During 1995 and 1994, the Company sold
common stock to executive officers and key employees pursuant to performance
stock agreements. The structure of the performance stock agreements required
"variable" accounting for the related shares until the performance conditions
were removed on October 19, 1995, thereby establishing a measurement date. The
fair value of the stock was estimated by the Company to be $2.75 per share at
that date. Prior to the completion of the Company's initial public offering
(IPO), the deferred compensation was being recognized as stock-based employee
compensation expense on a straight-line basis from the time the shares were
purchased through November 30, 2001. Upon the completion of the IPO, shares
owned by certain
11
<PAGE>
executive officers of the Company were no longer subject to the repurchase
option. In addition, the repurchase option for the remaining performance stock
shares decreased to 20% annually over a five-year period, commencing on the
later of an employee's hire date or November 30, 1994. As a result,
approximately $3.2 million of stock-based employee compensation expense was
recorded when the IPO was completed in March 1996. The scheduled amortization of
the stock-based deferred compensation subsequent to June 30, 1997, is
approximately $0.1 million per quarter.
Depreciation Expense. Depreciation expense for the six months ended June 30,
1997, increased 32.2% to $3.2 million, from $2.4 million for the six months
ended June 30, 1996. The increase in expense relates to capital expenditures
made throughout 1996 and the first six months of 1997 in support of the overall
growth of the Company.
Operating Income. Operating income for the six months ended June 30, 1997, was
$3.4 million, compared to an operating loss of $5.1 million for the six months
ended June 30, 1996. The increase between years relates to the factors
discussed above.
Operating income for the six months ended June 30, 1997, and 1996, excluding
Acquisition Charges of $11.0 million and $13.8 million, was $14.4 million or
18.1% of total revenues, and $8.7 million or 15.2% of total revenues,
respectively. See the Company's "Management's Discussion and Analysis of
Financial Condition and Results of Operations" contained in the Company's Annual
Report on Form 10-K for the year ended December 31, 1996, for additional
discussion regarding the Acquisition Charges and the impact of such charges on
operations.
Interest Expense. Interest expense for the six months ended June 30, 1997,
decreased 51.8% to $1.3 million, from $2.6 million for the six months ended June
30, 1996, with the decrease attributable to i) scheduled principal payments on
the Company's long-term debt, ii) the retirement of $40.3 million of long-term
debt with proceeds from the IPO in March 1996, and iii) a decrease in interest
rates as a result of the Company favorably amending its long-term credit
facility with its bank in April 1996.
Extraordinary Loss From Early Extinguishment Of Debt. Upon the repayment of the
$40.3 million of long-term debt with IPO proceeds, the Company recorded an
extraordinary charge of $1.3 million in March 1996, for the write-off of
deferred financing costs attributable to the portion of the long-term debt
repaid.
General
- -------
The Company generates a significant amount of its revenues from Tele-
Communications, Inc.'s (TCI) cable television operations. In July 1997, the
Company signed a multi-year renewal contract to continue to provide customer
care and billing systems to support TCI's cable television subscribers. The
renewal contract replaced the Company's previous contract with TCI which was
scheduled to expire December 31, 1997. On August 10, 1997, the Company signed
a 15-year exclusive contract with a TCI affiliate to consolidate 13 million TCI
subscribers onto the Company's customer care and billing systems (the 15-Year
Contract). On August 10, 1997, the Company also entered into an agreement with
TCI affiliates to acquire certain SUMMITrak assets, an in-house customer care
and billing system developed by TCI, for $106 million in cash, up to $26 million
in various contingent payments, and warrants to purchase up to 1.5 million
shares of the Company's common stock, with the contingent payments and warrants
based upon the achievement of certain milestones by TCI specified in the 15-Year
Contract. Both the closing of the SUMMITrak asset purchase and the effectiveness
of the 15-Year Contract are subject to certain conditions, including
governmental filings and approvals. If the 15-Year Contract closes and becomes
effective, it would replace the renewal contract signed in July 1997. Currently,
the Company has approximately 4 million of TCI's subscribers on its systems.
Under the 15-Year Contract, the Company and TCI plan to consolidate the 13
million subscribers under an agreed upon conversion schedule. Converting
multiple sites under an aggressive time schedule poses certain risks. Factors
affecting the conversion schedule include the frequency and severity of database
discrepancies, installation of compatible hardware, network and software
products, as well as the availability and cooperation of qualified personnel
from all the parties involved in the conversion. TCI's minimum financial
commitments under the 15-Year Contract are subject to certain performance
criteria by the Company.
As previously reported, the Company delivered Version 1.1 of CSG Phoenix, its
next generation customer management system for the converging communications
industries, on March 31, 1997. The primary purpose for the release of this code
was for basic testing and integration at customer sites. This testing resulted
in the discovery of a number of incident reports and configuration issues. The
Company is currently examining the size and magnitude of these issues, and will
have an estimated date for when CSG Phoenix will go into production when that
analysis is completed. The Company is in the process of working with its
Phoenix partners to coordinate the next steps for both the testing of the
product, as well as rescheduling the new, estimated production date. Any
statements regarding development and timing of the dates on which CSG Phoenix
will go into production at any particular client site are forward-looking
statements. The actual timing is subject to delay due to the variety of factors
inherent in the development and initial implementation of a new, complex
software system. Installation is also subject to factors relating to the
integration of the new system with the client's existing systems.
12
<PAGE>
Income Taxes
- ------------
At June 30, 1997, management of the Company evaluated its previous operating
results, as well as projections for 1997 and 1998, and concluded that it was
more likely than not that certain of the Company's deferred tax assets would be
realized. Accordingly, the Company has recognized a net deferred tax asset of
$3.8 million. The Company has recorded a valuation allowance of approximately
$22.9 million against the remaining net deferred tax assets since realization of
these future benefits is not sufficiently assured as of June 30, 1997.
The Company intends to analyze the realizability of the net deferred tax assets
at each future quarterly reporting period. The current quarterly results of
operations, as well as the Company's projected results of operations, will
determine the required valuation allowance at the end of each quarter. Based on
its current projections of operating results for 1997 and 1998, the Company
expects to realize additional deferred tax assets in 1997. As a result, the
Company does not expect income tax expense for 1997 to be significant. Due
primarily to differences in the timing of recognition of the amortization of
intangible assets for financial reporting and tax purposes, the Company expects
to pay income taxes in 1997.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1997, the Company's principal sources of liquidity included cash
and cash equivalents of $2.0 million. The Company also has a revolving bank
line of credit in the amount of $5.0 million of which there were no borrowings
outstanding. The line of credit expires November 30, 2001.
During the six months ended June 30, 1997, the Company generated $13.7 million
in net cash flow from operating activities. Cash generated from these sources
was primarily used to fund capital expenditures of $6.0 million, additions to
software of $6.9 million, and to repay long-term debt of $5.0 million.
The Company believes that cash generated from operations and the amount
available under the revolving bank line of credit will be sufficient to meet its
anticipated cash requirements for operations (including research and development
expenditures), income taxes, debt service, and capital expenditures through the
next twelve months.
13
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Items 1 - 3. None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1997 annual meeting (the "Annual Meeting") of stockholders of
CSG Systems International, Inc. was held on May 29, 1997.
(b) The following persons were elected as directors at the Annual
Meeting:
Class I (term expiring in 1998)
-------------------------------
James D. Norrod
Rockwell A. Schnabel
Class II (term expiring in 1999)
--------------------------------
Royce J. Holland
Bernard W. Reznicek
Class III (term expiring in 2000)
---------------------------------
George F. Haddix
Neal C. Hansen
Frank V. Sica
No other director's term of office continued after the Annual
Meeting.
(c) (i) Votes were cast or withheld in the election of directors at
the Annual Meeting as follows:
<TABLE>
<CAPTION>
Director For Against
-------- --- -------
<S> <C> <C>
James D. Norrod 21,263,062 13,043
Rockwell A. Schnabel 21,263,112 12,993
Royce J. Holland 21,263,112 12,993
Bernard W. Reznicek 21,262,787 13,318
George F. Haddix 21,263,006 13,099
Neal C. Hansen 21,263,162 12,943
Frank V. Sica 21,263,112 12,993
</TABLE>
(ii) Votes were cast at the Annual Meeting with respect to
approval of amendments to the corporation's Restated
Certificate of Incorporation and Revised By-Laws to divide
the Board of Directors into three classes and to provide
for the composition of such classes as follows:
For: 18,195,261
Against: 2,268,955
14
<PAGE>
Abstain: 7,071
There were broker nonvotes as to 804,817 shares on this matter.
This matter received sufficient votes to pass.
(iii) Votes were cast at the Annual Meeting with respect to approval
of amendments to the corporation's Restated Certificate of
Incorporation and Revised By-Laws to provide that directors may
be removed only for cause and only by a 75% vote of
stockholders as follows:
For: 18,236,990
Against: 2,239,111
Abstain: 5,869
There were broker nonvotes as to 794,135 shares on this matter.
This matter received sufficient votes to pass.
(iv) Votes were cast at the Annual Meeting with respect to approval
of amendments to the corporation's Restated Certificate of
Incorporation and Revised By-Laws to provide that any vacancy
on the Board of Directors may be filled only by a vote of the
remaining directors then in office as follows:
For: 20,397,327
Against: 77,162
Abstain: 7,481
There were broker nonvotes as to 794,135 shares on this matter.
This matter received sufficient votes to pass.
(v) Votes were cast at the Annual Meeting with respect to approval
of amendments to the corporation's Restated Certificate of
Incorporation and Revised By-Laws to provide that the Board of
Directors shall consist of not fewer than five members and not
more than thirteen members and that the exact number of
authorized directors shall be determined by a majority vote of
the total number of authorized directors most recently fixed by
the Board of Directors as follows:
For: 20,392,618
Against: 84,832
Abstain: 4,519
There were broker nonvotes as to 794,135 shares on this matter.
This matter received sufficient votes to pass.
(vi) Votes were cast at the Annual Meeting with respect to approval
of amendments to the corporation's Restated Certificate of
Incorporation to provide that advance notice of
15
<PAGE>
stockholder nominations of persons for election to
the Board of Directors must be given to the
corporation, together with certain required
information, as follows:
For: 19,444,746
Against: 1,032,782
Abstain: 4,442
There were broker nonvotes as to 794,135 shares on
this matter. This matter received sufficient votes
to pass.
(vii) Votes were cast at the Annual Meeting with respect
to approval of amendments to the corporation's
Restated Certificate of Incorporation to require a
75% vote of stockholders to alter, amend, or repeal
any of the provisions referred to in subparagraphs
(ii) through (vi) above as follows:
For: 18,216,365
Against: 2,260,137
Abstain: 5,467
There were broker nonvotes as to 794,135 shares on
this matter. This matter received sufficient votes
to pass.
(viii) Votes were cast at the Annual Meeting with respect
to approval of the corporation's Stock Option Plan
for Non-Employee Directors as follows:
For: 20,227,302
Against: 1,032,224
Abstain: 5,924
There were broker nonvotes as to 10,655 shares on
this matter. This matter received sufficient votes
to pass.
Item 5. None.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
3.02 Revised By-Laws of CSG Systems International, Inc.
3.03 Certificate of Amendment of Restated Certificate of
Incorporation of CSG Systems International,
Inc.
10.44 CSG Systems International, Inc. Stock Option Plan
for Non-Employee Directors
16
<PAGE>
27.01 Financial Data Schedule (EDGAR Version Only)
99.01 Safe Harbor for Forward-Looking Statements Under
the Private Securities Litigation Reform Act
of 1995-Certain Cautionary Statements and Risk
Factors
(b) Reports on Form 8-K
None
17
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 14, 1997
CSG SYSTEMS INTERNATIONAL, INC.
/s/ Neal C. Hansen
---------------------------------------
Neal C. Hansen
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Greg A. Parker
---------------------------------------
Greg A. Parker
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Randy R. Wiese
---------------------------------------
Randy R. Wiese
Controller and Principal Accounting Officer
(Principal Accounting Officer)
18
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------- -----------
3.02 Revised By-Laws of CSG Systems International, Inc.
3.03 Certificate of Amendment of Restated Certificate of Incorporation
of CSG Systems International, Inc.
10.44 CSG Systems International, Inc. Stock Option Plan for Non-Employee
Directors
27.01 Financial Data Schedule (EDGAR Version Only)
99.01 Safe Harbor for Forward-Looking Statements Under the Private
Securities Litigation Reform Act of 1995-Certain Cautionary
Statements and Risk Factors
19
<PAGE>
Exhibit 3.02
[With Amendments
through May 29, 1997]
REVISED
-------
BY-LAWS
-------
OF
--
CSG SYSTEMS INTERNATIONAL, INC.
-------------------------------
(A Delaware Corporation)
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
Page
<S> <C> <C> <C>
ARTICLE I - CORPORATE OFFICES............................................ 1
1.1 REGISTERED OFFICE............................................ 1
1.2 OTHER OFFICES................................................ 1
ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1
2.1 PLACE OF MEETINGS............................................ 1
2.2 ANNUAL MEETING.............................................. 1
2.3 SPECIAL MEETING............................................. 2
2.4 NOTICE OF MEETINGS OF STOCKHOLDERS........................... 2
2.5 ADJOURNED MEETING............................................ 2
2.6 QUORUM....................................................... 2
2.7 CONDUCT OF BUSINESS.......................................... 2
2.8 VOTE REQUIRED................................................ 2
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT
WITHOUT A MEETING......................................... 3
2.10 PROXIES...................................................... 3
2.11 RECORD DATE.................................................. 3
2.12 WAIVER OF NOTICE............................................. 3
2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES....................... 4
2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS....................... 5
2.15 REGISTERED STOCKHOLDERS...................................... 5
ARTICLE III - DIRECTORS.................................................. 6
3.1 POWERS....................................................... 6
3.2 NUMBER OF DIRECTORS.......................................... 6
3.3 ELECTION, QUALIFICATION, AND TERM OF OFFICE OF
DIRECTORS................................................. 6
3.4 RESIGNATION AND VACANCIES.................................... 6
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................... 7
3.6 REGULAR MEETINGS............................................. 7
3.7 SPECIAL MEETINGS; NOTICE.................................... 7
3.8 QUORUM....................................................... 7
3.9 WAIVER OF NOTICE............................................. 8
3.10 BOARD OR COMMITTEE ACTION BY WRITTEN CONSENT
WITHOUT A MEETING......................................... 8
3.11 FEES AND COMPENSATION OF DIRECTORS........................... 8
3.12 APPROVAL OF LOANS TO OFFICERS................................ 8
3.13 REMOVAL OF DIRECTORS......................................... 8
ARTICLE IV - COMMITTEES.................................................. 9
4.1 COMMITTEES OF DIRECTORS...................................... 9
4.2 COMMITTEE MINUTES............................................ 9
4.3 MEETINGS AND ACTION OF COMMITTEES............................ 9
</TABLE>
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
Page
<S> <C>
ARTICLE V - OFFICERS.................................................... 10
5.1 TITLES AND ELECTION......................................... 10
5.2 TERM OF OFFICE.............................................. 10
5.3 RESIGNATION................................................ 10
5.4 REMOVAL..................................................... 10
5.5 CHAIRMAN OF THE BOARD....................................... 10
5.6 PRESIDENT................................................... 11
5.7 VICE PRESIDENT.............................................. 11
5.8 SECRETARY................................................... 11
5.9 CHIEF FINANCIAL OFFICER..................................... 12
5.10 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.............. 12
5.11 ASSISTANT AND OTHER OFFICERS................................ 12
ARTICLE VI - INDEMNITY.................................................. 12
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 12
6.2 INDEMNIFICATION OF OTHERS................................... 13
6.3 EXPENSES.................................................... 13
6.4 INSURANCE................................................... 13
6.5 CONTINUATION AFTER TERMINATION OF POSITION.................. 13
6.6 DEFINITIONS................................................. 13
ARTICLE VII - STOCK CERTIFICATES........................................ 14
7.1 STOCK CERTIFICATES.......................................... 14
7.2 SPECIAL DESIGNATIONS ON CERTIFICATES........................ 14
7.3 LOST CERTIFICATES........................................... 14
7.4 TRANSFER OF SHARES.......................................... 14
ARTICLE VIII - AMENDMENTS............................................... 15
</TABLE>
<PAGE>
REVISED
-------
BY-LAWS
-------
OF
--
CSG SYSTEMS INTERNATIONAL, INC.
-------------------------------
ARTICLE I
CORPORATE OFFICES
-----------------
1.1 REGISTERED OFFICE
-----------------
The registered office of the corporation in Delaware shall be in the City
of Wilmington, County of New Castle, State of Delaware. The name of the
registered agent of the corporation at such location is The Corporation Trust
Company.
1.2 OTHER OFFICES
-------------
The board of directors may establish other offices at any time at any place
or places where the corporation is qualified or permitted to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
------------------------
2.1 PLACE OF MEETINGS
-----------------
================================================================================
Meetings of stockholders may be held at any place, [Amended
either within or outside of the State of Delaware, 5-29-97]
designated for such purpose by the board of directors.
In the absence of any such designation, meetings of
stockholders shall be held at the registered office of
the corporation in Delaware.
================================================================================
2.2 ANNUAL MEETING
--------------
An annual meeting of stockholders shall be held each [Amended
year on a date and at a time designated by the board of 5-29-97]
directors. In the absence of any such designation by the
board of directors, the chairman of the board may make
such designation. At each annual meeting, directors shall
be elected and any other proper business may be transacted.
================================================================================
2.3 SPECIAL MEETING
---------------
A special meeting of stockholders may be called at any time by the board of
directors, the chairman of the board, or the president. Except as otherwise
expressly provided in these by-laws, no other person or persons may call a
special meeting of stockholders. No business may be conducted at a special
meeting of stockholders other than the business brought before the meeting by
the board of directors, the chairman of the board, or the president.
<PAGE>
2.4 NOTICE OF MEETINGS OF STOCKHOLDERS
----------------------------------
Written notice of a meeting of stockholders shall be given not less than
ten (10) nor more than sixty (60) days before the date of the meeting to each
stockholder entitled to vote at such meeting. The notice shall specify the
place, date, and hour of the meeting and, in the case of a special meeting, the
purpose or purposes for which the meeting is called. If mailed, notice is given
when deposited in the United States mail, postage prepaid, directed to the
stockholder at such stockholder's address as it appears on the records of the
corporation. An affidavit of the secretary or an assistant secretary or of the
transfer agent of the corporation that the notice has been given shall, in the
absence of fraud, be prima facie evidence of the facts stated therein.
2.5 ADJOURNED MEETING
-----------------
When a meeting of stockholders is adjourned to another time or place,
unless these by-laws otherwise require, notice need not be given of the
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 thirty (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.
2.6 QUORUM
------
A majority of the shares entitled to vote thereat, present in person or
represented by proxy, shall constitute a quorum at a meeting of stockholders.
Where a separate vote by a class or classes is required, a majority of the
outstanding shares of such class or classes, present in person or represented by
proxy, shall constitute a quorum entitled to take action with respect to that
vote on that matter. If, however, a quorum is not present or represented at any
meeting of stockholders, then either (i) the chairman of the meeting or (ii) the
stockholders entitled to vote thereat, present in person or represented by
proxy, shall have the power to adjourn the meeting from time to time, without
notice other than announcement at the meeting except as otherwise provided in
Section 2.5, until a quorum is present in person or represented by proxy.
2.7 CONDUCT OF BUSINESS
-------------------
Subject to any applicable requirements of the General Corporation Law of
the State of Delaware, the chairman of any meeting of stockholders shall
determine the order of business and the procedure at the meeting.
2.8 VOTE REQUIRED
-------------
When a quorum is present at a meeting of stockholders, the affirmative vote
of the majority of shares present in person or represented by proxy at the
meeting and entitled to vote on the subject matter of the vote shall be the act
of the stockholders in all matters other than the election of directors. When a
quorum is present at a meeting of stockholders, directors shall be elected by a
plurality of the votes of the shares present in person or represented by proxy
at the meeting and entitled to vote on the election of directors. Subject to the
quorum requirements of Section 2.5, where a separate vote by a class or classes
is required, the affirmative vote of the majority of shares of
2
<PAGE>
such class or classes present in person or represented by proxy at the meeting
shall be the act of such class.
3
<PAGE>
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
================================================================================
Unless otherwise provided in the certificate of [Amended
incorporation of the corporation, any action required 5-29-97]
by the General Corporation Law of the State of
Delaware to be taken at any annual or special meeting
of stockholders, or any action that may be taken at any
annual or special meeting of stockholders, may be taken
without a meeting, without prior notice, and without a
vote if a consent or consents in writing, setting forth
the action so taken, shall be signed by the holders of
outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or
take such action at a meeting at which all shares
entitled to vote thereon were present and voted and
shall be delivered to the corporation by delivery to
its registered office in Delaware, to its principal
place of business, or to an officer or agent of the
corporation having custody of the book in which
proceedings of meetings of stockholders are recorded.
Prompt notice of the taking of such action without a
meeting by less than unanimous written consent shall
be given to those stockholders who have not consented
in writing.
================================================================================
2.10 PROXIES
-------
Each stockholder entitled to vote at a meeting of stockholders or to
express consent or dissent to corporate action in writing without a meeting may
authorize another person or persons to act for him or her 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 duly executed 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 proxy may
be made irrevocable regardless of whether the interest with which it is coupled
is an interest in the stock itself or an interest in the corporation generally.
2.11 RECORD DATE
-----------
In a manner consistent with the provisions of Section 213 of the General
Corporation Law of the State of Delaware, the board of directors may fix a
record date for any of the purposes specified in such Section 213. If no record
date is fixed by the board of directors for any of such purposes, then the
record date for such purpose shall be as provided in such Section 213.
2.12 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware, the certificate of incorporation of
the corporation, or these by-laws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a stockholder at a meeting
of stockholders shall constitute a waiver of notice of such meeting, except when
the stockholder attends a meeting of stockholders for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any business
because the meeting is not lawfully called or convened. Neither the business to
be transacted at, nor the purpose of, any regular or special meeting of
stockholders need be specified in any written waiver of notice unless so
required by the certificate of incorporation of the corporation or these
by-laws.
4
<PAGE>
2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
================================================================================
Nominations of persons for election to the board of [Amended
directors may be made at a meeting of stockholders either 5-29-97]
by or at the direction of the board of directors or by any
stockholder entitled to vote on the election of directors
at the meeting who has complied with the notice procedures
set forth in this Section. A stockholder who desires to
nominate a person for election to the board of directors at
a meeting of stockholders must give timely written notice
of the proposed nomination to the secretary of the
corporation. To be timely, a stockholder's notice must be
received at the principal executive offices of the
corporation not less than 120 calendar days in advance of
the date of the proxy statement of the corporation released
to stockholders in connection with the previous year's
annual meeting of stockholders; provided, however, that in
the event that no annual meeting of stockholders was held in
the previous year or that the date of the forthcoming annual
meeting of stockholders has been changed by more than 30 days
from the date contemplated at the time of the previous year's
proxy statement or that the forthcoming meeting is not an
annual meeting of stockholders, notice by the stockholder to
be timely must be so received not later than the close of
business on the tenth day following the earlier of (a) the
day on which notice of the date of the forthcoming meeting
was mailed or given to stockholders or (b) the day on which
public disclosure of the date of the forthcoming meeting was
made. Such stockholder's notice to the secretary shall set
forth (a) as to each person, if any, whom the stockholder
proposes to nominate for election or re-election as a
director (i) the name, age, business address, and residence
address of such person, (ii) the principal occupation or
employment of such person, (iii) the class and number of
shares of capital stock of the corporation which are
beneficially owned by such person, (iv) any other
information relating to such person that is required by
law or regulation to be disclosed in solicitations of
proxies for the election of directors, and (v) such
person's written consent to being named as a nominee and
to serve as a director if elected and (b) as to the
stockholder giving the notice (i) the name and address,
as they appear on the books of the corporation, of such
stockholder, (ii) the class and number of shares of
capital stock of the corporation which are beneficially
owned by such stockholder, (iii) a description of all
arrangements or understandings between such stockholder
and each nominee and any other person or persons
(naming such person or persons) relating to the
nomination proposed to be made by such stockholder, and
(iv) any other information required by law or regulation
to be provided by a stockholder intending to nominate a
person for election as a director of the corporation. At
the request of the board of directors, any person
nominated by the board of directors for election as a
director shall furnish to the secretary of the
corporation the information required to be set forth in
a stockholder's notice of proposed nomination which
pertains to the nominee. No person shall be eligible for
election as a director of the corporation unless nominated
in compliance with the procedures set forth in this
Section. The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that a
nomination was not made in compliance with the procedures
prescribed by this Section; and if such chairman shall so
determine, then he or she shall so declare at the meeting,
and the defective nomination shall be disregarded.
================================================================================
5
<PAGE>
2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
================================================================================
At an annual meeting of stockholders, only such [Amended
business shall be conducted as shall have been properly 5-29-97]
brought before the meeting. To be properly brought before
an annual meeting of stockholders, business must be (a)
as specified in the notice of the meeting (or any
supplement thereto) given by or at the direction of the
board of directors, (b) otherwise properly brought before
the meeting by or at the direction of the board of
directors, or (c) otherwise properly brought before the
meeting by a stockholder. Business to be brought before
an annual meeting by a stockholder shall not be considered
properly brought if the stockholder has not given timely
notice thereof in writing to the secretary of the
corporation. To be timely, a stockholder's notice of
business to be brought before an annual meeting must be
received at the principal executive offices of the
corporation not less than 120 calendar days in advance
of the date of the proxy statement of the corporation
released to stockholders in connection with the previous
year's annual meeting of stockholders; provided, however,
that in the event that no annual meeting of stockholders
was held in the previous year or that the date of the
forthcoming annual meeting of stockholders has been changed
by more than 30 days from the date contemplated at the
time of the previous year's proxy statement, notice by the
stockholder to be timely must be so received not later than
the close of business on the tenth day following the earlier
of (a) the day on which notice of the date of the forthcoming
annual meeting was mailed or given to stockholders or (b)
the date on which public disclosure of the date of the
forthcoming annual meeting was made. Such stockholder's
notice to the secretary shall set forth as to each matter
the stockholder proposes to bring before the annual meeting
(i) a brief description of the business desired to be
brought before the annual meeting and the reasons for
conducting such business at the annual meeting, (ii) the name
and address of the stockholder proposing such business,
(iii) the class and number of shares of capital stock
of the corporation which are beneficially owned by the
stockholder, (iv) any material interest of the stockholder
in such business, and (v) any other information that is
required by law or regulation to be provided by the
stockholder in his capacity as a proponent of a stockholder
proposal. Notwithstanding anything in these by-laws to the
contrary, no business shall be conducted at any annual
meeting of stockholders except in compliance with the
procedures set forth in this Section. The chairman of the
annual meeting of stockholders shall, if the facts warrant,
determine and declare at the meeting that business was not
properly brought before the meeting in compliance with the
provisions of this Section; and, if such chairman shall so
determine, then he or she shall so declare at the meeting,
and any such business not properly brought before the meeting
shall not be transacted.
================================================================================
2.15 REGISTERED STOCKHOLDERS
-----------------------
The corporation shall be entitled to recognize a person registered as
the owner of shares on the stock ledger of the corporation as the sole person
entitled to receive dividends on such shares and to vote such shares and shall
not be obligated to recognize for any purpose any equitable or other interest in
or claim to such shares on the part of another person, whether or not the
corporation has express or other notice thereof, except as otherwise provided in
the General Corporation Law of the State of Delaware.
6
<PAGE>
ARTICLE III
DIRECTORS
---------
3.1 POWERS
------
Subject to the provisions of the General Corporation Law of the State of
Delaware and to any limitations contained in the certificate of incorporation of
the corporation or these by-laws, the business and affairs of the corporation
shall be managed and all corporate powers shall be exercised by or under the
direction of the board of directors.
3.2 NUMBER OF DIRECTORS
================================================================================
The board of directors shall consist of not fewer [Amended
than five (5) members and not more than nine (9) members, 5-29-97]
the exact number within such range to be fixed from time
to time by a resolution adopted by the board of directors.
Until otherwise fixed by such a resolution, the board of
directors shall consist of seven (7) members. No reduction
in the authorized number of members of the board of directors
shall have the effect of removing any director before that
director's term of office expires.
===============================================================================
3.3 ELECTION, QUALIFICATION, AND TERM OF OFFICE OF DIRECTORS
================================================================================
Except as provided in Section 3.4 of these by-laws, [Amended
directors shall be elected at each annual meeting of 5-29-97]
stockholders. Directors need not be stockholders unless
so required by the certificate of incorporation of the
corporation. Each director, including a director elected
to fill a vacancy, shall hold office until his or her
successor is elected and qualified or until his or her
earlier resignation or removal.
================================================================================
3.4 RESIGNATION AND VACANCIES
================================================================================
Any director may resign at any time upon written [Amended
notice sent or delivered to the secretary of the 5-29-97]
corporation. When a director so resigns and the
resignation is effective at a future date, a majority
of the directors then in office, including those who
have so resigned, shall have the power to fill such
vacancy with the vote thereon to take effect when such
resignation becomes effective.
===============================================================================
Unless otherwise provided in the certificate of incorporation of the
corporation:
(i) Vacancies and newly created directorships resulting from any
increase in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled by a
majority of the directors then in office, although less than a quorum, or by a
sole remaining director.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions of the
certificate of incorporation of the corporation, vacancies and newly created
directorships of such class or classes of stock or series thereof may be filled
by a majority of the directors elected by such class or classes of
7
<PAGE>
stock or series thereof then in office, or by a sole remaining director so
elected.
If at any time, by reason of death or resignation or other cause, the
corporation has no directors in office, then any officer or any stockholder or
an executor, administrator, trustee, or guardian of a stockholder, or other
fiduciary entrusted with similar responsibility for the person or estate of a
stockholder, may call a special meeting of stockholders to elect directors or
may apply to the Delaware Court of Chancery for a decree summarily ordering an
election as provided in Section 211 of the General Corporation Law of the State
of Delaware.
3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE
----------------------------------------
The board of directors of the corporation may hold meetings, both regular
and special, either within or outside of the State of Delaware.
Unless otherwise restricted by the certificate of incorporation of the
corporation, members of the board of directors, or any committee designated by
the board of directors, may participate in a meeting of the board of directors,
or any such committee, by means of conference telephone or similar
communications equipment by means of which all persons participating in the
meeting can hear each other, and such participation in a meeting shall
constitute presence in person at the meeting.
3.6 REGULAR MEETINGS
----------------
Regular meetings of the board of directors may be held without notice at
such time and at such place as the board of directors from time to time shall
determine.
3.7 SPECIAL MEETINGS; NOTICE
------------------------
Special meetings of the board of directors for any purpose or purposes may
be called at any time by the chairman of the board, the president, or any two
(2) directors. Notice of the time and place of special meetings of the board of
directors shall be delivered personally or by telephone or by facsimile
transmission to each director or sent by first-class mail, overnight express
delivery, or telegram, charges prepaid, addressed to each director at that
director's address as it is shown on the records of the corporation. If the
notice is mailed, it shall be deposited in the United States mail at least four
(4) days before the time of the holding of the meeting. If the notice is
delivered personally or by telephone, facsimile transmission, or telegram, it
shall be delivered personally or by telephone or facsimile equipment or to the
telegraph company at least forty-eight (48) hours before the time of the holding
of the meeting. If the notice is delivered by facsimile transmission, the
person giving the notice shall use reasonable efforts to confirm the receipt of
such transmission. Any oral notice delivered personally or by telephone may be
communicated either to the director or to a person at the office of the director
who the person giving the notice has reason to believe will promptly communicate
such notice to the director. The notice need not specify the purpose of the
meeting.
3.8 QUORUM
------
At all meetings of the board of directors, a majority of the authorized
number of directors shall constitute a quorum for the transaction of business;
and the vote of a majority of the directors present at any meeting at which a
8
<PAGE>
quorum is present shall be the act of the board of directors, except as
otherwise specifically provided by the certificate of incorporation of the
corporation. If a quorum is not present at any meeting of the board of
directors, then the directors present thereat may adjourn the meeting from time
to time, without notice other than announcement at the meeting, until a quorum
is present. A meeting at which a quorum initially is 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 that
meeting.
3.9 WAIVER OF NOTICE
----------------
Whenever notice is required to be given under any provision of the General
Corporation Law of the State of Delaware, the certificate of incorporation of
the corporation, or these by-laws, a written waiver thereof, signed by the
person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a director at a meeting of
the board of directors shall constitute a waiver of notice of such meeting,
except when the director attends a meeting of the board of directors for the
express purpose of objecting, at the beginning of the meeting, to the
transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the board of directors, or of a committee of
directors, need be specified in any written waiver of notice unless so required
by the certificate of incorporation of the corporation or these by-laws.
3.10 BOARD OR COMMITTEE ACTION BY WRITTEN CONSENT WITHOUT A MEETING
--------------------------------------------------------------
Unless otherwise restricted by the certificate of incorporation of the
corporation, any action required or permitted to be taken at any meeting of the
board of directors, or of any committee thereof, may be taken without a meeting
if all members of the board of directors or committee, as the case may be,
consent thereto in writing, and the writing or writings are filed with the
minutes of proceedings of the board of directors or committee, as the case may
be.
3.11 FEES AND COMPENSATION OF DIRECTORS
----------------------------------
Unless otherwise restricted by the certificate of incorporation of the
corporation, the board of directors shall have the authority to fix the
compensation of directors.
3.12 APPROVAL OF LOANS TO OFFICERS
-----------------------------
The corporation may lend money to, or guarantee any obligation of, or
otherwise assist any officer or other employee of the corporation or any
subsidiary, including any officer or employee who is a director of the
corporation or any subsidiary, whenever, in the judgment of the directors, such
loan, guaranty, or assistance reasonably may 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 of
directors shall approve, including, without limitation, a pledge of shares of
stock of the corporation. Nothing contained in this Section shall be deemed to
deny, limit, or restrict the powers of guaranty or warranty of the corporation
at common law or under any statute.
9
<PAGE>
3.13 REMOVAL OF DIRECTORS
================================================================================
Unless otherwise restricted by the General [Amended
Corporation Law of the State of Delaware or the 5-29-97]
certificate of incorporation of the corporation,
any director or the entire board of directors may
be removed, with or without cause, by the holders
of a majority of the shares then entitled to vote
at an election of directors.
================================================================================
10
<PAGE>
ARTICLE IV
COMMITTEES
----------
4.1 COMMITTEES OF DIRECTORS
================================================================================
The board of directors may, by resolution passed by a majority of the
whole board, designate one or more committees, with each committee to consist
of one or more of the directors of the corporation. The board may designate one
or more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member
of the board of directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the board of directors or in these by-laws, shall have and may
exercise all the powers and authority of the board of directors in the
management of the business and affairs of the corporation and may authorize the
seal of the corporation to be affixed to all papers that may require it; but no
such committee shall have the power or authority to (i) amend the certificate
of incorporation (except that a committee may, to the extent authorized in the
resolution or resolutions providing for the issuance of shares of stock adopted
by the board of directors as provided in Section 151(a) of the General
Corporation Law of the State of Delaware, fix the designations and any of the
preferences or rights of such shares relating to dividends, redemption,
dissolution, any distribution of assets of the corporation or the conversion
into, or the exchange of such shares for, shares of any other class or classes
or any other series of the same or any other class or classes of stock of the
corporation or fix the number of shares of any series of stock or authorize the
increase or decrease of the shares of any series), (ii) adopt an agreement of
merger or consolidation under Sections 251 or 252 of the General Corporation
Law of the State of Delaware, (iii) recommend to the stockholders the sale,
lease, or exchange of all or substantially all of the corporation's property
and assets, (iv) recommend to the stockholders a dissolution of the corporation
or a revocation of a dissolution, or (v) amend the by-laws of the corporation;
and, unless the board resolution establishing the committee, these by-laws, or
the certificate of incorporation of the corporation expressly so provides, no
such committee shall have the power or authority to declare a dividend, to
authorize the issuance of stock, or to adopt a certificate of ownership and
merger pursuant to Section 253 of the General Corporation Law of the State of
Delaware.
[Amended 5-29-97]
================================================================================
4.2 COMMITTEE MINUTES
-----------------
Each committee shall keep regular minutes of its meetings and report
its actions to the board of directors when required by the board of directors or
when the committee otherwise may deem appropriate.
4.3 MEETINGS AND ACTION OF COMMITTEES
---------------------------------
Meetings and actions of committees shall be governed by, and held and
taken in accordance with, the provisions of Section 3.5 (place of meetings and
meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special
meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and
Section 3.10 (action without a meeting) of these by-laws, with such changes in
the context of those by-laws as are necessary to substitute the committee and
its members for the board of directors and its members; provided, however, that
the time of regular meetings of committees may be determined either by
resolution of the board of directors or by resolution of the committee, that
special meetings of committees also may be called by resolution of the board of
11
<PAGE>
directors and by the chairman of the committee, and that notice of special
meetings of committees also shall be given to all alternate members of the
committee, who shall have the right to attend all meetings of the committee.
The board of directors may appoint the chairman of any committee and may adopt
rules for the governance and procedures of any committee not inconsistent with
the provisions of these by-laws. If the board of directors does not appoint a
chairman of any committee or does not adopt rules for the governance and
procedures of any committee, then the members of such committee may do so.
ARTICLE V
OFFICERS
--------
5.1 TITLES AND ELECTION
-------------------
The corporation shall have as officers a chairman of the board, a
president, one or more vice-presidents (the number thereof to be determined by
the board of directors), a secretary, and a chief financial officer, who shall
be elected annually by the board of directors at its first meeting held after
each annual meeting of stockholders or as soon thereafter as practicable or
whenever there is a vacancy in any such office. Unless the certificate of
incorporation of the corporation provides otherwise, any number of offices may
be held by the same person. The chairman of the board shall be elected from
among the members of the board of directors.
5.2 TERM OF OFFICE
--------------
Each officer shall hold office until his or her successor is elected
and qualified or until his or her earlier resignation or removal.
5.3 RESIGNATION
-----------
An officer may resign at any time upon written notice to the
corporation. An officer's resignation shall be effective when the notice is
delivered unless the notice specifies a later effective date. If an officer's
resignation is made effective at a later date and the corporation accepts the
future effective date, then the board of directors may fill the pending vacancy
before such effective date if the board of directors provides that the successor
shall not take office until such effective date. An officer's resignation shall
not affect the corporation's contract rights, if any, with the officer.
5.4 REMOVAL
-------
The board of directors may remove any officer at any time with or
without cause, but such removal shall not affect the officer's contract rights,
if any, with the corporation.
5.5 CHAIRMAN OF THE BOARD
---------------------
Unless otherwise provided by the board of directors, the chairman of
the board shall be the chief executive officer of the corporation and generally
shall have all powers and perform all duties incident to that position. Subject
to the direction of the board of directors, the chairman of the board shall
oversee the business and affairs of the corporation and shall be the chief
policy-making officer of the corporation. The chairman of the board shall, when
present, preside at all meetings of stockholders and of the board
12
<PAGE>
of directors. The chairman of the board may sign any document or instrument
which the board of directors has authorized to be executed, unless such action
has been expressly delegated by the board of directors or these by-laws to some
other officer or agent of the corporation or is required by law to be done
otherwise. The chairman of the board may vote and exercise all other rights with
respect to the shares of another corporation standing in the name of the
corporation, either directly or by proxy, except in cases where the board of
directors expressly provides otherwise. The chairman of the board shall have
such other powers and perform such other duties as the board of directors may
assign to him or her from time to time. Unless otherwise provided by the board
of directors, whenever the president is unable to serve or the position of
president is vacant, the chairman of the board also may perform all duties and
exercise all powers of the president.
5.6 PRESIDENT
---------
Unless otherwise provided by the board of directors, the president
shall be the chief operating officer of the corporation and, subject to the
direction of the board of directors and the chairman of the board, generally
shall supervise and manage the business operations of the corporation. The
president may sign any document or instrument which the board of directors has
authorized to be executed, unless such action has been expressly delegated by
the board of directors or by these by-laws to some other officer or agent of the
corporation or is required by law to be done otherwise. The president may vote
and exercise all other rights with respect to the shares of another corporation
standing in the name of the corporation, either directly or by proxy, except in
cases where the chairman of the board or the board of directors expressly
provides otherwise. Unless the president is the chief executive officer of the
corporation, he or she generally shall have all powers and perform all duties
incident to the office of president of a corporation which has another person as
its chief executive officer and shall have such other powers and perform such
other duties as the chairman of the board or the board of directors may assign
to him or her from time to time. Unless otherwise provided by the board of
directors, whenever the chairman of the board is unable to serve or the position
of chairman of the board is vacant, the president also shall perform all duties
and exercise all powers of the chairman of the board.
5.7 VICE PRESIDENT
--------------
A vice president shall assist the chairman of the board and the
president in the administration of the corporation's business and affairs with
respect to such matters and with such powers and duties as the chairman of the
board, the president, or the board of directors may assign to him or her from
time to time. Unless otherwise provided by the board of directors or the
chairman of the board, whenever both the chairman of the board and the president
are unable to serve or both of such offices are vacant, the vice president (or,
if there is more than one vice president, then the vice presidents in the order
designated at the time of their appointment or, in the absence of any such
designation, in the order of their appointment) shall perform the duties of the
chairman of the board and the president and, when so acting, shall have all
powers incident to such offices. For purposes of the preceding sentence,
executive vice presidents shall be senior in authority to senior vice
presidents, and senior vice presidents shall be senior in authority to vice
presidents.
13
<PAGE>
5.8 SECRETARY
---------
The secretary shall (i) record the proceedings of meetings of
stockholders and of the board of directors in a book to be kept for that
purpose, (ii) give or cause to be given all notices in accordance with the
provisions of these by-laws or as required by law, except that notices of
special meetings of directors called by two (2) directors may be given by such
directors, (iii) be custodian of the corporate records and the seal (if any) of
the corporation, (iv) keep or cause to be kept a register of the address of each
stockholder as furnished to the corporation by such stockholder, (v) have
general supervision of the stock transfer books of the corporation, (vi)
authenticate records of the corporation, (vii) generally have all powers and
perform all duties incident to the office of secretary, and (viii) have such
other powers and perform such other duties as the chairman of the board, the
president, or the board of directors may assign to him or her from time to time.
5.9 CHIEF FINANCIAL OFFICER
-----------------------
The chief financial officer shall (i) have charge of and be
responsible for all moneys and securities of the corporation, (ii) receive and
give receipts for moneys due and payable to the corporation from any source,
(iii) deposit all moneys of the corporation in the name of the corporation in
such banks, trust companies, or other depositaries as shall be selected by or at
the direction of the board of directors, (iv) keep or cause to be kept regular
books of account for the corporation, (v) generally have all powers and perform
all duties incident to the office of chief financial officer, and (vi) have such
other powers and perform such other duties as the chairman of the board, the
president, or the board of directors may assign to him or her from time to time.
Unless the board of directors designates another person to hold the office of
treasurer of the corporation, the chief financial officer also shall be the
treasurer of the corporation.
5.10 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS
----------------------------------------------
In the absence of the secretary or in the event of the secretary's
resignation, death, or inability or refusal to act, the assistant secretaries
shall have the powers and perform the duties of the secretary. In the absence
of the treasurer or in the event of the treasurer's death, resignation, or
inability or refusal to act, the assistant treasurers shall perform the duties
of the treasurer. Assistant secretaries and assistant treasurers generally
shall have such powers and perform such duties as the secretary or the
treasurer, respectively, the chairman of the board, the president, or the board
of directors may assign to them from time to time.
5.11 ASSISTANT AND OTHER OFFICERS
----------------------------
The board of directors may appoint assistant and other officers at any
time, and the board of directors also may empower the chief executive officer to
appoint assistant and other officers whenever the chief executive officer
considers such action necessary or appropriate. Except as otherwise provided in
these by-laws, such assistant and other officers shall hold office for such
period of time, have such powers, and perform such duties as the board of
directors or chief executive officer may determine from time to time. The chief
executive officer may remove from office at any time any assistant or other
officer which he or she has appointed.
14
<PAGE>
ARTICLE VI
INDEMNITY
---------
6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS
-----------------------------------------
The corporation shall, to the maximum extent and in the manner
permitted by the General Corporation Law of the State of Delaware, indemnify
each of its directors and officers against expenses (including but not limited
to attorneys' fees), judgments, fines, and amounts paid in settlement actually
and reasonably incurred in connection with any threatened, pending, or completed
action, suit, or proceeding (whether civil, criminal, administrative, or
investigative) to which such person was or is a party or is threatened to be
made a party by reason of the fact that such person is or was a director,
officer, employee, or agent of the corporation. For purposes of this Section
6.1, a "director" or "officer" of the corporation includes any person (i) who is
or was a director or officer of the corporation, (ii) who is or was serving at
the request of the corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise, or
(iii) who was a director or officer of a corporation which was a predecessor
corporation of the corporation or of another enterprise at the request of such
predecessor corporation.
6.2 INDEMNIFICATION OF OTHERS
-------------------------
The corporation shall have the power, to the extent and in the manner
permitted by the General Corporation Law of the State of Delaware, to indemnify
each of its employees and agents (other than directors and officers) against
expenses (including but not limited to attorney's fees), judgments, fines, and
amounts paid in settlement actually and reasonably incurred in connection with
any threatened, pending, or completed action, suit, or proceeding (whether
civil, criminal, administrative, or investigative) to which such person was or
is a party or is threatened to be made a party by reason of the fact that such
person is or was an employee or agent of the corporation. For purposes of this
Section 6.2, an "employee" or "agent" of the corporation (other than a director
or officer) includes any person (i) who is or was an employee or agent of the
corporation, (ii) who is or was serving at the request of the corporation as an
employee or agent of another corporation, partnership, joint venture, trust, or
other enterprise, or (iii) who was an employee or agent of a corporation which
was a predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.3 EXPENSES
--------
The corporation shall pay expenses (including but not limited to
reasonable attorneys' fees) incurred by an officer or director in defending any
civil, criminal, administrative, or investigative action, suit, or proceeding in
advance of the final disposition of such action, suit, or proceeding upon
receipt of an undertaking by or on behalf of such director or officer to repay
such amount if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the corporation as authorized by these by-
laws and the General Corporation Law of the State of Delaware. Such expenses
(including but not limited to attorneys' fees) incurred by employees and agents
of the corporation (other than directors and officers) may be so paid upon such
terms and conditions, if any, as the board of directors deems appropriate.
6.4 INSURANCE
---------
15
<PAGE>
The corporation may purchase and maintain insurance on behalf of any
person who is or was a director, officer, employee, or agent of the corporation
or is or was serving at the request of the corporation as a director, officer,
employee, or agent of another corporation, partnership, joint venture, trust, or
other enterprise against any liability asserted against such person and incurred
by such person in any such capacity, or arising out of such person's status as
such, whether or not the corporation would have the power to indemnify such
person against such liability under the General Corporation Law of the State of
Delaware.
6.5 CONTINUATION AFTER TERMINATION OF POSITION
------------------------------------------
Any right to indemnification and advancement of expenses provided by,
or granted pursuant to, this Article VI shall continue as to a person who was
but has ceased to be a director or officer and shall inure to the benefit of the
heirs, executors, administrators, and personal representatives of such person.
6.6 DEFINITIONS
-----------
For purposes of this Article VI, the definitions contained in
subsections (h) and (i) of Section 145 of the General Corporation Law of the
State of Delaware shall apply whenever the defined terms or phrases appear in
this Article VI.
ARTICLE VII
STOCK CERTIFICATES
------------------
7.1 STOCK CERTIFICATES
------------------
The shares of the corporation shall be represented by certificates;
provided, that the board of directors of the corporation may provide by
resolution or resolutions that some or all of any or all classes or series of
the stock of the corporation shall be uncertificated shares. Any such
resolution shall not apply to shares represented by a certificate until such
certificate is surrendered to the corporation. Notwithstanding the adoption of
such a resolution by the board of directors, every holder of stock represented
by certificates and upon request every holder of uncertificated shares shall be
entitled to have a certificate signed by or in the name of the corporation by
the chairman of the board, the president, or a vice-president and by the chief
financial officer, an assistant treasurer, the secretary, or an assistant
secretary representing the number of shares registered in certificate form. Any
or all of the signatures on the certificate may be a facsimile. In case any
officer, transfer agent, or registrar who has signed or whose facsimile
signature has been placed upon a certificate has ceased to be such officer,
transfer agent, or registrar before such certificate is issued, such certificate
may be issued by the corporation with the same effect as if the person were such
officer, transfer agent, or registrar at the date of issue.
7.2 SPECIAL DESIGNATION ON CERTIFICATES
-----------------------------------
If the corporation is authorized to issue more than one class of stock
or more than one series of any class, then the powers, designations,
preferences, and relative, participating, optional, or other special rights of
each class of stock or series thereof and the qualifications, limitations, or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the
16
<PAGE>
face or back of the certificate that the corporation shall issue to represent
such class or series of stock; provided, however, that, except as otherwise
provided in Section 202 of the General Corporation Law of the State of Delaware,
in lieu of the foregoing requirements there may be set forth on the face or back
of the certificate which the corporation shall issue to represent such class or
series of stock a statement that the corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences, and
relative, participating, optional, or other special rights of each class of
stock or series thereof and the qualifications, limitations, or restrictions of
such preferences and/or rights.
7.3 LOST CERTIFICATES
-----------------
All certificates for shares of stock surrendered to the corporation
for transfer shall be cancelled, and no new certificates for shares of stock
shall be issued to replace a previously issued certificate unless the latter is
surrendered to the corporation and canceled at the same time. However, the
corporation may issue a new certificate of stock or uncertificated shares in
place of any certificate theretofore issued by it alleged to have been lost,
stolen, or destroyed; and the corporation may require the owner of the lost,
stolen, or destroyed certificate, or such owner's legal representative, to give
the corporation a bond sufficient to indemnify the corporation against any claim
that may be made against the corporation on account of the alleged loss, theft,
or destruction of any such certificate or the issuance of such new certificate
or uncertificated shares.
7.4 TRANSFER OF SHARES
------------------
Transfer of shares of stock of the corporation shall be made only on
the stock transfer books of the corporation by the holder of record thereof or
by his or her legal representative, who shall furnish proper evidence of
authority to effect such transfer, or by his or her attorney thereunto duly
authorized by power-of-attorney duly executed and filed with the secretary or
with a transfer agent appointed pursuant to these by-laws, and only upon the
surrender for cancellation of the certificate or certificates for such shares of
stock properly endorsed and the payment of all applicable transfer taxes. Except
as otherwise provided in these by-laws or by the General Corporation Law of the
State of Delaware, the person in whose name shares of stock stand on the books
of the corporation shall be deemed by the corporation to be the owner of such
shares of stock for all purposes. The board of directors from time to time may
make such additional rules and regulations, consistent with these by-laws and
the General Corporation Law of the State of Delaware, as it may deem expedient
concerning the issue, transfer, and registration of the shares of the
corporation. The board of directors from time to time may appoint one or more
transfer agents and one or more registrars for any class of stock of the
corporation.
ARTICLE VIII
AMENDMENTS
================================================================================
The board of directors shall have the power from time to time to
adopt, amend, or repeal any or all of the by-laws of the corporation.
[Amended 5-29-97]
================================================================================
17
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
Amendments of Revised By-Laws Adopted
By Stockholders on May 29, 1997
-------------------------------
"3.2 NUMBER OF DIRECTORS
-------------------
The board of directors shall consist of not fewer than five (5)
members and not more than thirteen (13) members, the exact number of authorized
directors within such range to be fixed from time to time by a resolution of the
board of directors adopted by the affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the board of
directors."
"3.3 CLASSES, ELECTION, AND TERM OF OFFICE OF DIRECTORS
--------------------------------------------------
The directors shall be divided into three classes for the purpose of
determining their terms of office. Each such class shall consist, as nearly as
possible, of one-third of the total number of directors fixed by the board of
directors. At the annual meeting of stockholders held in 1997, one class of
directors (designated as Class I) shall be elected for a term expiring at the
annual meeting of stockholders held in 1998, one class of directors (designated
as Class II) shall be elected for a term expiring at the annual meeting of
stockholders held in 1999, and one class of directors (designated as Class III)
shall be elected for a term expiring at the annual meeting of stockholders held
in 2000. At each succeeding annual meeting of stockholders, beginning in 1998,
successors to the class of directors whose term expires at that annual meeting
shall be elected for a term expiring at the annual meeting of stockholders held
in the third year following the year of their election. If the number of
directors is changed, then any increase or decrease in such number shall be
apportioned by the board of directors among the classes of directors so as to
maintain as nearly as possible an equal number of directors in each class. No
reduction in the authorized number of members of the board of directors shall
have the effect of removing any director from office before that director's term
of office expires. Each director, including a director elected to fill a vacancy
or a newly created directorship, shall hold office until the next election of
the class of directors to which such director belongs and until his or her
successor is elected and qualified or until his or her earlier death,
resignation, or removal from office for cause."
"3.4 RESIGNATION AND VACANCIES
-------------------------
Any director may resign at any time upon written notice to the
corporation. When a director so resigns
18
<PAGE>
and the resignation is effective at a future date, a majority of the directors
then in office, including those who have so resigned, shall have the power to
fill such vacancy with the vote thereon to take effect when such resignation
becomes effective. Vacancies on the board of directors and newly created
directorships resulting from an increase in the authorized number of members of
the board of directors may be filled only by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director."
"3.13 REMOVAL OF DIRECTORS
--------------------
Any director or the entire board of directors may be removed from
office at any time but only for cause and only by the affirmative vote of the
holders of at least seventy-five (75%) of the voting power of all outstanding
shares of capital stock then entitled to vote in an election of directors,
voting as a single class."
19
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
Amendments of Revised By-Laws Adopted
By Board of Directors on May 29, 1997
-------------------------------------
2.1 PLACE OF MEETINGS
-----------------
Meetings of stockholders may be held at any place, either
within or outside of the State of Delaware, designated for such purpose by or at
the direction of the board of directors. In the absence of any such designation,
meetings of stockholders shall be held at the registered office of the
corporation in Delaware.
2.2 ANNUAL MEETING
--------------
An annual meeting of stockholders shall be held each year on
a date and at a time designated by or at the direction of the board of
directors. At each annual meeting, directors shall be elected and any other
proper business may be transacted.
2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING
-------------------------------------------------------
Unless otherwise provided in the certificate of incorporation
of the corporation, any action required by the General Corporation Law of the
State of Delaware to be taken at any annual or special meeting of stockholders,
or any action that may be taken at any annual or special meeting of
stockholders, may be taken without a meeting, without prior notice, and without
a vote if a consent or consents in writing, setting forth the action so taken,
shall be signed by the holders of outstanding stock having not less than the
minimum number of votes that would be necessary to authorize or take such action
at a meeting at which all shares entitled to vote thereon were present and voted
and shall be delivered to the corporation by delivery to its registered office
in Delaware, to its principal place of business, or to an officer or agent of
the corporation having custody of the book in which proceedings of meetings of
stockholders are recorded. Prompt notice of the taking of such action without a
meeting by less than unanimous written consent shall be given in accordance with
the requirements of the General Corporation Law of the State of Delaware.
2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES
--------------------------------------
Nominations of persons for election to the board of directors
may be made at a meeting of stockholders either by or at the direction of the
board of directors
20
<PAGE>
or by any stockholder of record entitled to vote in the election of directors at
such meeting who has complied with the notice procedures set forth in this
Section 2.13. A stockholder who desires to nominate a person for election to the
board of directors at a meeting of stockholders and who is eligible to make such
nomination must give timely written notice of the proposed nomination to the
secretary of the corporation. To be timely, a stockholder's notice given
pursuant to this Section 2.13 must be received at the principal executive office
of the corporation not less than one hundred twenty (120) calendar days in
advance of the date which is one year later than the date of the proxy statement
of the corporation released to stockholders in connection with the previous
year's annual meeting of stockholders; provided, however, that if no annual
meeting of stockholders was held in the previous year or if the date of the
forthcoming annual meeting of stockholders has been changed by more than thirty
(30) calendar days from the date contemplated at the time of the previous year's
proxy statement or if the forthcoming meeting is not an annual meeting of
stockholders, then to be timely such stockholder's notice must be so received
not later than the close of business on the tenth day following the earlier of
(a) the day on which notice of the date of the forthcoming meeting was mailed or
given to stockholders by or on behalf of the corporation or (b) the day on which
public disclosure of the date of the forthcoming meeting was made by or on
behalf of the corporation. Such stockholder's notice to the secretary of the
corporation shall set forth (a) as to each person whom the stockholder proposes
to nominate for election or re-election as a director (i) the name, age,
business address, and residence address of such person, (ii) the principal
occupation or employment of such person, (iii) the class and number of shares of
capital stock of the corporation which then are beneficially owned by such
person, (iv) any other information relating to such person that is required by
law or regulation to be disclosed in solicitations of proxies for the election
of directors of the corporation, and (v) such person's written consent to being
named as a nominee for election as a director and to serve as a director if
elected and (b) as to the stockholder giving the notice (i) the name and
address, as they appear in the stock records of the corporation, of such
stockholder, (ii) the class and number of shares of capital stock of the
corporation which then are beneficially owned by such stockholder, (iii) a
description of all arrangements or understandings between such stockholder and
each nominee for election as a director and any other person or persons (naming
such person or persons) relating to the nomination proposed to be made by such
stockholder, and (iv) any other information required by law or regulation to be
provided by a stockholder intending to nominate a person for election as a
director of the corporation. At the request of the board of directors,
21
<PAGE>
any person nominated by or at the direction of the board of directors for
election as a director of the corporation shall furnish to the secretary of the
corporation the information concerning such nominee which is required to be set
forth in a stockholder's notice of a proposed nomination. No person shall be
eligible for election as a director of the corporation unless nominated in
compliance with the procedures set forth in this Section 2.13. The chairman of a
meeting of stockholders shall refuse to accept the nomination of any person not
made in compliance with the procedures set forth in this Section 2.13, and such
defective nomination shall be disregarded.
22
<PAGE>
2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS
--------------------------------------
At an annual meeting of stockholders, only such business
shall be transacted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting of stockholders, business must be
(a) as specified in the notice of the meeting (or any supplement thereto) given
by or at the direction of the board of directors, (b) otherwise properly brought
before the meeting by or at the direction of the board of directors, or (c)
otherwise properly brought before the meeting by a stockholder. Business to be
brought before an annual meeting by a stockholder shall not be considered
properly brought if the stockholder has not given timely written notice thereof
to the secretary of the corporation. To be timely, a stockholder's notice of
business to be brought before an annual meeting must be received at the
principal executive office of the corporation not less than one hundred twenty
(120) calendar days in advance of the date which is one year later than the date
of the proxy statement of the corporation released to stockholders in connection
with the previous year's annual meeting of stockholders; provided, however, that
if no annual meeting of stockholders was held in the previous year or if the
date of the forthcoming annual meeting of stockholders has been changed by more
than thirty (30) calendar days from the date contemplated at the time of the
previous year's proxy statement, then to be timely such stockholder's notice
must be so received not later than the close of business on the tenth day
following the earlier of (a) the day on which notice of the date of the
forthcoming annual meeting was mailed or given to stockholders by or on behalf
of the corporation or (b) the day on which public disclosure of the date of the
forthcoming annual meeting was made by or on behalf of the corporation. Such
stockholder's notice to the secretary of the corporation shall set forth as to
each matter the stockholder proposes to bring before the annual meeting (i) a
brief description of the business desired to be brought before the annual
meeting and the reasons for transacting such business at the annual meeting,
(ii) the name and address of the stockholder proposing such business, (iii) the
class and number of shares of capital stock of the corporation which then are
beneficially owned by such stockholder, (iv) any material interest of such
stockholder in such business, and (v) any other information required by law or
regulation to be provided by such stockholder in such stockholder's capacity as
a proponent of a stockholder proposal. Notwithstanding anything in these by-laws
to the contrary, no business shall be conducted at any annual meeting of
stockholders except in compliance with the procedures set forth in this Section
2.14. The chairman of the annual meeting of stockholders shall, if the facts
warrant, determine at the meeting that business was not properly brought before
the meeting in compliance with the provisions of this Section 2.14; and, if such
chairman shall so determine,
23
<PAGE>
then he or she shall so declare at the meeting, and any such business not
properly brought before the meeting shall not be transacted.
4.1 COMMITTEES OF DIRECTORS
-----------------------
The board of directors may designate one or more committees,
with each such committee to consist of one or more of the directors of the
corporation. The board of directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the board of directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the board of directors or
in these by-laws, shall have and may exercise all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation and may authorize the seal of the corporation to be affixed to all
papers that may require it; but no such committee shall have the power or
authority of the board of directors in reference to the following matters: (i)
approving or 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 stockholders for approval or (ii) adopting, amending, or repealing
any by-law of the corporation.
ARTICLE VIII
AMENDMENTS
----------
Except as otherwise provided in the certificate of
incorporation of the corporation, the board of directors shall have the power
from time to time to adopt, amend, or repeal any or all of the bylaws of the
corporation.
24
<PAGE>
Exhibit 3.03
CERTIFICATE OF AMENDMENT
OF
RESTATED CERTIFICATE OF INCORPORATION
OF
CSG SYSTEMS INTERNATIONAL, INC.
-------------------------------
CSG Systems International, Inc. (the "Corporation"), a corporation
organized and existing under the laws of the State of Delaware, hereby certifies
as follows:
1. The name of the corporation is CSG Systems International, Inc.
2. The Board of Directors of the Corporation duly adopted a resolution
proposing that the Restated Certificate of Incorporation of the Corporation be
amended by adding thereto a new Article VII reading as follows and declaring the
advisability of such proposed amendment:
"ARTICLE VII
A. The business and affairs of the Corporation shall be
managed by or under the direction of a Board of Directors.
The Board of Directors shall consist of not fewer than five
(5) members and not more than thirteen (13) members, the exact
number of authorized directors within such range to be fixed
from time to time by a resolution of the Board of Directors
adopted by the affirmative vote of at least a majority of the
total number of authorized directors most recently fixed by the
Board of Directors. The directors of the Corporation shall be
divided into three classes for the purpose of determining their
terms of office. Each such class shall consist, as nearly as
possible, of one-third of the total number of directors fixed
by the Board of Directors. At the annual meeting of stock-
holders of the Corporation held in 1997, one class of directors
(designated as Class I) shall be elected for a term expiring at
the annual meeting of stockholders of the Corporation held in
1998, one class of directors (designated as Class II) shall be
elected for a term expiring at the annual meeting of stock-
holders of the Corporation held in 1999, and one class of
directors (designated as Class III) shall be elected for a term
expiring at the annual meeting of stockholders of the
Corporation held in 2000. At each succeeding annual meeting of
stockholders of the Corporation, beginning in 1998, successors
to the class of directors whose term expires at that annual
meeting shall be elected for a term expiring at the annual
meeting of stockholders of the Corporation held in the third
year following the year of their
<PAGE>
election. If the number of directors is changed, then
any increase or decrease in such number shall be appor-
tioned by the Board of Directors among the classes of
directors so as to maintain as nearly as possible an equal
number of directors in each class. No reduction in the
authorized number of members of the Board of Directors
shall have the effect of removing any director from office
before that director's term of office expires. Vacancies
on the Board of Directors and newly created directorships
resulting from an increase in the authorized number of
members of the Board of Directors may be filled only by a
majority of the directors then in office, although less
than a quorum, or by a sole remaining director. Each
director, including a director elected to fill a vacancy
or a newly created directorship, shall hold office until
the next election of the class of directors to which such
director belongs and until his or her successor is elected
and qualified or until his or her earlier death, resignation,
or removal from office for cause. Any director or the entire
Board of Directors may be removed from office at any time but
only for cause and only by the affirmative vote of the holders
of at least seventy-five percent (75%) of the voting power of
all outstanding shares of capital stock of the Corporation
then entitled to vote in an election of directors of the
Corporation, voting as a single class.
B. Nominations of persons for election to the Board of
Directors may be made at a meeting of stockholders of the
Corporation either by or at the direction of the Board of
Directors or by any stockholder of record entitled to vote
in the election of directors at such meeting who has complied
with the notice procedures set forth in this Paragraph B.
A stockholder who desires to nominate a person for election
to the Board of Directors at a meeting of stockholders of the
Corporation and who is eligible to make such nomination must
give timely written notice of the proposed nomination to the
secretary of the Corporation. To be timely, a stockholder's
notice given pursuant to this Paragraph B must be received at
the principal executive office of the Corporation not less
than one hundred twenty (120) calendar days in advance of the
date which is one year later than the date of the proxy
statement of the Corporation released to stockholders in
connection with the previous year's annual meeting of stock-
holders of the Corporation; provided, however, that if no
annual meeting of stockholders of the Corporation was held in
the previous year or if the date of the forthcoming annual
meeting of stockholders has been changed by more than thirty
(30) calendar days from the date
2
<PAGE>
contemplated at the time of the previous year's proxy
statement or if the forthcoming meeting is not an annual
meeting of stockholders of the Corporation, then to be timely
such stockholder's notice must be so received not later than
the close of business on the tenth day following the earlier
of (a) the day on which notice of the date of the forthcoming
meeting was mailed or given to stockholders by or on behalf
of the Corporation or (b) the day on which public disclosure of
the date of the forthcoming meeting was made by or on behalf of
the Corporation. Such stockholder's notice to the secretary of
the Corporation shall set forth (a) as to each person whom the
stockholder proposes to nominate for election or re-election as
a director (i) the name, age, business address, and residence
address of such person, (ii) the principal occupation or employ-
ment of such person, (iii) the class and number of shares of
capital stock of the Corporation which then are beneficially
owned by such person, (iv) any other information relating to
such person that is required by law or regulation to be
disclosed in solicitations of proxies for the election of
directors of the Corporation, and (v) such person's written
consent to being named as a nominee for election as a director
and to serve as a director if elected and (b) as to the stock-
holder giving the notice (i) the name and address, as they
appear in the stock records of the Corporation, of such stock-
holder, (ii) the class and number of shares of capital stock of
the Corporation which then are beneficially owned by such
stockholder, (iii) a description of all arrangements or under-
standings between such stockholder and each nominee for
election as a director and any other person or persons (naming
such person or persons) relating to the nomination proposed to
be made by such stockholder, and (iv) any other information
required by law or regulation to be provided by a stockholder
intending to nominate a person for election as a director of
the Corporation. At the request of the Board of Directors,
any person nominated by or at the direction of the Board of
Directors for election as a director of the Corporation shall
furnish to the secretary of the Corporation the information
concerning such nominee which is required to be set forth in
a stockholder's notice of a proposed nomination. No person
shall be eligible for election as a director of the Corpor-
ation unless nominated in compliance with the procedures set
forth in this Paragraph B. The chairman of a meeting of
stockholders of the Corporation shall refuse to accept the
nomination of any person not made in compliance with the
procedures set forth in this Paragraph B, and such defective
nomination shall be disregarded.
3
<PAGE>
C. Notwithstanding any provision of this Certificate of
Incorporation or the by-laws of the Corporation to the
contrary, the affirmative vote of the holders of at least
seventy-five percent (75%) of the voting power of all out-
standing shares of capital stock of the Corporation then
entitled to vote in an election of directors of the Corpor-
ation, voting as a single class, shall be required to alter,
amend, or repeal this Article VII or to adopt any provision
of this Certificate of Incorporation or the by-laws of the
Corporation which is inconsistent with this Article VII."
3. Such amendments have been duly adopted in accordance with the
applicable provisions of Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, the Corporation has caused this Certificate to be
signed by the Chairman of the Board and Chief Executive Officer of the
Corporation this 29th day of May, 1997.
CSG SYSTEMS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Neal C. Hansen
------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
4
<PAGE>
Exhibit 10.44
CSG SYSTEMS INTERNATIONAL, INC.
STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS
1. Purpose. The purpose of the CSG Systems International, Inc. Stock
Option Plan for Non-Employee Directors (the "Plan") is to foster and promote the
long-term financial success of the Company and thereby increase stockholder
value by attracting and retaining as directors of the Company highly qualified
persons who are not employees of the Company or a Subsidiary.
2. Certain Definitions.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto. References to a particular section of the Code
shall include any regulations issued under such section.
"Common Stock" means the Common Stock, $0.01 par value per share, of the
Company.
"Company" means CSG Systems International, Inc., a Delaware corporation.
"Director" means a person then serving as a member of the Board of the
Company.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" means, as determined by the Board, the last sale price
of the Common Stock as quoted on the Nasdaq National Market System on the
trading day for which the determination is being made, or, in the event that no
such sale takes place on such day, the average of the reported closing bid and
asked prices on such day, or, if the Common Stock of the Company is listed on a
national securities exchange, the last reported sale price on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading on the trading day for which the determination is being made, or, if no
such reported sale takes place on such day, the average of the closing bid and
asked prices on such day on the principal national securities exchange on which
the Common Stock is listed or admitted to trading, or, if the Common Stock is
not quoted on such National Market System nor listed or admitted to trading on a
national securities exchange, the average of the closing bid and asked prices in
the over-the-counter market on the day for which the determination is being made
as reported through Nasdaq, or, if bid and asked prices for the Common Stock on
such day are not reported through Nasdaq, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
regularly making a market in the Common Stock selected for such purpose by the
Board, or, if none of the
<PAGE>
foregoing is applicable, then the fair market value of the Common Stock as
determined in good faith by the Board in its sole discretion.
"Stock Option" means an option to purchase Common Stock granted pursuant to
the Plan.
"Subsidiary" means a corporation, domestic or foreign, of which not less
than 50% of the voting shares are held by the Company or by a Subsidiary,
whether or not such corporation now exists or hereafter is organized or acquired
by the Company or by a Subsidiary.
3. Administration. The Plan shall be administered by the Board, and
the Board shall have authority to grant Stock Options to eligible Directors from
time to time pursuant to the Plan. Subject to the applicable provisions of the
Plan, the Board shall have authority to interpret the provisions of the Plan and
to decide all questions of fact arising in the application of such provisions;
to select the Directors to whom Stock Options shall be granted; to determine
when, whether, and in what amounts Stock Options shall be granted; to determine
the amount, terms, and conditions of each Stock Option; to determine the Fair
Market Value of the Common Stock from time to time; to authorize persons to
execute on behalf of the Company any agreement required to be entered into under
the Plan; to adopt, alter, and repeal such administrative rules, guidelines, and
practices governing the Plan as the Board from time to time shall deem
advisable; and to make all other determinations necessary or advisable for the
administration of the Plan. Unless otherwise expressly provided in the Plan, all
decisions and determinations made by the Board pursuant to the provisions of the
Plan shall be made in the sole discretion of the Board and shall be final and
binding on all persons, including but not limited to the Company, the Directors
to whom Stock Options are granted, the heirs and legal representatives of such
Directors, and the personal representatives and beneficiaries of the estates of
such Directors.
4. Common Stock Subject to the Plan. The Company shall reserve and
keep available for issuance under the Plan 100,000 shares of Common Stock,
subject to adjustment pursuant to Section 16. Such shares may consist in whole
or in part of authorized and unissued shares or treasury shares or any
combination thereof. Except as otherwise provided in the Plan, any shares
subject to a Stock Option which expires or terminates unexercised as to such
shares shall again be available for the grant of Stock Options.
5. Eligibility to Receive Stock Options. Stock Options may be granted
under the Plan only to Directors who are not employees of the Company or a
Subsidiary on the date of the grant.
6. Stock Options. All Stock Options shall be nonqualified stock
options for purposes of the Code. Stock Options shall be evidenced by
agreements in such form as the Board shall approve from time to time; such
agreements shall contain in substance the following terms and conditions and may
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Board shall deem appropriate:
2
<PAGE>
(a) Type of Option. Each option agreement shall identify the Stock
Option evidenced thereby as a nonqualified stock option for purposes of the
Code.
(b) Option Price. Each option agreement shall set forth the number
of shares of Common Stock covered by the stock option and the applicable
option exercise price per share, which price shall not be less than the
Fair Market Value of the Common Stock on the date the Stock Option is
granted or less than the par value of the Common Stock.
(c) Term. Each option agreement shall state the period or periods
of time during which the Stock Option may be exercised, in whole or in
part, which shall be such period or periods of time as the Board may
determine at the time the Stock Option is granted; provided, that no Stock
Option shall be exercisable more than ten years after the date of its
grant; and provided further, that each Stock Option shall become and remain
exercisable as provided in the option agreement relating to such Stock
Option.
(d) Payment for Shares. Each option agreement shall require the
option exercise price per share to be paid in full in cash at the time the
Stock Option is exercised with respect to any of the shares covered by such
Stock Option.
7. Cessation of Service as a Director. Unless the applicable option
agreement provides otherwise, if the grantee of a Stock Option ceases to be a
Director for any reason other than retirement from the Board under the
circumstances described in Section 8 or death, then each outstanding but
unexercised Stock Option held by such grantee shall continue to be exercisable
only to the extent that it was exercisable at the time that such grantee ceased
to be a Director and only until the earlier of (i) ninety days after such
grantee ceased to be a Director or (ii) the expiration of the term of such Stock
Option; and to the extent not exercisable or not exercised (if exercisable) by
such applicable date, such Stock Option shall terminate and be of no further
force or effect.
8. Retirement from Board. Unless the applicable option agreement
provides otherwise, if the grantee of a Stock Option ceases to be a Director
(other than by reason of death) and at the time of such occurrence (the
"Retirement Date") is at least age 65 with ten or more years of service as a
Director or is at least age 70 with five or more years of service as a Director,
then each outstanding but unexercised Stock Option held by such grantee on the
Retirement Date shall continue to be or become exercisable in accordance with
its terms until the earlier of (i) five years after the Retirement Date or (ii)
the expiration of the term of such Stock Option; and to the extent not
exercisable or not exercised (if exercisable) by such applicable date, such
Stock Option shall terminate and be of no further force or effect.
9. Death. Unless the applicable option agreement provides otherwise, if
the grantee of a Stock Option dies, then each outstanding but unexercised Stock
Option which had been held by such grantee for at least twelve months as of the
date of such grantee's death automatically shall
3
<PAGE>
become exercisable in full (if not already exercisable) upon such grantee's
death. Each outstanding but unexercised Stock Option which becomes exercisable
pursuant to the preceding sentence and each outstanding but unexercised Stock
Option held by such grantee which was exercisable on the date of such grantee's
death may be exercised by the legal representative of such grantee's estate or
by the beneficiaries of such estate to whom such Stock Option is distributed
until the earlier of (i) three years after the date of such grantee's death or
(ii) the expiration of the term of such Stock Option; and to the extent not
exercisable or not exercised (if exercisable) by such applicable date, such
Stock Option shall terminate and be of no further force or effect.
10. Acceleration of Exercisability. The Board shall have the authority to
accelerate the exercisability of any outstanding Stock Option, subject to any
applicable requirements of the Plan, under such circumstances and upon such
terms and conditions as the Board shall deem appropriate.
11. General Restrictions. Each Stock Option grant under the Plan shall be
subject to the requirement that if at any time the Board shall determine that
(i) the listing, registration, or qualification of the shares of Common Stock
subject or related thereto upon any securities market or securities exchange or
under any state or federal law, (ii) the consent or approval of any governmental
regulatory body, or (iii) an agreement by the grantee of such Stock Option with
respect to the disposition of the shares of Common Stock subject thereto is
necessary or desirable as a condition of, or in connection with, such grant or
the issuance of shares of Common Stock thereunder, then such Stock Option grant
may not be consummated and any rights under such Stock Option may not be
exercised in whole or in part unless and until such listing, registration,
qualification, consent, approval, or agreement shall have been effected or
obtained upon conditions acceptable to the Board.
12. Rights of a Stockholder. The grantee of a Stock Option shall have no
rights as a stockholder of the Company with respect to the shares of Common
Stock subject to such Stock Option unless and until certificates for such shares
of Common Stock are issued to such grantee upon the timely and proper exercise
of such Stock Option.
13. No Right to Continue as a Director. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any Director the
right to continue to serve as a Director of the Company.
14. Indemnification. No member of the Board, and no officer or employee
of the Company acting on behalf of the Board, shall be personally liable for any
action, determination, or interpretation taken or made in good faith with
respect to the Plan; and all members of the Board and each officer or employee
of the Company acting on behalf of the Board shall, to the extent permitted by
law, be fully indemnified by the Company in respect of any such action,
determination, or interpretation.
4
<PAGE>
15. Non-Assignability. No Stock Option granted under the Plan shall be
assignable or transferable by the grantee thereof except by will or by the laws
of descent and distribution. During the lifetime of a grantee of a Stock
Option, such Stock Option may be exercised only by such grantee or such
grantee's legal representative.
16. Nonuniform Determinations. The Board's determinations under the Plan
(including but not limited to determinations of the persons to receive Stock
Option grants, the amount and timing of such grants, and the terms and
provisions of such grants) need not be uniform and may be made by the Board
selectively among the Directors who receive, or are eligible to receive, Stock
Option grants.
17. Adjustments. In the event of any change in the outstanding shares of
Common Stock by reason of a stock dividend or distribution, stock split,
recapitalization, merger, reorganization, consolidation, split-up, spin-off,
combination of shares, exchange of shares, or other change in corporate
structure affecting the Common Stock, the Board shall make appropriate
adjustments in (a) the aggregate number of shares of Common Stock (i) reserved
for issuance under the Plan and (ii) covered by outstanding Stock Option grants
and (b) the exercise price related to outstanding Stock Options; provided, that
the number of shares subject to any Stock Option always shall be a whole number.
18. Termination and Amendment. The Board may terminate the Plan or amend
the Plan or any portion thereof at any time, including but not limited to
amendments to the Plan necessary to comply with the requirements of Section
16(b) of the Exchange Act or applicable regulations thereunder, except that the
Board may not increase the maximum number of shares which may be issued under
the Plan (other than by way of adjustments made pursuant to Section 17), extend
the maximum period during which any Stock Option may be exercised, extend the
term of the Plan, decrease the minimum option price to less than the Fair Market
Value on the date of the grant of a Stock Option, or change the category of
persons eligible to participate in the Plan without stockholder approval if such
approval is required by the applicable rules of the Securities and Exchange
Commission, the Nasdaq National Market, or any national securities exchange on
which the Common Stock is listed. The termination or any amendment of the Plan
shall not, without the consent of a Stock Option grantee, adversely affect such
grantee's rights under a Stock Option previously granted to such grantee. The
Board may amend the terms and conditions of any Stock Option grant previously
made, prospectively or retroactively, as long as such amendment is not
inconsistent with the terms of the Plan; but, except as otherwise expressly
permitted by the Plan and subject to Section 17, no such amendment shall
adversely affect the rights of the grantee of such Stock Option without such
grantee's consent.
19. Term of Plan. Subject to approval of the Plan by the stockholders of
the Company not later than December 31, 1997, the Plan shall become effective on
the date on which the Plan is approved and adopted by the Board and shall
terminate for purposes of further Stock Option grants on the first to occur of
(i) December 31, 2006, or (ii) the effective date of the termination of the
5
<PAGE>
Plan by the Board pursuant to Section 18. No Stock Options may be granted under
the Plan after the termination of the Plan, but such termination shall not
affect any Stock Options outstanding at the time of such termination or the
authority of the Board to continue to administer the Plan apart from the making
of further Stock Option grants. The Board may grant Stock Options under the Plan
prior to approval of the Plan by the stockholders of the Company, but any Stock
Options so granted shall be subject in all respects to such approval.
Notwithstanding the provisions of any option agreement evidencing a Stock Option
granted prior to approval of the Plan by the stockholders of the Company, such
Stock Option may not be exercised to any extent prior to such stockholder
approval. If such stockholder approval is not given by December 31, 1997, then
the Plan and all Stock Options granted thereunder automatically shall terminate
and be of no further force or effect at the close of business on December 31,
1997.
20. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of Delaware.
6
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS
OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 2,020
<SECURITIES> 0
<RECEIVABLES> 41,850
<ALLOWANCES> 837
<INVENTORY> 0
<CURRENT-ASSETS> 46,276
<PP&E> 31,514
<DEPRECIATION> 15,717
<TOTAL-ASSETS> 113,069
<CURRENT-LIABILITIES> 41,028
<BONDS> 18,500
0
0
<COMMON> 255
<OTHER-SE> 44,740
<TOTAL-LIABILITY-AND-EQUITY> 113,069
<SALES> 0
<TOTAL-REVENUES> 79,612
<CGS> 0
<TOTAL-COSTS> 44,656
<OTHER-EXPENSES> 10,654
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,257
<INCOME-PRETAX> 2,895
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,895
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,895
<EPS-PRIMARY> .11<F1>
<EPS-DILUTED> 0
<FN>
<F1>EPS is basic as the dilutive effect of common stock equivalents is not
significant.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.01
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
CSG Systems International, Inc. and its subsidiaries (collectively, the Company)
or their representatives from time to time may make or may have made certain
forward-looking statements, whether orally or in writing, including without
limitation, any such statements made or to be made in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in its various SEC filings or orally in conferences or
teleconferences. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the fullest
extent possible the protections of the safe harbor established in the Private
Securities Litigation Reform Act of 1995.
Accordingly, the forward-looking statements are qualified in their entirety by
reference to and are accompanied by the following meaningful cautionary
statements identifying certain important factors that could cause actual results
to differ materially from those in such forward-looking statements.
This list of factors is likely not exhaustive. The Company operates in a
rapidly changing and evolving business involving the converging communications
markets, and new risk factors will likely emerge. Management cannot predict all
of the important risk factors, nor can it assess the impact, if any, of such
risk factors on the Company's business or the extent to which any factor, or
combination of factors, may cause actual results to differ materially from those
in any forward-looking statements.
Accordingly, there can be no assurance that forward-looking statements will be
accurate indicators of future actual results, and it is likely that actual
results will differ from results projected in forward-looking statements and
that such differences may be material.
The Company has recorded net losses since inception (October 17, 1994) through
December 31, 1996. These net losses have resulted from several factors,
including amortization of intangible assets (acquired software, client contracts
and related intangibles, and noncompete agreements and goodwill), interest
expense, stock-based employee compensation expense, and loss from discontinued
operations. Certain of these factors will continue to affect the Company's
results of operations in the future. While the Company has reported net income
for the third and fourth quarters of 1996, and the first and second quarters of
1997, there can be no assurance that the Company will sustain profitability in
the future.
CCS and related services are expected to provide the substantial majority of the
Company's revenues in the foreseeable future. The market for customer
management systems is characterized by rapid changes in technology and is highly
competitive with respect to the need for timely product innovations and new
product introductions. The Company believes that its future success depends
upon continued market acceptance of its current products, including CCS and
related services, and its ability to enhance its current products and develop
new products that address the increasingly complex and evolving needs of its
clients. In particular, the Company believes that it must respond quickly to
clients' needs for additional functionality and distributed architecture for
data processing. Development projects can be lengthy and are subject to
changing requirements, programming difficulties, and unforeseen factors which
can result in delays. There can be no assurance of continued market acceptance
of the Company's current products or that the Company will be successful in the
timely development of product enhancements or new products that respond to
technological advances or changing client needs.
<PAGE>
CSG Phoenix is the Company's next generation customer care and billing system
for the converging communications markets. The Company is using technologies
and development tools that are new to the Company in CSG Phoenix. In addition,
CSG Phoenix will contain functionality that is new to the Company and will be
offered in a variety of configurations in addition to the Company's existing
service bureau operations. As previously reported, the Company delivered
Version 1.1 of CSG Phoenix on March 31, 1997. The primary purpose for the
release of this code was for basic testing and integration at customer sites.
This testing resulted in the discovery of a number of incident reports and
configuration issues. The Company is currently examining the size and magnitude
of these issues, and will have an estimated date for when CSG Phoenix will go
into production when that analysis is completed. The Company is in the process
of working with its Phoenix partners to coordinate the next steps for both the
testing of the product, as well as rescheduling the new, estimated production
date. The actual timing of delivery and implementation is subject to delay due
to the variety of factors inherent in the development and initial implementation
of a new, complex software system. Implementation is also subject to factors
relating to the integration of the new system with the client's existing
systems. Sales and support of CSG Phoenix will require the Company to develop
new capabilities. The failure of the Company to deliver and support the CSG
Phoenix product successfully and on time could have a material adverse effect on
the financial condition and results of operations of the Company.
Revenues from Time Warner Cable and its affiliated companies (Time Warner) and
revenues from Tele-Communications, Inc. (TCI) each represent a substantial
percentage of the Company's total revenues. In July 1997, the Company signed a
multi-year renewal contract to continue to provide customer care and billing
systems to support TCI's cable television subscribers. The renewal contract
replaced the Company's previous contract with TCI which was scheduled to expire
December 31, 1997. On August 10, 1997, the Company signed a 15-year exclusive
contract with a TCI affiliate to consolidate 13 million TCI subscribers onto the
Company's customer care and billing systems (the 15-Year Contract). On August
10, 1997, the Company also entered into an agreement with TCI affiliates to
acquire certain SUMMITrak assets, an in-house customer care and billing system
developed by TCI, for $106 million in cash, up to $26 million in various
contingent payments, and warrants to purchase up to 1.5 million shares of the
Company's common stock, with coningent payments and warrants based upon the
achievement of certain milestones by TCI specified in the 15-Year Contract. Both
the closing of the SUMMITrak asset purchase and the effectiveness of the 15-Year
Contract are subject to certain conditions, including governmental filings and
approvals. If the 15-Year Contract closes and becomes effective, it would
replace the renewal contract signed in July 1997. Currently, the Company has
approximately 4 million of TCI's subscribers on its systems. Under the 15-Year
Contract, the Company and TCI plan to consolidate the 13 million subscribers
under an agreed upon conversion schedule. Converting multiple sites under an
aggressive time schedule poses certain risks. Factors affecting the conversion
schedule include the frequency and severity of database discrepancies,
installation of compatible hardware, network and software products, as well as
the availability and cooperation of qualified personnel from all the parties
involved in the conversion. TCI's minimum financial commitments under the 15-
Year Contract are subject to certain performance criteria by the Company. Loss
of all or a significant part of the business of either Time Warner or TCI would
have a material adverse effect on the financial condition and results of
operations of the Company.
The Company's quarterly revenues and operating results may fluctuate depending
on various factors, including the timing of executed contracts and the delivery
of contracted services or products, the timing of conversions to the Company's
systems by new and existing clients, the cancellation of the Company's services
and products by existing or new clients and related conversions to other
systems, the hiring of additional staff, new product development and other
expenses, and changes in sales commission policies. No assurance can be given
that operating results will not vary due to these factors. Fluctuations in
quarterly operating results may result in volatility in the market price of the
Company's Common Stock.
The Company's business is concentrated in the cable television industry, making
the Company susceptible to a downturn in that industry. A decrease in the
number of customers served by the Company's clients would result in lower
revenues for the Company. In addition, cable television providers are
consolidating, decreasing the potential number of buyers for the Company's
products and services. Furthermore, there can be no assurance that cable
television providers will be successful in expanding into other segments of the
converging communications markets. There can be no assurance that new entrants
into the cable television market will become clients of the Company. Any
adverse development in the cable television industry could have a material
adverse effect on the financial condition and results of operations of the
Company.
The Company's growth strategy is based in large part on the continuing
convergence and growth of the cable television, Direct Broadcast Satellite
(DBS), telecommunications, and on-line services markets. If these markets fail
to converge, grow more slowly than anticipated, or if providers in the
converging markets do not accept the Company's products and services, there
could be a material adverse effect on the financial condition and results of
operations of the Company.
The market for the Company's products and services is highly competitive. The
Company directly competes with both independent providers of products and
services and in-house systems developed by existing and potential clients. Many
of the Company's current and potential competitors have significantly greater
financial, marketing, technical, and other competitive resources than the
Company, and many are already operating internationally.
<PAGE>
There can be no assurance that the Company will be able to compete successfully
with its existing competitors or with new competitors.
The Company is expanding into new products, services, and markets, which is
placing demands on its managerial and operational resources. The inability to
manage growth could have a material adverse effect on the financial condition
and results of operations of the Company.
Substantially all of the Company's revenues are derived from the sale of
services or products under contracts with its clients. The Company does not
have the option to extend unilaterally the contracts upon expiration of their
terms. The Company's contracts typically do not require clients to make any
minimum purchases, and contracts are cancelable by clients under certain
conditions. The failure of clients to renew or to fully use any contracts, or
the cancellation of contracts, could have a material adverse effect on the
Company's financial condition and results of operations.
The Company's future success depends in large part on the continued service of
its key management, sales, product development, and operational personnel. The
Company is particularly dependent on its executive officers. Only two of those
executive officers are parties to employment agreements with the Company, and
those agreements are terminable by them upon 30 days' notice. The Company
believes that its future success also depends on its ability to attract and
retain highly skilled technical, managerial, and marketing personnel, including,
in particular, additional personnel in the areas of research and development and
technical support. Competition for qualified personnel is intense. The Company
may not be successful in attracting and retaining the personnel it requires,
which could have a material adverse effect on the financial condition and
results of operations of the Company.
The Company relies on a combination of trade secret and copyright laws,
nondisclosure agreements, and other contractual and technical measures to
protect its proprietary rights in its products. There can be no assurance that
these provisions will be adequate to protect its proprietary rights. Although
the Company believes that its intellectual property rights do not infringe upon
the proprietary rights of third parties, there can be no assurance that third
parties will not assert infringement claims against the Company or the Company's
clients.
The Company's business strategy includes a significant commitment to the
marketing of its products and services internationally, and the Company has
begun to acquire and establish operations outside of the U.S. The Company is
subject to certain inherent risks associated with operating internationally.
Risks include product development to meet local requirements, difficulties in
staffing and management, reliance on independent distributors or strategic
alliance partners, fluctuations in foreign currency exchange rates, compliance
with foreign regulatory requirements, variability of foreign economic
conditions, changing restrictions imposed by U.S. export laws, and competition
from U.S.-based companies which have established international operations.
There can be no assurance that the Company will be able to manage successfully
the risks related to selling its products and services in international markets.
The inability to manage these risks successfully would have a material adverse
effect on the financial condition and results of operations of the Company.
