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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
- --- Exchange Act of 1934 for the quarterly period ended 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: 0-22667
TSI INTERNATIONAL SOFTWARE LTD.
(Exact name of registrant as specified in its charter)
Delaware 06-1132156
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
45 Danbury Road, Wilton, CT 06897
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
203-761-8600
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 No X
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As of July 31, 1997, Registrant had outstanding 9,056,542 shares of Common
Stock, $.01 par value.
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TSI INTERNATIONAL SOFTWARE LTD.
TABLE OF CONTENTS
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PAGE
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ITEM 1 FINANCIAL INFORMATION (UNAUDITED)
Financial Statements
Balance Sheets as of and June 30, 1997 and
December 31, 1996...................................................................... 3
Statements of Income for the Three Months
and Six Months Ended
June 30, 1997 and 1996................................................................. 4
Condensed Statements of Cash Flows for the Six Months
Ended June 30, 1997 and 1996........................................................... 5
Notes to Financial Statements............................................................. 6
ITEM 2. Management's Discussion and
Analysis of Financial Condition and Results of Operations................................ 8
PART II OTHER INFORMATION
ITEM 2. SALE OF UNREGISTERED SECURITIES.................................................. 18
ITEM 4. SUBMISSION OF MATTERS TO VOTE OF
SECURITY HOLDERS.......................................................................... 18
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K................................................. 18
SIGNATURES............................................................................................ 19
</TABLE>
2
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<TABLE>
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TSI INTERNATIONAL SOFTWARE LTD.
BALANCE SHEETS
JUNE 30, DECEMBER 31,
1997 1996
-------------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
------
Current assets:
Cash $ 513,100 $ 41,300
Accounts receivable, less allowances of (unaudited)
$350,200 and $319,900 5,428,400 4,380,900
Current portion of investment in licensing
contracts receivable, net of unearned finance
income of (unaudited) $81,200 and
$84,200 701,000 742,000
Prepaid expenses and other current assets 878,900 388,000
----------- ------------
Total current assets 7,521,400 5,552,200
Furniture, fixtures and equipment, net 1,386,300 1,304,400
Investment in licensing contracts receivable, net of
unearned finance income of (unaudited) $42,100, and
$50,100, less current portion 508,700 551,600
Other assets 124,100 113,100
----------- ------------
$ 9,540,500 $ 7,521,300
=========== ============
LIABILITIES AND STOCKHOLDERS' (DEFICIENCY)
------------------------------------------
Current liabilities:
Accounts payable $ 1,067,700 $ 694,800
Accrued expenses 1,291,900 1,486,500
Current portion of deferred maintenance
revenue 3,891,500 4,591,200
----------- ------------
Total current liabilities 6,251,100 6,772,500
Long-term debt (note 3) 3,840,100 2,790,100
Other long-term liabilities 23,400 27,400
Deferred maintenance revenue, less current portion 204,800 225,000
----------- ------------
Total liabilities 10,319,400 9,815,000
----------- ------------
Stockholders' (deficiency) (notes 2 and 3):
Convertible preferred stock ($8,219,000 aggregate
liquidation preference) 9,100 8,600
Common stock (3,888,166 shares authorized,
par value $.01) 30,000 30,000
Additional paid-in capital 8,881,700 7,888,800
Accumulated deficit (9,457,100) (10,036,600)
Cumulative foreign currency translation adjustment (177,600) (119,500)
Treasury stock, at cost (65,000) (65,000)
----------- ------------
Total stockholders' (deficiency) (778,900) (2,293,700)
----------- ------------
$ 9,540,500 $ 7,521,300
=========== ============
</TABLE>
See accompanying notes to financial statements.
3
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TSI INTERNATIONAL SOFTWARE LTD.
STATEMENTS OF INCOME
(UNAUDITED)
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THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
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1997 1996 1997 1996
------------ ----------- ----------- -----------
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Revenues:
Software licensing $ 3,174,800 $ 1,878,400 $ 5,905,900 $ 3,660,900
Service, maintenance and other 2,980,000 2,357,900 5,756,800 4,663,900
------------ ----------- ----------- -----------
Total revenues 6,154,800 4,236,300 11,662,700 8,324,800
------------ ----------- ----------- -----------
Cost of revenues:
Software licensing 133,200 88,100 306,700 181,400
Service, maintenance and other 530,300 466,500 1,078,500 897,900
------------ ----------- ----------- -----------
Total cost of revenues: 663,500 554,600 1,385,200 1,079,300
------------ ----------- ----------- -----------
Gross profit 5,491,300 3,681,700 10,277,500 7,245,500
------------ ----------- ----------- -----------
Operating expenses:
Product development 1,056,400 831,000 2,129,800 1,610,300
Selling and marketing 3,088,400 2,001,000 5,672,100 3,894,800
General and administrative 1,008,800 628,000 1,786,000 1,356,300
------------ ----------- ----------- -----------
Total operating expenses 5,153,600 3,460,000 9,587,900 6,861,400
------------ ----------- ----------- -----------
Operating income 337,700 221,700 689,600 384,100
Borrowing expenses (90,600) (69,700) (153,700) (148,200)
Interest income 29,700 34,400 60,200 74,600
------------ ----------- ----------- -----------
Income before income taxes 276,800 186,400 596,100 310,500
Provision for income taxes 10,000 - 16,600 3,000
------------ ----------- ----------- -----------
Net income $ 266,800 $ 186,400 $ 579,500 $ 307,500
============ ========== =========== ===========
Net income per share $0.04 $0.03 $0.09 $0.05
============ ========== =========== ===========
Weighted average number of common
and common equivalent shares
outstanding 6,561,247 5,880,714 6,510,368 5,804,559
============ ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
4
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TSI INTERNATIONAL SOFTWARE LTD.
CONDENSED STATEMENTS OF CASH FLOWS
REPRESENTING INCREASES (DECREASES) IN CASH
(UNAUDITED)
<TABLE>
<CAPTION>
SIX MONTHS
ENDED JUNE 30,
---------------------------------------------------
1997 1996
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Cash flows from operating activities:
Net cash provided (used) by operating activities $ (1,216,300) $ 440,900
Cash used by investing activities-Purchase of furniture
fixtures and equipment (337,800) (238,100)
Cash flows from financing activities:
Net borrowings (repayments) under revolving line
of credit 1,050,000 (300,000)
Payments under capital leases (21,400) (37,200)
Proceeds from sale of preferred stock (note 4) 993,400 -
------------- ------------
Net cash (used) provided by financing activities 2,022,000 (337,200)
Effect of exchange rate changes on cash 3,900 (1,700)
------------- ------------
Net change in cash 471,800 (136,100)
Cash at beginning of period 41,300 142,500
------------- ------------
Cash at end of period $ 513,100 $ 6,400
============= ============
Supplemental information:
Cash paid for:
Interest $ 145,800 $ 137,400
Income taxes 20,000 20,000
Non-cash investing activity --
Acquisition of equipment under capital leases $ 30,000 -
============= ============
</TABLE>
See accompanying notes to financial statements.
5
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TSI INTERNATIONAL SOFTWARE LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The Company
TSI International Software Ltd. (the "Company") develops, markets,
licenses and supports computer software and related services which allow
organizations to integrate their business applications within the enterprise and
with outside business partners. The Company's customers are located primarily
throughout the U.S. and Western Europe and represent a broad range of
industries.
(a) Unaudited Interim Financial Statements
The interim financial statements contained herein are unaudited, but, in
the opinion of management, include all adjustments (consisting of normal
recurring adjustments) necessary for a fair presentation of the financial
position, results of operations and cash flows for the periods presented.
Results of operations for the periods presented herein are not necessarily
indicative of results of operations for any subsequent quarter or the entire
fiscal year ending December 31, 1997.
Reference should be made to the Registration Statement on Form S-1 (No.
333-27293) filed in connection with the Company's initial public offering
("IPO") which include its audited financial statements for the year ended
December 31, 1996.
Certain information and footnote disclosures normally included in financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the Securities and Exchange
Commission's rules and regulations.
(b) Revenue Recognition
Software licensing revenues are recognized upon shipment of the product if
there are no significant post-delivery obligations, or at a later date once such
obligations are satisfied. Maintenance contract revenue is recognized ratably
over the term of the contracts, which are generally for one year. The
unrecognized portion of maintenance revenue is classified as deferred
maintenance revenue in the accompanying balance sheets. Consulting and training
revenues are recognized as services are performed.
The Company licenses its KEY/MASTER product on a term-use basis for 15 to
60 month periods. The contracts provide for maintenance and generally do not
have renewal or purchase options. At contract inception, the present value of
the payments to be received under the contract is apportioned between software
licensing revenue and maintenance revenue and recognized as described above.
The present value of the payments to be received are recorded as the investment
in licensing contracts receivable. License interest revenue is recognized over
the term of the contract at a constant rate of return.
(c) Net Income Per Share
Net income per share is usually calculated using the weighted average
number of common and common equivalent shares outstanding during each period,
after retroactive adjustment for stock splits. In addition, the Securities and
Exchange Commission requires that shares issued or options and warrants granted
within one year of an IPO at prices below the IPO price be shown as outstanding
(using the Treasury Stock method) for all periods presented. Further, in
connection with the IPO, all outstanding preferred stock will be converted into
common stock on the basis described in note 6 of the financial statements
included in the Registration Statement on Form S-1, and accordingly are shown
as outstanding for all periods presented. Following are the components of
common stock used to calculate net income per share:
6
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TSI INTERNATIONAL SOFTWARE LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------------- --------------------------------
1997 1996 1997 1996
--------- -------- ---------- ---------
<S> <C> <C> <C> <C>
Weighted average common shares
outstanding 2,886,822 2,886,822 2,886,822 2,886,822
Increment for shares issued within
one year of the IPO 232,167 232,167 232,167 232,167
Common shares expected to be issued
for conversion of preferred stock 2,609,415 2,609,415 2,609,415 2,609,415
Dilutive effect of stock options 832,843 152,310 781,964 76,155
--------- --------- --------- ---------
Weighted average common and common
equivalent shares outstanding 6,561,247 5,880,714 6,510,368 5,804,559
========= ========= ========= =========
</TABLE>
(d) Use of Estimates
The preparation of financial statements in accordance with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements, and the reported amounts of revenue and expenses during the
reporting period. Actual results could differ from those estimates.
(2) SALE OF PREFERRED STOCK
On May 15, 1997, the Company sold 50,000 shares of Series E convertible
preferred stock at $20 per share to Mitsui & Co., Ltd. and two foreign
investors. At the closing of the IPO, these shares were converted into an
aggregate of 150,000 shares of common stock.
7
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TSI INTERNATIONAL SOFTWARE LTD.
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
(3) SUBSEQUENT EVENTS
The Company completed its initial public offering of common stock, $.01 par
value, on July 2, 1997. Pursuant to the IPO, 4,000,000 shares were sold to the
public, of which 3,000,000 were previously unissued shares sold by the Company
and 1,000,000 were sold by certain selling stockholders. The net proceeds of
$24.4 million (net of expenses of $700,000) were used to repay $3.4 million of
indebtedness under the Company's bank credit line. The remaining portion of the
proceeds has been added to the Company's working capital and will be used for
general corporate purposes. Pending such use, the funds are invested in short-
term, interest-bearing, investment-grade obligations. In July 1997, the
underwriters exercised their overallotment option and purchased an additional
600,000 shares of Common Stock from the selling stockholders.
On May 8, 1997, the Board of Directors approved, at the closing of the IPO:
(i) an increase in the number of authorized shares of common stock and preferred
stock to 20,000,000 and 5,000,000 shares, respectively; and (ii) a three-for-one
common stock split. The accompanying financial statements have been
retroactively adjusted to reflect this common stock split.
Pursuant to the Company's Certificate of Incorporation, upon closing of the
IPO all outstanding shares of preferred stock were converted into an aggregate
of 2,759,715 shares of common stock.
Upon completion of the IPO, certain outstanding warrants were exercised
into an aggregate of 296,827 shares of Common Stock, on a net exercise basis.
8
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
FORWARD-LOOKING INFORMATION
This report contains or may contain certain forward-looking statements and
information that are based on beliefs of, and information currently available
to, the Company's management as well as estimates and assumptions made by the
Company's management. When used in this report, words such as "anticipate,"
"believe," "estimate," "expect," "future," "intend," "plan," and similar
expressions as they relate to the Company or the Company's management, identify
forward-looking statements. The Company's actual results may differ
significantly from the results discussed in the forward-looking statements.
Factors that might cause such a difference include, but are not limited to, (i)
the effects of rapid technological change and the need to make frequent product
transitions, (ii) the potential for software defects, (iii) the impact of
competitive products and pricing, (iv) less than anticipated growth in the
market for the SAP R/3 system and related services, (v) uncertainties in
attracting and retaining needed management, marketing, sales, professional
services and product development personnel, (vi) the Company's ability to manage
growth, (vii) the success of the Company's Mercator product line, (viii) the
Company's ability to develop additional distribution channels, and (ix) those
discussed in "Factors That May Affect Future Results" contained herein and in
the Company's other filings with the Securities and Exchange Commission,
including but not limited to those discussed under the heading "Risk Factors" in
the Company's Registration Statement on Form S-1 (File No. 333-27293). Should
one or more of these risks or uncertainties materialize, or should the
underlying estimates or assumptions prove incorrect, actual results or outcomes
may vary significantly from those anticipated, believed, estimated, expected,
intended or planned.
Overview
The Company was incorporated in Connecticut in 1985 and reincorporated in
Delaware in September 1993. In June 1991, the Company began developing its
Mercator product and in December 1993 released Version 1.0 of Mercator. The
Company released the latest version of the Mercator in May 1996 and released its
Mercator for R/3 product in June 1996.
Historically, the Company had derived a majority of its revenues from
products other than Mercator, primarily its Trading Partner family of products
and each KEY/MASTER product. However, revenue related to Mercator has grown
significantly in each of the last three years and has increased as a percentage
of total revenues. The Company believes that future growth in revenues, if any,
will be mainly attributable to its Mercator product line. In view of the
relatively recent introduction of Mercator, the Company believes it cannot
accurately predict the amount of revenues that will be attributable to such
products or the life of such products. To the extent the Company's Mercator
products do not achieve market acceptance, the Company's business, operating
results and financial condition will be materially and adversely affected.
The Company's revenues are derived principally from two sources: (i)
license fees for the use of the Company's software products and (ii) service
fees for maintenance, consulting services and training related to the Company's
software products. The Company generally recognizes revenue from software
license fees upon shipment, unless the Company has significant post-delivery
obligations, in which case revenues are recognized when such obligations are
satisfied. The Company's KEY/MASTER product is licensed under term-use contracts
rather than for a one-time license fee, and the Company recognizes revenue from
such arrangements on a present=value basis at the inception of the contract.
Revenues from consulting and training are recognized as services are performed,
and maintenance revenues are recognized ratably over the maintenance period,
typically one year. The Company does not actively market new contracts for
KEY/MASTER but continues to receive KEY/MASTER revenues, principally maintenance
revenue. As a result, KEY/MASTER accounts for a larger proportion of maintenance
revenues than license revenues and increases the percentage of the Company's
total revenues represented by services, maintenance and other revenue. The
Company intends to increase the scope of its service offerings with the goal of
increasing license revenues from sales of its products. The Company does not
believe that the mix of software licensing and service, maintenance and other
revenues will change substantially in the future.
THREE MONTHS ENDED JUNE 30, 1997 COMPARED WITH THREE MONTHS ENDED JUNE 30, 1996
Revenues:
Total Revenues. The Company's total revenues increased 45% from $4.2
million in the second quarter of 1996 to $6.2 million in the comparable period
of 1997.
Software Licensing. Software licensing revenues increased 69% from $1.9
million in the second quarter of 1996 to $3.2 million in the comparable period
of 1997, primarily as a result of an increase in Mercator license revenues and,
to a lesser extent, an increase in Trading Partner PC revenues from an EDI
enablement program for a large computer company.
Service, Maintenance and Other. Service, maintenance and other revenues
increased 26% from $2.4 million in the second quarter of 1996 to $3.0 million in
the comparable period of 1997, mainly as a result of higher professional
service fees associated with sales of Mercator and, to a lesser extent, an
increase in Mercator maintenance revenue, partially offset by a decrease in
KEY/MASTER maintenance revenues. Maintenance revenues attributable to
KEY/MASTER were $1.2 million and $1.1 million for the second quarter of 1996 and
1997, respectively.
Cost of Revenues. Cost of software licensing revenues consists primarily
of media, manuals, distribution costs and the cost of third party software that
the Company resells. Cost of service, maintenance and other revenues consists
primarily of personnel-related costs in providing maintenance, technical
support and professional services (consulting and training) to customers. Gross
margin on software licensing revenues is higher than gross margin on service,
maintenance and other revenues, reflecting the low materials, packaging and
other costs of software products compared with the relatively high personnel
costs associated with providing maintenance, technical support, consulting and
training services. Cost of service, maintenance and other revenues also varies
based upon the mix of maintenance, technical support, consulting and training
services.
9
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Cost of Software Licensing. Cost of software licensing revenues increased
51% from $88,100 in the second quarter of 1996 to $133,200 in the comparable
period of 1997, primarily due to increased sales of software licenses. Software
licensing gross margin remained relatively constant at 95% and 96% in the
second quarters of 1996 and 1997, respectively.
Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues increased 14% from $467,000 in the second quarter of 1996 to
$530,000 in the comparable period of 1997, primarily due to increased
professional services rendered, particularly Mercator-related services. Service,
maintenance and other gross margin was 80% and 82% for the second quarter of
1996 and 1997, respectively.
Operating Expenses
Product Development. Product development expenses include expenses
associated with the development of new products and enhancements to existing
products and consist primarily of salaries, recruiting and other personnel-
related expenses, depreciation of development equipment, supplies, travel and
allocated facilities and communications costs. Product development costs
increased 27% from $831,000 in the second quarter of 1996 to $1.1 million in the
second quarter of 1997 due to increased product development activities related
to the Mercator product line. Product development expenses as a percentage of
total revenue decreased from 20% in the second quarter of 1996 to 17% in the
second quarter of 1997 due to the large increase in revenues, as compared to a
smaller increase in product development costs. The Company believes that a
significant level of research an development expenditures is required to remain
competitive. Accordingly, the Company anticipates that it will continue to
devote substantial resources to research and development. The Company expects
that the dollar amount of research and development expenses will increase
through at least the remainder of 1997. To date, all research and development
expenditures have been expensed as incurred.
Selling and Marketing. Selling and marketing expenses consist of sales and
marketing personnel costs, including sales commissions, recruiting, travel,
advertising, public relations, seminars, trade shows, product descriptive
literature and allocated facilities and communications costs. Selling and
marketing costs increased 54% from $2.0 million in the second quarter of 1996 to
$3.1 million in the second quarter of 1997, primarily due to the increased
number of sales and marketing personnel and increased expenditures for
Mercator-related marketing programs. Selling and marketing expenses as a
percentage of total revenues rose from 47% in the second quarter of 1996 to 50%
in the second quarter of 1997 due to the increase in sales and marketing
personnel and higher Mercator-related marketing costs. The Company expects to
continue hiring additional sales and marketing personnel and to increase
promotional expenses through at least the remainder of 1997 to address Mercator
marketing opportunities and anticipates that sales and marketing expenses will
increase in absolute dollar amount.
General and Administrative. General and administrative expenses consist
primarily of salaries, recruiting and other personnel-related expenses for the
Company's administrative, executive and finance personnel as well as outside
legal and audit costs. General and administrative expenses increased 61% from
$628,000 in the second quarter of 1996 to $1.0 million in the second quarter of
1997, primarily due to increased administrative costs to support the Company's
growth. General and administrative expenses as a percentage of total revenues
increased slightly from 15% in the second quarter of 1996 to 16% in the second
quarter of 1997. The Company believes that the dollar amount of its general and
administrative expenses will increase as the Company expands its administrative
staff and incurs additional costs (including directors' and officers' liability
insurance, investor relations programs and increased professional fees) related
to being a public company.
Other Income (Expense), Net
Interest income represents interest earned on the Company's term-use
contracts and was negligible for the quarters ended June 30, 1996 and 1997.
Borrowing expenses were $70,000 in the second quarter of 1996 as compared to
$90,600 in the second quarter of 1997 due to higher borrowing levels incurred in
1997 to support the Company's growth.
Provision for Income Taxes
Due to the utilization of net operating loss carryforwards, the provisions
for income taxes for the quarters ended June 30, 1996 and 1997 were not
significant.
10
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SIX MONTHS ENDED JUNE 30, 1997 COMPARED WITH SIX MONTHS ENDED JUNE 30, 1996
Revenues:
Total Revenues. The Company's total revenues increased 40% from $8.3
million in the first six months of 1996 to $11.7 million in the comparable
period of 1997.
Software Licensing. Software licensing revenues increased 61% from $3.7
million in the first six months of 1996 to $5.9 million in the comparable period
of 1997, primarily as a result of an increase in Mercator license revenues and
an increase in Trading Partner PC revenues from an EDI enablement program for
a large computer company.
Service, Maintenance and Other. Service, maintenance and other revenues
increased 24% from $4.7 million in the first six months of 1996 to $5.8 million
in the comparable period of 1997, mainly as a result of higher professional
services associated with sales of Mercator and, to a lesser extent, an increase
in Mercator maintenance revenue, partially offset by a decrease in KEY/MASTER
maintenance revenues. Maintenance revenues attributable to KEY/MASTER were $2.4
million and $2.2 million for the first six months of 1996 and 1997,
respectively.
Cost of Revenues
Cost of Software Licensing. Cost of software licensing revenues increased
70% from $181,000 in the first six months of 1996 to $307,000 in the comparable
period of 1997, primarily due to increased sales of software licenses and resale
of third party software. Software licensing gross margins were 95% each in the
first six months of 1996 and 1997.
Cost of Service, Maintenance and Other. Cost of service, maintenance and
other revenues increased 20% from $898,000 in the first six months of 1996 to
$1.1 million in the comparable period of 1997, primarily due to increased
professional services rendered, particularly Mercator-related services. Service,
maintenance and other gross margins were 81% for the first six months of
1996 and 1997.
Operating Expenses
Product Development. Product development costs increased 32% from $1.6
million in the first six months of 1996 to $2.1 million in the comparable period
of 1997 due to increased product development related to the Mercator product
line. Product development expenses as a percentage of total revenue decreased
from 19% in the first six months of 1996 to 18% in the first six months of 1997
due to the large increase in revenues, as compared to a smaller increase in
product development costs.
Selling and Marketing. Selling and marketing costs increased 46% from $3.9
million in the first six months of 1996 to $5.7 million in the first six months
of 1997, primarily due to the increased number of sales and marketing personnel.
Selling and marketing expenses as a percentage of total revenues rose from 47%
in the second quarter of 1996 to 49% in the second quarter of 1997 due to the
increase in sales and marketing personnel and higher Mercator-related marketing
costs.
General and Administrative. General and administrative expenses increased
32% from $1.4 million in the first six months of 1996 to 1.8 million in the
comparable period of 1997, primarily due to increased administrative costs to
support the Company's growth. General and administrative expenses as a
percentage of total revenues decreased from 16% in the first six months of 1996
to 15% in the comparable period of 1997.
11
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Other Income (Expense), Net
Interest income represents interest earned on the Company's term-use
contracts and was $60,000 for the first six months of 1997 compared to $75,000
for the first six months of 1996 due to lower amounts of term contracts.
Borrowing expenses were $148,000 in the first six months of 1996 as compared to
$154,000 in the comparable period of 1997.
Provision For Income Taxes
Due to the utilization of net operating loss carryforwards, the provisions
for income taxes for the six-month periods ended June 30, 1996 and 1997 were not
significant.
LIQUIDITY AND CAPITAL RESOURCES
The Company had funded its operations to date primarily through private
sales of equity securities and its $4.0 million bank line of credit and cash
generated through operations. On May 15, 1997, the Company raised an additional
$1.0 million through the sale of Preferred Stock to Mitsui & Co., Ltd. and two
other foreign investors. Operating activities provided (used) net cash of
$441,000 and $(1.2 million) during the first six months of 1996 and 1997,
respectively.
Investing activities (used) net cash of $(238,000) and $(338,000) during
the first six months of 1996 and 1997, respectively, primarily to fund capital
expenditures needed to support expansion of the Company's business. Financing
activities (used) generated net cash of $(337,000) and $2.0 million, for the
first six months of 1996 and 1997, respectively, from (repayments) borrowings of
debt and the sale of Preferred Stock in 1997 as described above. Since December
31, 1996, the Company experienced an increase in accounts receivable from $4.4
million at December 31, 1996 to $5.4 million at June 30, 1997. The Company
experienced an increase in days sales outstanding from December 31, 1996 to June
30, 1997 from approximately 70 days to approximately 79 days. This ratio is down
from the March 31, 1997 level of approximately 86 days. Through June 1997,
additional borrowings were required to fund the higher levels of receivables.
Capital expenditures have been, and future capital expenditures are
anticipated to be, primarily for facilities, equipment and computer software to
support expansion of the Company's operations. As of June 30, 1997, the Company
had no material commitments for capital expenditures. The Company's bank line
of credit generally limits capital expenditures to $400,000 per quarter.
At June 30, 1997, the Company had $513,000 in cash due to large collections
of accounts receivable at the end of June 1997. Because these funds were
uncleared funds, the loan balance could not be repaid until early July, 1997.
Prior to the closing of the IPO, the Company repaid $450,000 of its $3.8 million
in borrowings outstanding at June 30, 1997 under its bank line of credit.
On July 2, 1997, the Company completed its initial public offering of
4,000,000 shares of Common Stock. The net proceeds of the offering of $24.4
million (net of expenses of $700,000) were used to repay $3.4 million of
indebtedness under the Company's bank credit line and the remainder of the
proceeds was added to the Company's working capital.
The Company's bank line of credit remained in effect after the IPO and the
maximum amount that can be borrowed under the bank line of credit is $4.0
million, with borrowings limited to a percentage of eligible accounts receivable
and term contracts, plus the amount of the bank line of credit guaranteed by the
Connecticut Development Authority ($600,000 at June 30, 1997). The bank line of
credit expires in November 1998. Borrowings may take the form of prime rate
loans (which bear interest at the bank's prime rate plus 1.0%) or LIBOR rate
loans (which bear interest at the applicable LIBOR rate plus 3.0%). The entire
outstanding loan balance at June 30, 1997 consisted of prime rate loans (bearing
interest at 9.5%). The Company's obligation under this credit line are secured
by substantially all of the Company's assets. The bank line of credit contains
certain financial covenants and also prohibits cash dividends, mergers and
acquisitions. The Company is currently in compliance with these covenants. Upon
the closing of the IPO, the loan balance was repaid in full and accordingly,
there are currently no amounts outstanding under this credit line. As of
June 30, 1997, in addition to its borrowings outstanding under its bank line of
credit, the Company had $68,600 of capital lease obligations.
The Company believes that the proceeds from the IPO, together with its
current cash and cash equivalent balances, its line of credit and net cash
generated by operations, will be sufficient to meet its anticipated cash needs
12
<PAGE>
for working capital, capital expenditures and business expansion for at least
the next 12 months. Thereafter, if cash generated by operations is insufficient
to satisfy the Company's operating requirements, the Company may seek additional
debt or equity financing.
FACTORS THAT MAY AFFECT FUTURE RESULTS
Risk of Fluctuations in Operating Results. The Company's quarterly and
annual operating results have varied significantly in the past and are expected
to do so in the future. Accordingly, the Company believes that period to
period comparisons of its results of operations are not necessarily meaningful
and should not be relied upon as indications of future performance. The
Company's revenues and results of operations are difficult to forecast and could
be adversely affected by many factors, including, among others: the size, timing
and terms of individual license transactions; the sales cycle for the Company's
products; demand for and market acceptance of the Company's products and related
services (particularly its Mercator products); the number of businesses
implementing the SAP R/3 system as well as the number of such businesses
requiring third party business application integration software and related
services; the Company's ability to expand, and market acceptance of, its
professional services business; the timing of expenditures by the Company in
anticipation of product releases or increased revenue; the timing of product
enhancements and product introductions by the Company and its competitors;
market acceptance of enhanced versions of the Company's existing products and of
new products; changes in pricing policies of the Company and its competitors;
variations in the mix of products and services sold by the Company; the mix of
channels through which products and services are sold; the success of the
Company in penetrating international markets; the buying patterns and budgeting
cycles of customers; personnel changes, the Company's ability to attract and
retain qualified sales, professional services and research and development
personnel and the rate at which such personnel become productive; and general
economic conditions. In particular, the ability of the Company to achieve growth
in the future will depend on its success in adding a substantial number of
sales, professional services and research and development personnel. Competition
for such personnel is intense and there can be no assurance the Company will be
able to attract and retain these personnel.
Licensing of the Company's software products historically has accounted for
a substantial portion of the Company's revenues, and the Company anticipates
that this trend will continue for the foreseeable future. Software license
revenues are difficult to forecast for a number of reasons. The Company
typically does not have a material backlog of unfilled orders, and revenues in
any quarter are substantially dependent on orders booked and shipped in that
quarter. The length of the sales cycles for the Company's products can vary
significantly from customer to customer and from product to product and, in
certain instances, can be as long as nine months or more. Furthermore, the terms
and conditions of individual license transactions, including prices and
discounts, may be negotiated based on volumes and commitments, and may vary
considerably from customer to customer. In addition, the Company has generally
recognized a substantial portion of its quarterly software licensing revenues in
the last month of each quarter. Accordingly, the cancellation or deferral of
even a small number of purchases of the Company's products has in the past and
could in the future have a material adverse effect on the Company's business,
operating results and financial condition.
The Company's future revenues will also be difficult to predict and the
Company has, in the past, failed to achieve its revenue expectations for certain
periods. The Company's expense levels are based, in part, on its expectation of
future revenues, and expense levels are, to a large extent, fixed in the short
term. The Company may be unable to adjust spending in a timely manner to
compensate for any unexpected revenue shortfall. If revenue levels are below
expectations for any reason, operating results are likely to be materially and
adversely affected. Net income may be disproportionately affected by a reduction
in revenue because a large portion of the Company's expenses is related to
headcount that cannot be easily reduced without adversely affecting the
Company's business. In addition, the Company currently intends to increase its
operating expenses by expanding its research and product development staff,
particularly research and development personnel to be devoted to the Company's
Mercator product line, increasing its professional services and sales and
marketing operations, expanding distribution channels and hiring personnel in
other operating areas. The Company expects to experience a significant time lag
between the date professional services, sales and technical personnel are hired
and the date such personnel become fully productive. The timing of such
expansion and the rate at which new technical, professional services and sales
personnel become productive as well as the timing of the introduction and
success of new distribution channels
13
<PAGE>
could cause material fluctuations in quarterly results of operations.
Furthermore, to the extent such increased operating expenses precede or are not
subsequently followed by increased revenues, the Company's business, operating
results and financial condition could be materially and adversely affected.
Due to the foregoing factors, it is likely that in some future quarter the
Company's revenue or operating results will not meet the expectations of public
market analysts and investors. In such event, the price of the Company's Common
Stock would likely be materially and adversely affected.
Dependence on Mercator Product Line. The Company introduced its Mercator
products in 1993. In recent years, a significant portion of the Company's
revenue has been attributable to licenses of its Mercator products and related
services, and the Company expects that represent an increasing portion of the
Company's total revenue for the foreseeable future. The development and
marketing of its Mercator product line as required the Company to, among other
things, focus its attention and resources away from some of its traditional
products, market its products to a different customer base and shift a large
portion of its development efforts to the Mercator product line. Accordingly,
the Company's future operating results are highly dependent on the market
acceptance and growth of its Mercator product line and enhancements thereto.
There can be no assurance that market acceptance of the Mercator product line
will increase or remain at current levels or that the Company will be able to
successfully market the Mercator product line and develop extensions and
enhancements to this product line on a long-term basis. In the event the
Company's current or future competitors release new products that provide, or
are perceived as providing, more advanced features, greater functionality,
better performance, better compatibility with other systems or lower prices than
the Mercator product line, demand for the Company's products and services would
likely decline. See "-- Risks Associated with Technological Change, Product
Enhancements and New Product Development" and "-- Competition." A decline in
demand for, or market acceptance of, the Mercator product line as a result of
competition, technological change or other factors would have a material adverse
effect on the Company's business, operating results and financial condition.
Dependence on SAP R/3 System Implementations. A substantial portion of the
Company's sales of its Mercator products and related services has been
attributable to sales of Mercator for R/3 and related services. The Company
believes that its future revenue growth, if any, will also depend in part upon
continued sales of Mercator for R/3 and related services. The Company has
devoted and must continue to devote substantial resources to identifying
potential customers in the R/3 market, building relationships with strategic
partners and attracting and retaining skilled technical, sales and professional
services personnel with expertise in R/3systems. Personnel with expertise in the
R/3 system are in high demand and as such are typically difficult to hire and
retain. Regardless of the investments the Company makes in pursuing this new
market, there can be no assurance that the Company will be successful in
implementing a sales and marketing strategy appropriate for this market or in
attracting and retaining the necessary skilled personnel.
Demand for and market acceptance of Mercator for R/3 and related services
will be dependent on the continued market acceptance of the SAP R/3 system. As a
result, any factor adversely affecting demand for or use of SAP's R/3 system
could have a material adverse effect on the Company's business, operating
results and financial condition. Implementation of the SAP R/3 system is a
costly and time-consuming process and there can be no assurance that businesses
will choose to purchase such systems. Furthermore, there can be no assurance
that businesses which may implement such systems will wish to commit the
additional resources required to implement Mercator for R/3. In addition, SAP
could in the future introduce business application integration solutions
competitive with Mercator for R/3 and related services. Moreover, any changes in
or new versions of SAP's R/3 system could materially and adversely affect the
Company's business, operating results and financial condition if the Company
were not able to successfully develop or implement any related changes to
Mercator for R/3 in a timely fashion. The Company will also be required to
maintain ALE certification for Mercator for R/3. In order to maintain such
certification, the Company's product must adhere to SAP's technical
specifications which are updated by SAP from time to time, and the Company has
no control over whether and when such specifications will be changed. Any
material change by SAP in such specifications could require the Company to
devote significant development resources to updating this product to comply with
such specifications. In such event, there can be no assurance that the Company
would be able to successfully modify Mercator for R/3 on a timely basis, if at
all, and any failure to do so could materially and adversely affect the
Company's business, operating results and financial condition.
14
<PAGE>
Risks Associated with Technological Change, Product Enhancements and New
Product Development. The market for the Company's products and services is
characterized by extremely rapid technological change, frequent new product
introductions and enhancements, evolving industry standards, and rapidly
changing customer requirements. The introduction of products incorporating new
technologies and the emergence of new industry standards could render existing
products obsolete and unmarketable. Accordingly, the life cycles of the
Company's products are difficult to estimate. The Company's future success will
depend in part upon its ability to anticipate changes and enhance its current
products and develop and introduce new products that keep pace with
technological advancements and address the increasingly sophisticated needs of
its customers. The Company's products may be rendered obsolete if the Company
fails to anticipate or react to change. Development of enhancements to existing
products and new products depends, in part, on the timing of releases of new
versions of applications systems by vendors, the introduction of new
applications, systems or computing platforms, the timing of changes in
platforms, the release of new standards or changes to existing standards, and
changing customer requirements, among other factors. There can be no assurance
that the Company will be successful in developing and marketing product
enhancements or new products that respond to technological change, evolving
industry standards and changing customer requirements, that the Company will not
experience difficulties that could delay or prevent the successful development,
introduction and marketing of these products or product enhancements, or that
its product enhancements or new products will adequately meet the requirements
of the marketplace and achieve any significant degree of market acceptance. The
Company has in the past experienced delays in the introduction of product
enhancements and new products and may experience such delays in the future.
Furthermore, as the number of applications, systems and platforms supported by
the Company's products increases, the Company could experience difficulties in
developing on a timely basis product enhancements which address the increased
number of new versions of applications, systems or platforms served by its
existing products. Failure of the Company, for technological or other reasons,
to develop and introduce product enhancements or new products in a timely and
cost-effective manner or to anticipate and respond adequately to changing market
conditions, as well as any significant delay in product development or
introduction, could cause customers to delay or decide against purchases of the
Company's products, which could have a material adverse effect on the Company's
business, operating results and financial condition.
The Company may, in the future, seek to develop and market enhancements to
existing products or new products which are targeted for applications, systems
or platforms which the Company believes will achieve commercial acceptance.
These efforts could require the Company to devote significant development and
sales and marketing personnel as well as other resources to such efforts which
would otherwise be available for other purposes. There can be no assurance that
the Company will be able to successfully identify such applications, systems or
platforms, or that such applications, systems or platforms will achieve
commercial acceptance or that the Company will realize a sufficient return on
its investment. Failure of these targeted applications, systems or platforms to
achieve commercial acceptance or the failure of the Company to achieve a
sufficient return on its investment could have a material adverse effect on the
Company's business, operating results and financial condition.
In addition, the introduction or announcement by the Company, or by one or
more of its current or future competitors, of products embodying new
technologies or features could render the Company's existing products obsolete
or unmarketable. There can be no assurance that the introduction or announcement
of enhanced or new product offerings by the Company or its current or future
competitors will not cause customers to defer or cancel purchases of existing
Company products. Such deferment or cancellation of purchases could have a
material adverse effect on the Company's business, operating results and
financial condition.
Dependence Upon Development of Distribution Channels. An integral part of the
Company's strategy is to expand both its direct sales force and its indirect
sales channels such as Value-Added Resellers ("VARs"), Independent Software
Vendors ("ISVs"), Systems Integrators ("SIs") and distributors. Although VARs,
ISVs, SIs and distributors have not accounted for a substantial percentage of
the Company's total revenues historically, the Company is increasing resources
dedicated to developing and expanding its indirect distribution channels. There
can be no assurance that the Company will be successful in expanding the number
of indirect distribution channels for its products. Furthermore, any new VARs,
ISVs, SIs or distributors may offer competing products, or have no minimum
purchase requirements of the Company's products. There can also be no assurance
that such third parties will provide adequate levels of services and technical
support. The inability of the Company to enter into additional
15
<PAGE>
indirect distribution arrangements, the failure of such third parties to perform
under agreements with the Company and to penetrate their markets, or the
inability of the Company to retain and manage VARs, ISVs, SIs and distributors
with the technical and industry expertise required to market the Company's
products successfully could have a material adverse effect on the Company's
business, operating results and financial condition. There can be no assurance
that the Company's planned efforts to expand its use of VARs, ISVs, SIs and
distributors will be successful. To the extent that the Company is successful in
increasing its sales through indirect sales channels, it expects that those
sales will be at lower per unit prices than sales through direct channels, and
revenue to the Company for each such sale will be less than if the Company had
licensed the same product to the customer directly.
Selling through indirect channels may limit the Company's contacts with its
customers. As a result, the Company's ability to accurately forecast sales,
evaluate customer satisfaction and recognize emerging customer requirements may
be hindered. The Company's strategy of marketing its products directly tend-
users and indirectly through VARs, ISVs, SIs and distributors may result in
distribution channel conflicts. The Company's direct sales efforts may compete
with those of its indirect channels and, to the extent different resellers
target the same customers, resellers may also come into conflict with each
other. Although the Company has attempted to manage its distribution channels to
avoid potential conflicts, there can be no assurance that channel conflicts will
not materially and adversely affect its relationships with existing VARs, ISVs,
SIs or distributors or adversely affect its ability to attract new VARs, ISVs,
SIs and distributors.
The Company also plans to expand its direct sales force. The Company's future
success will depend in part upon the ability of the Company to attract,
integrate, train, motivate and retain new sales personnel. There can be no
assurance that the Company's efforts to expand its direct sales force will be
successful or that the cost of such efforts will not exceed the revenue
generated. In addition, the Company expects to experience a significant time lag
between the date sales personnel are hired and the date such personnel become
fully productive. The Company's inability to manage its sales force expansion
effectively could have a material adverse effect on the Company's business,
operating results and financial condition.
Dependence on Key Personnel; Need to Attract and Retain Sales, Professional
Services and Technical Personnel. The Company's future success depends in large
part on the continued service of its key technical, professional services and
sales personnel, as well as senior management. The loss of the services of any
of one or more of the Company's key employees could have a material adverse
effect on the Company's business, operating results and financial condition. All
employees are employed at-will and the Company has no fixed-term employment
agreements with its employees. The Company's future success also depends on its
ability to attract, train and retain highly qualified sales, technical,
professional services and managerial personnel, particularly sales, professional
services and technical personnel with expertise in the SAP R/3 system. An
increase in the Company's sales staff is required to expand both the Company's
direct and indirect sales activities and to achieve revenue growth. Competition
for such personnel is intense, particularly for personnel with expertise in the
SAP R/3system, and there can be no assurance that the Company can attract,
assimilate or retain such personnel. The Company has at times experienced and
continues to experience difficulty in recruiting qualified technical and sales
personnel, and anticipates such difficulties in the future. The Company has in
the past experienced and in the future expects to continue to experience a
significant time lag between the date technical, professional services and sales
personnel are hired and the date such personnel become fully productive. If the
Company is unable to hire and train on a timely basis and subsequently retain
such personnel in the future, the Company's business, operating results and
financial condition could be materially and adversely affected.
Management of Growth. The Company's business has grown in recent periods,
with total revenues increasing from $13.9 million in 1994 to $16.1 million in
1995 and $19.0 million in 1996 and increasing from $4.2 million for the second
quarter of 1996 to $6.2 million for the comparable period of 1997. The growth of
the Company's business has placed, and is expected to continue to place, a
strain on the Company's administrative, financial, sales and operational
resources and increased demands on its systems and controls. In particular, the
Company noted an increase in days sales outstanding from December 31, 1996 to
June 30, 1997 from approximately 70 days to approximately 79 days, and an
increase in total accounts receivable from $4.4 million to $5.4 million. The
Company believes this increase resulted from the impact of implementing a new
financial
16
<PAGE>
accounting system which have since been resolved, and from a lack of sufficient
collections resources in light of the Company's increased sales levels.
To deal with these concerns, the Company has implemented or is in the process
of implementing and will be required to implement in the future a variety of new
and upgraded operational and financial systems, procedures and controls and to
hire additional administrative personnel. There can be no assurance that the
Company will be able to complete the implementation of these systems, procedures
and controls or hire such personnel in a timely manner. The failure of the
Company or its management to respond to, and manage, its growth and changing
business conditions, or to adapt its operational, management and financial
control systems to accommodate its growth could have a material adverse effect
on the Company's business, operating results and financial condition. To promote
growth in the Company's sales and operations, the Company will also have to
expand its sales and marketing organizations, expand and develop its
distribution channels, fund increasing levels of product development and
increase the size of its training, professional services and customer support
organization to accommodate expanded operations, and there can be no assurance
that the Company will be successful in these endeavors.
Competition. The market for the Company's products and services is extremely
competitive and subject to rapid change. Because there are relatively low
barriers to entry in the software market, the Company expects additional
competition from other established and emerging companies. The Company believes
that the competitive factors affecting the market for the Company's products and
services include product functionality and features; quality of professional
services offerings; product quality, performance and price; ease of product
implementation; quality of customer support services; customer training and
documentation; and vendor and product reputation. The relative importance of
each of these factors depends upon the specific customer environment. Although
the Company believes that its products and services currently compete favorably
with respect to such factors, there can be no assurance that the Company can
maintain its competitive position against current and potential competitors.
In the business application integration market, the Company's Mercator
products and related services compete primarily against solutions developed
internally by individual businesses to meet their specific business application
integration needs. As a result, the Company must educate prospective customers
as to the advantages of the Company's products and services as opposed to
internally developed solutions and there can be no assurance that the Company
will be able to adequately educate potential customers to the benefits provided
by the Company's products and services. In the EDI market, the Company's Trading
Partner products compete with products offered by companies offering proprietary
Value-Added Network ("VAN") services as part of their EDI solution and the
Company's PC-based Trading Partner products also compete with PC-based products
offered by a number of other EDI software vendors.
Many of the Company's current and potential competitors have longer operating
histories, significantly greater financial, technical, product development and
marketing resources, greater name recognition and larger customer bases than
the Company. The Company's present or future competitors may be able to develop
products comparable or superior to those offered by the Company, adapt more
quickly than the Company to new technologies, evolving industry trends or
customer requirements, or devote greater resources to the development, promotion
and sale of their products than the Company. Accordingly, there can be no
assurance that the Company will be able to compete effectively in its markets,
that competition will not intensify or that future competition will not have a
material adverse effect on the Company's business, operating results and
financial condition.
The Company expects that it will face increasing pricing pressures from its
current competitors and new market entrants. The Company's competitors may
engage in pricing practices that reduce the average selling prices of the
Company's products and related services. To offset declining average selling
prices, the Company believes that it must successfully introduce and sell
enhancements to existing products and new products on a timely basis and develop
enhancements to existing products and new products that incorporate features
that can be sold at higher average selling prices. To the extent that
enhancements to existing products and new products are not developed in a timely
manner, do not achieve customer acceptance or do not generate higher average
selling prices, the Company's gross margins may decline, and such decline could
have a material adverse effect on the Company's business, operating results and
financial condition.
17
<PAGE>
PART II - OTHER INFORMATION
ITEM 2. SALE OF UNREGISTERED SECURITIES
(c) On May 15, 1997, the Company sold 50,000 shares of Series E convertible
preferred stock at $20 per share to Mitsui & Co., Ltd. and two other foreign
investors.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company held its Annual Meeting of Stockholders on May 9, 1997, at
which meeting the stockholders elected five directors for terms expiring at the
Company's Annual Meeting of Stockholders in 1998 and for ratification of KPMG
Peat Marwick as the Company's independent auditors for fiscal year 1997. The
votes were as follows:
<TABLE>
<CAPTION>
Election of Directors
- ---------------------
NAME FOR AGAINST
---- ---- -------
<S> <C> <C>
Constance F. Galley 1,757,052 1,200
Stewart K.P. Gross 1,757,052 1,200
Ernest E. Keet 1,757,052 1,200
John J. Pendray 1,757,052 1,200
Dennis G. Sisco 1,757,052 1,200
Ratification of Independent Auditors 1,757,052 1,200
</TABLE>
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) The following exhibits are filed as part of this Quarterly Report on Form
10-Q:
3.01 Amended and Restated Certificate of Incorporation
3.02 Amended and Restated By Laws
11.1 Computation of Earnings Per Share
27.01 Financial Data Schedule (EDGAR version only)
(b) Reports on Form 8-K.
The Company did not file any reports on Form 8-K during the three-
month period ended June 30, 1997.
18
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
TSI INTERNATIONAL SOFTWARE LTD.
/s/ Contance F. Galley
Date: August 13, 1997 -----------------------------------------
Constance F. Galley
President and Chief Executive Officer
(Principal Executive Officer)
/s/ Ira A. Gerard
Date: August 13, 1997 ----------------------------------------
Ira A. Gerard
Vice President, Finance and Administration
Chief Financial Officer and Secretary
(Principal Financial Officer)
19
<PAGE>
EXHIBIT 3.01
AMENDED AND RESTATED
CERTIFICATE OF INCORPORATION
OF
TSI INTERNATIONAL SOFTWARE LTD.
Constance Galley and Ira Gerard, President and Secretary, respectively, of
TSI International Software Ltd., a corporation organized and existing under the
General Corporation Law of the State of Delaware, in accordance with the
provisions of Section 242 and 245 thereof, DO HEREBY CERTIFY:
FIRST: The name of the corporation is TSI International Software Ltd. TSI
International Software Ltd. was originally incorporated under the same name, and
the original Certificate of Incorporation of the Corporation was filed with the
Secretary of State of the State of Delaware on September 9, 1993.
SECOND: That this amendment and restatement of the Corporation's Restated
Certificate of Incorporation set forth in the following resolution has been
approved by the Corporation's Board of Directors and stockholders and was duly
adopted in accordance with the provisions of Section 242 and 245 of the General
Corporation Law of the State of Delaware, and written notice of the adoption of
this Amended and Restated Certificate of Incorporation has been given as
provided by Section 228 of the General Corporation Law of the State of Delaware
to every stockholder entitled to such notice.
NOW, THEREFORE, BE IT RESOLVED, that the Restated Certificate of
Incorporation of this Corporation be, and it hereby is, amended and restated to
read in its entirety as follows:
ARTICLE I
The name of the corporation is TSI International Software Ltd.
ARTICLE II
The address of the registered office of the corporation in the State of
Delaware is 1013 Centre Road, City of Wilmington, County of New Castle. The name
of its registered agent at that address is The Prentice-Hall Corporation System,
Inc.
ARTICLE III
The purpose of the corporation is to engage in any lawful act or activity
for which corporations may be organized under the General Corporation Law of the
State of Delaware.
<PAGE>
ARTICLE IV
The total number of shares of all classes of stock which the corporation
has authority to issue is 25,000,000 shares, consisting of two classes:
20,000,000 shares shall be denominated Common Stock, $0.01 par value per share,
and 5,000,000 shares shall be denominated Preferred Stock, $0.01 par value per
share.
The Board of Directors is authorized, subject to any limitations prescribed
by the law of the State of Delaware, to provide for the issuance of the shares
of Preferred Stock in one or more series, and, by filing a Certificate of
Designation pursuant to the applicable law of the State of Delaware, to
establish from time to time the number of shares to be included in each such
series, to fix the designation, powers, preferences and rights of the shares of
each such series and any qualifications, limitations or restrictions thereof,
and to increase or decrease the number of shares of any such series (but not
below the number of shares of such series then outstanding). The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative vote of
the holders of a majority of the stock of the corporation entitled to vote,
unless a vote of any other holders is required pursuant to a Certificate or
Certificates establishing a series of Preferred Stock.
Except as otherwise expressly provided in any Certificate of Designation
designating any series of Preferred Stock pursuant to the foregoing provisions
of this Article IV, any new series of Preferred Stock may be designated, fixed
and determined as provided herein by the Board of Directors without approval of
the holders of Common Stock or the holders of Preferred Stock, or any series
thereof, and any such new series may have powers, preferences and rights,
including without limitation, voting rights, dividend rights, liquidation
rights, redemption rights and conversion rights, senior to, junior to or pari
passu with the rights of the Common Stock, the Preferred Stock, or any future
class or series of Preferred Stock or Common Stock.
ARTICLE V
The Board of Directors of the corporation shall have the power to adopt,
amend or repeal Bylaws of the corporation.
ARTICLE VI
Election of directors need not be by written ballot unless the Bylaws of
the corporation shall so provide.
ARTICLE VII
To the fullest extent permitted by law, no director of the corporation
shall be personally liable for monetary damages for breach of fiduciary duty as
a director. Without limiting the effect of the preceding sentence, if the
Delaware General Corporation Law is hereafter amended to authorize
2
<PAGE>
the further elimination or limitation of the liability of a director, then the
liability of a director of the corporation shall be eliminated or limited to the
fullest extent permitted by the Delaware General Corporation Law, as so amended.
Neither any amendment nor repeal of this Article VII, nor the adoption of
any provision of this Certificate of Incorporation inconsistent with this
Article VII, shall eliminate, reduce or otherwise adversely affect any
limitation on the personal liability of a director of the corporation existing
at the time of such amendment, repeal or adoption of such an inconsistent
provision.
IN WITNESS WHEREOF, this Amended and Restated Certificate of Incorporation
has been executed on behalf of the Corporation by Constance Galley, its
President, and Ira Gerard, its Secretary, this 8th day of July 1997.
TSI International Software Ltd.
By: /s/ Constance Galley
--------------------
Name: Constance Galley
Title: President
By: /s/ Ira Gerard
--------------
Name: Ira Gerard
Title: Secretary
3
<PAGE>
EXHIBIT 3.02
BYLAWS
OF
TSI International Software Ltd.
-------------------------------
(a Delaware corporation)
As Adopted September 10, 1993
and Amended through July 8, 1997
<PAGE>
BYLAWS
OF
TSI INTERNATIONAL SOFTWARE LTD.
A Delaware Corporation
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I - STOCKHOLDERS......................................................... 1
Section 1.1: Annual Meetings........................................ 1
Section 1.2: Special Meetings....................................... 1
Section 1.3: Notice of Meetings..................................... 1
Section 1.4: Waiver of Notice....................................... 1
Section 1.5: Adjournments........................................... 1
Section 1.6: Quorum................................................. 2
Section 1.7: Organization........................................... 2
Section 1.8: Voting; Proxies........................................ 2
Section 1.9: Fixing Date for Determination of Stockholders of Record 3
Section 1.10 List of Stockholders Entitled to Vote.................. 3
Section 1.11 Action by Written Consent of Stockholders.............. 3
Section 1.12: Inspectors of Elections................................ 4
ARTICLE II - BOARD OF DIRECTORS.................................................. 6
Section 2.1: Number; Qualifications................................. 6
Section 2.2: Election; Resignation; Removal; Vacancies.............. 6
</TABLE>
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TABLE OF CONTENTS (Cont'd)
<TABLE>
<CAPTION>
PAGE
<S> <C>
Section 2.3: Regular Meetings...................................... 6
Section 2.4: Special Meetings...................................... 6
Section 2.5: Telephonic Meetings Permitted......................... 7
Section 2.6: Quorum; Vote Required for Action...................... 7
Section 2.7: Organization.......................................... 7
Section 2.8: Written Action by Directors........................... 7
Section 2.9: Powers................................................ 7
Section 2.10: Compensation of Directors............................. 7
ARTICLE III - COMMITTEES......................................................... 7
Section 3.1: Committees............................................ 7
Section 3.2: Committee Rules....................................... 8
ARTICLE IV - OFFICERS
Section 4.1: Generally............................................. 8
Section 4.2: Chairman of the Board................................. 9
Section 4.3: President............................................. 9
Section 4.4: Vice President........................................ 9
Section 4.5: Chief Financial Officer............................... 9
Section 4.6: Treasurer............................................. 9
Section 4.7: Secretary............................................. 10
</TABLE>
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<CAPTION>
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<S> <C>
Section 4.8: Delegation of Authority............................... 10
Section 4.9: Removal............................................... 10
ARTICLE V - STOCK................................................................ 10
Section 5.l: Certificates.......................................... 10
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance
of New Certificate.................................... 10
Section 5.3: Other Regulations..................................... 10
ARTICLE VI - INDEMNIFICATION..................................................... 11
Section 6.1: Indemnification of Officers and Directors............. 11
Section 6.2: Advance of Expenses................................... 11
Section 6.3: Non-Exclusivity of Rights............................. 12
Section 6.4: Indemnification Contracts............................. 15
Section 6.5: Effect of Amendment................................... 12
ARTICLE VII - NOTICES............................................................ 12
Section 7.l: Notice................................................ 12
Section 7.2: Waiver of Notice...................................... 13
ARTICLE VIII - INTERESTED DIRECTORS.............................................. 13
Section 8.1: Interested Directors; Quorum.......................... 13
</TABLE>
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TABLE OF CONTENTS (Cont'd)
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<CAPTION>
PAGE
<S> <C>
ARTICLE IX - MISCELLANEOUS....................................................... 13
Section 9.1: Fiscal Year............................................. 13
Section 9.2: Seal.................................................... 14
Section 9.3: Form of Records......................................... 14
Section 9.4: Reliance Upon Books and Records......................... 14
Section 9.5: Certificate of Incorporation Governs.................... 14
Section 9.6: Severability............................................ 14
ARTICLE X - AMENDMENT............................................................ 15
Section 10.1: Amendments.............................................. 15
</TABLE>
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<PAGE>
BYLAWS
OF
TSI INTERNATIONAL SOFTWARE LTD.
(a Delaware Corporation)
As Adopted September 10, 1993
and Amended through July 8, 1997
ARTICLE I
STOCKHOLDERS
Section 1.1: Annual Meetings. An annual meeting of stockholders for
----------- ---------------
the election of directors shall be held each year on such date in the first six
months of the Corporation's fiscal year as shall be designated by the President,
or in the absence of such designation, on the first Tuesday of the seventh month
of the fiscal year, if not a legal holiday, and if a legal holiday, then on the
next succeeding business day, or on such other date as shall be fixed by the
Board of Directors Any other proper business may be transacted at the annual
meeting.
Section 1.2: Special Meetings. Special meetings of stockholders for
----------- ----------------
any purpose or purposes may be called at any time by the President or the
Secretary of the Corporation or by a majority of the members of the Board of
Directors. Special meetings may not be called by any other person or persons.
Section 1.3: Notice of Meetings. Written notice of all meetings of
----------- ------------------
stockholders shall be given stating the place, date and time of the meeting and,
in the case of a special meeting, the purpose or purposes for which the meeting
is called. Unless otherwise required by applicable law or the Certificate of
Incorporation of the Corporation, such notice 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.
Section 1.4: Waiver of Notice. Notice of any shareholders meeting
----------- ----------------
may be waived, in writing, by any shareholder, either before or after the time
stated therein and, if any shareholder entitled to vote is present at a
shareholders meeting and does not protest, prior to or at the commencement of
the meeting, the lack of receipt of proper notice, such shareholder shall be
deemed to have waived notice of such meeting.
Section 1.5: Adjournments. Any meeting of stockholders may adjourn
----------- ------------
from time to time to reconvene at the same or another place, and notice need not
be given of any such
<PAGE>
adjourned meeting if the time, date and place thereof are announced at the
meeting at which the adjournment is taken; provided, however, that 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, then a notice of the adjourned
meeting shall be given to each stockholder of record entitled to vote at the
meeting. At the adjourned meeting the Corporation may transact any business that
might have been transacted at the original meeting
Section 1.6: Quorum. At each meeting of stockholders the holders of
----------- ------
a majority of the shares of stock entitled to vote at the meeting, present in
person or represented by proxy, shall constitute a quorum for the transaction of
business, except if otherwise required by applicable law. If a quorum shall
fail to attend any meeting, the chairman of the meeting or the holders of a
majority of the shares entitled to vote who are present, in person or by proxy,
at the meeting may adjourn the meeting. Shares of the Corporation's stock
belonging to the Corporation (or to another corporation, if a majority of the
shares entitled to vote in the election of directors of such other corporation
are held, directly or indirectly, by the Corporation), shall neither be entitled
to vote nor be counted for quorum purposes; provided, however, that the
foregoing shall not limit the right of the Corporation or any other corporation
to vote any shares of the Corporation's stock held by it in a fiduciary
capacity.
Section 1.7: Organization. Meetings of stockholders shall be
----------- ------------
presided over by such person as the Board of Directors may designate, or, in the
absence of such a person, the Chairman of the Board, or, in the absence of such
person, the President of the Corporation, or, in the absence of such person,
such person as may be chosen by the holders of a majority of the shares entitled
to vote who are present, in person or by proxy, at the meeting. Such person
shall be chairman of the meeting and, subject to Section 1.11 hereof, shall
determine the order of business and the procedure at the meeting, including such
regulation of the manner of voting and the conduct of discussion as seems to him
or her to be in order. The Secretary of the Corporation shall act as secretary
of the meeting, but in his or her absence the chairman of the meeting may
appoint any person to act as secretary of the meeting.
Section 1.8: Voting; Proxies. Unless otherwise provided by law or
----------- ---------------
the Certificate of Incorporation, and subject to the provisions of Section 1.9
of these Bylaws, each stockholder shall be entitled to one (1) vote for each
share of stock held by such stockholder. 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
such stockholder by proxy. Such a proxy may be prepared, transmitted and
delivered in any manner permitted by applicable law. If a vote is to be taken
by written ballot, then each such ballot shall state the name of the stockholder
or proxy voting and such other information as the chairman of the meeting deems
appropriate. 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. Unless otherwise provided by applicable law,
the Certificate of Incorporation or these Bylaws, every matter other than the
election of directors shall be decided by the affirmative vote of the holders of
a majority of the shares of stock entitled to vote thereon that are present in
person or represented by proxy at the meeting and are voted for or against the
matter.
-2-
<PAGE>
Section 1.9: Fixing Date for Determination of Stockholders of Record.
----------- -------------------------------------------------------
In order that the Corporation may determine the stockholders entitled to notice
of or to vote at any meeting of stockholders or any adjournment thereof, or to
express consent to corporate action in writing without a meeting, or entitled to
receive payment of any dividend or other distribution or allotment of any
rights, or entitled to exercise any rights in respect of any change, conversion
or exchange of stock or for the purpose of any other lawful action, the Board of
Directors may fix, in advance, a record date, which shall not precede the date
upon which the resolution fixing the record date is adopted by the Board of
Directors and which shall not be more than sixty (60) nor less than ten (10)
days before the date of such meeting, nor more than sixty (60) days prior to any
other action. If no record date is fixed by the Board of Directors, then the
record date shall be as provided by applicable law. A determination of
stockholders of record entitled to notice of or to vote at a meeting of
stockholders shall apply to any adjournment of the meeting; provided, however,
that the Board of Directors may fix a new record date for the adjourned meeting.
Section 1.10: List of Stockholders Entitled to Vote. A complete list
------------ -------------------------------------
of stockholders entitled to vote at any meeting of stockholders, arranged in
alphabetical order and showing the address of each stockholder and the number of
shares registered in the name of each stockholder, shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten (10) days prior to the
meeting, either at a place within the city where the meeting is to be held,
which place shall be specified in the notice of the meeting, or, if not so
specified, at the place where the meeting is to be held. The list shall also be
produced and kept at the time and place of the meeting during the whole time
thereof and may be inspected by any stockholder who is present at the meeting.
Section 1.11: Action by Written Consent of Stockholders.
---------------------------------------------------------
(a) Procedure. Unless otherwise provided by the Certificate of
---------
Incorporation, any action required or permitted to be taken at any annual or
special meeting of the 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 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. Written stockholder consents shall bear the date of
signature of each stockholder who signs the consent and shall be delivered to
the Corporation by delivery to its registered office in the State of Delaware,
to its principal place of business or to any officer or agent of the Corporation
having custody of the book in which proceedings of meetings of stockholders are
recorded. Delivery made to the Corporation's registered office shall be by hand
or by certified or registered mail, return receipt requested. No written
consent shall be effective to take the action set forth therein unless, within
sixty (60) days of the earliest dated consent delivered to the Corporation in
the manner provided above, written consents signed by a sufficient number of
stockholders to take the action set forth therein are delivered to the
Corporation in the manner provided above.
(b) Notice of Consent. Prompt notice of the taking of corporate
-----------------
action by stockholders without a meeting by less than unanimous written consent
of the stockholders
-3-
<PAGE>
shall be given to those stockholders who have not consented thereto in writing
and, in the case of a Certificate Action (as defined below), if the Delaware
General Corporation Law so requires, such notice shall be given prior to filing
of the certificate in question. If the action which is consented to requires the
filing of a certificate under the Delaware General Corporation Law (a
"Certificate Action"), then if the Delaware General Corporation Law so requires,
------------------
the certificate so filed shall state that written stockholder consent has been
given in accordance with Section 228 of the Delaware General Corporation Law and
that written notice of the taking of corporate action by stockholders without a
meeting as described herein has been given as provided in such section.
Section 1.12: Inspectors of Elections.
------------ -----------------------
(a) Applicability. Unless otherwise provided in the Corporation's
-------------
Certificate of Incorporation or required by the Delaware General Corporation
Law, the following provisions of this Section 1.11 shall apply only if and when
the Corporation has a class of voting stock that is: (i) listed on a national
securities exchange; (ii) authorized for quotation on an interdealer quotation
system of a registered national securities association; or (iii) held of record
by more than 2,000 stockholders; in all other cases, observance of the
provisions of this Section 1.11 shall be optional, and at the discretion of the
Corporation.
(b) Appointment. The Corporation shall, in advance of any meeting of
-----------
stockholders, appoint one or more inspectors of election to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting shall appoint one or more inspectors to act at
the meeting.
(c) Inspector's Oath. Each inspector of election, before entering
----------------
upon the discharge of his duties, shall take and sign an oath faithfully to
execute the duties of inspector with strict impartiality and according to the
best of his ability.
(d) Duties of Inspectors. At a meeting of stockholders, the
--------------------
inspectors of election shall (i) ascertain the number of shares outstanding and
the voting power of each share, (ii) determine the shares represented at a
meeting and the validity of proxies and ballots, (iii) count all votes and
ballots, (iv) determine and retain for a reasonable period of time a record of
the disposition of any challenges made to any determination by the inspectors,
and (v) certify their determination of the number of shares represented at the
meeting, and their count of all votes and ballots. The inspectors may appoint
or retain other persons or entities to assist the inspectors in the performance
of the duties of the inspectors.
(e) Opening and Closing of Polls. The date and time of the opening
----------------------------
and the closing of the polls for each matter upon which the stockholders will
vote at a meeting shall be announced by the inspectors at the meeting. No
ballot, proxies or votes, nor any revocations thereof or changes thereto, shall
be accepted by the inspectors after the closing of the polls unless the Court of
Chancery upon application by a stockholder shall determine otherwise.
-4-
<PAGE>
(f) Determinations. In determining the validity and counting of
--------------
proxies and ballots, the inspectors shall be limited to an examination of the
proxies, any envelopes submitted with those proxies, any information provided in
connection with proxies in accordance with Section 212(c)(2) of the Delaware
General Corporation Law, ballots and the regular books and records of the
Corporation, except that the inspectors may consider other reliable information
for the limited purpose of reconciling proxies and ballots submitted by or on
behalf of banks, brokers, their nominees or similar persons which represent more
votes than the holder of a proxy is authorized by the record owner to cast or
more votes than the stockholder holds of record. If the inspectors consider
other reliable information for the limited purpose permitted herein, the
inspectors at the time they make their certification of their determinations
pursuant to this Section 1.11 shall specify the precise information considered
by them, including the person or persons from whom they obtained the
information, when the information was obtained, the means by which the
information was obtained and the basis for the inspectors' belief that such
information is accurate and reliable.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1: Number; Qualifications. The Board of Directors shall
----------- ----------------------
consist of at least one and no more than nine members. The initial number of
directors shall be five (5), and thereafter shall be fixed from time to time by
resolution of the Board of Directors. No decrease in the authorized number of
directors constituting the Board of Directors shall shorten the term of any
incumbent director. Directors need not be stockholders of the Corporation.
Section 2.2: Election; Resignation; Removal; Vacancies. The Board of
----------- -----------------------------------------
Directors shall initially consist of the person or persons elected by the
incorporator or named in the Corporation's initial Certificate of Incorporation.
Each director shall hold office until the next annual meeting of stockholders
and until his or her successor is elected and qualified, or until his or her
earlier death, resignation or removal. Any director may resign at any time upon
written notice to the Corporation. Subject to the rights of any holders of
Preferred Stock then outstanding: (i) 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 and (ii) any
vacancy occurring in the Board of Directors for any cause, and any newly created
directorship resulting from any increase in the authorized number of directors
to be elected by all stockholders having the right to vote as a single class,
may be filled by the stockholders, by a majority of the directors then in
office, although less than a quorum, or by a sole remaining director.
Section 2.3: Regular Meetings. Regular meetings of the Board of
----------- ----------------
Directors may be held at such places, within or without the State of Delaware,
and at such times as the Board of Directors may from time to time determine.
Notice of regular meetings need not be given if the date, times and places
thereof are fixed by resolution of the Board of Directors.
-5-
<PAGE>
Section 2.4: Special Meetings. Special meetings of the Board of
----------- ----------------
Directors may be called by the Chairman of the Board, the President or a
majority of the members of the Board of Directors then in office and may be held
at any time, date or place, within or without the State of Delaware, as the
person or persons calling the meeting shall fix. Notice of the time, date and
place of such meeting shall be given, orally or in writing, by the person or
persons calling the meeting to all directors at least four (4) days before the
meeting if the notice is mailed, or at least twenty-four (24) hours before the
meeting if such notice is given by telephone, hand delivery, telegram, telex,
mailgram, facsimile or similar communication method. Unless otherwise indicated
in the notice, any and all business may be transacted at a special meeting.
Section 2.5: Telephonic Meetings Permitted. Members of the Board of
----------- -----------------------------
Directors, or any committee of the Board, may participate in a meeting of the
Board or 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 participation in a meeting pursuant to
conference telephone or similar communications equipment shall constitute
presence in person at such meeting.
Section 2.6: Quorum; Vote Required for Action. At all meetings of
----------- --------------------------------
the Board of Directors a majority of the total number of authorized directors
shall constitute a quorum for the transaction of business. Except as otherwise
provided herein or in the Certificate of Incorporation, or required by law, the
vote of a majority of the directors present at a meeting at which a quorum is
present shall be the act of the Board of Directors.
Section 2.7: Organization. Meetings of the Board of Directors shall
----------- ------------
be presided over by the Chairman of the Board, or in his or her absence by the
President, or in his or her absence by a chairman chosen at the meeting. The
Secretary shall act as secretary of the meeting, but in his or her absence the
chairman of the meeting may appoint any person to act as secretary of the
meeting.
Section 2.8: Written Action by Directors. 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 or
such 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 or committee,
respectively.
Section 2.9: Powers. The Board of Directors may, except as otherwise
----------- ------
required by law or the Certificate of Incorporation, exercise all such powers
and do all such acts and things as may be exercised or done by the Corporation.
Section 2.10: Compensation of Directors. Directors, as such, may
------------ -------------------------
receive, pursuant to a resolution of the Board of Directors, fees and other
compensation for their services as directors, including without limitation their
services as members of committees of the Board of Directors.
-6-
<PAGE>
ARTICLE III
COMMITTEES
Section 3.1: Committees. The Board of Directors may, by resolution
----------- ----------
passed by a majority of the whole Board, designate one or more committees, 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 the committee, the
member or members thereof present at any meeting of such committee who are not
disqualified from voting, whether or not he, she or they constitute a quorum,
may unanimously appoint another member of the Board of Directors to act at the
meeting in place of any such absent or disqualified member. Any such committee,
to the extent provided in a resolution of the Board of Directors, 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 in reference to amending 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 subsection (a) of
Section 151 of the Delaware General Corporation Law, 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), adopting an
agreement of merger or consolidation under Sections 251 or 252 of the Delaware
General Corporation Law, recommending to the stockholders the sale, lease or
exchange of all or substantially all of the Corporation's property and assets,
recommending to the stockholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the Bylaws of the Corporation; and
unless the resolution of the Board of Directors expressly so provides, no such
committee shall have the power or authority to declare a dividend, authorize the
issuance of stock or adopt a certificate of ownership and merger pursuant to
section 253 of the Delaware General Corporation Law.
Section 3.2: Committee Rules. Unless the Board of Directors
----------- ---------------
otherwise provides, each committee designated by the Board may make, alter and
repeal rules for the conduct of its business. In the absence of such rules each
committee shall conduct its business in the same manner as the Board of
Directors conducts its business pursuant to Article II of these Bylaws.
-7-
<PAGE>
ARTICLE IV
OFFICERS
Section 4.1: Generally. The officers of the Corporation shall
----------- ---------
consist of a Chief Executive Officer and/or a President, one or more Vice
Presidents, a Secretary, a Treasurer and such other officers, including a
Chairman of the Board of Directors and/or Chief Financial Officer, as may from
time to time be appointed by the Board of Directors. All officers shall be
elected by the Board of Directors; provided, however, that the Board of
Directors may empower the Chief Executive Officer of the Corporation to appoint
officers other than the Chairman of the Board, the Chief Executive Officer, the
President, the Chief Financial Officer or the Treasurer. Each officer shall hold
office until his or her successor is elected and qualified or until his or her
earlier resignation or removal. Any number of offices may be held by the same
person. Any officer may resign at any time upon written notice to the
Corporation. Any vacancy occurring in any office of the Corporation by death,
resignation, removal or otherwise may be filled by the Board of Directors.
Section 4.2: Chief Executive Officer. Subject to the control of the
----------- -----------------------
Board of Directors and such supervisory powers, if any, as may be given by the
Board of Directors, the powers and duties of the Chief Executive Officer of the
Corporation are:
(a) To act as the general manager and, subject to the control of the
Board of Directors, to have general supervision, direction and control of the
business and affairs of the Corporation;
(b) To preside at all meetings of the stockholders;
(c) To call meetings of the stockholders to be held at such times and,
subject to the limitations prescribed by law or by these Bylaws, at such places
as he or she shall deem proper; and
(d) To affix the signature of the Corporation to all deeds,
conveyances, mortgages, guarantees, leases, obligations, bonds, certificates and
other papers and instruments in writing which have been authorized by the Board
of Directors or which, in the judgment of the Chief Executive Officer, should be
executed on behalf of the Corporation; to sign certificates for shares of stock
of the Corporation; and, subject to the direction of the Board of Directors, to
have general charge of the property of the Corporation and to supervise and
control all officers, agents and employees of the Corporation.
The President shall be the Chief Executive Officer of the Corporation unless the
Board of Directors shall designate another officer to be the Chief Executive
Officer. If there is no President, and the Board of Directors has not
designated any other officer to be the Chief Executive Officer, then the
Chairman of the Board shall be the Chief Executive Officer.
-8-
<PAGE>
Section 4.3: Chairman of the Board. The Chairman of the Board shall
----------- ---------------------
have the power to preside at all meetings of the Board of Directors and shall
have such other powers and duties as provided in these bylaws and as the Board
of Directors may from time to time prescribe.
Section 4.4: President. The President shall be the Chief Executive
----------- ---------
Officer of the Corporation unless the Board of Directors shall have designated
another officer as the Chief Executive Officer of the Corporation. Subject to
the provisions of these Bylaws and to the direction of the Board of Directors,
and subject to the supervisory powers of the Chief Executive Officer (if the
Chief Executive Officer is an officer other than the President), and subject to
such supervisory powers and authority as may be given by the Board of Directors
to the Chairman of the Board and/or to any other officer, the President shall
have the responsibility for the general management the control of the business
and affairs of the Corporation and the general supervision and direction of all
of the officers, employees and agents of the Corporation (other than the Chief
Executive Officer, if the Chief Executive Officer is an officer other than the
President) and shall perform all duties and have all powers that are commonly
incident to the office of President or that are delegated to the President by
the Board of Directors.
Section 4.5: Vice President. Each Vice President shall have all such
----------- --------------
powers and duties as are commonly incident to the office of Vice President, or
that are delegated to him or her by the Board of Directors or the Chief
Executive Officer. A Vice President may be designated by the Board to perform
the duties and exercise the powers of the Chief Executive Officer in the event
of the Chief Executive Officer's absence or disability.
Section 4.6: Chief Financial Officer. Subject to the direction of the
----------- -----------------------
Board of Directors and the President, the Chief Financial Officer shall perform
all duties and have all powers that are commonly incident to the office of chief
financial officer.
Section 4.7: Treasurer. The Treasurer shall have custody of all
----------- ---------
monies and securities of the Corporation. The Treasurer shall make such
disbursements of the funds of the Corporation as are authorized and shall render
from time to time an account of all such transactions. The Treasurer shall also
perform such other duties and have such other powers as are commonly incident to
the office of Treasurer, or as the Board of Directors or the President may from
time to time prescribe.
Section 4.8: Secretary. The Secretary shall issue or cause to be
----------- ---------
issued all authorized notices for, and shall keep, or cause to be kept, minutes
of all meetings of the stockholders and the Board of Directors. The Secretary
shall have charge of the corporate minute books and similar records and shall
perform such other duties and have such other powers as are commonly incident to
the office of Secretary, or as the Board of Directors or the President may from
time to time prescribe.
Section 4.9: Delegation of Authority. The Board of Directors may from
----------- -----------------------
time to time delegate the powers or duties of any officer to any other officers
or agents, notwithstanding any provision hereof.
-9-
<PAGE>
Section 4.10: Removal. Any officer of the Corporation shall serve at
------------ -------
the pleasure of the Board of Directors and may be removed at any time, with or
without cause, by the Board of Directors. Such removal shall be without
prejudice to the contractual rights of such officer, if any, with the
Corporation.
ARTICLE V
STOCK
Section 5.1: Certificates. Every holder of stock shall be entitled to
----------- ------------
have a certificate signed by or in the name of the Corporation by the Chairman
or Vice-Chairman of the Board of Directors, or the President or a Vice
President, and by the Treasurer or an Assistant Treasurer, or the Secretary or
an Assistant Secretary, of the Corporation, certifying the number of shares
owned by such stockholder in the Corporation. Any or all of the signatures on
the certificate may be a facsimile.
Section 5.2: Lost, Stolen or Destroyed Stock Certificates; Issuance of
----------- ---------------------------------------------------------
New Certificates. The Corporation may issue a new certificate of stock in the
- ----------------
place of any certificate previously 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 agree
to indemnify the Corporation and/or to give the Corporation a bond sufficient to
indemnify it, against any claim that may be made against it on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate.
Section 5.3: Other Regulations. The issue, transfer, conversion and
----------- -----------------
registration of stock certificates shall be governed by such other regulations
as the Board of Directors may establish.
ARTICLE VI
INDEMNIFICATION
Section 6.1: Indemnification of Officers and Directors. Each person
----------- -----------------------------------------
who was or is made a party to, or is threatened to be made a party to, or is
involved in any action, suit or proceeding, whether civil, criminal,
administrative or investigative (a "proceeding"), by reason of the fact that he
----------
or she (or a person of whom he or she is the legal representative), is or was a
director or officer of the Corporation or a Reincorporated Predecessor (as
defined below) or is or was serving at the request of the Corporation or a
Reincorporated Predecessor (as defined below) as a director or officer of
another corporation, or of a partnership, joint venture, trust or other
enterprise, including service with respect to employee benefit plans, shall be
indemnified and held harmless by the Corporation to the fullest extent permitted
by the Delaware General Corporation Law, against all expenses, liability and
loss (including attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid or to be paid in settlement) reasonably incurred or
suffered by such person in connection therewith, and such indemnification shall
continue as to a person who has ceased to be a director or officer and shall
inure to the benefit of
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<PAGE>
his or her heirs, executors and administrators; provided, however, that the
-------- -------
Corporation shall indemnify any such person seeking indemnity in connection with
a proceeding (or part thereof) initiated by such person only if such proceeding
(or part thereof) was authorized by the Board of Directors of the Corporation.
As used herein, the term "Reincorporated Predecessor" means a corporation that
--------------------------
is merged with and into the Corporation in a statutory merger where (a) the
Corporation is the surviving corporation of such merger; (b) the primary purpose
of such merger is to change the corporate domicile of the Reincorporated
Predecessor to Delaware.
Section 6.2: Advance of Expenses. The Corporation shall pay all
----------- -------------------
expenses (including attorneys' fees) incurred by such a director or officer in
defending any such proceeding as they are incurred in advance of its final
disposition; provided, however, that if the Delaware General Corporation Law
then so requires, the payment of such expenses incurred by such a director or
officer in advance of the final disposition of such proceeding shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be determined
ultimately that such director or officer is not entitled to be indemnified under
this Article VI or otherwise; and provided, further, that the Corporation shall
not be required to advance any expenses to a person against whom the Corporation
directly brings a claim, in a proceeding, alleging that such person has breached
his or her duty of loyalty to the Corporation, committed an act or omission not
in good faith or that involves intentional misconduct or a knowing violation of
law, or derived an improper personal benefit from a transaction.
Section 6.3: Non-Exclusivity of Rights. The rights conferred on any
----------- -------------------------
person in this Article VI shall not be exclusive of any other right that such
person may have or hereafter acquire under any statute, provision of the
Certificate of Incorporation, Bylaw, agreement, vote or consent of stockholders
or disinterested directors, or otherwise. Additionally, nothing in this Article
VI shall limit the ability of the Corporation, in its discretion, to indemnify
or advance expenses to persons whom the Corporation is not obligated to
indemnify or advance expenses pursuant to this Article VI.
Section 6.4: Indemnification Contracts. The Board of Directors is
----------- -------------------------
authorized to cause the Corporation to enter into indemnification contracts with
any director, officer, employee or agent of the Corporation, or any person
serving at the request of the Corporation as a director, officer, employee or
agent of another corporation, partnership, joint venture, trust or other
enterprise, including employee benefit plans, providing indemnification rights
to such person. Such rights may be greater than those provided in this Article
VI.
Section 6.5: Effect of Amendment. Any amendment, repeal or
----------- -------------------
modification of any provision of this Article VI shall be prospective only, and
shall not adversely affect any right or protection conferred on a person
pursuant to this Article VI and existing at the time of such amendment, repeal
or modification.
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<PAGE>
ARTICLE VII
NOTICES
Section 7.1: Notice. Except as otherwise specifically provided herein
----------- ------
or required by law, all notices required to be given pursuant to these Bylaws
shall be in writing and may in every instance be effectively given by hand
delivery (including use of a delivery service), by depositing such notice in the
mail, postage prepaid, or by sending such notice by prepaid telegram, telex,
overnight express courier, mailgram or facsimile. Any such notice shall be
addressed to the person to whom notice is to be given at such person's address
as it appears on the records of the Corporation. The notice shall be deemed
given (i) in the case of hand delivery, when received by the person to whom
notice is to be given or by any person accepting such notice on behalf of such
person, (ii) in the case of delivery by mail, upon deposit in the mail, (iii) in
the case of delivery by overnight express courier, on the first business day
after such notice is dispatched, and (iv) in the case of delivery via telegram,
telex, mailgram, or facsimile, when dispatched.
Section 7.2: Waiver of Notice. Whenever notice is required to be
----------- ----------------
given under any provision of these bylaws, a written waiver of notice, signed by
the person entitled to notice, whether before or after the time stated therein,
shall be deemed equivalent to notice. Attendance of a person at a meeting shall
constitute a waiver of notice of such meeting, except when the person attends a
meeting for the express purpose of objecting at the beginning of the meeting to
the transaction of any business because the meeting is not lawfully called or
convened. Neither the business to be transacted at, nor the purpose of, any
regular or special meeting of the stockholders, directors or members of a
committee of directors need be specified in any written waiver of notice.
ARTICLE VIII
INTERESTED DIRECTORS
Section 8.1: Interested Directors; Quorum. No contract or transaction
----------- ----------------------------
between the Corporation and one or more of its directors or officers, or between
the Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers are directors or
officers, or have a financial interest, shall be void or voidable solely for
this reason, or solely because the director or officer is present at or
participates in the meeting of the Board or committee thereof that authorizes
the contract or transaction, or solely because his, her or their votes are
counted for such purpose, if: (i) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the Board of Directors or the committee, and the Board or committee
in good faith authorizes the contract or transaction by the affirmative votes of
a majority of the disinterested directors, even though the disinterested
directors be less than a quorum; (ii) the material facts as to his, her or their
relationship or interest and as to the contract or transaction are disclosed or
are known to the stockholders entitled to vote thereon, and the contract or
transaction is specifically approved in
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<PAGE>
good faith by vote of the stockholders; or (iii) the contract or transaction is
fair as to the Corporation as of the time it is authorized, approved or ratified
by the Board of Directors, a committee thereof, or the stockholders. Common or
interested directors may be counted in determining the presence of a quorum at a
meeting of the Board of Directors or of a committee which authorizes the
contract or transaction.
ARTICLE IX
MISCELLANEOUS
Section 9.1: Fiscal Year. The fiscal year of the Corporation shall be
----------- -----------
determined by resolution of the Board of Directors.
Section 9.2: Seal. The Board of Directors may provide for a corporate
----------- ----
seal, which shall have the name of the Corporation inscribed thereon and shall
otherwise be in such form as may be approved from time to time by the Board of
Directors.
Section 9.3: Form of Records. Any records maintained by the
----------- ---------------
Corporation in the regular course of its business, including its stock ledger,
books of account and minute books, may be kept on, or be in the form of,
magnetic tape, diskettes, photographs, microphotographs or any other information
storage device, provided that the records so kept can be converted into clearly
legible form within a reasonable time. The Corporation shall so convert any
records so kept upon the request of any person entitled to inspect the same.
Section 9.4: Reliance Upon Books and Records. A member of the Board
----------- -------------------------------
of Directors, or a member of any committee designated by the Board of Directors
shall, in the performance of his or her duties, be fully protected in relying in
good faith upon records of the Corporation and upon such information, opinions,
reports or statements presented to the Corporation by any of the Corporation's
officers or employees, or committees of the Board of Directors, or by any other
person as to matters the member reasonably believes are within such other
person's professional or expert competence and who has been selected with
reasonable care by or on behalf of the Corporation.
Section 9.5: Certificate of Incorporation Governs. In the event of
----------- ------------------------------------
any conflict between the provisions of the Corporation's Certificate of
Incorporation and Bylaws, the provisions of the Certificate of Incorporation
shall govern.
Section 9.6: Severability. If any provision of these Bylaws shall be
----------- ------------
held to be invalid, illegal, unenforceable or in conflict with the provisions of
the Corporation's Certificate of Incorporation, then such provision shall
nonetheless be enforced to the maximum extent possible consistent with such
holding and the remaining provisions of these Bylaws (including without
limitation, all portions of any section of these Bylaws containing any such
provision held to be invalid, illegal, unenforceable or in conflict with the
Certificate of Incorporation, that are not themselves invalid, illegal,
unenforceable or in conflict with the Certificate of Incorporation) shall remain
in full force and effect.
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<PAGE>
ARTICLE X
AMENDMENT
Section 10.1: Amendments. Stockholders of the Corporation holding a
------------ ----------
majority of the Corporation's outstanding voting stock shall have the power to
adopt, amend or repeal Bylaws. To the extent provided in the Corporation's
Certificate of Incorporation, the Board of Directors of the Corporation shall
also have the power to adopt, amend or repeal Bylaws of the Corporation, except
insofar as Bylaws adopted by the stockholders shall otherwise provide.
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<PAGE>
CERTIFICATION OF BYLAWS
OF
TSI INTERNATIONAL SOFTWARE LTD.
(A DELAWARE CORPORATION)
KNOW ALL BY THESE PRESENTS:
I, Ira Gerard, certify that I am Secretary of TSI International Software
----------
Ltd., a Delaware corporation (the "Company"), that I am duly authorized to make
and deliver this certification, that the attached Bylaws are a true and correct
copy of the Bylaws of the Company in effect as of the date of this certificate
and upon the closing of the Company's initial public offering.
Dated: July 7, 1997
-------------------------
Ira Gerard, Secretary
<PAGE>
EXHIBIT 11.1
TSI INTERNATIONAL SOFTWARE LTD.
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------------ ------------------------
1997 1996 1997 1996
---- ---- ---- ----
<S> <C> <C> <C> <C>
Primary:
Weighted average common shares
outstanding 2,886,822 2,886,822 2,886,822 2,886,822
Increment for shares issued within
one year of the IPO 232,167 232,167 232,167 232,167
Common shares expected to be issued
for conversion of preferred stock 2,609,415 2,609,415 2,609,415 2,609,415
Dilutive effect of stock options 832,849 152,310 781,964 76,155
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 6,561,247 5,880,714 6,510,368 5,804,559
========== ========== ========== ==========
Net Income $ 266,800 $ 186,400 $ 579,500 $ 307,500
========== ========== ========== ==========
Per Share Amount $ 0.04 $ 0.03 $ 0.09 $ 0.05
========== ========== ========== ==========
Fully Diluted:
Weighted average common shares
outstanding 2,886,822 2,886,822 2,886,822 2,886,822
Increment for shares issued within
one year of the IPO 232,167 232,167 232,167 232,167
Common shares expected to be issued
for conversion of preferred stock 2,609,415 2,609,415 2,609,415 2,609,415
Dilutive effect of stock options 832,843 152,310 781,964 76,155
---------- ---------- ---------- ----------
Weighted average common and common
equivalent shares outstanding 6,561,247 5,880,714 6,510,368 5,804,559
========== ========== ========== ==========
Net Income $ 266,800 $ 186,400 $ 579,500 $ 307,500
========== ========== ========== ==========
Per Share Amount $ 0.04 $ 0.03 $ 0.09 $ 0.05
========== ========== ========== ==========
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q
AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1997
<PERIOD-END> JUN-30-1997
<CASH> 513,100
<SECURITIES> 0
<RECEIVABLES> 5,778,600
<ALLOWANCES> (350,200)
<INVENTORY> 0
<CURRENT-ASSETS> 7,521,400
<PP&E> 4,105,300
<DEPRECIATION> (2,719,000)
<TOTAL-ASSETS> 9,540,500
<CURRENT-LIABILITIES> 6,251,100
<BONDS> 0
0
9,100
<COMMON> 30,000
<OTHER-SE> (818,000)
<TOTAL-LIABILITY-AND-EQUITY> 9,540,100
<SALES> 11,662,700
<TOTAL-REVENUES> 11,662,700
<CGS> 1,385,200
<TOTAL-COSTS> 1,385,200
<OTHER-EXPENSES> 9,587,900
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 153,700
<INCOME-PRETAX> 596,100
<INCOME-TAX> 16,600
<INCOME-CONTINUING> 579,500
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 579,500
<EPS-PRIMARY> 0.09
<EPS-DILUTED> 0.09
</TABLE>
