-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, PT7FpEx2tuyRzzS3GcdX75+HrnCCS2VP7Gxq0/ubkQxMkK7TqjHwzdoKyC4xEskM WsxV/IPB6SFwbn6yqOFEVw== 0000927356-97-000984.txt : 19970815 0000927356-97-000984.hdr.sgml : 19970815 ACCESSION NUMBER: 0000927356-97-000984 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19970630 FILED AS OF DATE: 19970814 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27512 FILM NUMBER: 97662089 BUSINESS ADDRESS: STREET 1: 7887 EAST BELLEVIEW AVE STREET 2: SUITE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037962850 MAIL ADDRESS: STREET 1: 5251 DTC PARKWAY SUITE 625 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 FORM 10-Q FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1997 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to --------------- ----------------- Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7887 East Belleview, Suite 1000 Englewood, Colorado 80111 (Address of principal executive offices, including zip code) (303) 796-2850 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Shares of common stock outstanding at August 8, 1997: 25,505,204 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q For the Quarter Ended June 30, 1997 INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of June 30, 1997 and December 31, 1996............................................. 3 Condensed Consolidated Statements of Operations for the Three and Six Months Ended June 30, 1997 and 1996........................... 4 Condensed Consolidated Statements of Cash Flows for the Six Months Ended June 30, 1997 and 1996...................................... 5 Notes to Condensed Consolidated Financial Statements.............. 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................. 8 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders............... 14 Item 6. Exhibits and Reports on Form 8-K.................................. 16 Signatures........................................................ 18 Index to Exhibits................................................. 19
2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
June 30, December 31, 1997 1996 -------------- ------------- ASSETS (unaudited) ------ Current Assets: Cash and cash equivalents.................................................................... $ 2,020 $ 6,134 Accounts receivable- Trade- Billed, net of allowance of $837 and $819............................................. 36,297 33,141 Unbilled.............................................................................. 2,906 5,220 Other..................................................................................... 1,810 1,342 Deferred income taxes........................................................................ 117 45 Other current assets......................................................................... 3,126 2,574 ------------ ----------- Total current assets...................................................................... 46,276 48,456 ------------ ----------- Property and equipment, net of depreciation of $15,717 and $10,664............................. 15,797 13,093 Investment in discontinued operations.......................................................... 732 732 Software, net of amortization of $28,941 and $22,924........................................... 14,487 13,629 Noncompete agreements and goodwill, net of amortization of $16,031 and $12,572................. 22,141 25,730 Client contracts and related intangibles, net of amortization of $10,574 and $8,528............ 7,706 9,752 Deferred income taxes.......................................................................... 3,657 1,356 Other assets................................................................................... 2,273 2,162 ------------ -------------- Total assets.............................................................................. $ 113,069 $ 114,910 ============ ============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term debt......................................................... $ 9,000 $ 10,000 Customer deposits............................................................................ 6,801 6,450 Trade accounts payable....................................................................... 10,331 12,620 Accrued liabilities.......................................................................... 7,096 8,177 Deferred revenue............................................................................. 6,100 5,384 Accrued income taxes......................................................................... 1,365 945 Other current liabilities.................................................................... 335 450 ------------ ------------- Total current liabilities................................................................. 41,028 44,026 ------------ ------------- Long-term debt, net of current maturities...................................................... 18,500 22,500 Deferred revenue............................................................................... 8,546 6,420 Stockholders' Equity: Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding........................................................ - - Common stock, par value $.01 per share; 100,000,000 shares authorized; 25,501,348 shares and 25,488,876 shares issued and outstanding............................ 255 255 Additional paid-in capital................................................................... 111,696 111,367 Deferred employee compensation............................................................... (896) (1,207) Notes receivable from employee stockholders.................................................. (861) (861) Accumulated translation adjustments.......................................................... 69 573 Accumulated deficit.......................................................................... (65,268) (68,163) ------------ -------------- Total stockholders' equity................................................................ 44,995 41,964 ------------ -------------- Total liabilities and stockholders' equity................................................ $ 113,069 $ 114,910 ============= ============== The accompanying notes are an integral part of these condensed consolidated financial statements.
3 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS - UNAUDITED (in thousands, except share and per share amounts)
Quarter ended Six months ended ---------------------------- ----------------------------- June 30, June 30, June 30, June 30, 1997 1996 1997 1996 ------------- ------------- ------------- ------------- Total revenues................................................... $ 41,030 $ 30,431 $ 79,612 $ 57,188 Expenses: Cost of revenues: Direct costs................................................. 18,253 14,369 36,834 27,200 Amortization of acquired software............................ 2,892 2,751 5,776 5,501 Amortization of client contracts and related intangibles..... 1,023 1,023 2,046 2,046 ------------- ------------- ------------- ------------- Total cost of revenues................................. 22,168 18,143 44,656 34,747 ------------- ------------- ------------- ------------- Gross margin................................................... 18,862 12,288 34,956 22,441 ------------- ------------- ------------- ------------- Operating expenses: Research and development..................................... 5,799 4,792 10,654 9,348 Selling and marketing........................................ 2,760 1,570 5,101 2,990 General and administrative: General and administrative................................ 4,658 3,146 8,787 6,428 Amortization of noncompete agreements and goodwill........ 1,732 1,519 3,463 2,939 Stock-based employee compensation......................... 85 97 287 3,374 Depreciation................................................. 1,711 1,246 3,220 2,436 ------------- ------------- ------------- ------------- Total operating expenses................................ 16,745 12,370 31,512 27,515 ------------- ------------- ------------- ------------- Operating income (loss).......................................... 2,117 (82) 3,444 (5,074) ------------- ------------- ------------- ------------- Other income (expense): Interest expense............................................. (616) (870) (1,257) (2,610) Interest income.............................................. 166 256 377 485 Other........................................................ 64 - 331 - ------------- ------------- ------------- ------------- Total other............................................. (386) (614) (549) (2,125) ------------- ------------- ------------- ------------- Income (loss) before income taxes and extraordinary item......... 1,731 (696) 2,895 (7,199) Income tax (provision) benefit................................. - - - - ------------- ------------- ------------- ------------- Income (loss) before extraordinary item.......................... 1,731 (696) 2,895 (7,199) Extraordinary loss from early extinguishment of debt........... - - - (1,260) ------------- ------------- ------------- ------------- Net income (loss)................................................ $ 1,731 $ (696) $ 2,895 $ (8,459) ============= ============= ============= ============= Net income (loss) per common and equivalent share: Income (loss) before extraordinary item........................ $ 0.07 $ (0.03) $ 0.11 $ (0.30) Extraordinary loss from early extinguishment of debt........... - - - (0.05) ------------- ------------- ------------- ------------- Net income (loss).............................................. $ 0.07 $ (0.03) $ 0.11 $ (0.35) ============= ============= ============= ============= Weighted average common and equivalent shares.................... 25,492,658 25,532,945 25,490,958 24,490,889 ============= ============= ============= ============= The accompanying notes are an integral part of these condensed consolidated financial statements.
4 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (in thousands, except share amounts)
Six months ended ---------------------- June 30, June 30, 1997 1996 -------- --------- Cash flows from operating activities: Net income (loss)...................................................... $ 2,895 $ (8,459) Adjustments to reconcile net income (loss) to net cash provided by operating activities- Depreciation....................................................... 3,220 2,436 Amortization....................................................... 11,773 10,901 Stock-based employee compensation.................................. 287 3,374 Extraordinary loss from early extinguishment of debt............... - 1,260 Changes in operating assets and liabilities: Trade accounts receivable, net.................................... (924) (5,999) Other receivables................................................. (468) 835 Deferred income taxes............................................. (2,373) (1,446) Other current and noncurrent assets............................... (896) (1,374) Customer deposits................................................. 351 472 Trade accounts payable and accrued liabilities.................... (2,890) 3,315 Deferred revenue.................................................. 2,855 4,329 Other current liabilities......................................... (115) 71 -------- -------- Net cash provided by operating activities....................... 13,715 9,715 -------- -------- Cash flows from investing activities: Purchases of property and equipment, net............................... (5,964) (2,715) Acquisition of businesses, net of cash acquired........................ - (3,518) Additions to software.................................................. (6,875) - Net investment in discontinued operations.............................. - 2,000 -------- -------- Net cash used in investing activities........................... (12,839) (4,233) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock................................. 377 44,794 Purchase and cancellation of common stock.............................. (24) (20) Payment of dividends for redeemable convertible preferred stock........ - (4,497) Payments on long-term debt............................................. (5,000) (45,068) -------- -------- Net cash used in financing activities........................... (4,647) (4,791) -------- -------- Effect of exchange rate fluctuations on cash............................. (343) - -------- -------- Net increase (decrease) in cash and cash equivalents..................... (4,114) 691 Cash and cash equivalents, beginning of period........................... 6,134 3,603 -------- -------- Cash and cash equivalents, end of period................................. $ 2,020 $ 4,294 ======== ======== Supplemental disclosures of cash flow information: Cash paid (received) during the period for- Interest............................................................. $ 1,049 $ 2,666 Income taxes......................................................... $ 1,958 $ (653) Supplemental disclosure of noncash financing activities: During March 1996, the Company converted 8,999,999 shares of redeemable convertible preferred stock into 17,999,998 shares of common stock. The accompanying notes are an integral part of these condensed consolidated financial statements.
5 CSG SYSTEMS INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The condensed consolidated financial statements at June 30, 1997, and for the three and six months then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, filed with the Securities and Exchange Commission. The results of operations for the three and six months ended June 30, 1997, are not necessarily indicative of the results for the entire year ending December 31, 1997. 2. STOCKHOLDERS' EQUITY The Company completed an initial public offering (IPO) of its common stock in March 1996. The Company sold 3,335,000 shares of common stock at an initial public offering price of $15 per share, resulting in net proceeds to the Company, after deducting underwriting discounts and offering expenses, of approximately $44,794,000. As of the closing of the IPO, all of the 8,999,999 outstanding shares of redeemable convertible Series A Preferred Stock were automatically converted into 17,999,998 shares of common stock. 3. NET INCOME PER SHARE Net income per common and equivalent share is based on the weighted average number of shares of common stock and common equivalent shares outstanding, which includes redeemable convertible Series A Preferred Stock prior to the conversion into common stock in March 1996. Common equivalent shares related to stock options have been excluded from the weighted average number of shares as the dilutive effect is not significant. 4. EXTRAORDINARY LOSS The Company used $40.3 million of the IPO proceeds to repay a portion of outstanding bank indebtedness (the Indebtedness). Upon repayment of the Indebtedness, the Company recorded an extraordinary loss of $1.3 million for the write-off of deferred financing costs. 5. BYTEL ACQUISITION In June 1996, the Company acquired all of the outstanding capital stock of Bytel Limited (Bytel), a United Kingdom-based company which provides customer management software systems to the cable and telecommunications industries in the United Kingdom. The acquisition was accounted for using the purchase method of accounting. The Company's condensed consolidated financial statements include Bytel's results of operations since the acquisition date. 6 6. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE In February 1997, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 128, "Earnings per Share" (SFAS No. 128), which specifies the computation, presentation and disclosure requirements for earnings per share (EPS). SFAS No. 128 is effective for periods ending after December 15, 1997, and requires retroactive restatement of EPS for all prior periods presented. The statement replaces the current "primary earnings per share" computation with a "basic earnings per share" and redefines the "dilutive earnings per share" computation. Adoption of the statement is not expected to have a significant effect on the Company's reported EPS. 7 CSG SYSTEMS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated (in thousands). The Company acquired Bytel Limited (Bytel) on June 28, 1996. The results of Bytel's operations since the acquisition are included in the following table and considered in the discussion of the Company's operations that follow:
Quarter ended June 30, Six Months ended June 30, ---------------------------------------- ------------------------------------- 1997 1996 1997 1996 ------------------ ------------------ ----------------- ----------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue ------- -------- ------- -------- ------- -------- ------- -------- Total revenues.................................. $41,030 100.0% $30,431 100.0% $79,612 100% $57,188 100% Expenses: Cost of revenues: Direct costs............................. 18,253 44.5% 14,369 47.2% 36,834 46.3% 27,200 47.6% Amortization of acquired software........ 2,892 7.0% 2,751 9.0% 5,776 7.3% 5,501 9.6% Amortization of client contracts and related intangibles................. 1,023 2.5% 1,023 3.4% 2,046 2.6% 2,046 3.6% ------- -------- ------- -------- ------- -------- ------- -------- Total cost of revenues.............. 22,168 54.0% 18,143 59.6% 44,656 56.2% 34,747 60.8% ------- -------- ------- -------- ------- -------- ------- -------- Gross margin.................................. 18,862 46.0% 12,288 40.4% 34,956 43.8% 22,441 39.2% ------- -------- ------- -------- ------- -------- ------- -------- Operating expenses: Research and development................... 5,799 14.1% 4,792 15.7% 10,654 13.4% 9,348 16.3% Selling and marketing...................... 2,760 6.7% 1,570 5.2% 5,101 6.4% 2,990 5.2% General and administrative: General and administrative .............. 4,658 11.4% 3,146 10.3% 8,787 11.0% 6,428 11.2% Amortization of noncompete agreements and goodwill....................... 1,732 4.2% 1,519 5.0% 3,463 4.3% 2,939 5.1% Stock-based employee compensation........ 85 0.2% 97 0.3% 287 0.4% 3,374 5.9% Depreciation............................... 1,711 4.2% 1,246 4.1% 3,220 4.0% 2,436 4.3% ------- -------- ------- -------- ------- -------- ------- -------- Total operating expenses................. 16,745 40.8% 12,370 40.6% 31,512 39.5% 27,515 48.0% ------- -------- ------- -------- ------- -------- ------- -------- Operating income (loss)......................... 2,117 5.2% (82) (0.2)% 3,444 4.3% (5,074) (8.8)% ------- -------- ------- -------- ------- -------- ------- -------- Other income (expense): Interest expense........................... (616) (1.5)% (870) (2.9)% (1,257) (1.6)% (2,610) (4.6)% Interest income............................ 166 0.4% 256 0.8% 377 0.5% 485 0.8% Other...................................... 64 0.2% - - 331 0.4% - - ------- -------- ------- -------- ------- -------- ------- -------- Total other.............................. (386) (0.9)% (614) (2.1)% (549) (0.7)% (2,125) (3.8)% ------- -------- ------- -------- ------- -------- ------- -------- Income (loss) before income taxes and extraordinary item......................... 1,731 4.3% (696) (2.3)% 2,895 3.6% (7,199) (12.6)% Income tax (provision) benefit................ - - - - - - - - ------- -------- ------- -------- ------- -------- ------- -------- Income (loss) before extraordinary item......... 1,731 4.3% (696) (2.3)% 2,895 3.6% (7,199) (12.6)% Extraordinary loss from early extinguishment of debt.................................. - - - - - - (1,260) (2.2)% ------- -------- ------- -------- ------- -------- ------- -------- Net income (loss)............................... $ 1,731 4.3% $ (696) (2.3)% $ 2,895 3.6% $(8,459) (14.8)% ======= ======== ======= ======== ======= ======== ======= ========
8 Three Months Ended June 30, 1997 Compared to Three Months Ended June 30, 1996 Revenues. Total revenues for the three months ended June 30, 1997, increased 34.8% to $41.0 million, from $30.4 million for the three months ended June 30, 1996, due primarily to i) increased revenue from the Company's processing and related services, and ii) increased revenue from the Company's software and related product sales and professional consulting services. Revenues from processing and related services for the three months ended June 30, 1997, increased 16.8% to $32.2 million, from $27.6 million for the three months ended June 30, 1996. This increase is due primarily to an increase in the number of customers of the Company's clients which were serviced by the Company and increased revenue per customer. Customers serviced as of June 30, 1997, and 1996, respectively, were 20.0 million and 18.1 million, an increase of 10.8%. The increase in the number of customers was due to internal customer growth experienced by existing clients and the addition of new clients. Revenue per customer increased due primarily to price increases included in client contracts and increased usage of ancillary services by clients. Revenues from software and related product sales and professional consulting services for the three months ended June 30, 1997, were $8.8 million, compared to $2.8 million for the three months ended June 30, 1996. This increase relates to the introduction of the Company's new software products and professional consulting services in early 1996 with continued expansion throughout 1996, and the inclusion of revenues from Bytel's operations for the three months ended June 30, 1997, with no comparable amounts included for Bytel for the second quarter of 1996. Gross Margin. Gross margin for the three months ended June 30, 1997, increased 53.5% to $18.9 million, from $12.3 million for the three months ended June 30, 1996, due primarily to revenue growth. The gross margin percentage increased to 46.0% for the three months ended June 30, 1997, compared to 40.4% for the three months ended June 30, 1996. The overall increase in the gross margin percentage is due primarily to i) the increase in revenues while the amount of amortization of acquired software and amortization of client contracts and related intangibles remained approximately the same, and ii) the improvement in gross margin from processing and related services, due primarily to the increase in revenue per customer while controlling the cost of delivering such services. Research and Development Expense. Research and development (R&D) expense for the three months ended June 30, 1997, increased 21.0% to $5.8 million, from $4.8 million for the three months ended June 30, 1996. As a percentage of total revenues, R&D expense decreased to 14.1% for the three months ended June 30, 1997, from 15.7% for the three months ended June 30, 1996. The Company capitalized software development costs, related to CSG Phoenix(TM), of approximately $3.7 million during the three months ended June 30, 1997, which consisted of $2.8 million of internal development costs and $0.9 million of purchased software. No software development costs were capitalized during the three months ended June 30, 1996. As a result, total R&D expenditures (i.e., the total R&D costs expensed, plus the capitalized internal development costs) for the three months ended June 30, 1997, and 1996, were $8.6 million, or 21.0% of total revenues, and $4.8 million, or 15.7% of total revenues, respectively. The overall increase in the R&D expenditures is due primarily to continued efforts on several products which are in development, principally CSG Phoenix, and to enhancements of the Company's existing products. The increased R&D expenditures consist primarily of increases in salaries, benefits, and other programming-related expenses. Selling and Marketing Expense. Selling and marketing expense for the three months ended June 30, 1997, increased 75.8% to $2.8 million, from $1.6 million for the three months ended June 30, 1996. As a percentage of total revenues, selling and marketing expense increased to 6.7% for the three months ended June 30, 1997, from 5.2% for the three months ended June 30, 1996. The increase in expense is due primarily to continued growth of the Company's direct sales force. The Company began building a new direct sales force in mid-1995 and has continued to expand its sales force since that time. General and Administrative Expense. General and administrative (G&A) expense for the three months ended June 30, 1997, increased 48.1% to $4.7 million, from $3.1 million for the three months ended June 30, 1996. As a percentage of total revenues, G&A expense increased to 11.4% for the three months ended June 30, 1997, from 10.3% for the three months ended June 30, 1996. The increase in expense relates primarily to i) the continued development of the 9 Company's management team and related administrative staff, added throughout 1996 and during the first six months of 1997, to support the Company's revenue growth, ii) an increase in facility costs to support employee growth, including the cost of relocating the Company's corporate headquarters from Englewood to Denver, Colorado, iii) an increase in costs associated with the Company's annual report and other public reporting requirements, and iv) the inclusion of G&A expenses from Bytel's operations for the three months ended June 30, 1997, with no comparable amounts included for Bytel for the second quarter of 1996. Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete agreements and goodwill for the three months ended June 30, 1997, increased 14.0% to $1.7 million, from $1.5 million for the three months ended June 30, 1996. The increase in expense relates to amortization of goodwill from the Bytel acquisition and amortization of an additional noncompete agreement acquired in April 1996. Depreciation Expense. Depreciation expense for the three months ended June 30, 1997, increased 37.3% to $1.7 million, from $1.2 million for the three months ended June 30, 1996. The increase in expense relates to capital expenditures made throughout 1996 and the first six months of 1997 in support of the overall growth of the Company. Operating Income. Operating income for the three months ended June 30, 1997, was $2.1 million, compared to an operating loss of $0.1 million for the three months ended June 30, 1996. The increase between years relates to the factors discussed above. The Company incurred certain one-time or acquisition-related charges (Acquisition Charges) in connection with its leveraged buy-out of CSG Systems, Inc. in November 1994. The Acquisition Charges include amortization of acquired software, client contracts and related intangibles, noncompete agreement, goodwill, and stock-based compensation. Operating income for the three months ended June 30, 1997, and 1996, excluding Acquisition Charges of $5.4 million and $5.3 million, was $7.6 million or 18.4% of total revenues, and $5.2 million or 17.1% of total revenues, respectively. See the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, for additional discussion regarding the Acquisition Charges and the impact of such charges on operations. Interest Expense. Interest expense for the three months ended June 30, 1997, decreased 29.2% to $0.6 million, from $0.9 million for the three months ended June 30, 1996, with the decrease attributable primarily to scheduled principal payments on the Company's long-term debt. Six Months Ended June 30, 1997 Compared to Six Months Ended June 30, 1996 Revenues. Total revenues for the six months ended June 30, 1997, increased 39.2% to $79.6 million, from $57.2 million for the six months ended June 30, 1996, due primarily to i) increased revenue from the Company's processing and related services, and ii) increased revenue from the Company's software and related product sales and professional consulting services. Revenues from processing and related services for the six months ended June 30, 1997, increased 16.0% to $63.0 million, from $54.3 million for the six months ended June 30, 1996. This increase is due primarily to an increase in the number of customers of the Company's clients which were serviced by the Company and increased revenue per customer. The increase in the number of customers was due to internal customer growth experienced by existing clients and the addition of new clients. Revenue per customer increased due primarily to price increases included in client contracts and increased usage of ancillary services by clients. Revenues from software and related product sales and professional consulting services for the six months ended June 30, 1997, were $16.6 million, compared to $2.9 million for the six months ended June 30, 1996. This increase relates to the introduction of the Company's new software products and professional consulting services in early 1996 with continued expansion throughout 1996, and the inclusion of revenues from Bytel's operations for the six months ended June 30, 1997, with no comparable amounts included for Bytel for the first six months of 1996. 10 Gross Margin. Gross margin for the six months ended June 30, 1997, increased 55.8% to $35.0 million, from $22.4 million for the six months ended June 30, 1996, due primarily to revenue growth. The gross margin percentage increased to 43.8% for the six months ended June 30, 1997, compared to 39.2% for the six months ended June 30, 1996. The overall increase in the gross margin percentage is due primarily to i) the increase in revenues while the amount of amortization of acquired software and amortization of client contracts and related intangibles remained approximately the same, and ii) the improvement in gross margin from processing and related services, due primarily to the increase in revenue per customer while controlling the cost of delivering such services. Research and Development Expense. Research and development (R&D) expense for the six months ended June 30, 1997, increased 14.0% to $10.7 million, from $9.3 million for the six months ended June 30, 1996. As a percentage of total revenues, R&D expense decreased to 13.4% for the six months ended June 30, 1997, from 16.3% for the six months ended June 30, 1996. The Company capitalized software development costs, related to CSG Phoenix, of approximately $6.8 million during the six months ended June 30, 1997, which consisted of $5.6 million of internal development costs and $1.2 million of purchased software. No software development costs were capitalized during the six months ended June 30, 1996. As a result, total R&D expenditures (i.e., the total R&D costs expensed, plus the capitalized internal development costs) for the six months ended June 30, 1997, and 1996, were $16.3 million, or 20.4% of total revenues, and $9.3 million, or 16.3% of total revenues, respectively. The overall increase in the R&D expenditures is due primarily to continued efforts on several products which are in development, principally CSG Phoenix, and to enhancements of the Company's existing products. The increased R&D expenditures consist primarily of increases in salaries, benefits, and other programming- related expenses. Selling and Marketing Expense. Selling and marketing expense for the six months ended June 30, 1997, increased 70.6% to $5.1 million, from $3.0 million for the six months ended June 30, 1996. As a percentage of total revenues, selling and marketing expense increased to 6.4% for the six months ended June 30, 1997, from 5.2% for the six months ended June 30, 1996. The increase in expense is due primarily to continued growth of the Company's direct sales force. The Company began building a new direct sales force in mid-1995 and has continued to expand its sales force since that time. General and Administrative Expense. General and administrative (G&A) expense for the six months ended June 30, 1997, increased 36.7% to $8.8 million, from $6.4 million for the six months ended June 30, 1996. As a percentage of total revenues, G&A expense decreased to 11.0% for the six months ended June 30, 1997, from 11.2% for the six months ended June 30, 1996. The increase in expense relates primarily to i) the continued development of the Company's management team and related administrative staff, added throughout 1996 and during the first six months of 1997, to support the Company's revenue growth, ii) an increase in facility costs to support employee growth, including the cost of relocating the Company's corporate headquarters from Englewood to Denver, Colorado, iii) an increase in costs associated with the Company's annual report and other public reporting requirements, and iv) the inclusion of G&A expenses from Bytel's operations for the six months ended June 30, 1997, with no comparable amounts included for Bytel for the first six months of 1996. Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete agreements and goodwill for the six months ended June 30, 1997, increased 17.8% to $3.5 million, from $2.9 million for the six months ended June 30, 1996. The increase in expense relates to amortization of goodwill from the Bytel acquisition and amortization of an additional noncompete agreement acquired in April 1996. Stock-Based Employee Compensation. Stock-based employee compensation of $3.4 million in the six months ended June 30, 1996, relates to purchases of the Company's common stock through performance stock purchase agreements with executive officers and key employees. During 1995 and 1994, the Company sold common stock to executive officers and key employees pursuant to performance stock agreements. The structure of the performance stock agreements required "variable" accounting for the related shares until the performance conditions were removed on October 19, 1995, thereby establishing a measurement date. The fair value of the stock was estimated by the Company to be $2.75 per share at that date. Prior to the completion of the Company's initial public offering (IPO), the deferred compensation was being recognized as stock-based employee compensation expense on a straight-line basis from the time the shares were purchased through November 30, 2001. Upon the completion of the IPO, shares owned by certain 11 executive officers of the Company were no longer subject to the repurchase option. In addition, the repurchase option for the remaining performance stock shares decreased to 20% annually over a five-year period, commencing on the later of an employee's hire date or November 30, 1994. As a result, approximately $3.2 million of stock-based employee compensation expense was recorded when the IPO was completed in March 1996. The scheduled amortization of the stock-based deferred compensation subsequent to June 30, 1997, is approximately $0.1 million per quarter. Depreciation Expense. Depreciation expense for the six months ended June 30, 1997, increased 32.2% to $3.2 million, from $2.4 million for the six months ended June 30, 1996. The increase in expense relates to capital expenditures made throughout 1996 and the first six months of 1997 in support of the overall growth of the Company. Operating Income. Operating income for the six months ended June 30, 1997, was $3.4 million, compared to an operating loss of $5.1 million for the six months ended June 30, 1996. The increase between years relates to the factors discussed above. Operating income for the six months ended June 30, 1997, and 1996, excluding Acquisition Charges of $11.0 million and $13.8 million, was $14.4 million or 18.1% of total revenues, and $8.7 million or 15.2% of total revenues, respectively. See the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1996, for additional discussion regarding the Acquisition Charges and the impact of such charges on operations. Interest Expense. Interest expense for the six months ended June 30, 1997, decreased 51.8% to $1.3 million, from $2.6 million for the six months ended June 30, 1996, with the decrease attributable to i) scheduled principal payments on the Company's long-term debt, ii) the retirement of $40.3 million of long-term debt with proceeds from the IPO in March 1996, and iii) a decrease in interest rates as a result of the Company favorably amending its long-term credit facility with its bank in April 1996. Extraordinary Loss From Early Extinguishment Of Debt. Upon the repayment of the $40.3 million of long-term debt with IPO proceeds, the Company recorded an extraordinary charge of $1.3 million in March 1996, for the write-off of deferred financing costs attributable to the portion of the long-term debt repaid. General - ------- The Company generates a significant amount of its revenues from Tele- Communications, Inc.'s (TCI) cable television operations. In July 1997, the Company signed a multi-year renewal contract to continue to provide customer care and billing systems to support TCI's cable television subscribers. The renewal contract replaced the Company's previous contract with TCI which was scheduled to expire December 31, 1997. On August 10, 1997, the Company signed a 15-year exclusive contract with a TCI affiliate to consolidate 13 million TCI subscribers onto the Company's customer care and billing systems (the 15-Year Contract). On August 10, 1997, the Company also entered into an agreement with TCI affiliates to acquire certain SUMMITrak assets, an in-house customer care and billing system developed by TCI, for $106 million in cash, up to $26 million in various contingent payments, and warrants to purchase up to 1.5 million shares of the Company's common stock, with the contingent payments and warrants based upon the achievement of certain milestones by TCI specified in the 15-Year Contract. Both the closing of the SUMMITrak asset purchase and the effectiveness of the 15-Year Contract are subject to certain conditions, including governmental filings and approvals. If the 15-Year Contract closes and becomes effective, it would replace the renewal contract signed in July 1997. Currently, the Company has approximately 4 million of TCI's subscribers on its systems. Under the 15-Year Contract, the Company and TCI plan to consolidate the 13 million subscribers under an agreed upon conversion schedule. Converting multiple sites under an aggressive time schedule poses certain risks. Factors affecting the conversion schedule include the frequency and severity of database discrepancies, installation of compatible hardware, network and software products, as well as the availability and cooperation of qualified personnel from all the parties involved in the conversion. TCI's minimum financial commitments under the 15-Year Contract are subject to certain performance criteria by the Company. As previously reported, the Company delivered Version 1.1 of CSG Phoenix, its next generation customer management system for the converging communications industries, on March 31, 1997. The primary purpose for the release of this code was for basic testing and integration at customer sites. This testing resulted in the discovery of a number of incident reports and configuration issues. The Company is currently examining the size and magnitude of these issues, and will have an estimated date for when CSG Phoenix will go into production when that analysis is completed. The Company is in the process of working with its Phoenix partners to coordinate the next steps for both the testing of the product, as well as rescheduling the new, estimated production date. Any statements regarding development and timing of the dates on which CSG Phoenix will go into production at any particular client site are forward-looking statements. The actual timing is subject to delay due to the variety of factors inherent in the development and initial implementation of a new, complex software system. Installation is also subject to factors relating to the integration of the new system with the client's existing systems. 12 Income Taxes - ------------ At June 30, 1997, management of the Company evaluated its previous operating results, as well as projections for 1997 and 1998, and concluded that it was more likely than not that certain of the Company's deferred tax assets would be realized. Accordingly, the Company has recognized a net deferred tax asset of $3.8 million. The Company has recorded a valuation allowance of approximately $22.9 million against the remaining net deferred tax assets since realization of these future benefits is not sufficiently assured as of June 30, 1997. The Company intends to analyze the realizability of the net deferred tax assets at each future quarterly reporting period. The current quarterly results of operations, as well as the Company's projected results of operations, will determine the required valuation allowance at the end of each quarter. Based on its current projections of operating results for 1997 and 1998, the Company expects to realize additional deferred tax assets in 1997. As a result, the Company does not expect income tax expense for 1997 to be significant. Due primarily to differences in the timing of recognition of the amortization of intangible assets for financial reporting and tax purposes, the Company expects to pay income taxes in 1997. Liquidity and Capital Resources - ------------------------------- As of June 30, 1997, the Company's principal sources of liquidity included cash and cash equivalents of $2.0 million. The Company also has a revolving bank line of credit in the amount of $5.0 million of which there were no borrowings outstanding. The line of credit expires November 30, 2001. During the six months ended June 30, 1997, the Company generated $13.7 million in net cash flow from operating activities. Cash generated from these sources was primarily used to fund capital expenditures of $6.0 million, additions to software of $6.9 million, and to repay long-term debt of $5.0 million. The Company believes that cash generated from operations and the amount available under the revolving bank line of credit will be sufficient to meet its anticipated cash requirements for operations (including research and development expenditures), income taxes, debt service, and capital expenditures through the next twelve months. 13 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Items 1 - 3. None. Item 4. Submission of Matters to a Vote of Security Holders. (a) The 1997 annual meeting (the "Annual Meeting") of stockholders of CSG Systems International, Inc. was held on May 29, 1997. (b) The following persons were elected as directors at the Annual Meeting: Class I (term expiring in 1998) ------------------------------- James D. Norrod Rockwell A. Schnabel Class II (term expiring in 1999) -------------------------------- Royce J. Holland Bernard W. Reznicek Class III (term expiring in 2000) --------------------------------- George F. Haddix Neal C. Hansen Frank V. Sica No other director's term of office continued after the Annual Meeting. (c) (i) Votes were cast or withheld in the election of directors at the Annual Meeting as follows:
Director For Against -------- --- ------- James D. Norrod 21,263,062 13,043 Rockwell A. Schnabel 21,263,112 12,993 Royce J. Holland 21,263,112 12,993 Bernard W. Reznicek 21,262,787 13,318 George F. Haddix 21,263,006 13,099 Neal C. Hansen 21,263,162 12,943 Frank V. Sica 21,263,112 12,993
(ii) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation and Revised By-Laws to divide the Board of Directors into three classes and to provide for the composition of such classes as follows: For: 18,195,261 Against: 2,268,955 14 Abstain: 7,071 There were broker nonvotes as to 804,817 shares on this matter. This matter received sufficient votes to pass. (iii) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation and Revised By-Laws to provide that directors may be removed only for cause and only by a 75% vote of stockholders as follows: For: 18,236,990 Against: 2,239,111 Abstain: 5,869 There were broker nonvotes as to 794,135 shares on this matter. This matter received sufficient votes to pass. (iv) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation and Revised By-Laws to provide that any vacancy on the Board of Directors may be filled only by a vote of the remaining directors then in office as follows: For: 20,397,327 Against: 77,162 Abstain: 7,481 There were broker nonvotes as to 794,135 shares on this matter. This matter received sufficient votes to pass. (v) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation and Revised By-Laws to provide that the Board of Directors shall consist of not fewer than five members and not more than thirteen members and that the exact number of authorized directors shall be determined by a majority vote of the total number of authorized directors most recently fixed by the Board of Directors as follows: For: 20,392,618 Against: 84,832 Abstain: 4,519 There were broker nonvotes as to 794,135 shares on this matter. This matter received sufficient votes to pass. (vi) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation to provide that advance notice of 15 stockholder nominations of persons for election to the Board of Directors must be given to the corporation, together with certain required information, as follows: For: 19,444,746 Against: 1,032,782 Abstain: 4,442 There were broker nonvotes as to 794,135 shares on this matter. This matter received sufficient votes to pass. (vii) Votes were cast at the Annual Meeting with respect to approval of amendments to the corporation's Restated Certificate of Incorporation to require a 75% vote of stockholders to alter, amend, or repeal any of the provisions referred to in subparagraphs (ii) through (vi) above as follows: For: 18,216,365 Against: 2,260,137 Abstain: 5,467 There were broker nonvotes as to 794,135 shares on this matter. This matter received sufficient votes to pass. (viii) Votes were cast at the Annual Meeting with respect to approval of the corporation's Stock Option Plan for Non-Employee Directors as follows: For: 20,227,302 Against: 1,032,224 Abstain: 5,924 There were broker nonvotes as to 10,655 shares on this matter. This matter received sufficient votes to pass. Item 5. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 3.02 Revised By-Laws of CSG Systems International, Inc. 3.03 Certificate of Amendment of Restated Certificate of Incorporation of CSG Systems International, Inc. 10.44 CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors 16 27.01 Financial Data Schedule (EDGAR Version Only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors (b) Reports on Form 8-K None 17 SIGNATURES - ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 14, 1997 CSG SYSTEMS INTERNATIONAL, INC. /s/ Neal C. Hansen --------------------------------------- Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Greg A. Parker --------------------------------------- Greg A. Parker Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Randy R. Wiese --------------------------------------- Randy R. Wiese Controller and Principal Accounting Officer (Principal Accounting Officer) 18 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------- ----------- 3.02 Revised By-Laws of CSG Systems International, Inc. 3.03 Certificate of Amendment of Restated Certificate of Incorporation of CSG Systems International, Inc. 10.44 CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors 27.01 Financial Data Schedule (EDGAR Version Only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors 19 EX-3.2 2 REVISED BY-LAWS OF CSG SYSTEMS Exhibit 3.02 [With Amendments through May 29, 1997] REVISED ------- BY-LAWS ------- OF -- CSG SYSTEMS INTERNATIONAL, INC. ------------------------------- (A Delaware Corporation)
TABLE OF CONTENTS Page ARTICLE I - CORPORATE OFFICES............................................ 1 1.1 REGISTERED OFFICE............................................ 1 1.2 OTHER OFFICES................................................ 1 ARTICLE II - MEETINGS OF STOCKHOLDERS.................................... 1 2.1 PLACE OF MEETINGS............................................ 1 2.2 ANNUAL MEETING.............................................. 1 2.3 SPECIAL MEETING............................................. 2 2.4 NOTICE OF MEETINGS OF STOCKHOLDERS........................... 2 2.5 ADJOURNED MEETING............................................ 2 2.6 QUORUM....................................................... 2 2.7 CONDUCT OF BUSINESS.......................................... 2 2.8 VOTE REQUIRED................................................ 2 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................................... 3 2.10 PROXIES...................................................... 3 2.11 RECORD DATE.................................................. 3 2.12 WAIVER OF NOTICE............................................. 3 2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES....................... 4 2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS....................... 5 2.15 REGISTERED STOCKHOLDERS...................................... 5 ARTICLE III - DIRECTORS.................................................. 6 3.1 POWERS....................................................... 6 3.2 NUMBER OF DIRECTORS.......................................... 6 3.3 ELECTION, QUALIFICATION, AND TERM OF OFFICE OF DIRECTORS................................................. 6 3.4 RESIGNATION AND VACANCIES.................................... 6 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE..................... 7 3.6 REGULAR MEETINGS............................................. 7 3.7 SPECIAL MEETINGS; NOTICE.................................... 7 3.8 QUORUM....................................................... 7 3.9 WAIVER OF NOTICE............................................. 8 3.10 BOARD OR COMMITTEE ACTION BY WRITTEN CONSENT WITHOUT A MEETING......................................... 8 3.11 FEES AND COMPENSATION OF DIRECTORS........................... 8 3.12 APPROVAL OF LOANS TO OFFICERS................................ 8 3.13 REMOVAL OF DIRECTORS......................................... 8 ARTICLE IV - COMMITTEES.................................................. 9 4.1 COMMITTEES OF DIRECTORS...................................... 9 4.2 COMMITTEE MINUTES............................................ 9 4.3 MEETINGS AND ACTION OF COMMITTEES............................ 9
TABLE OF CONTENTS (continued) Page ARTICLE V - OFFICERS.................................................... 10 5.1 TITLES AND ELECTION......................................... 10 5.2 TERM OF OFFICE.............................................. 10 5.3 RESIGNATION................................................ 10 5.4 REMOVAL..................................................... 10 5.5 CHAIRMAN OF THE BOARD....................................... 10 5.6 PRESIDENT................................................... 11 5.7 VICE PRESIDENT.............................................. 11 5.8 SECRETARY................................................... 11 5.9 CHIEF FINANCIAL OFFICER..................................... 12 5.10 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS.............. 12 5.11 ASSISTANT AND OTHER OFFICERS................................ 12 ARTICLE VI - INDEMNITY.................................................. 12 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS................... 12 6.2 INDEMNIFICATION OF OTHERS................................... 13 6.3 EXPENSES.................................................... 13 6.4 INSURANCE................................................... 13 6.5 CONTINUATION AFTER TERMINATION OF POSITION.................. 13 6.6 DEFINITIONS................................................. 13 ARTICLE VII - STOCK CERTIFICATES........................................ 14 7.1 STOCK CERTIFICATES.......................................... 14 7.2 SPECIAL DESIGNATIONS ON CERTIFICATES........................ 14 7.3 LOST CERTIFICATES........................................... 14 7.4 TRANSFER OF SHARES.......................................... 14 ARTICLE VIII - AMENDMENTS............................................... 15
REVISED ------- BY-LAWS ------- OF -- CSG SYSTEMS INTERNATIONAL, INC. ------------------------------- ARTICLE I CORPORATE OFFICES ----------------- 1.1 REGISTERED OFFICE ----------------- The registered office of the corporation in Delaware shall be in the City of Wilmington, County of New Castle, State of Delaware. The name of the registered agent of the corporation at such location is The Corporation Trust Company. 1.2 OTHER OFFICES ------------- The board of directors may establish other offices at any time at any place or places where the corporation is qualified or permitted to do business. ARTICLE II MEETINGS OF STOCKHOLDERS ------------------------ 2.1 PLACE OF MEETINGS ----------------- ================================================================================ Meetings of stockholders may be held at any place, [Amended either within or outside of the State of Delaware, 5-29-97] designated for such purpose by the board of directors. In the absence of any such designation, meetings of stockholders shall be held at the registered office of the corporation in Delaware. ================================================================================ 2.2 ANNUAL MEETING -------------- An annual meeting of stockholders shall be held each [Amended year on a date and at a time designated by the board of 5-29-97] directors. In the absence of any such designation by the board of directors, the chairman of the board may make such designation. At each annual meeting, directors shall be elected and any other proper business may be transacted. ================================================================================ 2.3 SPECIAL MEETING --------------- A special meeting of stockholders may be called at any time by the board of directors, the chairman of the board, or the president. Except as otherwise expressly provided in these by-laws, no other person or persons may call a special meeting of stockholders. No business may be conducted at a special meeting of stockholders other than the business brought before the meeting by the board of directors, the chairman of the board, or the president. 2.4 NOTICE OF MEETINGS OF STOCKHOLDERS ---------------------------------- Written notice of a meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting. The notice shall specify the place, date, and hour of the meeting and, in the case of a special meeting, the purpose or purposes for which the meeting is called. If mailed, notice is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder's address as it appears on the records of the corporation. An affidavit of the secretary or an assistant secretary or of the transfer agent of the corporation that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein. 2.5 ADJOURNED MEETING ----------------- When a meeting of stockholders is adjourned to another time or place, unless these by-laws otherwise require, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days, or if after the adjournment a new record date is fixed for the adjourned meeting, notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. 2.6 QUORUM ------ A majority of the shares entitled to vote thereat, present in person or represented by proxy, shall constitute a quorum at a meeting of stockholders. Where a separate vote by a class or classes is required, a majority of the outstanding shares of such class or classes, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter. If, however, a quorum is not present or represented at any meeting of stockholders, then either (i) the chairman of the meeting or (ii) the stockholders entitled to vote thereat, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, without notice other than announcement at the meeting except as otherwise provided in Section 2.5, until a quorum is present in person or represented by proxy. 2.7 CONDUCT OF BUSINESS ------------------- Subject to any applicable requirements of the General Corporation Law of the State of Delaware, the chairman of any meeting of stockholders shall determine the order of business and the procedure at the meeting. 2.8 VOTE REQUIRED ------------- When a quorum is present at a meeting of stockholders, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter of the vote shall be the act of the stockholders in all matters other than the election of directors. When a quorum is present at a meeting of stockholders, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Subject to the quorum requirements of Section 2.5, where a separate vote by a class or classes is required, the affirmative vote of the majority of shares of 2 such class or classes present in person or represented by proxy at the meeting shall be the act of such class. 3 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ================================================================================ Unless otherwise provided in the certificate of [Amended incorporation of the corporation, any action required 5-29-97] by the General Corporation Law of the State of Delaware to be taken at any annual or special meeting of stockholders, or any action that may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of such action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. ================================================================================ 2.10 PROXIES ------- Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for him or her by proxy, but no such proxy shall be voted or acted upon after three years from its date unless the proxy provides for a longer period. A duly executed proxy shall be irrevocable if it states that it is irrevocable and if, and only as long as, it is coupled with an interest sufficient in law to support an irrevocable power. A proxy may be made irrevocable regardless of whether the interest with which it is coupled is an interest in the stock itself or an interest in the corporation generally. 2.11 RECORD DATE ----------- In a manner consistent with the provisions of Section 213 of the General Corporation Law of the State of Delaware, the board of directors may fix a record date for any of the purposes specified in such Section 213. If no record date is fixed by the board of directors for any of such purposes, then the record date for such purpose shall be as provided in such Section 213. 2.12 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of the State of Delaware, the certificate of incorporation of the corporation, or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a stockholder at a meeting of stockholders shall constitute a waiver of notice of such meeting, except when the stockholder attends a meeting of stockholders for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of stockholders need be specified in any written waiver of notice unless so required by the certificate of incorporation of the corporation or these by-laws. 4 2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES ================================================================================ Nominations of persons for election to the board of [Amended directors may be made at a meeting of stockholders either 5-29-97] by or at the direction of the board of directors or by any stockholder entitled to vote on the election of directors at the meeting who has complied with the notice procedures set forth in this Section. A stockholder who desires to nominate a person for election to the board of directors at a meeting of stockholders must give timely written notice of the proposed nomination to the secretary of the corporation. To be timely, a stockholder's notice must be received at the principal executive offices of the corporation not less than 120 calendar days in advance of the date of the proxy statement of the corporation released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting of stockholders was held in the previous year or that the date of the forthcoming annual meeting of stockholders has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement or that the forthcoming meeting is not an annual meeting of stockholders, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the earlier of (a) the day on which notice of the date of the forthcoming meeting was mailed or given to stockholders or (b) the day on which public disclosure of the date of the forthcoming meeting was made. Such stockholder's notice to the secretary shall set forth (a) as to each person, if any, whom the stockholder proposes to nominate for election or re-election as a director (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by such person, (iv) any other information relating to such person that is required by law or regulation to be disclosed in solicitations of proxies for the election of directors, and (v) such person's written consent to being named as a nominee and to serve as a director if elected and (b) as to the stockholder giving the notice (i) the name and address, as they appear on the books of the corporation, of such stockholder, (ii) the class and number of shares of capital stock of the corporation which are beneficially owned by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each nominee and any other person or persons (naming such person or persons) relating to the nomination proposed to be made by such stockholder, and (iv) any other information required by law or regulation to be provided by a stockholder intending to nominate a person for election as a director of the corporation. At the request of the board of directors, any person nominated by the board of directors for election as a director shall furnish to the secretary of the corporation the information required to be set forth in a stockholder's notice of proposed nomination which pertains to the nominee. No person shall be eligible for election as a director of the corporation unless nominated in compliance with the procedures set forth in this Section. The chairman of the meeting shall, if the facts warrant, determine and declare at the meeting that a nomination was not made in compliance with the procedures prescribed by this Section; and if such chairman shall so determine, then he or she shall so declare at the meeting, and the defective nomination shall be disregarded. ================================================================================ 5 2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS ================================================================================ At an annual meeting of stockholders, only such [Amended business shall be conducted as shall have been properly 5-29-97] brought before the meeting. To be properly brought before an annual meeting of stockholders, business must be (a) as specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before an annual meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely notice thereof in writing to the secretary of the corporation. To be timely, a stockholder's notice of business to be brought before an annual meeting must be received at the principal executive offices of the corporation not less than 120 calendar days in advance of the date of the proxy statement of the corporation released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that in the event that no annual meeting of stockholders was held in the previous year or that the date of the forthcoming annual meeting of stockholders has been changed by more than 30 days from the date contemplated at the time of the previous year's proxy statement, notice by the stockholder to be timely must be so received not later than the close of business on the tenth day following the earlier of (a) the day on which notice of the date of the forthcoming annual meeting was mailed or given to stockholders or (b) the date on which public disclosure of the date of the forthcoming annual meeting was made. Such stockholder's notice to the secretary shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business, (iii) the class and number of shares of capital stock of the corporation which are beneficially owned by the stockholder, (iv) any material interest of the stockholder in such business, and (v) any other information that is required by law or regulation to be provided by the stockholder in his capacity as a proponent of a stockholder proposal. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at any annual meeting of stockholders except in compliance with the procedures set forth in this Section. The chairman of the annual meeting of stockholders shall, if the facts warrant, determine and declare at the meeting that business was not properly brought before the meeting in compliance with the provisions of this Section; and, if such chairman shall so determine, then he or she shall so declare at the meeting, and any such business not properly brought before the meeting shall not be transacted. ================================================================================ 2.15 REGISTERED STOCKHOLDERS ----------------------- The corporation shall be entitled to recognize a person registered as the owner of shares on the stock ledger of the corporation as the sole person entitled to receive dividends on such shares and to vote such shares and shall not be obligated to recognize for any purpose any equitable or other interest in or claim to such shares on the part of another person, whether or not the corporation has express or other notice thereof, except as otherwise provided in the General Corporation Law of the State of Delaware. 6 ARTICLE III DIRECTORS --------- 3.1 POWERS ------ Subject to the provisions of the General Corporation Law of the State of Delaware and to any limitations contained in the certificate of incorporation of the corporation or these by-laws, the business and affairs of the corporation shall be managed and all corporate powers shall be exercised by or under the direction of the board of directors. 3.2 NUMBER OF DIRECTORS ================================================================================ The board of directors shall consist of not fewer [Amended than five (5) members and not more than nine (9) members, 5-29-97] the exact number within such range to be fixed from time to time by a resolution adopted by the board of directors. Until otherwise fixed by such a resolution, the board of directors shall consist of seven (7) members. No reduction in the authorized number of members of the board of directors shall have the effect of removing any director before that director's term of office expires. =============================================================================== 3.3 ELECTION, QUALIFICATION, AND TERM OF OFFICE OF DIRECTORS ================================================================================ Except as provided in Section 3.4 of these by-laws, [Amended directors shall be elected at each annual meeting of 5-29-97] stockholders. Directors need not be stockholders unless so required by the certificate of incorporation of the corporation. Each director, including a director elected to fill a vacancy, shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. ================================================================================ 3.4 RESIGNATION AND VACANCIES ================================================================================ Any director may resign at any time upon written [Amended notice sent or delivered to the secretary of the 5-29-97] corporation. When a director so resigns and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy with the vote thereon to take effect when such resignation becomes effective. =============================================================================== Unless otherwise provided in the certificate of incorporation of the corporation: (i) Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. (ii) Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation of the corporation, vacancies and newly created directorships of such class or classes of stock or series thereof may be filled by a majority of the directors elected by such class or classes of 7 stock or series thereof then in office, or by a sole remaining director so elected. If at any time, by reason of death or resignation or other cause, the corporation has no directors in office, then any officer or any stockholder or an executor, administrator, trustee, or guardian of a stockholder, or other fiduciary entrusted with similar responsibility for the person or estate of a stockholder, may call a special meeting of stockholders to elect directors or may apply to the Delaware Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the General Corporation Law of the State of Delaware. 3.5 PLACE OF MEETINGS; MEETINGS BY TELEPHONE ---------------------------------------- The board of directors of the corporation may hold meetings, both regular and special, either within or outside of the State of Delaware. Unless otherwise restricted by the certificate of incorporation of the corporation, members of the board of directors, or any committee designated by the board of directors, may participate in a meeting of the board of directors, or any such committee, by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting. 3.6 REGULAR MEETINGS ---------------- Regular meetings of the board of directors may be held without notice at such time and at such place as the board of directors from time to time shall determine. 3.7 SPECIAL MEETINGS; NOTICE ------------------------ Special meetings of the board of directors for any purpose or purposes may be called at any time by the chairman of the board, the president, or any two (2) directors. Notice of the time and place of special meetings of the board of directors shall be delivered personally or by telephone or by facsimile transmission to each director or sent by first-class mail, overnight express delivery, or telegram, charges prepaid, addressed to each director at that director's address as it is shown on the records of the corporation. If the notice is mailed, it shall be deposited in the United States mail at least four (4) days before the time of the holding of the meeting. If the notice is delivered personally or by telephone, facsimile transmission, or telegram, it shall be delivered personally or by telephone or facsimile equipment or to the telegraph company at least forty-eight (48) hours before the time of the holding of the meeting. If the notice is delivered by facsimile transmission, the person giving the notice shall use reasonable efforts to confirm the receipt of such transmission. Any oral notice delivered personally or by telephone may be communicated either to the director or to a person at the office of the director who the person giving the notice has reason to believe will promptly communicate such notice to the director. The notice need not specify the purpose of the meeting. 3.8 QUORUM ------ At all meetings of the board of directors, a majority of the authorized number of directors shall constitute a quorum for the transaction of business; and the vote of a majority of the directors present at any meeting at which a 8 quorum is present shall be the act of the board of directors, except as otherwise specifically provided by the certificate of incorporation of the corporation. If a quorum is not present at any meeting of the board of directors, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum initially is present may continue to transact business notwithstanding the withdrawal of directors if any action taken is approved by at least a majority of the required quorum for that meeting. 3.9 WAIVER OF NOTICE ---------------- Whenever notice is required to be given under any provision of the General Corporation Law of the State of Delaware, the certificate of incorporation of the corporation, or these by-laws, a written waiver thereof, signed by the person entitled to notice, whether before or after the time stated therein, shall be deemed equivalent to notice. Attendance of a director at a meeting of the board of directors shall constitute a waiver of notice of such meeting, except when the director attends a meeting of the board of directors for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the board of directors, or of a committee of directors, need be specified in any written waiver of notice unless so required by the certificate of incorporation of the corporation or these by-laws. 3.10 BOARD OR COMMITTEE ACTION BY WRITTEN CONSENT WITHOUT A MEETING -------------------------------------------------------------- Unless otherwise restricted by the certificate of incorporation of the corporation, any action required or permitted to be taken at any meeting of the board of directors, or of any committee thereof, may be taken without a meeting if all members of the board of directors or committee, as the case may be, consent thereto in writing, and the writing or writings are filed with the minutes of proceedings of the board of directors or committee, as the case may be. 3.11 FEES AND COMPENSATION OF DIRECTORS ---------------------------------- Unless otherwise restricted by the certificate of incorporation of the corporation, the board of directors shall have the authority to fix the compensation of directors. 3.12 APPROVAL OF LOANS TO OFFICERS ----------------------------- The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or any subsidiary, including any officer or employee who is a director of the corporation or any subsidiary, whenever, in the judgment of the directors, such loan, guaranty, or assistance reasonably may be expected to benefit the corporation. The loan, guaranty, or other assistance may be with or without interest and may be unsecured or secured in such manner as the board of directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing contained in this Section shall be deemed to deny, limit, or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 9 3.13 REMOVAL OF DIRECTORS ================================================================================ Unless otherwise restricted by the General [Amended Corporation Law of the State of Delaware or the 5-29-97] certificate of incorporation of the corporation, any director or the entire board of directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. ================================================================================ 10 ARTICLE IV COMMITTEES ---------- 4.1 COMMITTEES OF DIRECTORS ================================================================================ The board of directors may, by resolution passed by a majority of the whole board, designate one or more committees, with each committee to consist of one or more of the directors of the corporation. The board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these by-laws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) amend the certificate of incorporation (except that a committee may, to the extent authorized in the resolution or resolutions providing for the issuance of shares of stock adopted by the board of directors as provided in Section 151(a) of the General Corporation Law of the State of Delaware, fix the designations and any of the preferences or rights of such shares relating to dividends, redemption, dissolution, any distribution of assets of the corporation or the conversion into, or the exchange of such shares for, shares of any other class or classes or any other series of the same or any other class or classes of stock of the corporation or fix the number of shares of any series of stock or authorize the increase or decrease of the shares of any series), (ii) adopt an agreement of merger or consolidation under Sections 251 or 252 of the General Corporation Law of the State of Delaware, (iii) recommend to the stockholders the sale, lease, or exchange of all or substantially all of the corporation's property and assets, (iv) recommend to the stockholders a dissolution of the corporation or a revocation of a dissolution, or (v) amend the by-laws of the corporation; and, unless the board resolution establishing the committee, these by-laws, or the certificate of incorporation of the corporation expressly so provides, no such committee shall have the power or authority to declare a dividend, to authorize the issuance of stock, or to adopt a certificate of ownership and merger pursuant to Section 253 of the General Corporation Law of the State of Delaware. [Amended 5-29-97] ================================================================================ 4.2 COMMITTEE MINUTES ----------------- Each committee shall keep regular minutes of its meetings and report its actions to the board of directors when required by the board of directors or when the committee otherwise may deem appropriate. 4.3 MEETINGS AND ACTION OF COMMITTEES --------------------------------- Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of Section 3.5 (place of meetings and meetings by telephone), Section 3.6 (regular meetings), Section 3.7 (special meetings and notice), Section 3.8 (quorum), Section 3.9 (waiver of notice), and Section 3.10 (action without a meeting) of these by-laws, with such changes in the context of those by-laws as are necessary to substitute the committee and its members for the board of directors and its members; provided, however, that the time of regular meetings of committees may be determined either by resolution of the board of directors or by resolution of the committee, that special meetings of committees also may be called by resolution of the board of 11 directors and by the chairman of the committee, and that notice of special meetings of committees also shall be given to all alternate members of the committee, who shall have the right to attend all meetings of the committee. The board of directors may appoint the chairman of any committee and may adopt rules for the governance and procedures of any committee not inconsistent with the provisions of these by-laws. If the board of directors does not appoint a chairman of any committee or does not adopt rules for the governance and procedures of any committee, then the members of such committee may do so. ARTICLE V OFFICERS -------- 5.1 TITLES AND ELECTION ------------------- The corporation shall have as officers a chairman of the board, a president, one or more vice-presidents (the number thereof to be determined by the board of directors), a secretary, and a chief financial officer, who shall be elected annually by the board of directors at its first meeting held after each annual meeting of stockholders or as soon thereafter as practicable or whenever there is a vacancy in any such office. Unless the certificate of incorporation of the corporation provides otherwise, any number of offices may be held by the same person. The chairman of the board shall be elected from among the members of the board of directors. 5.2 TERM OF OFFICE -------------- Each officer shall hold office until his or her successor is elected and qualified or until his or her earlier resignation or removal. 5.3 RESIGNATION ----------- An officer may resign at any time upon written notice to the corporation. An officer's resignation shall be effective when the notice is delivered unless the notice specifies a later effective date. If an officer's resignation is made effective at a later date and the corporation accepts the future effective date, then the board of directors may fill the pending vacancy before such effective date if the board of directors provides that the successor shall not take office until such effective date. An officer's resignation shall not affect the corporation's contract rights, if any, with the officer. 5.4 REMOVAL ------- The board of directors may remove any officer at any time with or without cause, but such removal shall not affect the officer's contract rights, if any, with the corporation. 5.5 CHAIRMAN OF THE BOARD --------------------- Unless otherwise provided by the board of directors, the chairman of the board shall be the chief executive officer of the corporation and generally shall have all powers and perform all duties incident to that position. Subject to the direction of the board of directors, the chairman of the board shall oversee the business and affairs of the corporation and shall be the chief policy-making officer of the corporation. The chairman of the board shall, when present, preside at all meetings of stockholders and of the board 12 of directors. The chairman of the board may sign any document or instrument which the board of directors has authorized to be executed, unless such action has been expressly delegated by the board of directors or these by-laws to some other officer or agent of the corporation or is required by law to be done otherwise. The chairman of the board may vote and exercise all other rights with respect to the shares of another corporation standing in the name of the corporation, either directly or by proxy, except in cases where the board of directors expressly provides otherwise. The chairman of the board shall have such other powers and perform such other duties as the board of directors may assign to him or her from time to time. Unless otherwise provided by the board of directors, whenever the president is unable to serve or the position of president is vacant, the chairman of the board also may perform all duties and exercise all powers of the president. 5.6 PRESIDENT --------- Unless otherwise provided by the board of directors, the president shall be the chief operating officer of the corporation and, subject to the direction of the board of directors and the chairman of the board, generally shall supervise and manage the business operations of the corporation. The president may sign any document or instrument which the board of directors has authorized to be executed, unless such action has been expressly delegated by the board of directors or by these by-laws to some other officer or agent of the corporation or is required by law to be done otherwise. The president may vote and exercise all other rights with respect to the shares of another corporation standing in the name of the corporation, either directly or by proxy, except in cases where the chairman of the board or the board of directors expressly provides otherwise. Unless the president is the chief executive officer of the corporation, he or she generally shall have all powers and perform all duties incident to the office of president of a corporation which has another person as its chief executive officer and shall have such other powers and perform such other duties as the chairman of the board or the board of directors may assign to him or her from time to time. Unless otherwise provided by the board of directors, whenever the chairman of the board is unable to serve or the position of chairman of the board is vacant, the president also shall perform all duties and exercise all powers of the chairman of the board. 5.7 VICE PRESIDENT -------------- A vice president shall assist the chairman of the board and the president in the administration of the corporation's business and affairs with respect to such matters and with such powers and duties as the chairman of the board, the president, or the board of directors may assign to him or her from time to time. Unless otherwise provided by the board of directors or the chairman of the board, whenever both the chairman of the board and the president are unable to serve or both of such offices are vacant, the vice president (or, if there is more than one vice president, then the vice presidents in the order designated at the time of their appointment or, in the absence of any such designation, in the order of their appointment) shall perform the duties of the chairman of the board and the president and, when so acting, shall have all powers incident to such offices. For purposes of the preceding sentence, executive vice presidents shall be senior in authority to senior vice presidents, and senior vice presidents shall be senior in authority to vice presidents. 13 5.8 SECRETARY --------- The secretary shall (i) record the proceedings of meetings of stockholders and of the board of directors in a book to be kept for that purpose, (ii) give or cause to be given all notices in accordance with the provisions of these by-laws or as required by law, except that notices of special meetings of directors called by two (2) directors may be given by such directors, (iii) be custodian of the corporate records and the seal (if any) of the corporation, (iv) keep or cause to be kept a register of the address of each stockholder as furnished to the corporation by such stockholder, (v) have general supervision of the stock transfer books of the corporation, (vi) authenticate records of the corporation, (vii) generally have all powers and perform all duties incident to the office of secretary, and (viii) have such other powers and perform such other duties as the chairman of the board, the president, or the board of directors may assign to him or her from time to time. 5.9 CHIEF FINANCIAL OFFICER ----------------------- The chief financial officer shall (i) have charge of and be responsible for all moneys and securities of the corporation, (ii) receive and give receipts for moneys due and payable to the corporation from any source, (iii) deposit all moneys of the corporation in the name of the corporation in such banks, trust companies, or other depositaries as shall be selected by or at the direction of the board of directors, (iv) keep or cause to be kept regular books of account for the corporation, (v) generally have all powers and perform all duties incident to the office of chief financial officer, and (vi) have such other powers and perform such other duties as the chairman of the board, the president, or the board of directors may assign to him or her from time to time. Unless the board of directors designates another person to hold the office of treasurer of the corporation, the chief financial officer also shall be the treasurer of the corporation. 5.10 ASSISTANT SECRETARIES AND ASSISTANT TREASURERS ---------------------------------------------- In the absence of the secretary or in the event of the secretary's resignation, death, or inability or refusal to act, the assistant secretaries shall have the powers and perform the duties of the secretary. In the absence of the treasurer or in the event of the treasurer's death, resignation, or inability or refusal to act, the assistant treasurers shall perform the duties of the treasurer. Assistant secretaries and assistant treasurers generally shall have such powers and perform such duties as the secretary or the treasurer, respectively, the chairman of the board, the president, or the board of directors may assign to them from time to time. 5.11 ASSISTANT AND OTHER OFFICERS ---------------------------- The board of directors may appoint assistant and other officers at any time, and the board of directors also may empower the chief executive officer to appoint assistant and other officers whenever the chief executive officer considers such action necessary or appropriate. Except as otherwise provided in these by-laws, such assistant and other officers shall hold office for such period of time, have such powers, and perform such duties as the board of directors or chief executive officer may determine from time to time. The chief executive officer may remove from office at any time any assistant or other officer which he or she has appointed. 14 ARTICLE VI INDEMNITY --------- 6.1 INDEMNIFICATION OF DIRECTORS AND OFFICERS ----------------------------------------- The corporation shall, to the maximum extent and in the manner permitted by the General Corporation Law of the State of Delaware, indemnify each of its directors and officers against expenses (including but not limited to attorneys' fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending, or completed action, suit, or proceeding (whether civil, criminal, administrative, or investigative) to which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was a director, officer, employee, or agent of the corporation. For purposes of this Section 6.1, a "director" or "officer" of the corporation includes any person (i) who is or was a director or officer of the corporation, (ii) who is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise, or (iii) who was a director or officer of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.2 INDEMNIFICATION OF OTHERS ------------------------- The corporation shall have the power, to the extent and in the manner permitted by the General Corporation Law of the State of Delaware, to indemnify each of its employees and agents (other than directors and officers) against expenses (including but not limited to attorney's fees), judgments, fines, and amounts paid in settlement actually and reasonably incurred in connection with any threatened, pending, or completed action, suit, or proceeding (whether civil, criminal, administrative, or investigative) to which such person was or is a party or is threatened to be made a party by reason of the fact that such person is or was an employee or agent of the corporation. For purposes of this Section 6.2, an "employee" or "agent" of the corporation (other than a director or officer) includes any person (i) who is or was an employee or agent of the corporation, (ii) who is or was serving at the request of the corporation as an employee or agent of another corporation, partnership, joint venture, trust, or other enterprise, or (iii) who was an employee or agent of a corporation which was a predecessor corporation of the corporation or of another enterprise at the request of such predecessor corporation. 6.3 EXPENSES -------- The corporation shall pay expenses (including but not limited to reasonable attorneys' fees) incurred by an officer or director in defending any civil, criminal, administrative, or investigative action, suit, or proceeding in advance of the final disposition of such action, suit, or proceeding upon receipt of an undertaking by or on behalf of such director or officer to repay such amount if it shall ultimately be determined that such director or officer is not entitled to be indemnified by the corporation as authorized by these by- laws and the General Corporation Law of the State of Delaware. Such expenses (including but not limited to attorneys' fees) incurred by employees and agents of the corporation (other than directors and officers) may be so paid upon such terms and conditions, if any, as the board of directors deems appropriate. 6.4 INSURANCE --------- 15 The corporation may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee, or agent of the corporation or is or was serving at the request of the corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person's status as such, whether or not the corporation would have the power to indemnify such person against such liability under the General Corporation Law of the State of Delaware. 6.5 CONTINUATION AFTER TERMINATION OF POSITION ------------------------------------------ Any right to indemnification and advancement of expenses provided by, or granted pursuant to, this Article VI shall continue as to a person who was but has ceased to be a director or officer and shall inure to the benefit of the heirs, executors, administrators, and personal representatives of such person. 6.6 DEFINITIONS ----------- For purposes of this Article VI, the definitions contained in subsections (h) and (i) of Section 145 of the General Corporation Law of the State of Delaware shall apply whenever the defined terms or phrases appear in this Article VI. ARTICLE VII STOCK CERTIFICATES ------------------ 7.1 STOCK CERTIFICATES ------------------ The shares of the corporation shall be represented by certificates; provided, that the board of directors of the corporation may provide by resolution or resolutions that some or all of any or all classes or series of the stock of the corporation shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the corporation. Notwithstanding the adoption of such a resolution by the board of directors, every holder of stock represented by certificates and upon request every holder of uncertificated shares shall be entitled to have a certificate signed by or in the name of the corporation by the chairman of the board, the president, or a vice-president and by the chief financial officer, an assistant treasurer, the secretary, or an assistant secretary representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent, or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent, or registrar before such certificate is issued, such certificate may be issued by the corporation with the same effect as if the person were such officer, transfer agent, or registrar at the date of issue. 7.2 SPECIAL DESIGNATION ON CERTIFICATES ----------------------------------- If the corporation is authorized to issue more than one class of stock or more than one series of any class, then the powers, designations, preferences, and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights shall be set forth in full or summarized on the 16 face or back of the certificate that the corporation shall issue to represent such class or series of stock; provided, however, that, except as otherwise provided in Section 202 of the General Corporation Law of the State of Delaware, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate which the corporation shall issue to represent such class or series of stock a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences, and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations, or restrictions of such preferences and/or rights. 7.3 LOST CERTIFICATES ----------------- All certificates for shares of stock surrendered to the corporation for transfer shall be cancelled, and no new certificates for shares of stock shall be issued to replace a previously issued certificate unless the latter is surrendered to the corporation and canceled at the same time. However, the corporation may issue a new certificate of stock or uncertificated shares in place of any certificate theretofore issued by it alleged to have been lost, stolen, or destroyed; and the corporation may require the owner of the lost, stolen, or destroyed certificate, or such owner's legal representative, to give the corporation a bond sufficient to indemnify the corporation against any claim that may be made against the corporation on account of the alleged loss, theft, or destruction of any such certificate or the issuance of such new certificate or uncertificated shares. 7.4 TRANSFER OF SHARES ------------------ Transfer of shares of stock of the corporation shall be made only on the stock transfer books of the corporation by the holder of record thereof or by his or her legal representative, who shall furnish proper evidence of authority to effect such transfer, or by his or her attorney thereunto duly authorized by power-of-attorney duly executed and filed with the secretary or with a transfer agent appointed pursuant to these by-laws, and only upon the surrender for cancellation of the certificate or certificates for such shares of stock properly endorsed and the payment of all applicable transfer taxes. Except as otherwise provided in these by-laws or by the General Corporation Law of the State of Delaware, the person in whose name shares of stock stand on the books of the corporation shall be deemed by the corporation to be the owner of such shares of stock for all purposes. The board of directors from time to time may make such additional rules and regulations, consistent with these by-laws and the General Corporation Law of the State of Delaware, as it may deem expedient concerning the issue, transfer, and registration of the shares of the corporation. The board of directors from time to time may appoint one or more transfer agents and one or more registrars for any class of stock of the corporation. ARTICLE VIII AMENDMENTS ================================================================================ The board of directors shall have the power from time to time to adopt, amend, or repeal any or all of the by-laws of the corporation. [Amended 5-29-97] ================================================================================ 17 CSG SYSTEMS INTERNATIONAL, INC. Amendments of Revised By-Laws Adopted By Stockholders on May 29, 1997 ------------------------------- "3.2 NUMBER OF DIRECTORS ------------------- The board of directors shall consist of not fewer than five (5) members and not more than thirteen (13) members, the exact number of authorized directors within such range to be fixed from time to time by a resolution of the board of directors adopted by the affirmative vote of at least a majority of the total number of authorized directors most recently fixed by the board of directors." "3.3 CLASSES, ELECTION, AND TERM OF OFFICE OF DIRECTORS -------------------------------------------------- The directors shall be divided into three classes for the purpose of determining their terms of office. Each such class shall consist, as nearly as possible, of one-third of the total number of directors fixed by the board of directors. At the annual meeting of stockholders held in 1997, one class of directors (designated as Class I) shall be elected for a term expiring at the annual meeting of stockholders held in 1998, one class of directors (designated as Class II) shall be elected for a term expiring at the annual meeting of stockholders held in 1999, and one class of directors (designated as Class III) shall be elected for a term expiring at the annual meeting of stockholders held in 2000. At each succeeding annual meeting of stockholders, beginning in 1998, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the annual meeting of stockholders held in the third year following the year of their election. If the number of directors is changed, then any increase or decrease in such number shall be apportioned by the board of directors among the classes of directors so as to maintain as nearly as possible an equal number of directors in each class. No reduction in the authorized number of members of the board of directors shall have the effect of removing any director from office before that director's term of office expires. Each director, including a director elected to fill a vacancy or a newly created directorship, shall hold office until the next election of the class of directors to which such director belongs and until his or her successor is elected and qualified or until his or her earlier death, resignation, or removal from office for cause." "3.4 RESIGNATION AND VACANCIES ------------------------- Any director may resign at any time upon written notice to the corporation. When a director so resigns 18 and the resignation is effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have the power to fill such vacancy with the vote thereon to take effect when such resignation becomes effective. Vacancies on the board of directors and newly created directorships resulting from an increase in the authorized number of members of the board of directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director." "3.13 REMOVAL OF DIRECTORS -------------------- Any director or the entire board of directors may be removed from office at any time but only for cause and only by the affirmative vote of the holders of at least seventy-five (75%) of the voting power of all outstanding shares of capital stock then entitled to vote in an election of directors, voting as a single class." 19 CSG SYSTEMS INTERNATIONAL, INC. Amendments of Revised By-Laws Adopted By Board of Directors on May 29, 1997 ------------------------------------- 2.1 PLACE OF MEETINGS ----------------- Meetings of stockholders may be held at any place, either within or outside of the State of Delaware, designated for such purpose by or at the direction of the board of directors. In the absence of any such designation, meetings of stockholders shall be held at the registered office of the corporation in Delaware. 2.2 ANNUAL MEETING -------------- An annual meeting of stockholders shall be held each year on a date and at a time designated by or at the direction of the board of directors. At each annual meeting, directors shall be elected and any other proper business may be transacted. 2.9 STOCKHOLDER ACTION BY WRITTEN CONSENT WITHOUT A MEETING ------------------------------------------------------- Unless otherwise provided in the certificate of incorporation of the corporation, any action required by the General Corporation Law of the State of Delaware to be taken at any annual or special meeting of stockholders, or any action that may be taken at any annual or special meeting of stockholders, may be taken without a meeting, without prior notice, and without a vote if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted and shall be delivered to the corporation by delivery to its registered office in Delaware, to its principal place of business, or to an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Prompt notice of the taking of such action without a meeting by less than unanimous written consent shall be given in accordance with the requirements of the General Corporation Law of the State of Delaware. 2.13 ADVANCE NOTICE OF STOCKHOLDER NOMINEES -------------------------------------- Nominations of persons for election to the board of directors may be made at a meeting of stockholders either by or at the direction of the board of directors 20 or by any stockholder of record entitled to vote in the election of directors at such meeting who has complied with the notice procedures set forth in this Section 2.13. A stockholder who desires to nominate a person for election to the board of directors at a meeting of stockholders and who is eligible to make such nomination must give timely written notice of the proposed nomination to the secretary of the corporation. To be timely, a stockholder's notice given pursuant to this Section 2.13 must be received at the principal executive office of the corporation not less than one hundred twenty (120) calendar days in advance of the date which is one year later than the date of the proxy statement of the corporation released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that if no annual meeting of stockholders was held in the previous year or if the date of the forthcoming annual meeting of stockholders has been changed by more than thirty (30) calendar days from the date contemplated at the time of the previous year's proxy statement or if the forthcoming meeting is not an annual meeting of stockholders, then to be timely such stockholder's notice must be so received not later than the close of business on the tenth day following the earlier of (a) the day on which notice of the date of the forthcoming meeting was mailed or given to stockholders by or on behalf of the corporation or (b) the day on which public disclosure of the date of the forthcoming meeting was made by or on behalf of the corporation. Such stockholder's notice to the secretary of the corporation shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employment of such person, (iii) the class and number of shares of capital stock of the corporation which then are beneficially owned by such person, (iv) any other information relating to such person that is required by law or regulation to be disclosed in solicitations of proxies for the election of directors of the corporation, and (v) such person's written consent to being named as a nominee for election as a director and to serve as a director if elected and (b) as to the stockholder giving the notice (i) the name and address, as they appear in the stock records of the corporation, of such stockholder, (ii) the class and number of shares of capital stock of the corporation which then are beneficially owned by such stockholder, (iii) a description of all arrangements or understandings between such stockholder and each nominee for election as a director and any other person or persons (naming such person or persons) relating to the nomination proposed to be made by such stockholder, and (iv) any other information required by law or regulation to be provided by a stockholder intending to nominate a person for election as a director of the corporation. At the request of the board of directors, 21 any person nominated by or at the direction of the board of directors for election as a director of the corporation shall furnish to the secretary of the corporation the information concerning such nominee which is required to be set forth in a stockholder's notice of a proposed nomination. No person shall be eligible for election as a director of the corporation unless nominated in compliance with the procedures set forth in this Section 2.13. The chairman of a meeting of stockholders shall refuse to accept the nomination of any person not made in compliance with the procedures set forth in this Section 2.13, and such defective nomination shall be disregarded. 22 2.14 ADVANCE NOTICE OF STOCKHOLDER BUSINESS -------------------------------------- At an annual meeting of stockholders, only such business shall be transacted as shall have been properly brought before the meeting. To be properly brought before an annual meeting of stockholders, business must be (a) as specified in the notice of the meeting (or any supplement thereto) given by or at the direction of the board of directors, (b) otherwise properly brought before the meeting by or at the direction of the board of directors, or (c) otherwise properly brought before the meeting by a stockholder. Business to be brought before an annual meeting by a stockholder shall not be considered properly brought if the stockholder has not given timely written notice thereof to the secretary of the corporation. To be timely, a stockholder's notice of business to be brought before an annual meeting must be received at the principal executive office of the corporation not less than one hundred twenty (120) calendar days in advance of the date which is one year later than the date of the proxy statement of the corporation released to stockholders in connection with the previous year's annual meeting of stockholders; provided, however, that if no annual meeting of stockholders was held in the previous year or if the date of the forthcoming annual meeting of stockholders has been changed by more than thirty (30) calendar days from the date contemplated at the time of the previous year's proxy statement, then to be timely such stockholder's notice must be so received not later than the close of business on the tenth day following the earlier of (a) the day on which notice of the date of the forthcoming annual meeting was mailed or given to stockholders by or on behalf of the corporation or (b) the day on which public disclosure of the date of the forthcoming annual meeting was made by or on behalf of the corporation. Such stockholder's notice to the secretary of the corporation shall set forth as to each matter the stockholder proposes to bring before the annual meeting (i) a brief description of the business desired to be brought before the annual meeting and the reasons for transacting such business at the annual meeting, (ii) the name and address of the stockholder proposing such business, (iii) the class and number of shares of capital stock of the corporation which then are beneficially owned by such stockholder, (iv) any material interest of such stockholder in such business, and (v) any other information required by law or regulation to be provided by such stockholder in such stockholder's capacity as a proponent of a stockholder proposal. Notwithstanding anything in these by-laws to the contrary, no business shall be conducted at any annual meeting of stockholders except in compliance with the procedures set forth in this Section 2.14. The chairman of the annual meeting of stockholders shall, if the facts warrant, determine at the meeting that business was not properly brought before the meeting in compliance with the provisions of this Section 2.14; and, if such chairman shall so determine, 23 then he or she shall so declare at the meeting, and any such business not properly brought before the meeting shall not be transacted. 4.1 COMMITTEES OF DIRECTORS ----------------------- The board of directors may designate one or more committees, with each such committee to consist of one or more of the directors of the corporation. The board of directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the board of directors to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the board of directors or in these by-laws, shall have and may exercise all the powers and authority of the board of directors in the management of the business and affairs of the corporation and may authorize the seal of the corporation to be affixed to all papers that may require it; but no such committee shall have the power or authority of the board of directors in reference to the following matters: (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the General Corporation Law of the State of Delaware to be submitted to stockholders for approval or (ii) adopting, amending, or repealing any by-law of the corporation. ARTICLE VIII AMENDMENTS ---------- Except as otherwise provided in the certificate of incorporation of the corporation, the board of directors shall have the power from time to time to adopt, amend, or repeal any or all of the bylaws of the corporation. 24 EX-3.3 3 CERTIFICATE OF AMENDMENT Exhibit 3.03 CERTIFICATE OF AMENDMENT OF RESTATED CERTIFICATE OF INCORPORATION OF CSG SYSTEMS INTERNATIONAL, INC. ------------------------------- CSG Systems International, Inc. (the "Corporation"), a corporation organized and existing under the laws of the State of Delaware, hereby certifies as follows: 1. The name of the corporation is CSG Systems International, Inc. 2. The Board of Directors of the Corporation duly adopted a resolution proposing that the Restated Certificate of Incorporation of the Corporation be amended by adding thereto a new Article VII reading as follows and declaring the advisability of such proposed amendment: "ARTICLE VII A. The business and affairs of the Corporation shall be managed by or under the direction of a Board of Directors. The Board of Directors shall consist of not fewer than five (5) members and not more than thirteen (13) members, the exact number of authorized directors within such range to be fixed from time to time by a resolution of the Board of Directors adopted by the affirmative vote of at least a majority of the total number of authorized directors most recently fixed by the Board of Directors. The directors of the Corporation shall be divided into three classes for the purpose of determining their terms of office. Each such class shall consist, as nearly as possible, of one-third of the total number of directors fixed by the Board of Directors. At the annual meeting of stock- holders of the Corporation held in 1997, one class of directors (designated as Class I) shall be elected for a term expiring at the annual meeting of stockholders of the Corporation held in 1998, one class of directors (designated as Class II) shall be elected for a term expiring at the annual meeting of stock- holders of the Corporation held in 1999, and one class of directors (designated as Class III) shall be elected for a term expiring at the annual meeting of stockholders of the Corporation held in 2000. At each succeeding annual meeting of stockholders of the Corporation, beginning in 1998, successors to the class of directors whose term expires at that annual meeting shall be elected for a term expiring at the annual meeting of stockholders of the Corporation held in the third year following the year of their election. If the number of directors is changed, then any increase or decrease in such number shall be appor- tioned by the Board of Directors among the classes of directors so as to maintain as nearly as possible an equal number of directors in each class. No reduction in the authorized number of members of the Board of Directors shall have the effect of removing any director from office before that director's term of office expires. Vacancies on the Board of Directors and newly created directorships resulting from an increase in the authorized number of members of the Board of Directors may be filled only by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director, including a director elected to fill a vacancy or a newly created directorship, shall hold office until the next election of the class of directors to which such director belongs and until his or her successor is elected and qualified or until his or her earlier death, resignation, or removal from office for cause. Any director or the entire Board of Directors may be removed from office at any time but only for cause and only by the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all outstanding shares of capital stock of the Corporation then entitled to vote in an election of directors of the Corporation, voting as a single class. B. Nominations of persons for election to the Board of Directors may be made at a meeting of stockholders of the Corporation either by or at the direction of the Board of Directors or by any stockholder of record entitled to vote in the election of directors at such meeting who has complied with the notice procedures set forth in this Paragraph B. A stockholder who desires to nominate a person for election to the Board of Directors at a meeting of stockholders of the Corporation and who is eligible to make such nomination must give timely written notice of the proposed nomination to the secretary of the Corporation. To be timely, a stockholder's notice given pursuant to this Paragraph B must be received at the principal executive office of the Corporation not less than one hundred twenty (120) calendar days in advance of the date which is one year later than the date of the proxy statement of the Corporation released to stockholders in connection with the previous year's annual meeting of stock- holders of the Corporation; provided, however, that if no annual meeting of stockholders of the Corporation was held in the previous year or if the date of the forthcoming annual meeting of stockholders has been changed by more than thirty (30) calendar days from the date 2 contemplated at the time of the previous year's proxy statement or if the forthcoming meeting is not an annual meeting of stockholders of the Corporation, then to be timely such stockholder's notice must be so received not later than the close of business on the tenth day following the earlier of (a) the day on which notice of the date of the forthcoming meeting was mailed or given to stockholders by or on behalf of the Corporation or (b) the day on which public disclosure of the date of the forthcoming meeting was made by or on behalf of the Corporation. Such stockholder's notice to the secretary of the Corporation shall set forth (a) as to each person whom the stockholder proposes to nominate for election or re-election as a director (i) the name, age, business address, and residence address of such person, (ii) the principal occupation or employ- ment of such person, (iii) the class and number of shares of capital stock of the Corporation which then are beneficially owned by such person, (iv) any other information relating to such person that is required by law or regulation to be disclosed in solicitations of proxies for the election of directors of the Corporation, and (v) such person's written consent to being named as a nominee for election as a director and to serve as a director if elected and (b) as to the stock- holder giving the notice (i) the name and address, as they appear in the stock records of the Corporation, of such stock- holder, (ii) the class and number of shares of capital stock of the Corporation which then are beneficially owned by such stockholder, (iii) a description of all arrangements or under- standings between such stockholder and each nominee for election as a director and any other person or persons (naming such person or persons) relating to the nomination proposed to be made by such stockholder, and (iv) any other information required by law or regulation to be provided by a stockholder intending to nominate a person for election as a director of the Corporation. At the request of the Board of Directors, any person nominated by or at the direction of the Board of Directors for election as a director of the Corporation shall furnish to the secretary of the Corporation the information concerning such nominee which is required to be set forth in a stockholder's notice of a proposed nomination. No person shall be eligible for election as a director of the Corpor- ation unless nominated in compliance with the procedures set forth in this Paragraph B. The chairman of a meeting of stockholders of the Corporation shall refuse to accept the nomination of any person not made in compliance with the procedures set forth in this Paragraph B, and such defective nomination shall be disregarded. 3 C. Notwithstanding any provision of this Certificate of Incorporation or the by-laws of the Corporation to the contrary, the affirmative vote of the holders of at least seventy-five percent (75%) of the voting power of all out- standing shares of capital stock of the Corporation then entitled to vote in an election of directors of the Corpor- ation, voting as a single class, shall be required to alter, amend, or repeal this Article VII or to adopt any provision of this Certificate of Incorporation or the by-laws of the Corporation which is inconsistent with this Article VII." 3. Such amendments have been duly adopted in accordance with the applicable provisions of Section 242 of the General Corporation Law of the State of Delaware. IN WITNESS WHEREOF, the Corporation has caused this Certificate to be signed by the Chairman of the Board and Chief Executive Officer of the Corporation this 29th day of May, 1997. CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation By: /s/ Neal C. Hansen ------------------------------ Neal C. Hansen, Chairman of the Board and Chief Executive Officer 4 EX-10.44 4 CSG SYSTEMS INTERNATIONAL, INC. Exhibit 10.44 CSG SYSTEMS INTERNATIONAL, INC. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose. The purpose of the CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors (the "Plan") is to foster and promote the long-term financial success of the Company and thereby increase stockholder value by attracting and retaining as directors of the Company highly qualified persons who are not employees of the Company or a Subsidiary. 2. Certain Definitions. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. References to a particular section of the Code shall include any regulations issued under such section. "Common Stock" means the Common Stock, $0.01 par value per share, of the Company. "Company" means CSG Systems International, Inc., a Delaware corporation. "Director" means a person then serving as a member of the Board of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" means, as determined by the Board, the last sale price of the Common Stock as quoted on the Nasdaq National Market System on the trading day for which the determination is being made, or, in the event that no such sale takes place on such day, the average of the reported closing bid and asked prices on such day, or, if the Common Stock of the Company is listed on a national securities exchange, the last reported sale price on the principal national securities exchange on which the Common Stock is listed or admitted to trading on the trading day for which the determination is being made, or, if no such reported sale takes place on such day, the average of the closing bid and asked prices on such day on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not quoted on such National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on the day for which the determination is being made as reported through Nasdaq, or, if bid and asked prices for the Common Stock on such day are not reported through Nasdaq, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board, or, if none of the foregoing is applicable, then the fair market value of the Common Stock as determined in good faith by the Board in its sole discretion. "Stock Option" means an option to purchase Common Stock granted pursuant to the Plan. "Subsidiary" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or by a Subsidiary, whether or not such corporation now exists or hereafter is organized or acquired by the Company or by a Subsidiary. 3. Administration. The Plan shall be administered by the Board, and the Board shall have authority to grant Stock Options to eligible Directors from time to time pursuant to the Plan. Subject to the applicable provisions of the Plan, the Board shall have authority to interpret the provisions of the Plan and to decide all questions of fact arising in the application of such provisions; to select the Directors to whom Stock Options shall be granted; to determine when, whether, and in what amounts Stock Options shall be granted; to determine the amount, terms, and conditions of each Stock Option; to determine the Fair Market Value of the Common Stock from time to time; to authorize persons to execute on behalf of the Company any agreement required to be entered into under the Plan; to adopt, alter, and repeal such administrative rules, guidelines, and practices governing the Plan as the Board from time to time shall deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all decisions and determinations made by the Board pursuant to the provisions of the Plan shall be made in the sole discretion of the Board and shall be final and binding on all persons, including but not limited to the Company, the Directors to whom Stock Options are granted, the heirs and legal representatives of such Directors, and the personal representatives and beneficiaries of the estates of such Directors. 4. Common Stock Subject to the Plan. The Company shall reserve and keep available for issuance under the Plan 100,000 shares of Common Stock, subject to adjustment pursuant to Section 16. Such shares may consist in whole or in part of authorized and unissued shares or treasury shares or any combination thereof. Except as otherwise provided in the Plan, any shares subject to a Stock Option which expires or terminates unexercised as to such shares shall again be available for the grant of Stock Options. 5. Eligibility to Receive Stock Options. Stock Options may be granted under the Plan only to Directors who are not employees of the Company or a Subsidiary on the date of the grant. 6. Stock Options. All Stock Options shall be nonqualified stock options for purposes of the Code. Stock Options shall be evidenced by agreements in such form as the Board shall approve from time to time; such agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Board shall deem appropriate: 2 (a) Type of Option. Each option agreement shall identify the Stock Option evidenced thereby as a nonqualified stock option for purposes of the Code. (b) Option Price. Each option agreement shall set forth the number of shares of Common Stock covered by the stock option and the applicable option exercise price per share, which price shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted or less than the par value of the Common Stock. (c) Term. Each option agreement shall state the period or periods of time during which the Stock Option may be exercised, in whole or in part, which shall be such period or periods of time as the Board may determine at the time the Stock Option is granted; provided, that no Stock Option shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Option shall become and remain exercisable as provided in the option agreement relating to such Stock Option. (d) Payment for Shares. Each option agreement shall require the option exercise price per share to be paid in full in cash at the time the Stock Option is exercised with respect to any of the shares covered by such Stock Option. 7. Cessation of Service as a Director. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option ceases to be a Director for any reason other than retirement from the Board under the circumstances described in Section 8 or death, then each outstanding but unexercised Stock Option held by such grantee shall continue to be exercisable only to the extent that it was exercisable at the time that such grantee ceased to be a Director and only until the earlier of (i) ninety days after such grantee ceased to be a Director or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 8. Retirement from Board. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option ceases to be a Director (other than by reason of death) and at the time of such occurrence (the "Retirement Date") is at least age 65 with ten or more years of service as a Director or is at least age 70 with five or more years of service as a Director, then each outstanding but unexercised Stock Option held by such grantee on the Retirement Date shall continue to be or become exercisable in accordance with its terms until the earlier of (i) five years after the Retirement Date or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 9. Death. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option dies, then each outstanding but unexercised Stock Option which had been held by such grantee for at least twelve months as of the date of such grantee's death automatically shall 3 become exercisable in full (if not already exercisable) upon such grantee's death. Each outstanding but unexercised Stock Option which becomes exercisable pursuant to the preceding sentence and each outstanding but unexercised Stock Option held by such grantee which was exercisable on the date of such grantee's death may be exercised by the legal representative of such grantee's estate or by the beneficiaries of such estate to whom such Stock Option is distributed until the earlier of (i) three years after the date of such grantee's death or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 10. Acceleration of Exercisability. The Board shall have the authority to accelerate the exercisability of any outstanding Stock Option, subject to any applicable requirements of the Plan, under such circumstances and upon such terms and conditions as the Board shall deem appropriate. 11. General Restrictions. Each Stock Option grant under the Plan shall be subject to the requirement that if at any time the Board shall determine that (i) the listing, registration, or qualification of the shares of Common Stock subject or related thereto upon any securities market or securities exchange or under any state or federal law, (ii) the consent or approval of any governmental regulatory body, or (iii) an agreement by the grantee of such Stock Option with respect to the disposition of the shares of Common Stock subject thereto is necessary or desirable as a condition of, or in connection with, such grant or the issuance of shares of Common Stock thereunder, then such Stock Option grant may not be consummated and any rights under such Stock Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent, approval, or agreement shall have been effected or obtained upon conditions acceptable to the Board. 12. Rights of a Stockholder. The grantee of a Stock Option shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such Stock Option unless and until certificates for such shares of Common Stock are issued to such grantee upon the timely and proper exercise of such Stock Option. 13. No Right to Continue as a Director. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any Director the right to continue to serve as a Director of the Company. 14. Indemnification. No member of the Board, and no officer or employee of the Company acting on behalf of the Board, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan; and all members of the Board and each officer or employee of the Company acting on behalf of the Board shall, to the extent permitted by law, be fully indemnified by the Company in respect of any such action, determination, or interpretation. 4 15. Non-Assignability. No Stock Option granted under the Plan shall be assignable or transferable by the grantee thereof except by will or by the laws of descent and distribution. During the lifetime of a grantee of a Stock Option, such Stock Option may be exercised only by such grantee or such grantee's legal representative. 16. Nonuniform Determinations. The Board's determinations under the Plan (including but not limited to determinations of the persons to receive Stock Option grants, the amount and timing of such grants, and the terms and provisions of such grants) need not be uniform and may be made by the Board selectively among the Directors who receive, or are eligible to receive, Stock Option grants. 17. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of a stock dividend or distribution, stock split, recapitalization, merger, reorganization, consolidation, split-up, spin-off, combination of shares, exchange of shares, or other change in corporate structure affecting the Common Stock, the Board shall make appropriate adjustments in (a) the aggregate number of shares of Common Stock (i) reserved for issuance under the Plan and (ii) covered by outstanding Stock Option grants and (b) the exercise price related to outstanding Stock Options; provided, that the number of shares subject to any Stock Option always shall be a whole number. 18. Termination and Amendment. The Board may terminate the Plan or amend the Plan or any portion thereof at any time, including but not limited to amendments to the Plan necessary to comply with the requirements of Section 16(b) of the Exchange Act or applicable regulations thereunder, except that the Board may not increase the maximum number of shares which may be issued under the Plan (other than by way of adjustments made pursuant to Section 17), extend the maximum period during which any Stock Option may be exercised, extend the term of the Plan, decrease the minimum option price to less than the Fair Market Value on the date of the grant of a Stock Option, or change the category of persons eligible to participate in the Plan without stockholder approval if such approval is required by the applicable rules of the Securities and Exchange Commission, the Nasdaq National Market, or any national securities exchange on which the Common Stock is listed. The termination or any amendment of the Plan shall not, without the consent of a Stock Option grantee, adversely affect such grantee's rights under a Stock Option previously granted to such grantee. The Board may amend the terms and conditions of any Stock Option grant previously made, prospectively or retroactively, as long as such amendment is not inconsistent with the terms of the Plan; but, except as otherwise expressly permitted by the Plan and subject to Section 17, no such amendment shall adversely affect the rights of the grantee of such Stock Option without such grantee's consent. 19. Term of Plan. Subject to approval of the Plan by the stockholders of the Company not later than December 31, 1997, the Plan shall become effective on the date on which the Plan is approved and adopted by the Board and shall terminate for purposes of further Stock Option grants on the first to occur of (i) December 31, 2006, or (ii) the effective date of the termination of the 5 Plan by the Board pursuant to Section 18. No Stock Options may be granted under the Plan after the termination of the Plan, but such termination shall not affect any Stock Options outstanding at the time of such termination or the authority of the Board to continue to administer the Plan apart from the making of further Stock Option grants. The Board may grant Stock Options under the Plan prior to approval of the Plan by the stockholders of the Company, but any Stock Options so granted shall be subject in all respects to such approval. Notwithstanding the provisions of any option agreement evidencing a Stock Option granted prior to approval of the Plan by the stockholders of the Company, such Stock Option may not be exercised to any extent prior to such stockholder approval. If such stockholder approval is not given by December 31, 1997, then the Plan and all Stock Options granted thereunder automatically shall terminate and be of no further force or effect at the close of business on December 31, 1997. 20. Governing Law. The Plan shall be governed by and construed in accordance with the laws of Delaware. 6 EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS OF JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1997 JAN-01-1997 JUN-30-1997 2,020 0 41,850 837 0 46,276 31,514 15,717 113,069 41,028 18,500 0 0 255 44,740 113,069 0 79,612 0 44,656 10,654 0 1,257 2,895 0 2,895 0 0 0 2,895 .11 0 EPS is basic as the dilutive effect of common stock equivalents is not significant.
EX-99.01 6 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS EXHIBIT 99.01 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN CAUTIONARY STATEMENTS AND RISK FACTORS CSG Systems International, Inc. and its subsidiaries (collectively, the Company) or their representatives from time to time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. Accordingly, the forward-looking statements are qualified in their entirety by reference to and are accompanied by the following meaningful cautionary statements identifying certain important factors that could cause actual results to differ materially from those in such forward-looking statements. This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. Accordingly, there can be no assurance that forward-looking statements will be accurate indicators of future actual results, and it is likely that actual results will differ from results projected in forward-looking statements and that such differences may be material. The Company has recorded net losses since inception (October 17, 1994) through December 31, 1996. These net losses have resulted from several factors, including amortization of intangible assets (acquired software, client contracts and related intangibles, and noncompete agreements and goodwill), interest expense, stock-based employee compensation expense, and loss from discontinued operations. Certain of these factors will continue to affect the Company's results of operations in the future. While the Company has reported net income for the third and fourth quarters of 1996, and the first and second quarters of 1997, there can be no assurance that the Company will sustain profitability in the future. CCS and related services are expected to provide the substantial majority of the Company's revenues in the foreseeable future. The market for customer management systems is characterized by rapid changes in technology and is highly competitive with respect to the need for timely product innovations and new product introductions. The Company believes that its future success depends upon continued market acceptance of its current products, including CCS and related services, and its ability to enhance its current products and develop new products that address the increasingly complex and evolving needs of its clients. In particular, the Company believes that it must respond quickly to clients' needs for additional functionality and distributed architecture for data processing. Development projects can be lengthy and are subject to changing requirements, programming difficulties, and unforeseen factors which can result in delays. There can be no assurance of continued market acceptance of the Company's current products or that the Company will be successful in the timely development of product enhancements or new products that respond to technological advances or changing client needs. CSG Phoenix is the Company's next generation customer care and billing system for the converging communications markets. The Company is using technologies and development tools that are new to the Company in CSG Phoenix. In addition, CSG Phoenix will contain functionality that is new to the Company and will be offered in a variety of configurations in addition to the Company's existing service bureau operations. As previously reported, the Company delivered Version 1.1 of CSG Phoenix on March 31, 1997. The primary purpose for the release of this code was for basic testing and integration at customer sites. This testing resulted in the discovery of a number of incident reports and configuration issues. The Company is currently examining the size and magnitude of these issues, and will have an estimated date for when CSG Phoenix will go into production when that analysis is completed. The Company is in the process of working with its Phoenix partners to coordinate the next steps for both the testing of the product, as well as rescheduling the new, estimated production date. The actual timing of delivery and implementation is subject to delay due to the variety of factors inherent in the development and initial implementation of a new, complex software system. Implementation is also subject to factors relating to the integration of the new system with the client's existing systems. Sales and support of CSG Phoenix will require the Company to develop new capabilities. The failure of the Company to deliver and support the CSG Phoenix product successfully and on time could have a material adverse effect on the financial condition and results of operations of the Company. Revenues from Time Warner Cable and its affiliated companies (Time Warner) and revenues from Tele-Communications, Inc. (TCI) each represent a substantial percentage of the Company's total revenues. In July 1997, the Company signed a multi-year renewal contract to continue to provide customer care and billing systems to support TCI's cable television subscribers. The renewal contract replaced the Company's previous contract with TCI which was scheduled to expire December 31, 1997. On August 10, 1997, the Company signed a 15-year exclusive contract with a TCI affiliate to consolidate 13 million TCI subscribers onto the Company's customer care and billing systems (the 15-Year Contract). On August 10, 1997, the Company also entered into an agreement with TCI affiliates to acquire certain SUMMITrak assets, an in-house customer care and billing system developed by TCI, for $106 million in cash, up to $26 million in various contingent payments, and warrants to purchase up to 1.5 million shares of the Company's common stock, with coningent payments and warrants based upon the achievement of certain milestones by TCI specified in the 15-Year Contract. Both the closing of the SUMMITrak asset purchase and the effectiveness of the 15-Year Contract are subject to certain conditions, including governmental filings and approvals. If the 15-Year Contract closes and becomes effective, it would replace the renewal contract signed in July 1997. Currently, the Company has approximately 4 million of TCI's subscribers on its systems. Under the 15-Year Contract, the Company and TCI plan to consolidate the 13 million subscribers under an agreed upon conversion schedule. Converting multiple sites under an aggressive time schedule poses certain risks. Factors affecting the conversion schedule include the frequency and severity of database discrepancies, installation of compatible hardware, network and software products, as well as the availability and cooperation of qualified personnel from all the parties involved in the conversion. TCI's minimum financial commitments under the 15- Year Contract are subject to certain performance criteria by the Company. Loss of all or a significant part of the business of either Time Warner or TCI would have a material adverse effect on the financial condition and results of operations of the Company. The Company's quarterly revenues and operating results may fluctuate depending on various factors, including the timing of executed contracts and the delivery of contracted services or products, the timing of conversions to the Company's systems by new and existing clients, the cancellation of the Company's services and products by existing or new clients and related conversions to other systems, the hiring of additional staff, new product development and other expenses, and changes in sales commission policies. No assurance can be given that operating results will not vary due to these factors. Fluctuations in quarterly operating results may result in volatility in the market price of the Company's Common Stock. The Company's business is concentrated in the cable television industry, making the Company susceptible to a downturn in that industry. A decrease in the number of customers served by the Company's clients would result in lower revenues for the Company. In addition, cable television providers are consolidating, decreasing the potential number of buyers for the Company's products and services. Furthermore, there can be no assurance that cable television providers will be successful in expanding into other segments of the converging communications markets. There can be no assurance that new entrants into the cable television market will become clients of the Company. Any adverse development in the cable television industry could have a material adverse effect on the financial condition and results of operations of the Company. The Company's growth strategy is based in large part on the continuing convergence and growth of the cable television, Direct Broadcast Satellite (DBS), telecommunications, and on-line services markets. If these markets fail to converge, grow more slowly than anticipated, or if providers in the converging markets do not accept the Company's products and services, there could be a material adverse effect on the financial condition and results of operations of the Company. The market for the Company's products and services is highly competitive. The Company directly competes with both independent providers of products and services and in-house systems developed by existing and potential clients. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, and many are already operating internationally. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. The Company is expanding into new products, services, and markets, which is placing demands on its managerial and operational resources. The inability to manage growth could have a material adverse effect on the financial condition and results of operations of the Company. Substantially all of the Company's revenues are derived from the sale of services or products under contracts with its clients. The Company does not have the option to extend unilaterally the contracts upon expiration of their terms. The Company's contracts typically do not require clients to make any minimum purchases, and contracts are cancelable by clients under certain conditions. The failure of clients to renew or to fully use any contracts, or the cancellation of contracts, could have a material adverse effect on the Company's financial condition and results of operations. The Company's future success depends in large part on the continued service of its key management, sales, product development, and operational personnel. The Company is particularly dependent on its executive officers. Only two of those executive officers are parties to employment agreements with the Company, and those agreements are terminable by them upon 30 days' notice. The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense. The Company may not be successful in attracting and retaining the personnel it requires, which could have a material adverse effect on the financial condition and results of operations of the Company. The Company relies on a combination of trade secret and copyright laws, nondisclosure agreements, and other contractual and technical measures to protect its proprietary rights in its products. There can be no assurance that these provisions will be adequate to protect its proprietary rights. Although the Company believes that its intellectual property rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or the Company's clients. The Company's business strategy includes a significant commitment to the marketing of its products and services internationally, and the Company has begun to acquire and establish operations outside of the U.S. The Company is subject to certain inherent risks associated with operating internationally. Risks include product development to meet local requirements, difficulties in staffing and management, reliance on independent distributors or strategic alliance partners, fluctuations in foreign currency exchange rates, compliance with foreign regulatory requirements, variability of foreign economic conditions, changing restrictions imposed by U.S. export laws, and competition from U.S.-based companies which have established international operations. There can be no assurance that the Company will be able to manage successfully the risks related to selling its products and services in international markets. The inability to manage these risks successfully would have a material adverse effect on the financial condition and results of operations of the Company. -----END PRIVACY-ENHANCED MESSAGE-----