-----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, CryDC5OsXTbzUSABUGVAWMiqWAxr5AIheDwotbsSx0rPpQ7+RDCDYQk6HfmjSwQO ymf1C4Dke3k9iiuVzf6Hxg== /in/edgar/work/0000927356-00-002109/0000927356-00-002109.txt : 20001115 0000927356-00-002109.hdr.sgml : 20001115 ACCESSION NUMBER: 0000927356-00-002109 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 20000930 FILED AS OF DATE: 20001114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: [7374 ] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27512 FILM NUMBER: 766000 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 0001.txt FORM 10-Q FORM 10-Q UNITED STATES 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 September 30, 2000 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 November 10, 2000: 52,503,957 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q For the Quarter Ended September 30, 2000 INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of September 30, 2000 and December 31, 1999.................................................... 3 Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2000 and 1999 ................................ 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2000 and 1999................................. 5 Notes to Condensed Consolidated Financial Statements..................... 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.................................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 18 Part II - OTHER INFORMATION Item 2. Legal Proceedings........................................................ 19 Item 6. Exhibits and Reports on Form 8-K......................................... 19 Signatures............................................................... 20 Index to Exhibits........................................................ 21
2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
September 30, December 31, 2000 1999 ---------------- --------------- ASSETS (unaudited) ------ Current assets: Cash and cash equivalents................................................................ $ 50,776 $ 48,676 Short-term investments................................................................... 32,958 -- ---------------- --------------- Total cash, cash equivalents and short-term investments................................ 83,734 48,676 Accounts receivable- Trade- Billed, net of allowance of $4,150 and $2,975...................................... 93,767 67,477 Unbilled........................................................................... 4,510 8,311 Other.................................................................................. 905 909 Deferred income taxes.................................................................... 2,437 1,972 Other current assets..................................................................... 4,787 2,850 ---------------- --------------- Total current assets................................................................... 190,140 130,195 ---------------- --------------- Property and equipment, net of depreciation of $39,332 and $31,864.......................... 35,908 26,507 Software, net of amortization of $38,647 and $37,251........................................ 4,750 6,145 Noncompete agreements and goodwill, net of amortization of $30,039 and $29,727............................................................................... 2,039 2,652 Client contracts and related intangibles, net of amortization of $27,810 and $24,779....................................................................... 53,413 55,343 Deferred income taxes....................................................................... 48,627 52,845 Other assets................................................................................ 766 1,281 ---------------- --------------- Total assets.......................................................................... $ 335,643 $ 274,968 ================ =============== LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current maturities of long-term debt..................................................... $ 24,615 $ 21,711 Customer deposits........................................................................ 11,406 10,549 Trade accounts payable................................................................... 11,228 9,450 Accrued employee compensation............................................................ 14,837 16,386 Deferred revenue......................................................................... 6,908 16,746 Accrued income taxes..................................................................... 13,497 11,710 Other current liabilities................................................................ 14,093 11,551 ---------------- --------------- Total current liabilities.............................................................. 96,584 98,103 ---------------- --------------- Non-current liabilities: Long-term debt, net of current maturities................................................ 39,385 59,289 Deferred revenue......................................................................... 476 714 ---------------- --------------- Total non-current liabilities.......................................................... 39,861 60,003 ---------------- --------------- 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; 52,418,089 shares and 51,638,629 shares outstanding ................................... 532 523 Common stock warrants; 3,000,000 warrants outstanding.................................... 26,145 26,145 Additional paid-in capital............................................................... 157,152 136,373 Deferred employee compensation........................................................... -- (48) Notes receivable from employee stockholders.............................................. (21) (115) Accumulated other comprehensive income: Unrealized loss on short-term investments classified as available-for-sale, net of tax........................................................................... (39) -- Cumulative translation adjustments..................................................... (697) (120) Treasury stock, at cost, 830,986 shares and 722,486 shares............................... (24,075) (20,374) Accumulated earnings (deficit)........................................................... 40,201 (25,522) ---------------- --------------- Total stockholders' equity ............................................................ 199,198 116,862 ---------------- --------------- Total liabilities and stockholders' equity............................................. $ 335,643 $ 274,968 ================ ===============
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (in thousands, except per share amounts)
Three months ended Nine months ended ----------------------------- ----------------------------- September 30, September 30, September 30, September 30, 2000 1999 2000 1999 ------------- ------------- ------------- ------------- Revenues: Processing and related services................. $ 74,622 $ 64,625 $ 218,170 $ 187,205 Software and professional services.............. 27,448 19,409 72,025 44,426 --------- --------- --------- --------- Total revenues.......................... 102,070 84,034 290,195 231,631 --------- --------- --------- --------- Cost of Revenues: Cost of processing and related services......... 26,863 24,262 78,948 71,120 Cost of software and professional services...... 11,495 10,279 31,914 25,016 --------- --------- --------- --------- Total cost of revenues.................. 38,358 34,541 110,862 96,136 --------- --------- --------- --------- Gross margin (exclusive of depreciation)............ 63,712 49,493 179,333 135,495 --------- --------- --------- --------- Operating expenses: Research and development........................ 10,687 8,681 30,941 24,518 Selling, general and administrative............. 12,618 11,622 33,790 33,940 Depreciation.................................... 3,076 2,563 8,850 7,467 --------- --------- --------- --------- Total operating expenses................ 26,381 22,866 73,581 65,925 --------- --------- --------- --------- Operating income.................................... 37,331 26,627 105,752 69,570 --------- --------- --------- --------- Other income (expense): Interest expense............................. (1,455) (1,657) (4,478) (5,690) Interest and investment income, net.......... 1,683 751 4,301 2,208 Other........................................ (13) 31 (30) 14 --------- --------- --------- --------- Total other............................. 215 (875) (207) (3,468) --------- --------- --------- --------- Income before income taxes.......................... 37,546 25,752 105,545 66,102 Income tax provision............................ (14,118) (9,691) (39,822) (24,966) --------- --------- --------- --------- Net income.......................................... $ 23,428 $ 16,061 $ 65,723 $ 41,136 ========= ========= ========= ========= Basic net income per common share: Net income available to common stockholders...... $ 0.45 $ 0.31 $ 1.26 $ 0.80 ========= ========= ========= ========= Weighted average common shares................... 52,314 51,744 52,109 51,673 ========= ========= ========= ========= Diluted net income per common share: Net income available to common stockholders...... $ 0.41 $ 0.29 $ 1.16 $ 0.76 ========= ========= ========= ========= Weighted average common shares................... 56,878 54,536 56,873 54,261 ========= ========= ========= =========
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)
Nine months ended ---------------------------------- September 30, September 30, 2000 1999 --------------- ------------- Cash flows from operating activities: Net income............................................................................ $ 65,723 $ 41,136 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation....................................................................... 8,850 7,467 Amortization....................................................................... 5,476 11,773 Deferred income taxes.............................................................. 3,777 5,292 Stock-based employee compensation.................................................. 48 220 Changes in operating assets and liabilities: Trade accounts and other receivables, net......................................... (22,503) (14,918) Other current and noncurrent assets............................................... (1,969) (1,581) Accounts payable and accrued liabilities.......................................... 3,816 12,311 -------- -------- Net cash provided by operating activities...................................... 63,218 61,700 -------- -------- Cash flows from investing activities: Purchases of property and equipment, net.............................................. (18,216) (6,264) Purchase of short-term investments.................................................... (33,021) -- Conversion and other client incentive payments........................................ (1,100) (23,482) -------- -------- Net cash used in investing activities.......................................... (52,337) (29,746) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock................................................ 12,335 7,847 Repurchase of common stock............................................................ (3,659) (6,545) Payments on notes receivable from employee stockholders............................... 81 391 Payments on long-term debt............................................................ (17,000) (42,250) -------- -------- Net cash used in financing activities.......................................... (8,243) (40,557) -------- -------- Effect of exchange rate fluctuations on cash............................................. (538) (27) -------- -------- Net increase (decrease) in cash and cash equivalents..................................... 2,100 (8,630) Cash and cash equivalents, beginning of period........................................... 48,676 39,593 -------- -------- Cash and cash equivalents, end of period................................................. $ 50,776 $ 30,963 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for- Interest............................................................................. $ 4,429 $ 5,101 Income taxes......................................................................... $ 25,783 $ 11,743
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 September 30, 2000, and for the three and nine 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, 1999, filed with the Securities and Exchange Commission (the Company's 1999 10-K). The results of operations for the three and nine months ended September 30, 2000, are not necessarily indicative of the results for the entire year ending December 31, 2000. 2. SHORT-TERM INVESTMENTS During the three months ended September 30, 2000, the Company began investing its excess cash balances in various short-term investments. The Company classifies all of its short-term investments as available-for-sale in accordance with SFAS No. 115, "Accounting for Certain Investments in Debt and Equity Securities". Such short-term investments consist primarily of corporate and governmental debt securities (principally commercial paper as of September 30, 2000) which are stated at market value, with unrealized gains and losses on such securities reflected, net of the related income tax effect, as other comprehensive income in stockholders' equity. Realized gains and losses on short-term investments are included in earnings and are derived using the specific identification method for determining the cost of the securities. There were no realized gains or losses on these securities during the three months ended September 30, 2000. It is the Company's intent to maintain a liquid portfolio to take advantage of investment opportunities and provide a means to access such funds if needed; therefore, all securities are considered to be available-for-sale and are classified as current assets. 3. STOCKHOLDERS' EQUITY Common Stock Warrants. During the nine months ended September 30, 2000, AT&T held 3.0 million warrants to purchase the Company's Common Stock at an exercise price of $12 per share. See additional discussion of the Common Stock Warrants in the Company's 1999 10-K. Stock Repurchase Program. In August 1999, the Company's Board of Directors approved a stock repurchase program which authorized the Company at its discretion to purchase up to a total of 5.0 million shares of its Common Stock from time to time as market and business conditions warrant. This program represents approximately 10% of the Company's outstanding shares. During the three months ended September 30, 2000, the Company repurchased 15,000 shares under the program for approximately $671,000 ($44.73 per share). During the three months ended March 31, 2000, the Company repurchased 75,000 shares of Common Stock for approximately $3.0 million ($39.92 per share). As of September 30, 2000, the Company has purchased a total of 745,500 shares for approximately $23.9 million (a weighted-average price of $32.07 per share) since the program was announced. The repurchased shares are held as treasury shares. Income Tax Benefit from Exercise of Stock Options. Income tax benefits associated with nonqualified stock options and disqualifying dispositions of incentive stock options reduced accrued income taxes by 6 $2.3 million and $0.9 million for the three months ended September 30, 2000 and 1999, and $8.5 million and $3.0 million for the nine months ended September 30, 2000 and 1999, respectively. Such benefits were recorded as an increase to additional paid-in capital and are included in net cash provided by operating activities in the Company's Condensed Consolidated Statements of Cash Flows. Subsequent Event. On October 30, 2000, the Company executed a Warrant Exercise and Stock Purchase Agreement with AT&T for 1.0 million shares. See Note 9 for additional discussion of the agreement and related transactions. 4. NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is consistent with the calculation of basic net income per common share while giving effect to dilutive potential common shares outstanding during the period. Basic and diluted earnings per share ("EPS") are presented on the face of the Company's Condensed Consolidated Statements of Income. No reconciliation of the EPS numerator is necessary as the basic and diluted net income available to common stockholders is the same for all periods presented. The reconciliation of the EPS denominator is as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Basic common shares outstanding................... 52,314 51,744 52,109 51,673 Dilutive effect of common stock options........... 2,289 1,443 2,485 2,138 Dilutive effect of common stock warrants.......... 2,275 1,349 2,279 450 ------ ------ ------ ------ Diluted common shares outstanding................. 56,878 54,536 56,873 54,261 ====== ====== ====== ======
Common Stock options of 140,000 shares and 2,099,150 shares for the three months ended September 30, 2000 and 1999, and 125,000 shares and 556,150 shares for the nine months ended September 30, 2000 and 1999, respectively, have been excluded from the computation of diluted EPS because the exercise prices of these options were greater than the average market price of the common shares for the respective periods. The diluted potential common shares related to the Common Stock warrants were excluded from the computation of diluted common shares outstanding for the six months ended June 30, 1999, as the warrants were not considered exercisable until the third quarter of 1999. During the three and nine months ended September 30, 2000, all of the 3.0 million warrants were considered exercisable. 7 5. COMPREHENSIVE INCOME The Company's components of comprehensive income were as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ------------- ------------- 2000 1999 2000 1999 ---- ---- ---- ---- Net income.................... $23,428 $16,061 $65,723 $41,136 Other comprehensive income, net of tax, if any: Foreign currency translation adjustments.............. (174) 290 (577) (17) Unrealized loss on short-term investments... (39) --- (39) --- ------- ------- ------- ------- Comprehensive income.......... $23,215 $16,351 $65,107 $41,119 ======= ======= ======= =======
6. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS Certain September 30, 1999 amounts have been reclassified to conform with the September 30, 2000 presentation. 7. SERVICE AGREEMENTS The Company has service agreements with First Data Corporation ("FDC") and its subsidiaries for data processing services, communication charges and other related services. FDC provides data processing and related services required for the operation of the Company's CCS system. Effective April 1, 2000, the Company extended its contract with FDC for data processing services through June 30, 2005. The contract was previously scheduled to expire on December 31, 2001. 8. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, "Revenue Recognition". This SAB provides additional guidance on revenue recognition criteria and related disclosure requirements. This SAB is effective for the Company in the fourth quarter of 2000, with retroactive application to January 1, 2000. Adoption of this SAB is not expected to have a significant effect on the Company's consolidated financial statements. 9. SUBSEQUENT EVENT - WARRANT EXERCISE AND STOCK REPURCHASE On October 30, 2000, the Company executed a Warrant Exercise and Stock Purchase Agreement with AT&T. Under the agreement, AT&T exercised its right to purchase 1.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $12.0 million. Immediately following the exercise of the warrant, the Company repurchased the 1.0 million shares at $47.42 per share (an average of the closing price over the five-day trading period ended October 26, 2000), for a total repurchase price of $47.4 million. As a result, the net cash outlay paid to AT&T for this transaction was $35.4 million. The net repurchase price was funded from the Company's current cash and short-term investment balances. 8 The 1.0 million shares repurchased from AT&T are intended to be held as treasury shares by the Company. These shares were repurchased under the guidelines of the Company's stock repurchase program. Including the repurchase of these 1.0 million shares, the total shares repurchased under the Company's program since its inception in August 1999 is 1.75 million shares, at a total repurchase price of $71.3 million (a weighted-average price of $40.86 per share). The Company is authorized to repurchase up to a total of 5.0 million shares under its stock repurchase program. After this transaction, AT&T still holds warrants to purchase up to 2.0 million additional shares of the Company's Common Stock, with an exercise price of $12 per share. These warrants are exercisable until September 19, 2002, at which time the warrants expire. 9 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):
Three months ended September 30, Nine months ended September 30, -------------------------------------------- ----------------------------------------- 2000 1999 2000 1999 ---------------------- --------------------- --------------------- ------------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue --------- ---------- ----------- --------- --------- ---------- -------- ------- Revenues: Processing and related services........... $ 74,622 73.1% $ 64,625 76.9% $ 218,170 75.2% $ 187,205 80.8% Software and professional services........ 27,448 26.9 19,409 23.1 72,025 24.8 44,426 19.2 --------- -------- --------- -------- --------- --------- --------- ------ Total revenues.................. 102,070 100.0 84,034 100.0 290,195 100.0 231,631 100.0 --------- -------- --------- -------- --------- --------- --------- ------ Cost of Revenues: Cost of processing and related services... 26,863 26.3 24,262 28.9 78,948 27.2 71,120 30.7 Cost of software and professional services................................ 11,495 11.3 10,279 12.2 31,914 10.9 25,016 10.8 --------- -------- --------- -------- --------- --------- --------- ------ Total cost of revenues.......... 38,358 37.6 34,541 41.1 110,862 38.1 96,136 41.5 --------- -------- --------- -------- --------- --------- --------- ------ Gross margin (exclusive of depreciation)... 63,712 62.4 49,493 58.9 179,333 61.8 135,495 58.5 --------- -------- --------- -------- --------- --------- --------- ------ Operating expenses: Research and development.................. 10,687 10.5 8,681 10.3 30,941 10.7 24,518 10.6 Selling, general and administrative....... 12,618 12.3 11,622 13.9 33,790 11.5 33,940 14.7 Depreciation.............................. 3,076 3.0 2,563 3.0 8,850 3.0 7,467 3.2 --------- -------- --------- -------- --------- --------- --------- ------ Total operating expenses............. 26,381 25.8 22,866 27.2 73,581 25.2 65,925 28.5 --------- -------- --------- -------- --------- --------- --------- ------ Operating income........................... 37,331 36.6 26,627 31.7 105,752 36.6 69,570 30.0 --------- -------- --------- -------- --------- --------- --------- ------ Other income (expense): Interest expense......................... (1,455) (1.4) (1,657) (2.0) (4,478) (1.5) (5,690) (2.5) Interest and investment income, net...... 1,683 1.6 751 0.9 4,301 1.5 2,208 1.0 Other.................................... (13) -- 31 - (30) - 14 - --------- -------- --------- -------- --------- --------- --------- ------ Total other............................ 215 0.2 (875) (1.1) (207) - (3,468) (1.5) --------- -------- --------- -------- --------- --------- --------- ------ Income before income taxes................. 37,546 36.8 25,752 30.6 105,545 36.6 66,102 28.5 Income tax provision..................... (14,118) (13.8) (9,691) (11.5) (39,822) (13.7) (24,966) (10.8) --------- -------- --------- -------- --------- --------- --------- ------ Net income................................. $ 23,428 23.0% $ 16,061 19.1% $ 65,723 22.9% $ 41,136 17.7% ========= ======== ========= ======== ========= ========= ========= =======
10 Three Months Ended September 30, 2000 Compared to Three Months Ended September 30, 1999 Revenues. Total revenues for the three months ended September 30, 2000, increased 21.5% to $102.1 million, from $84.0 million for the three months ended September 30, 1999. Revenues from processing and related services for the three months ended September 30, 2000, increased 15.5% to $74.6 million, from $64.6 million for the three months ended September 30, 1999. Of the total increase in revenue, approximately 53% resulted from an increase in the number of customers of the Company's clients which were serviced by the Company and approximately 47% was due to increased revenue per customer. Customers serviced as of September 30, 2000 and 1999, respectively, were 34.8 million and 32.7 million, an increase of 6.5%. The increase in the number of customers serviced was due to the conversion of additional customers by new and existing clients to the Company's systems, and internal customer growth experienced by existing clients. From July 1, 2000 through September 30, 2000, the Company converted and processed approximately 650,000 new customers on its systems. Revenues from software and professional services for the three months ended September 30, 2000, increased 41.4% to $27.4 million, from $19.4 million for the three months ended September 30, 1999. The Company sells its software products and professional services principally to its existing client base to (i) enhance the core functionality of its service bureau processing application, (ii) increase the efficiency and productivity of its clients' operations, and (iii) allow clients to effectively rollout new products and services to new and existing markets. The increase in revenue between years relates to the continued strong demand for the Company's existing software products and the rollout of additional new products and services to meet the changing needs of the Company's client base. Total annualized domestic revenue per customer account for the third quarter of 2000 was $11.71, compared to $10.16 for the same period in 1999, an increase of 15.3%. Revenue per customer increased primarily due to increased software sales to new and existing clients, and to a lesser degree, increased processing revenue per customer, as follows: Three Months Ended September 30 ------------------ 2000 1999 ---- ---- Processing and related services............... $ 8.59 $ 8.05 Software and professional services............ 3.12 2.11 ------ ------ Total.................................... $11.71 $10.16 ====== ====== Cost of Processing and Related Services. Direct processing costs as a percentage of related processing revenues were 36.0% (64.0% gross margin) for the three months ended September 30, 2000, compared to 37.5% (62.5% gross margin) for the three months ended September 30, 1999. The decrease in costs as a percentage of related revenues between periods relates primarily to (i) the Company's continued focus on cost controls and cost reductions within its core processing business, and (ii) a decrease in amortization of client contracts from the CSG Acquisition, which became fully amortized as of November 30, 1999. Such amortization was $0.75 million for the third quarter of 1999. Cost of Software and Professional Services. The cost of software and professional services as a percentage of related revenues was 41.9% (58.1% gross margin) for the three months ended September 30, 2000, compared to 53.0% (47.0% gross margin) for the three months ended September 30, 1999. The improvement between periods relates primarily to (i) better overall leveraging of costs as a result of higher software and professional services revenues for the quarter, and (ii) the timing of the sales cycle for new products and services. Gross Margin. Overall gross margin for the three months ended September 30, 2000, increased 28.7% to $63.7 million, from $49.5 million for the three months ended September 30, 1999, due primarily to revenue growth. The overall gross margin percentage increased to 62.4% for the three months ended September 30, 2000, compared to 58.9% for the three months ended September 30, 1999. The overall increase in the gross 11 margin percentage is due primarily to the increase in gross margin for software and professional services due to the factors discussed above. Research and Development Expense. Research and development (R&D) expense for the three months ended September 30, 2000, increased 23.1% to $10.7 million, from $8.7 million for the three months ended September 30, 1999. As a percentage of total revenues, R&D expense increased to 10.5% for the three months ended September 30, 2000, from 10.3% for the three months ended September 30, 1999. The Company did not capitalize any software development costs during the three months ended September 30, 2000 and 1999. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products which are in development and enhancements of the Company's existing products. The Company's development efforts for the third quarter of 2000 were focused primarily on the development of products to: . increase the efficiencies and productivity of its clients' operations, . address the systems needed to support the convergence of the communications markets, . support a web-enabled, customer self-care and electronic bill presentment/payment application, . allow clients to effectively rollout new products and services to new and existing markets, such as residential telephony, High-Speed Data/ISP and IP markets (including CSG.net, the Company's ASP offering to the ISP market), and . address the international customer care and billing system market. The Company expects its development efforts to focus on similar tasks through the remainder of 2000. Selling, General and Administrative Expense. Selling, general and administrative (SG&A) expense for the three months ended September 30, 2000, increased 8.6% to $12.6 million, from $11.6 million for the three months ended September 30, 1999. As a percentage of total revenues, SG&A expense decreased to 12.3% for the three months ended September 30, 2000, from 13.9% for the three months ended September 30, 1999. The increase in SG&A expense relates primarily to the continued expansion of the Company's management and administrative staff and other administrative costs to support the Company's overall growth, offset by a decrease related to the noncompete agreement from the CSG Acquisition becoming fully amortized as of November 30, 1999 (such amortization was $1.2 million for the third quarter of 1999). Depreciation Expense. Depreciation expense for the three months ended September 30, 2000, increased 20.0% to $3.1 million, from $2.6 million for the three months ended September 30, 1999. The increase in expense relates to capital expenditures made during the last three months of 1999 and the first nine months of 2000 in support of the overall growth of the Company, consisting principally of (i) computer hardware and related equipment, (ii) statement processing equipment, and (iii) facilities expansion. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the three months ended September 30, 2000, was $37.3 million or 36.6% of total revenues, compared to $26.6 million or 31.7% of total revenues for the three months ended September 30, 1999. The increase between years relates to the factors discussed above. Interest Expense. Interest expense for the three months ended September 30, 2000, decreased 12.2% to $1.5 million, from $1.7 million for the three months ended September 30, 1999, with the decrease attributable primarily to (i) scheduled principal payments on the Company's long-term debt, and (ii) optional prepayments on long-term debt during 1999. The balance of the Company's long- term debt as of September 30, 2000, was $64.0 million, compared to $86.0 million as of September 30, 1999, a decrease of $22.0 million. Interest and Investment Income. Interest and investment income for the three months ended September 30, 2000, increased 124.1% to $1.7 million, from $0.8 million for the three months ended September 30, 1999, 12 with the increase attributable primarily to an increase in operating funds available for investment. Income Tax Provision. For the three months ended September 30, 2000, the Company recorded an income tax provision of $14.1 million, or an effective income tax rate of approximately 38%, which represents the Company's estimate of the effective book income tax rate for 2000. The Company's effective income tax rate for 1999 was also approximately 38%. As of September 30, 2000, management continues to believe that sufficient taxable income will be generated to realize the entire benefit of its deferred tax assets. The Company's assumptions of future profitable operations are supported by its strong operating performances over the last several years. Nine Months Ended September 30, 2000 Compared to Nine Months Ended September 30, 1999 Revenues. Total revenues for the nine months ended September 30, 2000, increased 25.3% to $290.2 million, from $231.6 million for the nine months ended September 30, 1999. Revenues from processing and related services for the nine months ended September 30, 2000, increased 16.5% to $218.2 million, from $187.2 million for the nine months ended September 30, 1999. Of the total increase in revenue, approximately 65% resulted from an increase in the number of customers of the Company's clients which were serviced by the Company and approximately 35% was due to increased revenue per customer. The increase in the number of customers serviced was due to the conversion of additional customers by new and existing clients to the Company's systems, and internal customer growth experienced by existing clients. From January 1, 2000 through September 30, 2000, the Company converted and processed approximately 900,000 new customers on its systems. Revenues from software and professional services for the nine months ended September 30, 2000, increased 62.1% to $72.0 million, from $44.4 million for the nine months ended September 30, 1999. The Company sells its software products and professional services principally to its existing client base to (i) enhance the core functionality of its service bureau processing application, (ii) increase the efficiency and productivity of its clients' operations, and (iii) allow clients to effectively rollout new products and services to new and existing markets. The increase in revenue between years relates to the continued strong demand for the Company's existing software products and the rollout of additional new products and services to meet the changing needs of the Company's client base. Total annualized domestic revenue per customer account for the nine months ended September 30, 2000 was $11.20, compared to $9.59 for the same period in 1999, an increase of 16.8%. Revenue per customer increased primarily due to increased software sales to new and existing clients, and to a lesser degree, increased processing revenue per customer, as follows: Nine Months Ended September 30 ------------------ 2000 1999 ---- ---- Processing and related services.................. $ 8.44 $ 8.03 Software and professional services............... 2.76 1.56 ------ ------ Total....................................... $11.20 $ 9.59 ====== ====== Cost of Processing and Related Services. Direct processing costs as a percentage of related processing revenues were 36.2% (63.8% gross margin) for the nine months ended September 30, 2000, compared to 38.0% (62.0% gross margin) for the nine months ended September 30, 1999. The decrease in costs as a percentage of related revenues between periods relates primarily to (i) the Company's continued focus on cost controls and cost reductions within its core processing business, and (ii) a decrease in amortization of client contracts from the CSG Acquisition, which became fully amortized as of November 30, 1999. Such amortization was $2.3 million for the nine months ended September 30, 1999. 13 Cost of Software and Professional Services. The cost of software and professional services as a percentage of related revenues was 44.3% (55.7% gross margin) for the nine months ended September 30, 2000, compared to 56.3% (43.7% gross margin) for the nine months ended September 30, 1999. The improvement between periods relates primarily to (i) better overall leveraging of costs as a result of higher software and professional services revenues for the period, and (ii) the timing of the sales cycle for new products and services. Gross Margin. Overall gross margin for the nine months ended September 30, 2000, increased 32.4% to $179.3 million, from $135.5 million for the nine months ended September 30, 1999, due primarily to revenue growth. The overall gross margin percentage increased to 61.8% for the nine months ended September 30, 2000, compared to 58.5% for the nine months ended September 30, 1999. The overall increase in the gross margin percentage is due primarily to the increase in gross margin for software and professional services due to the factors discussed above. Research and Development Expense. R&D expense for the nine months ended September 30, 2000, increased 26.2% to $30.9 million, from $24.5 million for the nine months ended September 30, 1999. As a percentage of total revenues, R&D expense increased to 10.7% for the nine months ended September 30, 2000, from 10.6% for the nine months ended September 30, 1999. The Company did not capitalize any software development costs during the nine months ended September 30, 2000 and 1999. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products which are in development and enhancements of the Company's existing products. The Company's development efforts for the nine months ended September 30, 2000 were focused primarily on the development of products to: . increase the efficiencies and productivity of its clients' operations, . address the systems needed to support the convergence of the communications markets, . support a web-enabled, customer self-care and electronic bill presentment/payment application, . allow clients to effectively rollout new products and services to new and existing markets, such as residential telephony, High-Speed Data/ISP and IP markets (including CSG.net, the Company's ASP offering to the ISP market), and . address the international customer care and billing system market. Selling, General and Administrative Expense. SG&A expense for the nine months ended September 30, 2000, decreased 0.4% to $33.8 million, from $33.9 million for the nine months ended September 30, 1999. As a percentage of total revenues, SG&A expense decreased to 11.5% for the nine months ended September 30, 2000, from 14.7% for the nine months ended September 30, 1999. The decrease in SG&A expense relates primarily to the noncompete agreement from the CSG Acquisition becoming fully amortized as of November 30, 1999 (such amortization was $3.5 million for the nine months ended September 30, 1999), offset by an increase in certain SG&A expenses related primarily to the continued expansion of the Company's management and administrative staff and other administrative costs to support the Company's overall growth. Depreciation Expense. Depreciation expense for the nine months ended September 30, 2000, increased 18.5% to $8.9 million, from $7.5 million for the nine months ended September 30, 1999. The increase in expense relates to capital expenditures made during 1999 and the first nine months of 2000 in support of the overall growth of the Company, consisting principally of (i) computer hardware and related equipment, (ii) statement processing equipment, and (iii) facilities expansion. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the nine months ended September 30, 2000, was $105.8 million or 36.6% of total revenues, compared to $69.6 million or 30.0% of total revenues for the nine months ended September 30, 1999. The increase between years relates to the factors discussed above. Interest Expense. Interest expense for the nine months ended September 30, 2000, decreased 21.3% to $4.5 14 million, from $5.7 million for the nine months ended September 30, 1999, with the decrease attributable primarily to (i) scheduled principal payments on the Company's long-term debt, and (ii) optional prepayments on long-term debt during 1999. Interest and Investment Income. Interest and investment income for the nine months ended September 30, 2000, increased 94.8% to $4.3 million, from $2.2 million for the nine months ended September 30, 1999, with the increase attributable primarily to an increase in operating funds available for investment. Income Tax Provision. For the nine months ended September 30, 2000, the Company recorded an income tax provision of $39.8 million, or an effective income tax rate of approximately 38%, which represents the Company's estimate of the effective book income tax rate for 2000. The Company's effective income tax rate for 1999 was also approximately 38%. Financial Condition, Liquidity and Capital Resources - ---------------------------------------------------- As of September 30, 2000, the Company's principal sources of liquidity included cash, cash equivalents and short-term investments of $83.7 million. See Note 2 to the Condensed Consolidated Financial Statements for additional discussion regarding short-term investments. The Company also has a revolving credit facility in the amount of $40.0 million, of which there were no borrowings outstanding. The Company's ability to borrow under the revolving credit facility is subject to maintenance of certain levels of eligible receivables. At September 30, 2000, all of the $40.0 million revolving credit facility was available to the Company. The revolving credit facility expires in September 2002. As of September 30, 2000 and December 31, 1999, respectively, the Company had $93.8 million and $67.5 million in net billed trade accounts receivable. The increase between periods relates primarily to continued revenue growth and the timing of billings and collections. The Company's billed trade accounts receivable balance includes billings for several non-revenue items, such as postage, communication lines, travel and entertainment reimbursements, sales tax, and deferred items. As a result, the Company evaluates its performance in collecting its accounts receivable through its calculation of days billings outstanding (DBO) rather than a typical days sales outstanding (DSO) calculation. DBO is calculated based on the billings for the period (including non-revenue items) divided by the average net billed trade accounts receivable balance for the period. The Company's DBO calculations for the quarters ended September 30, 2000 and 1999 were 59 days and 50 days, respectively. The Company's target range for DBOs is 55 to 60 days. Total deferred revenues decreased by approximately $10.1 million from December 31, 1999 to September 30, 2000, due primarily to performance on several contracts during the first quarter that had previously been signed and billed in the latter part of 1999. The deferred revenue balance decreased by approximately $1.7 million from June 30, 2000, with the decrease primarily related to the recognition of software maintenance fees, which are generally billed on an annual basis at the beginning of the year and then recognized ratably over the year as the services are performed. During the nine months ended September 30, 2000, the Company generated $63.2 million of net cash flow from operating activities. Cash generated from these sources and the proceeds of $12.3 million from the issuance of common stock through the Company's stock incentive plans were used to (i) fund capital expenditures of $18.2 million, (ii) purchase short-term investments of $33.0 million, (iii) pay a conversion bonus of $1.1 million, (iv) repurchase 90,000 shares of the Company's Common Stock for $3.7 million under its stock repurchase program, and (v) repay long-term debt of $17.0 million, which included $15.7 million of scheduled payments and optional prepayments of $1.3 million. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the nine months ended September 30, 2000 was $119.6 million, or 41.2% of total revenues, compared to $88.2 million, or 38.1% of total revenues for the nine months ended September 30, 1999. EBITDA is presented here as a measure of the Company's debt service ability and is not intended to represent cash flows for the periods. 15 Interest rates for the term and revolving credit facilities are chosen at the option of the Company and are based on the LIBOR rate or the prime rate, plus an additional spread, with the spread dependent upon the Company's leverage ratio. As of September 30, 2000, the spread on the LIBOR rate and the prime rate was 0.50% and 0%, respectively. As of September 30, 2000, the entire amount of the debt was under a one-month LIBOR contract with an interest rate of 7.12% (i.e., LIBOR at 6.62% plus spread of 0.50%), compared to a weighted average rate of 6.55% at December 31, 1999. In August 1999, the Company's Board of Directors approved a stock repurchase program which authorized the Company at its discretion to purchase up to a total of 5.0 million shares of its Common Stock from time to time as market and business conditions warrant. During the nine months ended September 30, 2000, the Company repurchased 90,000 shares of Common Stock for approximately $3.7 million ($40.73 per share). As of September 30, 2000, the Company had purchased a total of 745,500 shares for approximately $23.9 million (a weighted-average price of $32.07 per share) since the program was announced. The repurchased shares are held as treasury shares. On October 30, 2000, the Company executed a Warrant Exercise and Stock Purchase Agreement with AT&T. Under the agreement, AT&T exercised its right to purchase 1.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $12.0 million. Immediately following the exercise of the warrant, the Company repurchased the 1.0 million shares at $47.42 per share (an average of the closing price over the five-day trading period ended October 26, 2000), for a total repurchase price of $47.4 million. As a result, the net cash outlay paid to AT&T for this transaction was $35.4 million. See Note 9 to the Condensed Consolidated Financial Statements for additional discussion of the warrant exercise and stock repurchase. The Company continues to make significant investments in capital equipment, facilities, research and development, and at its discretion, may continue to make stock repurchases. The Company had no significant capital commitments as of September 30, 2000. The Company believes that cash generated from operations, together with the current cash, cash equivalents, and short-term investments, and the amount available under its current revolving credit facility will be sufficient to meet its anticipated cash requirements for operations, income taxes, debt service, capital expenditures, and stock repurchases for both its short and long-term purposes. The Company also believes it has significant unused borrowing capacity and could obtain additional cash resources by amending its current credit facility and/or establishing a new credit facility. Forward-Looking Statements - -------------------------- This report contains a number of forward-looking statements relative to future plans of the Company and its expectations concerning the customer care and billing industry, as well as the converging telecommunications industry it serves, and similar matters. Such forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are contained in Exhibit 99.01 of this report. Exhibit 99.01 constitutes an integral part of this report, and readers are strongly encouraged to read that section closely in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations. AT&T Demand for Arbitration - ---------------------------- On September 27, 2000, the Company received a Demand for Arbitration from AT&T relating to the Master Subscriber Management System Agreement (the AT&T Contract) the companies entered into in 1997. The arbitration demand contained three claims. First, AT&T claimed that the Company had failed to fulfill certain of its obligations under the contract with respect to telephony software and services. Second, AT&T asked for a declaratory judgment that the exclusivity clause of the contract does not apply to customers that were acquired by AT&T after execution of the agreement with the Company. Third, AT&T claimed that 16 the Company had breached the Most Favored Nation clause of the agreement. On October 10, 2000, AT&T agreed to dismiss with prejudice its Demand for Arbitration with the Company. In connection with the dismissal, the companies agreed to amend the AT&T Contract. A copy of the amendment is included in the accompanying Exhibits to this Form 10-Q. The amendment includes, among other things, the following significant items: . AT&T agreed to use its best efforts to convert 90 percent of the acquired MediaOne Group, Inc. (MediaOne) video and high-speed data customers to the Company's processing system by December 31, 2001, and the remaining 10 percent by June 30, 2002. Excluded from this obligation are any such customers that are sold or exchanged (or under contract to do the same) by AT&T prior to December 31, 2001. The Company expects to start converting the MediaOne customers onto its systems in the first quarter of 2001. . Once AT&T is processing certain incremental customers on the Company's system, AT&T shall benefit from specified, tiered processing fees. The Company does not believe this pricing change will have a material impact to its annual processing revenue per customer account. . The Company waived certain exclusivity rights pertaining to residential wireline telephony (i.e., AT&T's cable telephony initiative). The Company believes AT&T is in the process of determining its overall cable telephony architecture in support of its rollout efforts, and wanted more flexibility to determine which vendors should participate in that strategy. Until July 10, 2001, CSG has agreed to provide assistance in migrating AT&T's cable telephony customers (currently processed on the Company's systems) to the customer care and billing system of AT&T's designated third party, if any. The Company does not believe the loss of the AT&T cable telephony processing business would have a material impact on the Company's results of operations. . AT&T purchased expanded software licenses for the Company's call center and workforce automation applications. AT&T is expected to use the additional software licenses over the next 12 months as part of their rollout of these software products to support more markets and the conversion of the MediaOne customers to the Company's processing system. Dependence on AT&T - ------------------ AT&T completed its merger with Tele-Communications, Inc. (TCI) in March 1999 and recently completed its merger with MediaOne. During the nine months ended September 30, 2000 and 1999, revenues from AT&T and affiliated companies generated under the AT&T Contract represented approximately 47.4% and 47.5% of total revenues, respectively. There are inherent risks whenever this large of a percentage of total revenues is concentrated with one customer. One such risk is that, should AT&T's business generally decline or not grow as rapidly as anticipated, it would have a material impact on the Company's results of operations. Contract Rights and Obligations (as amended on October 10, 2000) - ---------------------------------------------------------------- The AT&T Contract expires in 2012. The AT&T Contract has minimum financial commitments over the term of the contract and includes exclusive rights to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high-speed data services, and print and mail services. The AT&T Contract contains certain performance criteria and other obligations to be met by the Company. The Company is required to perform certain remedial efforts and is subject to certain penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. The Company expects to perform successfully under the AT&T Contract, and is hopeful that it can continue to sell products and services to AT&T that are in excess of the minimum financial commitments and exclusive rights included in the contract. Should the Company fail to meet its obligations under the AT&T Contract, and should AT&T be successful in any action to either terminate the AT&T Contract in whole or in part, or collect damages caused by an alleged breach, it would have a material impact on the Company's results of operations. See Notes 3 and 9 to the Condensed Consolidated Financial Statements for discussion regarding the Company's Common Stock Warrants held by AT&T. 17 Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- There have been no material changes to the Company's market risks during the nine months ended September 30, 2000. See the Company's 1999 10-K for additional discussion regarding the Company's market risks. 18 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Item 1. None. Item 2. Legal Proceedings. On September 27, 2000, the Company received a Demand for Arbitration from AT&T relating to the Master Subscriber Management System Agreement (the AT&T Contract) the companies entered into in 1997. The arbitration demand contained three claims. First, AT&T claimed that the Company had failed to fulfill certain of its obligations under the contract with respect to telephony software and services. Second, AT&T asked for a declaratory judgment that the exclusivity clause of the contract does not apply to customers that were acquired by AT&T after execution of the agreement with the Company. Third, AT&T claimed that the Company had breached the Most Favored Nation clause of the agreement. On October 10, 2000, AT&T agreed to dismiss with prejudice its Demand for Arbitration with the Company. In connection with the dismissal, the companies agreed to amend the AT&T Contract. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion of this matter. Item 3-5. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 2.19L* Forty-Ninth Amendment to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and AT&T Broadband Management Corporation dated October 10, 2000 10.14A First Amendment to Employment Agreement with Neal C. Hansen, dated June 30, 2000 10.47 Employment Agreement with J. Richard Abramson, dated August 17, 2000 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 Form 8-K dated September 28, 2000, under Item 5, Other Events, was filed with the Securities and Exchange Commission which included a press release dated September 28, 2000. The press release announced that the Company had received a Demand for Arbitration from AT&T related to a Master Subscriber Management System Agreement the companies entered into in 1997. __________________ * Portions of the exhibit have been omitted pursuant to an application for confidential treatment, and the omitted portions have been filed separately with the Commission. 19 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: November 14, 2000 CSG SYSTEMS INTERNATIONAL, INC. /s/ Neal C. Hansen -------------------------------------- Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Peter E. Kalan ------------------------------ Greg A. Parker Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Randy R. Wiese -------------------------------------- Randy R. Wiese Vice President and Controller (Principal Accounting Officer) 20 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 2.19L* Forty-Ninth Amendment to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and AT&T Broadband Management Corporation dated October 10, 2000 10.14A First Amendment to Employment Agreement with Neal C. Hansen, dated June 30, 2000 10.47 Employment Agreement with J. Richard Abramson, dated August 17, 2000 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 __________________ * Portions of the exhibit have been omitted pursuant to an application for confidential treatment, and the omitted portions have been filed separately with the Commission. 21 EX-2.19 2 0002.txt 49TH AMENDMENT TO RESTATED AND AMENDED CSG MASTER EXHIBIT 2.19M ------------- Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). 49/th/ AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND AT&T BROADBAND MANAGEMENT CORPORATION This 49/th/ Amendment (the "Amendment") is executed this 10/th/ day of October, 2000, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG"), and AT&T Broadband Management Corporation (f/k/a TCI Cable Management Corporation) ("Customer"). CSG and Customer are parties to a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. The terms and conditions of this Amendment shall apply only with respect to Customer and, where specifically referenced herein, to (i) AT&T Broadband, LLC and any entity which is directly or indirectly wholly owned or majority owned by AT&T Broadband, LLC, and (ii) MediaOne Group, Inc. and any entity which is directly or indirectly wholly owned or majority owned by MediaOne Group, Inc. or which owns any of the Applicable MediaOne Systems (as defined in Section 7 herein) but only as it relates to the Applicable MediaOne Systems, but does not apply to other Partners or Affiliates, as defined in the Agreement. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. The parties hereto agree as follows: XML INTERFACE 1. For consideration of $(***) and other good and valuable consideration, CSG grants Customer the option, for 6 months from the date of this Amendment, to obtain the services specified in this Section 1, upon written notice to CSG at any time during the option period. For the fees set forth in Exhibit B-3, CSG shall (by a subsequently mutually agreed upon date) develop API's to CCS as a custom development Deliverable that will allow Customer to populate CCS via XML with its subscribers' data. The API's will consist of the data transaction sets that are the equivalent of the ACSR transaction set. If, in CSG's reasonable business judgment, use of the XML transactions created as a result of this section cause a material impact upon the response time, operation or performance of the CCS system (a "Material System Impact"), CSG (i) shall use good faith efforts to expand capacity and take such other steps as are reasonably necessary to mitigate or eliminate the Material System Impact as soon as reasonably practicable, and (ii) until such measures have been taken and the Material System Impact has been sufficiently mitigated, may allocate capacity among users of CCS, including users of the XML transactions, but only to the extent reasonably necessary to mitigate the Material System Impact. Customer shall reimburse CSG for any incremental costs incurred by CSG to expand capacity or otherwise address and resolve a Material System Impact. Customer's rights with respect CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 1 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" to these APIs will be equivalent to the rights for the Expanded License Software, with the exception of maintenance. CSG will provide Customer a reasonable amount of maintenance and support services annually, the specific obligations of which shall be agreed upon by the parties at the time Customer exercises its option under this Section, if ever, for the fees set forth in Exhibit B-3. Whether or not Customer exercises the option described in this Section 1, CSG shall nonetheless fully cooperate with Customer and third parties in all reasonable respects with regard to Customer's objective to open ACSR/CCS and all Expanded License Software and future Software of CSG that Customer licenses or uses, to provide Customer the capability of integrating third party software with the foregoing to allow Customer to populate ACSR/CCS and all Expanded License Software and future Software of CSG that Customer licenses or uses, via XML with its subscribers' data. TELEPHONY DOMAIN SERVER 2. On or before December 1, 2000, , Customer will be responsible for operating the telephony domain server contemplated under Section 9 to Schedule D, as amended by the Fourth Amendment to the Agreement. Customer is also responsible for acquiring all necessary hardware and software with respect to operating the telephony domain server. For a period commencing on the execution date of this Amendment and ending no later than February 28, 2001, CSG shall provide to Customer all reasonably necessary human resources to assist Customer in this transition, not to exceed the number of persons currently utilized by CSG to perform that comparable function today. From the date of this Amendment until Customer is solely responsible for operation of the telephony domain servers, should the telephony domain server fail to perform satisfactorily, CSG will notify Customer when any corrective action is required with respect to operation of the telephony domain server and will respond in accordance with Customer's instructions. Customer acknowledges that CSG will have no liability for the consequences of taking corrective action in accordance with Customer's instructions. Customer shall pay CSG on a time and materials basis for all Services provided during the transition period. Additionally, Customer shall pay $(***), representing the monthly facilities management processing support fees for UHS and SDS due through the date of this Amendment pursuant to Section 9 to Schedule D, as amended by the Fourth Amendment to the Agreement. In addition, Customer shall pay monthly facilities management processing support fees for (i) UHS and SDS (which fee is exclusive of third party hardware and software costs which are reimbursable pursuant to Section 9 to Schedule D, as amended by the Fourth Amendment to the Agreement) and (ii) the telephony domain server, both as set forth in Exhibit B-4 (prorated in each case for partial months) for each calendar month from the date of execution of this Amendment to the date on which Customer no longer requires such management processing support and in any event no later than February 28, 2001. EXPANDED LICENSE 3. As of the execution date of this Amendment, Customer has outstanding payment obligations for certain Products that have already been licensed under this Agreement, all of which payment obligations (through September 30, 2000) are listed in the document entitled "Summary of AT&T Broadband Corporate Invoice Amounts," which document is incorporated herein by reference, except for invoice #(4426) dated September 11, 2000 in the amount of $(***). In consideration of Customer's acceptance of the Expanded License provided for in this Section, CSG agrees to waive the payment of its invoice #(4426). In addition, all such licenses previously granted for the Products listed in Section 3(a) below, are, upon the commencement date for each Product listed in the Rollout Schedule set forth in Exhibit C, replaced with the following: (a) The license established by this Amendment shall apply only to ACSR, ACSR Telephony, ACSR module of High Speed Data, CSG Workforce Management, CSG TechNet, CSG Statement Express, CSG Screen Express, and CIT and all modifications, updates, patches, CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 2 revisions, new releases, enhancements and derivatives thereof (collectively, the "Expanded License Software"). Notwithstanding the foregoing, the Expanded License Software shall not include any new releases, enhancements or derivative works of the listed Products to the extent that CSG markets such product as a separately priced item to all of CSG's customers, provided that, until the second anniversary of this Amendment, such product does not incorporate a substantial portion of the features and functions of any of the Products included in the Expanded License Software; thereafter, the Expanded License Software shall not include any new releases, enhancements or derivative works of the listed Products to the extent that CSG markets such product as a separately priced item to all of CSG's customers, provided that such product incorporates substantial additional features and functions. (b) In consideration for payment of the fees set forth in Exhibit B-1, CSG hereby grants to Customer a perpetual, non-exclusive, royalty-free license to use the Expanded License Software (the "Expanded License"), subject to the terms and conditions set forth in this Section; (c) CSG shall promptly deliver to Customer an electronic copy of each and every update and new release of the Expanded License Software; (d) Customer may use the Expanded License Software in object code form only on workstations that are owned or leased by Customer at the System Sites in the United States, in the Designated Environment for each Product as specified in the Agreement, and only for Customer's own internal business purposes in connection with the CCS Services. The Designated Environment for each Product as specified in the Agreement is hereby amended to include Windows 2000 as workstation software; (e) On and after the dates specified in the Rollout Schedule set forth in Exhibit C, Customer may make an unlimited number of copies of the applicable Expanded License Software for its use under this Expanded License; provided, however, that Customer shall reproduce all confidentiality and proprietary notices on all such copies; (f) This Expanded License is not transferable, in whole or in part; (g) Customer will not use, or permit any other person to use, the Expanded License Software to provide any service to, on behalf of, or for the benefit of, any third party, except that Customer shall be permitted to use the Expanded License Software to provide services to, or on behalf of, (i) AT&T Broadband, LLC and any entity which is directly or indirectly wholly owned or majority owned by AT&T Broadband, LLC, and (ii) MediaOne Group, Inc. and any entity which is directly or indirectly wholly owned or majority owned by MediaOne Group, Inc. or which owns any of the Applicable MediaOne Systems (as defined in Section 7 herein) but only as it relates to the Applicable MediaOne Systems; (h) Except as specifically provided in Section 3(l) or as otherwise provided in this Amendment, Customer will not use, or permit any other person to use, the Expanded License Software in a service bureau capacity (e.g., whereby two or more unrelated parties are capable of deriving the benefit of the software from a common or shared computer facility); (i) Customer's rights to install Expanded License Software on a workstation or on a network or other multi-user computer system are specified in the then current Documentation for the particular Product; (j) Customer shall not otherwise copy, translate, modify, adapt, decompile, disassemble or reverse engineer the Expanded License Software; (k) The Expanded License granted under this Section is exclusive of any third party software that may be required to operate the software or required in the Designated Environment, for which Customer agrees to be solely responsible for procuring; (l) CSG acknowledges and agrees that Customer may desire to have third parties access and use copies of the Expanded License Software for the exclusive benefit of Customer, and CSG hereby consents to such third party access, provided that (i) Customer takes all reasonably necessary precautions with such third parties to protect the intellectual property rights of the CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 3 Expanded License Software; (ii) such third parties' use of the Expanded License Software is strictly in accordance with the limitations contained in the Agreement as amended by this Amendment; and (iii) to be responsible for the acts or omissions of such third parties with respect to their use of the Expanded License Software. The consideration paid for the Expanded License granted hereunder, the associated maintenance fees and the accompanying payment terms are specified on Exhibit B-1. Maintenance fees shall be payable only to the extent that Customer desires to receive maintenance for the Expanded License Software. In addition, the maintenance fees specified on Exhibit B-1 shall be reviewed by the parties pursuant to the provisions of Section 8 of this Amendment to make equitable adjustments to such fees on a going forward basis to the extent that Customer's maintenance requirements for one or more of the Products included in the Expanded License Software have changed. PEAK CONTRACT 4. In consideration for payment of the Expanded License Software fees, CSG agrees to waive any and all claims it may have in connection with, including any amounts that may be due under, that certain Letter Agreement by and between Customer and CSG dated March 13, 2000, related to Peak Cablevision, LLC. EXCLUSIVITY WAIVER 5. (a) The parties hereby agree to delete the phrase "residential wireline telephony" from Section 31 of the Agreement, the effect of which is to permit Customer to acquire and use the telephony products and services of third parties, without breach of the Agreement. The parties acknowledge that CSG remains the exclusive provider of field management and dispatch Products and Services for residential wireline telephony. Notwithstanding the foregoing, if CSG's field management and dispatch solution is functionally incompatible with the third party residential wireline telephony solution chosen by Customer, then Customer may acquire and use a non-CSG field management and dispatch solution for residential wireline telephony; provided, however, that Customer will use its commercially reasonable efforts to cause any third party residential wireline telephony solution provider to cooperate in good faith with CSG such that CSG may be able to modify its field management and dispatch Products and Services to be compatible with such third party residential wireline telephony solution. (b) For purposes of this Amendment, the term "Aggregation" shall mean the process, product or service whereby billing data from a telecommunication provider's disparate product offerings (e.g., video, high speed data/Internet and/or wireline or wireless telephony) are combined onto a single paper or electronic consumer billing statement. The results of Aggregation permit the service provider to, for example, apply cross product discounting, combined bill discounting and consolidated accounts receivable management, including payment allocation. CSG does not claim that Section 31 applies to Aggregation of Customer's service offerings. Customer, however, will give CSG an opportunity to bid on any and all Aggregation work and will cooperate in good faith with CSG to communicate Customer's value, quality and timeliness requirements so that CSG can prepare its bid. Nothing in this Section 5(b), however, shall in any way amend CSG's exclusive right under the Agreement to print and mail any video, Internet/high speed data or residential wireline telephone bill, regardless of whether the same is Aggregated. TELEPHONY TRANSITION ASSISTANCE 6. For a period not to exceed nine months from the date hereof, CSG agrees to provide all reasonably required assistance and services to Customer and Customer's designated telephony providers in migrating the residential wireline telephony subscribers of Customer, AT&T CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 4 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" Broadband, LLC and any entity which is directly or indirectly wholly owned or majority owned by AT&T Broadband, LLC, and MediaOne Group, Inc. and any entity which is directly or indirectly wholly owned or majority owned by MediaOne Group, Inc., currently being processed on CSG's system to the customer care and billing system of Customer's designated telephony providers. Customer shall pay CSG on a time and materials basis for all Services provided during the transition period. CSG and Customer shall enter into a mutually agreeable Statement of Work as soon as reasonably practicable after execution of this Amendment that will specify each party's responsibilities. In the event that Customer contracts with (********* ***********) to provide its residential wireline telephony customer care and billing system, CSG will provide the transition services set forth in Exhibit A pursuant to such Statement of Work. To the extent Customer selects an alternative provider for its residential wireline telephony customer care and billing system, then CSG and Customer will negotiate in good faith the scope of the transition services that CSG may provide. MEDIAONE CONVERSION 7. (a) CSG and Customer will use their respective best efforts to convert all subscribers served by cable systems that were acquired by Customer as a result of its acquisition of MediaOne Group, Inc. ("MediaOne"), but excluding any such systems that are sold or exchanged on or prior to December 31, 2001, or as of December 31, 2001 are under contract to be sold or exchanged, the subscribers of which are not currently processed by CSG (the "Applicable MediaOne Systems"), to CSG customer care and billing Products and Services (other than with respect to residential wireline telephony offerings) no later than December 31, 2001. Customer will use its best efforts to identify and schedule all Applicable MediaOne Systems and associated MediaOne subscribers and CSG and Customer will use their respective best efforts to agree upon a conversion plan substantially in the form of that attached as Exhibit D hereto, no later than November 15, 2000. In consideration of Customer converting at least 90% of the MediaOne subscribers served by the Applicable MediaOne Systems on or before December 31, 2001 and all remaining MediaOne subscribers of the Applicable MediaOne Systems on or before June 30, 2002, Customer, CSG will grant to Customer and (i) AT&T Broadband, LLC and any entity which is directly or indirectly wholly owned or majority owned by AT&T Broadband, LLC, and (ii) MediaOne Group, Inc. and any entity which is directly or indirectly wholly owned or majority owned by MediaOne Group, Inc. or which owns any of the Applicable MediaOne Systems (but only as it relates to the Applicable MediaOne Systems) the tiered BSC fees set forth in Exhibit B-2. As a result, Section 5 of Schedule D (as amended by the Fourth Amendment) is deleted. Customer acknowledges and agrees that the MediaOne subscribers currently being processed by CSG shall immediately be subject to the terms and conditions of the Agreement provided, however, that the pricing for the MediaOne subscribers shall remain the current pricing under the Media One contracts until January 1, 2001. (b) CSG shall pay Customer, or its designee up to a maximum of $(***) as fees payable with respect to subscribers that convert to the CCS Services from a third party's customer care and billing platform on or before December 31, 2001 ("Conversion Fees"). The Conversion Fees shall be equal to $(***) per month, per converted subscriber for each of the first 6 months after a converted subscriber converts to the CSG system. Payments due under this Section shall begin to accrue on the first day of the month subsequent to the month in which any particular converted subscriber converts to a CSG System, and shall be paid quarterly, within 60 days after the conclusion of each applicable CSG fiscal quarter. In the event that Customer has met all of its obligations under a mutually agreed to conversion plan for any particular System Site, and is ready, willing and able to convert any particular group of subscribers, and such subscribers are not converted solely as a result of CSG's inability to effect such a conversion, then CSG agrees that it shall nonetheless credit Customer with an amount of the Conversion Fee that would have CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 5 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" been due Customer, had CSG converted such subscribers in accordance with the agreed upon schedule. THREE YEAR EVALUATION 8. CSG and Customer agree that the Chief Executive Officer of CSG and the Chief Financial Officer of Customer shall institute a process on or near the third anniversary of this Amendment to review the status of the relationship between their companies in light of the modifications implemented by this Amendment. During this review, the parties shall in good faith discuss the terms and conditions of the Agreement as amended, including pricing terms, with the intention that such terms will be modified to reflect any new, incremental business that Customer has provided to CSG not otherwise required to be provided under the Agreement. It is the desire of the parties that they will, during this three year review period, expand the scope of their corporate relationship and consequently, there will be an opportunity to make further amendments that reflect the mutual benefits of that expanded relationship. Nothing in the paragraph shall be construed to alter or amend any other rights or remedies of the parties contained in the Agreement. DEVELOPMENT PROJECTS 9. With respect to any development project between the parties, CSG and Customer will negotiate in good faith a mutually agreeable Statement of Work, which shall be substantially in the form of the sample Statement of Work attached to, and comply with the other requirements set forth in, Exhibit H. Except as otherwise specifically provided in a Statement of Work, CSG shall own all right, title and interest to any Deliverable, as contemplated under Section 4 of Schedule B to the Agreement. Each such Statement of Work agreed upon by the parties shall include a designation by Customer of whether the development project is deemed "strategic" or "non-strategic", provided that Customer shall not designate any development project as "strategic" unless the aggregate fees payable to CSG in connection therewith are at least $(***), and provided further, that any development project with aggregate fees payable to CSG of less than $(***) shall be deemed neither "strategic" nor "non-strategic" for purposes of this Section 9. With respect to any project set forth in an agreed upon Statement of Work that is designated by Customer as "strategic", Customer shall fund the cost thereof, and CSG shall be restricted for a period of (***) to (*** ******) from the date the Deliverables are made available to Customer (as agreed to by the parties in such Statement of Work) from using or distributing, or permitting the use by any third party of, the Deliverables and related intellectual property. With respect to any project set forth in an agreed upon Statement of Work that is designated by Customer as "non-strategic", CSG may (i) elect to charge Customer for its development costs, in which case CSG may not itself use, or make the Deliverables or related intellectual property available for the use by other customers or third parties for (***) to (*** ******) from the date the Deliverables are made available by CSG (as agreed to by the parties in such Statement of Work); provided, however, that CSG may at any time elect to use the Deliverables or intellectual property without Customer's permission in which case it shall refund to Customer the development fees paid to it by Customer under the applicable Statement of Work; or (ii) elect not to charge Customer for its development costs, in which case CSG may use the Deliverables and related intellectual property without restriction. Should Customer and CSG be unable to agree upon the terms and conditions of a Statement of Work for any development project that Customer deems "strategic", then Customer shall have the right to have a third party develop such product at Customer's sole risk and expense on substantially the same or better (as to Customer) terms as Customer proposed to CSG. CSG agrees that it shall cooperate with Customer and any such third party in their development efforts. CSG shall implement such independently developed product into production, provided, however, that CSG shall not have an obligation to implement such product if, after it has had a reasonable opportunity to test such product, CSG determines based CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 6 on that testing that the implementation of such product would have a material detrimental impact upon the response time, capital resources, or other operational performance of the CSG system. PERFORMANCE ISSUES WITH RESPECT TO EXISTING PRODUCTS AND SERVICES 10. CSG and Customer shall use their respective commercially reasonable efforts to resolve any performance issues that arise with respect to the Products and Services provided to Customer under the Agreement as of the date of this Amendment ("Existing Products and Services") as quickly as possible. Any disagreements over performance of Existing Products and Services that extend beyond 30 days from the date such performance issues are first communicated to the other party shall be escalated to CSG's Chief Executive Officer and Customer's Chief Financial Officer for resolution. Nothing in the paragraph shall be construed to alter or amend any other rights or remedies of the parties contained in the Agreement. NEW PRODUCTS AND SERVICES 11. For purposes of this Amendment, "New Products or Services" means any Products or Services that (i) are not Existing Products and Services, (ii) will result in incremental revenue for CSG and (iii) are either (A) requested from CSG by Customer or (B) developed by CSG as a separately priced Product or Service. With respect to any New Products or Services which Customer requests CSG to develop, the parties shall negotiate in good faith a mutually agreeable Statement of Work, which shall be substantially in the form of, and comply with the other requirements set forth in, Exhibit H. (a) With respect to any New Product or Services, except those Products and Services that are integrated by CSG as part of its service bureau offerings such that their introduction affects Customer and other CSG customers simultaneously, CSG shall comply with the testing requirements contained in Exhibit E prior to implementing or deploying such New Products or Services. (b) With respect to any New Products or Services, CSG will comply with the performance metrics set forth in Exhibit I after implementation or deployment of such New Products or Services. (c) With respect to any New Products or Services, the parties agree that Customer shall have the right, and CSG agrees to cooperate to the fullest extent reasonably possible, to have Customer participate and be fully informed with respect to CSG's development process and CSG's own internal testing procedures. Where reasonably practicable, CSG agrees to take into consideration and utilize Customer's recommendations with respect to CSG's development and testing procedures. (d) In addition to and not in lieu of any existing right, remedy or procedure provided for in the Agreement, in the event of any dispute or disagreement arising between CSG and Customer with respect to a New Product or Service, or a proposed New Product or Service, including disputes or disagreements with respect to pre-development activities, the development of a Statement of Work, or the design, development, implementation, testing or deployment of the New Product or Service, either party may provide the other notice of its election to engage an independent technical advisor (the "Technical Advisor") pursuant to the terms of this Section 11. Such notice shall specify the area or areas of dispute or disagreement with respect to which the Technical Advisor will be engaged. CSG and Customer shall use good faith efforts to select the Technical Advisor as soon as reasonably practicable, but in any event within 20 days of the giving of such a notice. The Technical Advisor shall be any independent party that is an industry- recognized expert in the development and release of commercial software applications. If the parties are unable to select the Technical Advisor within such 20-day period, the decision shall be escalated to CSG's Chief Executive Officer and Customer's Chief Financial Officer for resolution. If the parties are unable to select a Technical Advisor CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 7 within 20 days of such escalation, the Technical Advisor shall be an individual or entity to be named and agreed upon within 60 days of execution of this Amendment (the "Alternate") provided that the Alternate is not then an affiliate of either party. Upon selection of the Technical Advisor, the parties shall cooperate in good faith with one another and the Technical Advisor to enable the Technical Advisor to evaluate adequately the area(s) of dispute or disagreement in order to advise and counsel the parties with respect to a resolution thereof. Without limiting the generality of the foregoing sentence, CSG and Customer will provide the Technical Advisor with all information and data, access to personnel and such other resources as are reasonably requested by the Technical Advisor. In rendering its opinion, the Technical Advisor shall take into account the impact of any recommendation on CSG's business operations taken as a whole. The parties shall endeavor in good faith to resolve their disputes and disagreements based on the recommendations and counsel of the Technical Advisor, provided that neither party shall be obligated to implement any such recommendation. Further, CSG shall not be obligated to alter or delay its New Product or Service implementations unless CSG chooses to do so as a consequence of adopting the recommendation of the Technical Advisor. CSG and Customer shall each pay one-half of the fees and expenses of the Technical Advisor. MUTUAL WAIVER AND RELEASE 12. CSG and Customer shall execute the Settlement and Release Agreement set forth as Exhibit F. PRESS RELEASE 13. The parties agree to issue a joint press release in the form attached as Exhibit G. PAYMENT OBLIGATIONS 14. No later than November 15, 2000, Customer shall pay all invoices not disputed by Customer in good faith and outstanding under the Agreement as of September 30, 2000, as set forth in the document entitled "Summary of AT&T Broadband Corporate Invoice Amounts," a copy of which has been provided to Customer. In addition, Customer may, no later than November 15, 2000, commence and complete an audit of the postage fees charged by CSG under the Agreement during the calendar year 2000. If such audit reveals a discrepancy , Customer may offset any overcharge against any amount owed to CSG pursuant to this Section 14, or if such audit reveals an undercharge, Customer shall pay such amount promptly. If CSG disputes an audit finding of an overcharge in good faith, Customer may withhold payment of a like amount owed under the CSG invoices identified pursuant to this Section 14 until such dispute is resolved. The parties agree that the postage owed shall be determined under the terms of the Agreement, as supplemented by subsequent documentation from CSG. ENTIRE AGREEMENT 15. This Amendment, together with the Exhibits hereto which are incorporated herein, constitute the complete and entire statement of the agreement of the parties with respect to the subject matter hereof and supersede all prior writings or understandings with respect thereto. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 8 THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") AT&T BROADBAND MANAGEMENT CORPORATION ("Customer") By: /s/ Jack Pogge By: /s/ Daniel E. Somers ---------------------------- ------------------------- Name: Jack Pogge Name: Daniel E. Somers ---------------------------- ------------------------- Title: President & COO Title: President & CEO ---------------------------- ------------------------- List of Exhibits - ---------------- Exhibit A: Telephony Transition Services Exhibit B: Fees Exhibit C: Rollout Schedule Exhibit D: Media One Conversion Plan Exhibit E: Testing Procedures Exhibit F: Settlement and Release Agreement Exhibit G: Joint Press Release Exhibit H: Statement of Work Template Exhibit I: Performance Metrics CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 9 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT A Telephony Transition Service ---------------------------- Scope: - ------ Transition/convert from CSG Wireline Telephony Services to (********). The project will commence on 10/15/2000 with an objective to complete all market conversions in 6 months (4/15/2001) with a window not to exceed 9 months (7/15/2001). CSG's commitment - ---------------- CSG will put together a project team that will work with Customer and (********) beginning 10/15/2000. CSG will assist in the planning and execution of the conversion for a period not to exceed 9 months. The project team will be responsible for the following: . CSG's project team will provide Customer and (*********) with subject matter expertise surrounding CSG's data architecture, formats, field definitions, etc., to assist them in creating conversion programs. . CSG will provide the data necessary to validate (*********)' conversion programs in a dry-run scenario. . CSG agrees to provide conversion data based on mutually agreed upon conversion dates and times. . CSG and Customer agree that this conversion is not a flash-cut and will be completed on a market by market basis. . CSG will work with Customer and (*********) in determining the order in which the various markets will be converted. . CSG agrees to support any markets, including in the States of Texas and Pennsylvania, in which regulatory requirements may delay conversion until each such market is converted, but in no event beyond July 15, 2001. . Over the course of working with Customer, CSG has created third-party interfaces that were specifically developed for and used by Customer for pre-order validation, automated provisioning and billing. CSG agrees to assist in transitioning the operational aspects of these interfaces to (*********) on a project by project basis. In addition, to the extent that Customer has paid for the development of such third party interfaces, CSG shall provide to Customer such interface programs and related documentation at no charge, and Customer shall have the right to use such interface programs and documentation for any purpose whatsoever. . Through July 15, 2001, Statements of Work will continue to be managed through the processes set forth in Exhibit H . No new Statements of Work will be initiated with end dates beyond July 15, 2001. . CSG will make a reasonable effort to support any regulatory requirements that become an issue during this transition period. These new requirements will be handled through the existing SOW process. . CSG will support the Telephony IOT environment from 10/15/2000 to 1/15/2001 at which time CSG and Customer will evaluate the necessity of continuing to maintain and support this environment. . Interfaces that may be required between CSG and (*********) will be evaluated and handled through the Statement of Work process. . Usage, payments and any other data received by CSG after the cut-off date for each market will be forwarded to (*********) in the format it was received. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 10 Customer Responsibilities: - -------------------------- . Customer will be responsible for determining how to handle pipeline orders existing at the time of the conversion. In addition, Customer will need to determine when orders can no longer be taken in CSG's systems for each market being converted. . Customer will be responsible for creating and implementing procedures to handle payments received after the conversion of a market. . In coordination with CSG in the performance of its responsibilities as set forth above, Customer will be responsible for the creation of the conversion and transition plan. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 11 EXHIBIT B Fees ---- Exhibit B-1 - Expanded License Software Exhibit B-2 - Tiered CCS Fees Exhibit B-3 - XML Custom Development With Respect to ACSR Transactions (ACSR XML) Exhibit B-4 - Telephony Domain Server CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 12 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT B-1 EXPANDED LICENSE SOFTWARE ------------------------- Expanded License Software $(***) Includes the following software components: . ACSR . ACSR Telephony . ACSR Module of High Speed Data . CSG Workforce Management . CSG TechNet . CSG Statement Express . CSG Screen Express . CIT The Expanded License Software is subject to the terms and conditions set forth in Section 3 of this Amendment. Expanded Software Annual Maintenance $(***) Includes the following software components: . ACSR . ACSR Telephony . ACSR Module of High Speed Data . CSG Workforce Management . CSG TechNet . CSG Statement Express . CSG Screen Express . CIT CSG agrees that, effective January 1, 2001, the Expanded License Software annual maintenance shall supersede and replace the maintenance Customer was previously obligated to pay for licenses previously granted, but only as such licenses relate to the Expanded License Software (as defined in Section 3 of this Amendment). The first annual maintenance period for the Expanded License Software shall begin on January 1, 2001 and shall end on December 31, 2001. Each subsequent year's annual maintenance period shall begin on January 1 and end on December 31 throughout the term of the Agreement. The Expanded License Software annual maintenance shall be subject to Section 4 of the Agreement beginning January 1, 2002 (i.e., the first Section 4 adjustment would be applied on January 1, 2002). Payment Terms: Notwithstanding anything to the contrary in the Agreement, the Expanded License Software fee of $(***) and the first year's annual maintenance of $(***) shall be due to CSG as set forth below. Annual maintenance for each subsequent year shall be invoiced to Customer on January 1 of each such subsequent year and is payable pursuant to Section 2 of the Agreement. Expanded License Software: -------------------------- Billable Date Due Date Payment Amount ------------- -------- -------------- October 15, 2000 December 31, 2000 $(***) January 15, 2001 March 31, 2001 $(***) April 15, 2001 June 30, 2001 $(***) July 15, 2001 September 30, 2001 $(***) 1/st/ Year's Annual Maintenance: -------------------------------- Billable Date Due Date Payment Amount ------------- -------- -------------- July 15, 2001 September 30, 2001 $(***) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 13 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT B-2 Fees ---- I. TIERED CCS(TM) WIRELINE VIDEO AND CABLEMAX PROCESSING: A. The Basic Monthly Subscriber Charge (herein after referred to as BSC) for the time period beginning January 1, 2001 and ending December 31, 2003 shall be as follows: Number of Basic Subscribers Tiered BSC * --------------------------- ------------ . 0 to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) and greater $(***) * The BSC for each of the six (6) tiers, as noted, is not intended to apply incrementally (e.g., if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers; if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers). B. The BSC for the time period beginning January 1, 2004 and ending December 31, 2012 shall be as follows: Number of Basic Subscribers Tiered BSC * --------------------------- ------------ . 0 to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) and greater $(***) * The BSC for each of the six (6) tiers, as noted, is not intended to apply incrementally (e.g., if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers; if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers). The BSC for each of the six (6) tiers, as noted, is subject to Section 4 of the Agreement beginning January 1, 2005 (i.e., the first Section 4 adjustment would be applied on January 1, 2005). (This space has been intentionally left blank) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 14 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" II. TIERED CCS(TM) - ISP SERVICES FEES: A. The Basic Monthly Subscriber Charge (herein after referred to as BSC) for the time period beginning January 1, 2001 and ending December 31, 2003 shall be as follows: Number of Basic Subscribers Tiered BSC * --------------------------- ------------ . 0 to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) and greater $(***) * The BSC for each of the five (5) tiers, as noted, is not intended to apply incrementally (e.g., if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers; if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers). B. The BSC for the time period beginning January 1, 2004 and ending December 31, 2012 shall be as follows: Number of Basic Subscribers Tiered BSC * --------------------------- ------------ . 0 to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) to (***) $(***) . (***) and greater $(***) * The BSC for each of the five (5) tiers, as noted, is not intended to apply incrementally (e.g., if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers; if Customer had (***) basic subscribers, the BSC would be $(***) on all (***) basic subscribers). The BSC for each of the five (5) tiers, as noted, is subject to Section 4 of the Agreement beginning January 1, 2005 (i.e., the first Section 4 adjustment would be applied on January 1, 2005). (This space has been intentionally left blank) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 15 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT B-3 Fees ---- XML CUSTOM DEVELOPMENT WITH RESPECT TO ACSR TRANSACTIONS (ACSR XML): Custom Development Services for ACSR XML $(***) The custom development services contemplated in the $(***) fee are set forth in Section 1 of this Amendment. Reimbursable Expenses are additional. Any additional custom development services, as may be requested by Customer, in addition to those specifically set forth in Section 1 of this Amendment, may be provided by CSG under a separately executed mutually agreed upon Statement of Work. Reimbursable Expenses are additional. Annual Maintenance and Support Fees for ACSR XML $(***) per year Payment Terms: If Customer elects to exercise the option described in Section 1 of this Amendment, the custom development fee of $(***) and the initial annual telephone support fee shall be due to CSG as follows:
Billable Date Due Date Payment Amount ------------- -------- -------------- 15 days from the date Customer 60 days from notification date $(***) notifies CSG that it elects to exercise the Section 1 option 75 days from notification date 120 days from notification date $(***)
NOTE: If Customer elects to exercise the option described in Section 1 of this Amendment, the first year's annual telephone support period shall begin on the notification date and shall end one year later. Each subsequent year's annual telephone support period shall begin on the anniversary date of the notification date and shall end one year later throughout the term of the Agreement. (This space has been intentionally left blank) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 16 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT B-4 Fees ---- TELEPHONY DOMAIN SERVER: A. Monthly Facilities Management Processing Support (UHS and SDS) $(***) B. Monthly Facilities Management Processing Support (TDS) $(***) (This space has been intentionally left blank) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 17 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT C Rollout Schedule ---------------- Software Effective Date of Rollout - -------- ------------------------ ACSR (********* **** ** **** *********) ACSR Telephony (********* **** ** **** *********) ACSR Module of High Speed Data (********* **** ** **** *********) CSG Workforce Management (******* ***, ****) CSG TechNet (******* ***, ****) CSG Statement Express (***** ***, ****) CSG Screen Express (***** ***, ****) CIT (***** ***, ****) (This space has been intentionally left blank) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 18 EXHIBIT D MediaOne Conversion Plan ------------------------ [TO BE COMPLETED] CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 19 EXHIBIT E Testing Support, Testing Environment and Testing Requirements I. Support: - ------------ A. During the testing of any New Product or Service provided by CSG under the Agreement: 1. CSG will provide a single point of contact, whose name will be communicated to Customer prior to any testing of such New Products or Services, who will be responsible for all test environment issues. The contact will be available from 8am-5pm Monday through Friday during the testing period and during the first two weeks of implementation. Additional support beyond the normal business hours, as it relates to a single point of contact, will be available via a mutually agreeable Statement of Work. 2. CSG will provide a defined escalation path for testing failures up to and including to Ed Nafus - Exec. V.P. at CSG or his successor. 3. On-site support will be provided on a project by project basis in accordance with Statement of Work that will be agreed upon by the parties. B. CSG will provide help desk support, in accordance with industry standards, 8am - 5pm Monday through Friday for testing, which shall include, but not be limited to the following support: 1. Application/technical assistance support desk which logs and tracks issues and has the ability to report on operational statistics related to help desk functions. 2. During code release periods for New Products and Services, the CSG help desk will provide turnaround on all issues based on the Severity Levels described in this Exhibit. 3. Outside of normal business hours, CSG will utilize pager devices, or some equivalent, which will allow Customer to notify CSG that it has requested support. For Customer calls outside of normal business hours relating to Severity Level 1 or 2 issues, CSG will respond to Customer within two hours of such page or other notification. C. CSG shall provide training, either classroom or on-site, as appropriate, to Customer personnel on architecture and configuration for New Products and Services that will be released into Customer's environment. Training requirements will be set forth in a mutually agreeable Statement of Work. D. On or before December 15, 2000, CSG and Customer shall mutually develop methods and procedures including, standards for communication related to testing and associated issues, incident reports, the schedule for implementation into Customer's test and production environments, configuration, testing cycles, functional capabilities, monthly performance review meetings and any other operational requirements deemed necessary by the parties. E. On or before December 15, 2000, CSG and Customer shall develop a comprehensive first draft of mutually acceptable methods and procedures for both parties which shall be used for (i) the on-going evaluation of the integrated test environment required for the utilization of the New Products and Services by Customer and (ii) assessing the performance of such New Products and Services during the testing process, and (iii) implementing any corrective actions to address identified issues. Each party will pay its own costs in participating in this effort. F. Every eighteen (18) months, Customer will have the option to appoint a third party ("Auditor"), that is reasonably acceptable to CSG, with significant knowledge and background in software testing processes and procedures to conduct an audit of CSG's and Customer's methods and procedures for testing and release management of New Products and Services. Such Auditor shall be subject to the confidentiality obligations set forth in Section 19 of the Agreement. CSG and Customer will implement the recommendations of such Auditor based on an implementation plan that is mutually agreeable to the parties. II. CSG's Mainframe Test Environment: - --------------------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 20 A. CSG Testing: Any New Products and Services provided to Customer for testing shall be identified as substantially tested by CSG, except with respect to New Products and Services that are jointly tested between the parties. CSG shall share the nature of the testing performed on such New Products and Services and the results of such testing for such New Products and Services. B. to the methods and procedures described in Section I.D of this Exhibit. In general, the parties objective for testing falls within the following time frames: 1. New Products and Services Code Releases - 5 weeks prior to production implementation 2. Telephony Bundles - 5 weeks (until Customer is deconverted) prior to production implementation C. Performance Testing: 1. CSG shall maintain the test region in an available and fully functioning mode on a 24/7 basis with the exception of a pre-agreed upon maintenance schedule. 2. As requested, and when agreed to pursuant to the methods and procedures described in Section I.D of this Exhibit, CSG shall provide testing capability that will allow 3 cycles of a billing statement per week for the New Products and Services being tested. 3 CSG's dedicated Customer test region, as described in Section 42 of the Agreement, will support all testing that is described in this Exhibit. A pre-defined SPA structure will be used for new code implementations in accordance with mutually agreed upon Statements of Work. 4. Customer shall have access to configuration controls for New Products and Services to enable Customer to make changes to any such configuration controls as agreed to pursuant to the methods and procedures described in Section I.D. of this Exhibit. D. Test System Architecture: 1. CSG's testing system architecture should duplicate CSG's production as closely as possible. 2. CSG's test system shall be capable of establishing multiple SPA's to support different product combinations, parameter settings, and 3rd party interfaces for Customer. 3. CSG will keep Customer's test region current with the most recent versions of the New Products and Services being tested. CSG shall cleanse test environment SPA's without disruption of test initiatives. 5. CSG's testing system will be flexible enough to support: a. Transfer of data across System/Prin/Agent. b. Single sessions across regions (when such functionality becomes available in CSG's production environment). 6. The CSG test system architecture shall support recovery testing that is mutually agreeable to the parties. E. Products Required for Customer's Testing Environment: 1. CSG shall allow Customer to test all New Products and Services in the Customer testing environment. 2. CSG shall provide, as agreed to pursuant to the methods and procedures described in Section I.D of this Exhibit, the following functionality capabilities for the Customer testing environment: Printed Statements, UDU, Statement Files, Security, Lockbox, Printed Reports (RMS), Credit Verification, Credit Card Verification, Recurring Credit Card, Printed Cash Register Receipts, Printed Work Orders, Selects, Daily Data Feeds, Monthly Financial Files, Refund Checks. III. Documentation: -------------- A. CSG will use best efforts to deliver to Customer the following: 1. Design documentation for New Products and Services two months prior to the release of such New Products and Services into the testing environment which shall include, but is not limited to, a CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 21 description of the feature and functionality of such New Product or Services, other CSG Product(s) that are impacted, screen design, etc. 2. Release notes shall be provided one month prior to test region code push for New Products and Services, which notes shall include, but not be limited to, the detailed functionality of such software. 3. Bulletins for the frontline software users shall be provided 21 days prior to production implementation. B. On a monthly basis, CSG will provide Customer with a comprehensive list of all New Products and Services that are in development for Customer This documentation will include: implementation dates, test schedules and designated environments. C. CSG/Customer shall create a report of "lessons learned" by project to ensure issues are not repeated. Key lessons learned will be used as guidelines for CSG and Customer to change testing processes. D. CSG shall provide checklist(s) of "To Do's" for installation, setup and loads of all code for New Products and Services into Customer's test environment. E. CSG shall provide thorough documentation of the test environment for New Products and Services CSG Product Management personnel shall conduct, in person, design reviews and training on how proposed designs will impact the system for the Customer test team. IV. Testing ------- A. Customer shall test New Products and Services upon receipt of such New Products and Services in the Customer test environment. Such tests will be performed in order to determine whether such New Products and Services (1) meet the applicable specifications, perform the applicable functionality, and do not exceed the facilities usage or run time limits and standards set forth in the applicable Statements of Work or CSG's specifications and documentation for the New Products and Services, and (2) establish that the New Products and Services are capable of running on a repetitive basis with a variety of Customer data without failure in the Customer test environment. Such tests may include, but are not limited to, the following: user acceptance, regression, integration, migrations, recovery, load, conversions, and production readiness. B. Based on Customer's own certification standards, Customer will employ a certification process that certifies the New Products and Services. These standards are not deemed to be accepted by CSG as CSG's certification standards and are only employed to assist the Customer in communicating potential errors in such New Products and Services to CSG. The New Products and Services shall be deemed certified by Customer when there are no Severity Level 1 or Severity Level 2 defects in such software (as described in this Exhibit) and acceptable workarounds for any Severity Level 3 defects (as described in this Exhibit) have been mutually agreed upon between the parties. C. Customer's testing shall be designed to detect errors in the New Products and Services. Any error shall be assigned one of the Severity Level's described below and CSG, as agreed to pursuant to the methods and procedures described in Section I.D of this Exhibit, shall respond to correct such error. CSG shall use best efforts to respond in accordance with the following table: CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 22 SEVERITY LEVELS - --------------- - -------------------------------------------------------------------------------- SEVERITY 1 24 Hour Status A system outage or complete loss of Show 72 Hour Fix functionality. The product is not Stopper stable, resulting in the workstation locking up, the application crashing, General Protection Faults, or other system failure. SEVERITY 2 48 Hour Status A loss of crucial functionality. No Major 96 Hour Fix acceptable workaround exists for the problem. The operator cannot perform their job with this problem. SEVERITY 3 Weekly Status A loss of non-crucial functionality. Functional Fix as needed Acceptable workaround exists. SEVERITY 4 Weekly Status An inconvenience to the operator. Minor Fix as needed SEVERITY 5 Weekly Status Cosmetic changes that do not affect Visual Fix as needed functionality. - -------------------------------------------------------------------------------- D. Customer and CSG shall meet weekly to discuss the defect status. The parties shall agree upon discrepancy reporting and resolution procedures utilizing the Severity Level guidelines set forth above. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 23 EXHIBIT F Settlement and Release Agreement -------------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 24 CONFIDENTIAL SETTLEMENT AGREEMENT AND MUTUAL RELEASE I. PARTIES ------- The parties to this Confidential Settlement Agreement and Mutual Release (the "Agreement") are: 1. AT&T Broadband Management Corporation (formerly TCI Cable Management Corporation), a Colorado corporation, and its parent, subsidiaries, affiliates and relevant divisions (hereinafter referred to collectively as "AT&T Broadband"); and 2. CSG Systems Inc., a Delaware corporation ("CSG"). 3. AT&T Broadband and CSG shall be referred to collectively as the "Parties." II. EFFECTIVE DATE -------------- The effective date of this Agreement shall be October 10, 2000. III. RECITALS -------- 1. AT&T Broadband filed a Demand for Arbitration (the "Arbitration") under the Restated and Amended CSG Master Subscriber Management System Agreement, dated August 10, 1997, between CSG and AT&T Broadband Management Corporation (as amended, the "Master Agreement"). 2. CSG is the respondent in the Arbitration. 3. AT&T Broadband and CSG have agreed that it is in their respective best interests to settle and resolve certain claims asserted in and relating to the Arbitration. By entering into this Agreement, no party admits any liability whatsoever. Accordingly, the Parties to this Agreement are desirous of mutually and amicably settling all claims arising under the Master Agreement (except as specifically provided in this Agreement) under the terms and conditions of this Agreement. 4. The Parties were unable to agree on the meaning or scope of Section 31, Exclusivity, of the Master Agreement. The Parties, therefore, are reserving and do not waive the rights and arguments they may have in connection with Section 31 of the Master Agreement, except as specifically addressed in that certain 49th Amendment to Restated and Amended CSG Master Subscriber Management System Agreement between CSG and AT&T Broadband, dated of even date herewith (the "Amendment"). CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 25 IV. TERMS OF SETTLEMENT ------------------- In consideration of the foregoing and the terms set forth below, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties agree as follows: 1. Dismissal of the Arbitration. The Parties stipulate and agree to the ---------------------------- dismissal of the Arbitration with prejudice (except for the matters specifically excluded in Section 2). A Stipulation for Dismissal, in the form attached hereto as Exhibit A, will be submitted to the AAA immediately following the execution of this Agreement. 2. Mutual Release. The Parties, on behalf of themselves and their parent, -------------- subsidiaries, affiliates, agents, officers, directors, employees, consultants, associates, representatives, attorneys, heirs, predecessors, successors and assigns, hereby forever release and discharge each other and their current and former parent companies, subsidiaries, affiliates, agents, officers, directors, employees, consultants, associates, attorneys, representatives, heirs, predecessors, successors and assigns, or any person acting by, through, under or in concert with each of them, from any and all claims, counter-claims demands, causes of action or liabilities, known or unknown, whether at law or in equity, based upon, relating in any way to or arising under the Master Agreement or any acts or omissions of the Parties, in each case through the date of this Agreement, including but not limited to all claims or counter-claims which were raised or could have been raised in the Arbitration, except as follows: the Parties reserve and do not waive or release any claim with respect to, or rights and arguments in connection with, Section 31 of the Master Agreement, except as specifically set forth in the Amendment. 3. Confidentiality. The terms, conditions and substance of this Agreement --------------- shall be kept confidential. Except as otherwise agreed by the Parties, no terms or conditions of this Agreement may be disclosed to any third party, other than lawyers, accountants and/or professionals whose services are or may be needed by the Parties to effectuate this Agreement, and otherwise to comply with applicable law. Disclosure of this Agreement may also be made to government auditors and to comply with a court order compelling its disclosure. The Parties acknowledge that CSG will issue a public statement relating to the dismissal of the Arbitration and the general terms (other than financial terms) of the Amendment. 4. Costs and Attorneys' Fees. Each Party agrees to bear all of its own ------------------------- costs and attorneys' fees in connection with the Arbitration and all related disputes. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 26 V. REPRESENTATIONS AND WARRANTIES ------------------------------ Each of the Parties represents, warrants and agrees as follows: 1. Independent Legal Advice. Each Party has received independent legal ------------------------ advice from its own attorneys with respect to the advisability of entering into and executing this Agreement. 2. Parties Have Read Agreement. Each Party or responsible agent has read --------------------------- this Agreement and understands its contents. 3. Authority to Execute. Each Party has full power and authority to -------------------- execute, deliver and perform this Agreement, and each has taken all necessary steps for the execution and delivery of this Agreement. 4. No Previous Assignment. No Party has previously assigned, transferred, ---------------------- granted or purported to assign, transfer or grant any of the claims, demands, causes of action, suits, controversies, liabilities or obligations released by this Agreement. VI. MISCELLANEOUS ------------- 1. No Admission of Liability. Nothing in this Agreement shall be ------------------------- construed as an admission of liability by either Party or its employees, officers, directors, consultants, associates, agents, or representatives. 2. Entire Agreement. This Agreement constitutes the full and complete ---------------- understanding and agreement of the Parties with respect to the subject matter covered by it. No addition, deletion, or amendment shall have any force or effect, except as mutually agreed to in a writing signed by all of the Parties. 3. Successors and Transferees. This Agreement shall be binding upon and -------------------------- inure to the benefit of each Party's current and former parent companies, subsidiaries, affiliates, successors, and assigns. 4. No Construction Against Draftor. Each Party has cooperated in the ------------------------------- drafting and preparation of this Agreement. Hence, in any construction to be made of this Agreement, the same shall not be construed against any Party. 5. Necessary and Further Documents. The Parties agree to execute all such ------------------------------- further and additional documents as shall be reasonable, necessary or desirable to carry out the provisions of this Agreement, including but not limited to Exhibit A. 6. Severability. If any provision or part of this Agreement is held ------------ invalid or unenforceable for any reason, the remainder of this Agreement shall nonetheless remain in full force and effect. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 27 7. Headings. The headings and subheadings contained in this Agreement are -------- for convenience only and shall not control or affect the meaning, construction, or interpretation of any provision of the Agreement. 8. Counterparts. This Agreement may be executed in counterparts and shall ------------ be fully effective when executed by all Parties. 9. Governing Law. This Agreement shall be construed and enforced in ------------- accordance with the laws of the State of Colorado. VII. ENFORCEMENT OF THIS AGREEMENT ----------------------------- If either Party defaults in its obligations under this Agreement, the non- breaching party may bring an action in a court of competent jurisdiction in the State of Colorado to enforce the terms of this Agreement. If a subsequent enforcement action is brought, the prevailing Party in that action shall be entitled to recover its costs and reasonable attorneys' fees. [SIGNATURE PAGES FOLLOW] CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 28 AT&T BROADBAND MANAGEMENT CORPORATION By: /s/ Rick D. Bailey ------------------------------------ Its: Senior Vice President ------------------------------------ Date: October 10, 2000 STATE OF COLORADO ) ) ss. COUNTY OF ARAPAHOE ) The foregoing was subscribed and sworn to before me on October 10, 2000 by Rick D. Bailey, on behalf of AT&T Broadband Management Corporation. My commission expires: 3/2/2004. ----------- /s/ Carol A. Moore ------------------------------------- Notary Public CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 29 CSG SYSTEMS INC. By: /s/ Joseph T. Ruble -------------------------------- Its: VP & General Counsel ------------------------------- Date: October 10, 2000 STATE OF COLORADO ) ) ss. COUNTY OF DENVER ) The foregoing was subscribed and sworn to before me on October 10, 2000 by Joseph T. Ruble, on behalf of CSG Systems Inc. My commission expires: 11/15/03. --------- /s/ Mary K. Hung ------------------------------ Notary Public CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 30 AMERICAN ARBITRATION ASSOCIATION ______________________________________________ In the Matter of the Arbitration between ) ) AT&T BROADBAND MANAGEMENT ) CORPORATION ) ) Plaintiff, ) ) Case No. 77-117-00297-00 vs. ) ) CSG SYSTEMS, INC. ) ) Defendant. ) ______________________________________________ ) - -------------------------------------------------------------------------------- JOINT MOTION TO DISMISS - -------------------------------------------------------------------------------- The parties hereto, AT&T Broadband Management Corporation and CSG Systems, Inc., through their respective counsel, hereby jointly request that this matter is dismissed with prejudice (subject to the terms of the Confidential Settlement Agreement and Mutual Release, dated October 10, 2000, between the parties), with each party to bear its own costs and fees. As grounds therefor, the parties state that this matter has been resolved. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 31 Dated this 10th day of October, 2000. /s/ Rick D. Bailey /s/ Joseph T. Ruble - ------------------------------------- ---------------------------------- Rick D. Bailey Joseph T. Ruble Senior Vice President CSG Systems, Inc. AT&T Broadband Management Corporation 7887 E. Belleview Ave., Suite 1000 188 Inverness Drive West Englewood, CO 80111 Englewood, CO 80112 General Counsel for CSG Systems, Inc. Chief Counsel, AT&T Broadband Management Corporation CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 32 AMERICAN ARBITRATION ASSOCIATION _____________________________________________ In the Matter of the Arbitration between ) ) AT&T BROADBAND MANAGEMENT ) CORPORATION ) ) Plaintiff, ) ) Case No. 77-117-00297-00 vs. ) ) CSG SYSTEMS, INC. ) ) Defendant. ) ______________________________________________ ) - -------------------------------------------------------------------------------- ORDER OF DISMISSAL - -------------------------------------------------------------------------------- This matter has come before the American Arbitration Association on the Parties' Joint Motion to Dismiss. The Parties have resolved this dispute, and accordingly the motion is granted. This matter is hereby dismissed with prejudice (subject to the terms of the Confidential Settlement Agreement and Mutual Release, dated October __, 2000, between the parties), with each party to bear its own costs and attorneys' fees. Dated this __ day of __________________, 2000 ____________________________________________ American Arbitration Association CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 33 EXHIBIT G Joint Press Release ------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 34 FOR IMMEDIATE RELEASE: Oct. 10, 2000 For more information contact: Liz Bauer Sarah Duisik Vice President of Investor Relations Director-External Communications CSG Systems, Inc. AT&T Broadband 303-804-4065 303-858-5431 CSG Systems and AT&T Broadband Agree to Dismiss Demand for Arbitration ENGLEWOOD, Colo.-AT&T Broadband has agreed to dismiss with prejudice its Sept. 27 Demand for Arbitration with CSG Systems, the companies said today. In connection with the dismissal, the companies agreed to amend the Master Subscriber Management System Agreement between CSG Systems and AT&T Broadband. Highlights from the amended agreement include: . AT&T Broadband agrees to use its best efforts to convert 90 percent of the MediaOne video and high-speed data customers to the CSG platform by Dec. 31, 2001, and the remaining 10 percent by June 30, 2002. . CSG waives its exclusivity rights pertaining to residential wireline telephony. . AT&T Broadband purchases an expanded software license for CSG's call center and workforce automation applications. "We are pleased to reach a mutually beneficial business arrangement that allows CSG and AT&T Broadband to benefit from the outcome," said Neal Hansen, chairman and chief executive officer of CSG. "AT&T is one of the leaders in the telecommunications industry and we will continue to work diligently in enabling them to maximize their broadband strategy." "With this agreement and our related discussions with CSG, AT&T Broadband is better positioned to continue achieving its strategic and growth objectives," said Dan Somers, president and chief executive officer, AT&T Broadband. "We view our redefined CSG relationship as a positive for both companies. About CSG Systems, Inc. Based in Denver, Colorado, CSG Systems International, Inc. (NASDAQ: CSGS), is the parent company of CSG Systems, Inc., which provides customer care and billing solutions worldwide for the converging communications markets, including cable television, direct broadcast satellite, telephony, on-line services and others. The Company offers is clients a full range of processing services, software and support CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 35 services that automate customer management functions, including billing, sales support and order processing, invoice calculation and production, management reporting and customer analysis for target marketing. CSG Systems, Inc. provides its services to over one-third of the households in the United States. About AT&T AT&T Broadband, a business unit of AT&T, is the nation's largest broadband services company, providing television entertainment services to about 16 million customers across the nation. The company also provides advanced services, such as digital cable, high-speed cable Internet services and competitive local phone service. AT&T Corp. (NYSE: T) is the world's leader in telecommunications services and technology. ### CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 36 EXHIBIT H Statement of Work Requirements ------------------------------ 1. Objectives: Customer and CSG desire to improve the Statement of Work process between the parties. The following objectives are adopted by the parties to improve the Statement of Work process: . Accountability - clearly defined business requirements and Deliverables . Tractability - defined steps in the process with demarcation points . Detail/information - content that supports the Statement of Work . Ownership - clearly defined business and project owners . Cycle Time - reduction in Statement of Work cycle time from concept to delivery . Cost Management - improved process to yield overall cost reductions . Change Order Management - ability to modify and supplement a Statement of Work . Streamlined Process - allow for easy creation of requirements and Statement of Work . Quality - deliver a high quality process with compensation tied to Deliverable quality (meeting requirements) 2. Documents: The new Statement of Work process will utilize trigger documents ("Trigger Documents") and response documents ("Response Documents") as follows. Customer will use a Trigger Document to initiate a request for development or consulting Services. CSG will use a Response Document to define issues such as objectives, procedures, Deliverables, time lines and costs. The Documents described in this section are intended to be executed in pairs with the Trigger Document causing a Response Document. Each Document will capture details and Deliverables using the principle that excellent requirements produce excellent results. For each project that Customer desires CSG to undertake, Customer will complete one of the two Trigger Documents described below, depending on the estimated size and scope of the project. The Trigger Documents are a CSG Business Requirements Specifications Document (BRS) and a Services Request Form (SRF). The BRS and SRF should be substantially similar to the sample form documents attached hereto as Attachment 1 and 2, respectively, which may be modified by the parties. The general descriptions of the Trigger Documents are described below. In response to receiving a Trigger Document, CSG will complete one or more of the three (3) Response Documents described below depending on the estimated size and scope of the project. The Response Documents are a Design Statement of Work (DSOW), a Statement of Work (SOW), a Letter of Authorization (LOA), and a PCMO. The DSOW/SOW should be substantially similar to the sample form document attached hereto as Attachment 3 and 4,, respectively, which may be modified by the parties. The Exhibit B-1 SOW form set forth in the Agreement shall be replaced by the SOW form attached hereto. The general descriptions of the Response Documents are described below. - ------------------------------------------------------------------------------ Customer Customer CSG Response CSG Trigger Responsible Documents Responsible Documents Parties Parties - ------------------------------------------------------------------------------ BRS AT&T Broadband DSOW and/or SOW CSG Sales IT designated IT organization or its successor - Director level or above - ------------------------------------------------------------------------------ SRF AT&T Multiple Parties LOA/SOW/PCMO CSG Sales or Account (Corp. or Field) Management - ------------------------------------------------------------------------------ CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 37 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" Customer Trigger Documents: . BRS - This Document will be completed by the Customer when Customer desires to have CSG perform development projects. The Customer will take business requirements from the Customer business owner and develop a detailed BRS. The BRS will serve as formal notification to CSG that Technical Services are being requested. . SRF - This Document will be completed by Customer when consulting, data maintenance, travel, IP address additions or other limited scope requirements are requested. The SRF will serve as formal notification to CSG that Technical Services are being requested. This form is primarily targeted for field use when requesting standard consulting or ancillary Services. CSG Response Documents: . Design Statement of Work - The DSOW will be used in response to the BRS for projects of 750 hours or greater. Upon Customer's execution of the DSOW, CSG will develop a Functional Technical and/or Logical Design Document and invoice Customer for (******) percent ((***)%) of the estimated Project Fees set forth in such DSOW. Customer shall pay such amount pursuant to Section 2 of the Agreement. CSG will commence providing Services to Customer only upon the execution of the DSOW by both parties. . Statement of Work - The SOW will be used in response to both a BRS and SRF, for all development projects and for consulting Services of less than 750 hours that are (*** ********) dollars ($(***)) or more, CSG will use best efforts to promptly provide Customer with a draft SOW. CSG will commence providing Services to Customer only upon the execution of the SOW by both parties. . LOA - The LOA will be used to define the Project Fees and delivery schedules for consulting or ancillary Services that are less than (*** ********) dollars ($(***)). CSG will commence providing Services to Customer upon the execution of the Letter of Authorization by both parties. (A LOA shall not be used to authorize any developmental work.) . PCMO - This Document is a CSG internal order entry process that is used to document the request from Customer and fulfill that request. If Customer desires a change to the Services or work to be performed under the DSOW/SOW after its execution by the parties, Customer shall issue the appropriate Trigger Document to CSG, which shall specify that it is a request for a change in a specific DSOW/SOW. CSG shall respond with the appropriate Response Document, which if it is a DSOW/SOW shall be an amendment to the DSOW/SOW for which Customer has requested such change. As described in the attached DSOW/SOW sample form, each DSOW/SOW will contain at a minimum the following: a detailed description of the type of service to be performed or software design and/or software development to be provided by CSG; a detailed description of each Deliverable, including specifications, to be provided by CSG; a reference to the specific CSG or Customer Trigger Document; a statement of the objectives for the Services or software design and/or to be provided under the DSOW/SOW; schedule of project fees and payment terms; timetable, staffing plan, key target milestones with dates, Deliverables and associated project fees; a statement of Customer responsibilities; intellectual property rights, and any additional insurance requirements CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 38 3. Development Life Cycle - Commissioning Documents for Projects - ------------------------------------------------------------------------------- Concepts and Design Development Test Implementation Requirements - ------------------------------------------------------------------------------- DSOW for Statement of Work projects that are 750 hours or more - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- SOW for projects that are less than 750 hours - ------------------------------------------------------------------------------- - ------------------------------------------------------------------------------- 4. Performance Metrics: Any DSOW/SOW and BRS for a New Product or Service shall include performance metrics as follows: . achieving agreed upon milestones for delivery of development work at agreed upon costs . meeting quality metrics defined in each SOW, such as cycle times and defects . meeting testing deadlines and quality metrics Processing Services - ------------------- The processing services metrics will be set forth in the DSOW/SOW and BRS and generally follow the format and substance of the metrics set forth in Exhibit I. List of Attachments - ------------------- Attachment 1: Business Requirements Specifications Attachment 2: Services Request Form Attachment 3: DSOW/SOW Attachment 4: Letter of Authorization CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THEPARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 39 ATTACHMENT 1 CSG Business Requirements (Sample) ---------------------------------- ================================================================================ [GRAPHIC OMITTED] (Title) Business Requirements Specification ----------------------------------- Submitted by: Date Submitted: Program Request Number # CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 40 Version History
---------------------------------------------------------------------------------------------------------- Change Summary Date Writer (Short description of change and pages effected - also revise the word properties with revision data) ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ---------------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------------
Background This section should contain background information concerning your business and its development needs. It is important that CSG understands the problem in order to arrive at the most efficient solution. Complete each of the items below. 1. Provide an overview of your business organization/operational workflow and interaction with CSG products as they relate to this request. 2. What are the impacts currently being experienced? Explain who, what, and how these impacts affect the business. Include job/task descriptions and current work around. 3. What industries or lines of business are impacted by the current environment?
----------------------------------------------------------------------------------------------------- LOB (Video, Telephony, HSD, ISP, etc.) Explanation ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- ----------------------------------------------------------------------------------------------------- -----------------------------------------------------------------------------------------------------
4. What is the justification for this request? (Business opportunities, Market opportunities, cost savings, etc.) Definitions The following definitions or terms are referred to in this requirement definition document.
-------------------------------------------------------------------------------------------------- Terms Definition -------------------------------------------------------------------------------------------------- I.E. - CCS Communication Control System -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 41 Supporting Documentation (This list contains all requirement (s) documents, specifications, and other documents supporting the business requirement (i.e. this may include interface specification documentation, screen layouts, report layouts, training documentation, Call Ticket Tracker ticket #'s etc.)
-------------------------------------------------------------------------------------------------- Document Name Number/ Attachment -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- -------------------------------------------------------------------------------------------------- --------------------------------------------------------------------------------------------------
Business Requirements . Briefly summarize the desired results regarding this project. . Provide detailed requirements below. These should be business/operational requirements, not proposed solution statements. I. Functionality Requirements: Include requirements regarding the ability to display, view, log, delete, updates, change, retain, etc.
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
II. Field Descriptions: List details such as alpha, numeric, size, special characters, required vs. optional, default values, etc.
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CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 42 III. Security Requirements: Ability to view, add, change, delete, levels, etc.
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
IV. Reporting and Database Requirements: Media - (paper, file, disk, etc.) Online via RMS, Web Browser, other. User interface/access method (desktop, IP, Web). Frequency - daily, weekly, monthly, on-demand-Vantage, Data Extracts, sequence of data, etc.
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
V. Statement Requirements: Data elements (billing details, customer info, messages, postal info, etc.), Method (hard copy paper, electronic, extracts)
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 43 VI. User Interface Requirements: Response time requirements, desktop, web, lite client. Describe user types.
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
VII. Dependency Requirements: Third Party software-version/release, hardware, network, Designated Environment, performance impacts, etc. Volumes and source of volumes (online transaction process, batch frequency - hourly, daily, weekly), media type.
------------------------------------------------------------------------------------------------------------ Requirement Definition Example (Use Case Scenarios) ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------ ------------------------------------------------------------------------------------------------------------
VIII. Performance Metrics (Specify the metrics for the CSG Solution.) Comments/Miscellaneous CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 44 ATTACHMENT 2 Services Request Form (Sample) Service Request Form
- ---------------------------------------------------------------------------------------------------------------------- Service Request #: Submission Date: - -------------------------------------------------------- ---------------------------------------------------------- - -------------------------------------------------------- ---------------------------------------------------------- Submitter's Name: Submitter's Phone #: - ------------------------- ------------------------------ ---------------------------------------------------------- Submitter's E-mail Address: ---------------------------------------------------------- - --------------------------------------------------------- ---------------------------------------------------------- Owner/Project Manager: Owner/PM Phone #: - --------------------------------------------------------- ---------------------------------------------------------- Owner/PM E-mail address: ---------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Program / Organization: - ---------------------------------------------------------------------------------------------------------------------- System/Prin/Agent(s): - ----------------------------------------------------------------------------------------------------------------------
Category: [_] Reports (Selects, Labels) (1) [_] Program Changes (Macros, - -------- Passer) (2) X SPA Config Changes (Add Agent, Agent Transfer, Prin Merge) (3) [_] Statements (Holds, Re-runs, ESP) (4) [_] Print Services (5) [_] Data Communications (Port Config, Connectivity) (6) X Consulting Services (7) [_] Other (8) Priority: [_] High [M127] Medium [_] Low - -------- SERVICE DESCRIPTION:
- -------------------------------------------------------------------------------------------------------------- Description of Service : - ---------------------------------------------------------------------------------------------------------------------- - --------------------------------------------------------------------------------------------------------------------- Justification/Reason: - ---------------------------------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------------------------------- Other Pertinent Information: - ---------------------------------------------------------------------------------------------------------------------- - ----------------------------------------------------------------------------------------------------------------------
Other Initiative Programs/Systems Impacted: CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 45 ATTACHMENT 3 Statement of Work and Design Statement of ----------------------------------------- Work (Sample) ------------- This Statement of Work is made as of __________, 200_, between CSG Systems, Inc. and AT&T Broadband Management Corporation ("Customer") pursuant to Schedule B of the Master Agreement and of which this Statement of Work forms an integral part. Service Type: - ------------ . Consulting Services ------------------- . Strategy and Direction . Requirements Definition and/or Vendor Selection . Implementation/Integration . Development ----------- . Create Software . Alterations or customizations . Implementation -------------- . Hardware . Other ----- Title: Description of actual work to be performed (Business Need) Include a - ----- reference to the Program Request No. from the SRF or BRS. Description / Scope of Services: Should include specific Deliverables and - ------------------------------- specifications for the deliverables (answers the question what will be done?) Examples of specific deliverables: . Software Code . Release notes . Training . Conversion Programs . Etc. Objectives: Specific Business Needs (Should refer to a specific requirements - ---------- document for details) Support Plan / Procedures: This should be what the vendor will do to meet the - ------------------------- requirements (Vendor responsibility, timetable, staffing plan if applicable and performance criteria). Location: Primary location of team and what Customer should expect in terms of - -------- presence and communication (status, costs, equipment requirements and understanding of who is to provide support equipment, etc.): Key Target Milestones: - --------------------- Quality Metrics: - --------------- Testing Deadlines: - ----------------- Project Fees: Project Fees tied to milestones and user acceptance and payment - ------------ terms. Time & Materials: Reimbursable Expenses: CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 46 Funding Authorization valid if approval received by ( otherwise must be resubmitted): mm/dd/yyyy Customer Responsibilities: - ------------------------- Additional provisions: (check "X" if applicable and add pertinent details --) - --------------------- ______________Intellectual Property Rights ______________Additional Warranties and Remedies ______________Performance Criteria ( insert criteria - such as 98% accuracy on subscriber records ) ______________Inspection and Acceptance Criteria ( specific requirements for the project) ______________Additional Insurance - In addition to the insurance coverage required under the Agreement, CSG shall carry Errors and Omissions insurance providing limits of not less than $1,000,000 per occurrence with endorsement evidencing coverage for contractual liability. Customer Billing Address: Customer Payment Address: - ------------------------ ------------------------ Information Technologies Purchasing Manager xxx 5619 DTC Parkway xxx Englewood, Co 80111 xxx AT&T Point of Contact CSG Point of Contact - --------------------- -------------------- Name__________________________ Name____________________________ IN WITNESS WHEREOF, CSG and Customer cause this Statement of Work to be duly executed below. CSG Systems, Inc. ("CSG") AT&T BROADBAND MANAGEMENT CORPORATION ("Customer") By: ___________________________________ By: _______________________________ Name: _________________________________ Name: _____________________________ Title: __________________________________ Title: ____________________________ Date: __________________________________ Date: _____________________________ CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 47 ATTACHMENT 4 Letter of Authorization (Sample) -------------------------------- [Date] Program Reference No.: _________ [Name] [You name] [Address] [City, State, Zip] Dear [Name]: This Letter of Authorization confirms the agreement of AT&T Broadband Management Corporation ("You") to retain the technical / consulting services (the "Services") of CSG Systems, Inc. ("CSG") for a period beginning on _____________ and ending on approximately ________________. The Services will consist of ____________(Provide a detailed description of the Services.)___________________. You will pay CSG $_________ per _____________, in accordance with the monthly invoices that CSG sends You. The terms and conditions of the Schedule B of the Master Agreement between You and CSG regarding the provision of technical and consulting services are incorporated in this Letter of Authorization and shall govern the provision of Services by CSG. CSG looks forward to a long and mutually beneficial relationship with You and to providing You with continued high-value services to enhance your business. Once You have signed this letter, please return it to ____________________'s attention so that CSG can commence the Services. CSG SYSTEMS, INC. ("CSG") By:_________________________ Name:_______________________ Title:______________________ AT&T BROADBAND MANAGEMENT CORPORATION ("You") By:_____________________________ Name:___________________________ Title:__________________________ CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 48 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" EXHIBIT I Performance Metrics ------------------- The Exhibit identifies and defines the performance metrics and associated remedies for non-compliance with the metrics. 1. Bill Finishing - ------------------ This concept takes Bill Delivery Timeliness, Bill Quality and Bill Accuracy metrics and uses actual production results to calculate the amount/bill Customer will pay for the bills produced during the period covered by the metrics. The price per statement produced during any month is calculated based on the rates for ESP statement processing established in amendment 16 to the agreement applied against the actual number of physical pages produced in a month. The calculation of compliance with Bill Finishing Performance Standards (BFPS) will be determined each month by calculating the moving average Bill Delivery Timeliness, Billing Accuracy, Billing Quality and the moving range of each of the same indicators. Each indicator and its moving range must be "in control" as defined using Shewart control charts. The following table determines the amount of the decrement to be applied to the contractual bill rates. Decrement pricing will be determined by the lowest of the three performance indicators. If any indicator is determined to be "out of control", as defined using Shewart control charts, the price in Column 3 of the Bill Finishing Pricing table will apply.
- ------------------------------------------------------------------------------------------------------------- Column 1 Column 2 Column 1 Between (***)% and Greater than (***)% Less than (***)% Service Level (***)% compliance with compliance with BFPS compliance with BFPS BFPS goals and the bill goals and the bill goals or the bill finishing process is in finishing process is in finishing process is not control. control. in control. - ------------------------------------------------------------------------------------------------------------- Images Price Price Price - ------------------------------------------------------------------------------------------------------------- First Physical Page TBD TBD TBD - ------------------------------------------------------------------------------------------------------------- Additional Physical Pages TBD TBD TBD - -------------------------------------------------------------------------------------------------------------
Supplier's fee for bill finishing services shall be invoiced to the customer monthly in arrears. Adjustments from Column 2 pricing based on performance and process stability during a given month will be reflected as a credit or debit in the following month's bill finishing invoice. BILL FINISHING PERFORMANCE STANDARDS - ------------------------------------ Bill Delivery Timeliness Standard: A billing cycle shall be deemed timely if all of Customer's subscriber bills included in the billing cycle have been delivered to the United Stated Postal Service, within the number of hours specified below (Timeliness Goal), after receipt by supplier of Customer's authorization to print the bills for such billing cycle. Thanksgiving Day, December 25, January 1 are observed holidays and will not be counted in the calculation of hours toward the timeliness goal. Delays in delivering subscriber bills may occur due to any change requests, delaying data entry, late receipt of usage data, delay in approval of output or delaying information necessary to complete processing of subscriber bills. The clock does not start for purposes of calculating bill timeliness until all such delays are appropriately resolved. The goal for bill timeliness is (***)% average timeliness of bills meeting the metric in the table below. The monthly average for bill timeliness will be calculated by dividing the images delivered on time by the total images delivered during the month. 49 CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission"
- ------------------------------------------------------------------------------------------------------------- Billing Cycle Size Timeliness Number of Images Goal - ------------------------------------------------------------------------------------------------------------- 0 - 500,000 *(*** *****) - ------------------------------------------------------------------------------------------------------------- **500,000 *(*** *****) - -------------------------------------------------------------------------------------------------------------
Bill Accuracy Standard: Bill Accuracy refers to the mathematical correctness of the bill as it relates to the charges pertaining to a subscriber. Examples of Billing Accuracy defects include but are not limited to: - Missing elements (billable charges such a pay-per-view events, taxes, etc.) - Miscalculation (incorrect pro-rating, etc.) The goal for billing accuracy is (***)% average accuracy for all bills (measured monthly). Bill accuracy will be determined using mutually agreed upon statistical sampling methods. Bill Quality Standard: Bill quality refers to the assessment of defects on bills not relating to mathematical accuracy. Examples of billing quality defects include but are not limited to: - Missing elements (non-billable items) - Misplacement or misalignment of billing elements - Print quality, etc. The goal for bill quality is (***)% average quality for all bills (measured monthly). Bill quality will be determined using mutually agree upon statistical sampling methods. * Less than ** Greater than 50 CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" 2. Time to Restore - ------------------ The Time to Restore metrics will be based on the severity level of the trouble. The five severity levels that Customer is concerned with and the associated remedies for non-compliance are defined in the table below.
- ------------------------------------------------------------------------------------------------------------- Resolution Description Symptoms Timeframe Remedy ----------- -------- --------- ------ - ------------------------------------------------------------------------------------------------------------- 1 Show *(*** *****) with TBD Stopper A system outage or complete loss of status updates functionality. every (**********) The product is not stable resulting in the application locking up, the application crashing, General Protection Faults or other system failure. The basic "add", "update" and "read" functionality is not working. Data is corrupted by the system and is beyond the control of the operator. The operator cannot use the system or trust that it is working properly. - ------------------------------------------------------------------------------------------------------------- 2 Major A loss of crucial functionality. *(*** *****) with TBD No workarounds exist for the problem. status updates Anything that affects the accuracy of every (****) monetary data. The operator cannot perform their job with this problem. - ------------------------------------------------------------------------------------------------------------- 3 Functional A loss of non-crucial functionality. *(*** *****) with TBD A workaround exists. status updates The operator can still perform their job every (*** *****) but not effectively or efficiently. - ------------------------------------------------------------------------------------------------------------- 4 Minor An inconvenience to the operator. *(*** ****) with TBD Navigational flow. status updates A desired enhancement request. every (***) The operator could perform their job but it could be made better. - ------------------------------------------------------------------------------------------------------------- 5 Visual Cosmetic changes that do not affect *(*** ****) with TBD functionality. status updates Questions or clarifications. every (****) - -------------------------------------------------------------------------------------------------------------
* Less than 51 CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission" 3. Application Availability - ---------------------------- The application availability metric will be based on the amount of down time, as measured by scheduled user minutes, versus the total number of scheduled user minutes. CSG will provide application availability for each application service fewer than (***) minutes of downtime per (***) scheduled user minutes (i.e., a (***)% up time performance). CSG will provide (***) weeks notice of scheduled down time. Notification of down time should be provided to Customer's centralized help desk. Additionally, there shall be no scheduled down time during peak hours, which are defined as: - (***) AM to (***)PM Mountain Monday through Saturday - No specific peak hours on Sunday Associated with this metric the following remedies will apply: - The first failure will be officially noted between the two companies - $TBD for each subsequent failure Development Cycle Time and Defect Rate - -------------------------------------- Customer will use two types of metrics to measure the quality of the development process: cycle time and defect rate. The cycle time metric will be based on the development life cycle that has been incorporated into each Statement of Work (SOW). Customer may include in any SOW the timeline for the following development milestones:
Tasks Weeks of Delay - ----- -------------- * 1 week 1-2 weeks 2-4 weeks 4weeks - ----------------------------------------------------------------------------------------------- Requirements definition - ----------------------------------------------------------------------------------------------- Design review - ----------------------------------------------------------------------------------------------- Code review REMEDIES FOR MISSED TASK MILESTONES - ----------------------------------------------------------------------------------------------- Unit testing ARE BASED ON THE % VALUE OF DSOW/SOW - - - ----------------------------------------------------------------------------------------------- User acceptance testing TBD - ----------------------------------------------------------------------------------------------- Production readiness - ----------------------------------------------------------------------------------------------- Implementation/conversion - ----------------------------------------------------------------------------------------------- - -----------------------------------------------------------------------------------------------
Since the development effort required to support a specific DSOW/SOW can vary widely this metric will be measured against dates agreed upon within each individual DSOW/SOW. The associated remedies for missing any one of these dates will be documented in the above table: Note: Once a development project has been accepted pursuant to the Statement of Work, the time to restore metrics and remedies identified in Section 2 of this Exhibit should be used to manage the quality aspects of the product. 4. Escalation Procedures --------------------- For all Severity 1 and 2 production issues the Customer centralized help desk should be notified immediately (*10 minutes after trouble identification) be notified: For all Severity 3, 4 and 5 level troubles this list of resources should be within 24 hours of the identification of the trouble. Subsequent notification should occur per the schedule defined in Section 2 of this Exhibit. * Less than ** Greater than 52 CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES EX-10.14 3 0003.txt FIRST AMENDMENT TO EMPLOYMENT AGREEMENT Exhibit 10.14A FIRST AMENDMENT to EMPLOYMENT AGREEMENT among CSG SYSTEMS INTERNATIONAL, INC. and CSG SYSTEMS, INC. and NEAL C. HANSEN This First Amendment (the "Amendment") is made this 30th day of June, 2000, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware corporation, CSG SYSTEMS, Inc. ("Systems"), a Delaware corporation, and NEAL C. HANSEN (the "Executive"). CSGS and SYSTEMS collectively are referred to in this Amendment and the Employment Agreement as the "Companies." RECITALS WHEREAS, Companies and the Executive entered into the Employment Agreement dated November 17, 1998 (the "Employment Agreement"); and WHEREAS, Companies desire to amend the Employment Agreement as herein set forth. NOW, THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements of the parties contained in this document, the Companies and the Executive agree as follows: 1. The following provision is added to the end of Paragraph 6 of the Employment Agreement: "During the term of this Agreement, the Executive and the Executive's designees shall be entitled to use of the Companies' aircraft(s) at the Companies' expense (i) in the performance of the Executive's duties and responsibilities under this Agreement, and (ii) for legitimate personal use; provided, however, the Executive is responsible for any personal income taxes due as a result of any income that is imputed to the Executive as a result of the Executive's personal use of the Companies' aircraft(s). 2. Any terms in initial capital letters or all capital letters used as a defined term, but not defined in this Amendment, shall have the meaning set forth in the Employment Agreement. If any of the terms and conditions in this Amendment conflict with those in the Agreement, the terms and conditions of this Amendment shall take precedence. Upon execution of this Amendment by the parties, any subsequent reference to the Employment Agreement between the parties shall mean the Employment Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. Page 1 of 2 IN WITNESS WHEREOF, each of the Parties has caused this Amendment to be executed as of the date first written above. CSG SYSTEMS INTERNATIONAL, INC., By: /s/ John P. Pogge ------------------------------ John P. Pogge, President CSG SYSTEMS, INC., By: /s/ John P. Pogge ------------------------------ John P. Pogge, President /s/ Neal C. Hansen - --------------------------------- Neal C. Hansen Page 2 of 2 EX-10.47 4 0004.txt EMPLOYMENT AGREEMENT Exhibit 10.47 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made and entered into on the 17th day of August, 2000, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and J. RICHARD ABRAMSON (the "Executive"). CSGS and Systems collectively are referred to in this Employment Agreement as the "Companies". * * * WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and WHEREAS, the Executive currently is employed by Systems and serves as an Executive Vice President of both of the Companies; and WHEREAS, the Companies desire to provide for the continued employment of the Executive as an Executive Vice President; and WHEREAS, the Executive desires to accept such continued employment upon the terms set forth in this agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements of the parties contained in this document, the Companies and the Executive agree as follows: 1. Employment and Duties. Each of the Companies hereby employs the --------------------- Executive as an Executive Vice President throughout the term of this agreement and agrees to cause the Executive from time to time to be elected or appointed to such corporate office or position. The duties and responsibilities of the Executive shall include the duties and responsibilities of the Executive's corporate office and position referred to in the preceding sentence which are set forth in the respective bylaws of the Companies from time to time and such other duties and responsibilities consistent with the Executive's corporate office and position referred to in the preceding sentence and this agreement which the Board of Directors of CSGS (the "Board") or the Chief Executive Officer of CSGS from time to time may assign to the Executive. If the Executive is elected or appointed as a director of CSGS or Systems or as an officer or director of any of the respective subsidiaries of the Companies during the term of this agreement, then he also shall serve in such capacity or capacities but without additional compensation. 2. Term. The term of this agreement shall begin on the date of this ---- agreement and shall continue thereafter through December 31, 2001, unless the Executive's employment under this agreement is sooner terminated in accordance with this agreement. On December 31 of each year during the term of this agreement, as extended from time to time pursuant to this sentence, beginning December 31, 2000, the term of this agreement automatically and without further action being required shall be extended by one (1) year unless, not later than one (1) year prior to a particular December 31, either CSGS notifies the Executive and Systems in writing or the Executive notifies the Companies in writing that such extension shall not occur on such December 31, in which latter case this agreement shall terminate upon the expiration of its then current term, unless the Executive's employment under this agreement is sooner terminated in accordance with this agreement. References in this agreement to the "current term" of this agreement shall include both the original term of this agreement and any automatic extensions of such term which actually have occurred pursuant to this Paragraph 2. 3. Place of Employment. Regardless of the location of the executive ------------------- offices of the Companies during the term of this agreement, the Companies shall maintain a suitably staffed office for the Executive in the Denver, Colorado, metropolitan area during the term of this agreement; and the Executive will not be required without his consent to relocate or transfer his executive office or principal residence from the immediate vicinity of the Denver, Colorado, metropolitan area. 4. Base Salary. For all services to be rendered by the Executive ----------- pursuant to this agreement, the Companies agree to pay the Executive during the term of this agreement a base salary (the "Base Salary") at an annual rate of $300,000; provided, that the Base Salary as then in effect shall be increased as of January 1 of each calendar year after 2001 during the term of this agreement by at least the same percentage that the United States Department of Labor Consumer Price Index (All Items) for All Urban Consumers, 1982-84=100 ("CPI-U") for the August immediately preceding such January 1 increased over the CPI-U for the August one year earlier. The Board shall review the Base Salary at least annually for the purpose of determining whether a Base Salary increase greater than such CPI-U increase should be granted to the Executive for a particular 12- month period. The Executive's annual incentive bonus provided for in Paragraph 5 and all other compensation and benefits to which the Executive is or may become entitled pursuant to this agreement or under any plans or programs of the Companies shall be in addition to the Base Salary. 5. Annual Incentive Bonus. An annual incentive bonus program for 2000 ---------------------- previously has been established by the Companies for the Executive; promptly after the execution of this agreement, the specific elements of such bonus program for 2000 shall be supplemented in writing to reflect the additional duties and responsibilities that have been assigned to the Executive since such bonus program for 2000 originally was established. In accordance with its regular practice, the Board shall establish an incentive bonus program for the Executive for 2001. Such incentive bonus program shall be reflected either in a written supplement to this agreement signed by the Companies and the Executive or in such other form as the Companies and the Executive may agree upon. The same procedure shall be followed for subsequent calendar years during the term of this agreement, so that an annual incentive bonus program for the Executive will be in effect throughout the term of this agreement. The Executive and the Companies understand and acknowledge that, among other things, such incentive bonus program will involve achievement by the Companies of various financial objectives, which may include but are not limited to revenues and earnings, and also may include achievement by the Companies of various non-financial objectives. The Executive's incentive bonus program for each calendar year (including 2000) shall provide the opportunity for the Executive to earn an incentive bonus of not less than fifty-five percent (55%) of his Base Salary for such calendar year if the agreed upon objectives are fully achieved. The Board from time to time also may establish incentive compensation programs for the Executive covering periods of more than one (1) year, and any such programs shall be in addition to the annual incentive bonus program required by this Paragraph 5. 2 6. Expenses. During the term of this agreement, the Executive shall be -------- entitled to prompt reimbursement by the Companies of all reasonable ordinary and necessary travel, entertainment, and other expenses incurred by the Executive (in accordance with the policies and procedures established by the Companies for their respective senior executive officers) in the performance of his duties and responsibilities under this agreement; provided, that the Executive shall properly account for such expenses in accordance with the policies and procedures of the Companies, which may include but are not limited to itemized accountings. 7. Other Benefits. During the term of this agreement, the Companies -------------- shall provide to the Executive and his eligible dependents at the expense of the Companies individual or group medical, hospital, dental, and long-term disability insurance coverages and group life insurance coverage, in each case at least as favorable as those coverages which are provided to other vice presidents of the Companies. During the term of this agreement, the Executive also shall be entitled to participate in such other benefit plans or programs which the Companies from time to time may make available to their employees generally (except such programs, such as the 1996 Employee Stock Purchase Plan of CSGS, in which executive officers of CSGS are not eligible to participate because of securities law reasons). 8. Vacations and Holidays. During the term of this agreement, the ---------------------- Executive shall be entitled to paid vacations and holidays in accordance with the policies of the Companies in effect from time to time for their respective senior executive officers, but in no event shall the Executive be entitled to less than four (4) weeks of vacation during each calendar year. 9. Full-Time Efforts and Other Activities. During the term of this -------------------------------------- agreement, to the best of his ability and using all of his skills, the Executive shall devote substantially all of his working time and efforts during the normal business hours of the Companies to the business and affairs of the Companies and to the diligent and faithful performance of the duties and responsibilities assigned to him pursuant to this agreement, except for vacations, holidays, and sick days. However, the Executive may devote a reasonable amount of his time to civic, community, or charitable activities, to service on the governing bodies or committees of trade associations or similar organizations of which either or both of the Companies are members, and, with the prior approval of the Board or the Chief Executive Officer of CSGS, to service as a director of other corporations and to other types of activities not expressly mentioned in this paragraph, so long as the activities referred to in this sentence do not materially interfere with the proper performance of the Executive's duties and responsibilities under this agreement. The Executive also shall be free to manage and invest his assets in such manner as will not require any substantial services by the Executive in the conduct of the businesses or affairs of the entities or in the management of the properties in which such investments are made, so long as such activities do not materially interfere with the proper performance of the Executive's duties and responsibilities under this agreement. 10. Termination of Employment. ------------------------- (a) Termination Because of Death. The Executive's employment by the ---------------------------- Companies under this agreement shall terminate upon his death. If the Executive's employment under this agreement terminates because of his death, then the Executive's estate or his beneficiaries (as the case may be) shall be entitled to receive the following compensation and benefits from the Companies: 3 (i) The Base Salary through the date of the Executive's death; (ii) A pro rata portion of the Executive's annual incentive bonus for the calendar year in which his death occurs (computed as if the Executive were employed by the Companies throughout such calendar year), based upon the number of days in such calendar year elapsed through the date of the Executive's death as a proportion of 365, to be paid at the same time that such incentive bonus would have been paid had the Executive's death not occurred; (iii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the date of the Executive's death; and (iv) Any other benefits payable by reason of the Executive's death, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the date of the Executive's death. (b) Termination Because of Disability. If the Executive becomes incapable --------------------------------- by reason of physical injury, disease, or mental illness of substantially performing his duties and responsibilities under this agreement for a continuous period of six (6) months or more or for more than one hundred eighty (180) days in the aggregate (whether or not consecutive) during any 12-month period, then at any time after the elapse of such six-month period or such 180 days, as the case may be, the Board may terminate the Executive's employment by the Companies under this agreement. If the Executive's employment under this agreement is terminated by the Board because of such disability on the part of the Executive, then the Executive shall be entitled to receive the following compensation and benefits from the Companies: (i) The Base Salary through the effective date of such termination; (ii) A pro rata portion of the Executive's annual incentive bonus for the calendar year in which such termination occurs (computed as if the Executive were employed by the Companies throughout such calendar year), based upon the number of days in such calendar year elapsed through the effective date of such termination as a proportion of 365, to be paid at the same time that such incentive bonus would have been paid if such termination had not occurred; (iii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; 4 (iv) Continued participation in the following benefit plans or programs of the Companies which may be in effect from time to time and in which the Executive was participating as of the effective date of such termination, to the extent that such continued participation by the Executive is permitted under the terms and conditions of such plans (unless such continued participation is restricted or prohibited by applicable governmental regulations governing such plans), until the first to occur of the cessation of such disability, the Executive's death, the Executive's attainment of age sixty-five (65), or (separately with respect to the termination of each benefit) the provision of a substantially equivalent benefit to the Executive by another employer of the Executive: (1) Group medical and hospital insurance, (2) Group dental insurance, (3) Group life insurance, and (4) Group long-term disability insurance; and (v) Any other benefits payable by reason of the Executive's disability, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. For purposes of this subparagraph (b), decisions with respect to the Executive's disability shall be made by the Board, using its reasonable good faith judgment; and, in making any such decision, the Board shall be entitled to rely upon the opinion of a duly licensed and qualified physician selected by a majority of the members of the Board who are not employees of either of the Companies or any of their respective subsidiaries. (c) Termination for Cause. The Board may terminate the Executive's --------------------- employment by the Companies under this agreement for cause; however, for purposes of this agreement "cause" shall mean only (i) the Executive's confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification, (iii) material violation by the Executive of the provisions of Paragraph 11, (iv) habitual and material negligence by the Executive in the performance of his duties and responsibilities under or pursuant to this agreement and failure on the part of the Executive to cure such negligence within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such negligence, (v) material non-compliance by the Executive with his obligations under Paragraph 9 and failure to correct such non-compliance within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive 5 Officer of CSGS setting forth in reasonable detail the particulars of such non- compliance, (vi) material failure by the Executive to comply with a lawful directive of the Board or the Chief Executive Officer of CSGS and failure to cure such non-compliance within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such non-compliance, (vii) a material breach by the Executive of any of his fiduciary duties to the Companies and, if such breach is curable, the Executive's failure to cure such breach within ten (10) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such breach, or (viii) willful misconduct or fraud on the part of the Executive in the performance of his duties under this agreement. In no event shall the results of operations of the Companies or any business judgment made in good faith by the Executive constitute an independent basis for termination for cause of the Executive's employment under this agreement. Any termination of the Executive's employment for cause must be authorized by a majority vote of the Board taken not later than nine (9) months after a majority of the members of the Board (other than the Executive) have actual knowledge of the occurrence of the event or conduct constituting the cause for such termination. If the Executive's employment under this agreement is terminated by the Board for cause, then the Executive shall be entitled to receive the following compensation and benefits from the Companies: (i) The Base Salary through the effective date of such termination; (ii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; and (iii) Any other benefits payable to the Executive upon his termination for cause, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. (d) Termination Without Cause Prior to a Change of Control. If, prior to ------------------------------------------------------ the occurrence of a Change of Control, the Companies terminate the Executive's employment under this agreement for any reason other than cause or the Executive's death or disability, then the Executive shall be entitled to receive the following compensation, benefits, and other payments from the Companies: (i) The Base Salary through that date which is one (1) year after the effective date of such termination (the "Ending Date"), to be paid at the same times that the Base Salary would have been paid if such termination had not occurred; provided, that if the Executive commences employment with another employer, whether as an employee or as a consultant, prior to the Ending Date (for purposes of this Paragraph 10, the "Other Employment"), then such payments of the Base Salary shall be reduced from time to time by the aggregate amount of salary, cash bonus, and consulting fees received or receivable by the Executive from the Other Employment for services performed by him during the period from the commencement of the Other Employment through the Ending Date; (ii) The Executive's annual incentive bonus for the calendar year in which such termination occurs (computed as if the Executive 6 were employed by the Companies throughout such calendar year), to be paid at the same time that such incentive bonus would have been paid if such termination had not occurred and to be no less than the Executive's annual incentive bonus for the calendar year immediately preceding the calendar year in which such termination occurs; (iii) An amount equal to fifty-five percent (55%) of the Base Salary in effect on the effective date of such termination, such amount to be paid, without interest, one year after the effective date of such termination. (iv) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; (v) Continued participation in the following benefit plans or programs of the Companies which may be in effect from time to time and in which the Executive was participating as of the effective date of such termination, to the extent that such continued participation by the Executive is permitted under the terms and conditions of such plans (unless such continued participation is restricted or prohibited by applicable governmental regulations governing such plans), until the first to occur of the Ending Date or (separately with respect to the termination of each benefit) the provision of a substantially equivalent benefit to the Executive by another employer of the Executive: (1) Group medical and hospital insurance, (2) Group dental insurance, (3) Group life insurance, and (4) Group long-term disability insurance; and (vi) Any other benefits payable to the Executive upon his termination without cause, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. (e) Termination Without Cause After a Change of Control. If, after the --------------------------------------------------- occurrence of a Change of Control, the Companies or any Permitted Assignee terminates the Executive's employment under this agreement for any reason other than cause or the Executive's death or disability, then the Executive shall be entitled to receive from the Companies and the Permitted Assignee, if any (all of whom shall be jointly and severally liable therefor), all of the compensation, benefits, and other payments from the Companies which are described and provided for in subparagraph (d) of this Paragraph 10 (as modified by this subparagraph (e)); 7 provided, however, that (i) for purposes of this subparagraph (e) the Ending Date shall be two (2) years after the effective date of such termination, and the aggregate Base Salary payable under subparagraph (d)(i) (as modified by this subparagraph (e)) for all periods through the Ending Date shall be paid to the Executive in a lump sum without regard to Other Employment not later than thirty (30) days after the effective date of such termination, (ii) the minimum annual incentive bonus payable under subparagraph (d)(ii) shall be paid to the Executive not later than thirty (30) days after the effective date of such termination (with any balance of such annual incentive bonus being payable as provided in such subparagraph (d)(ii)), and (iii) the amount payable under subparagraph (d)(iii) (as modified by this subparagraph (e)) shall be one hundred ten percent (110%) of the Base Salary in effect on the effective date of such termination and shall be paid to the Executive in a lump sum not later than thirty (30) days after the effective date of such termination. (f) Constructive Termination. If at any time during the term of this ------------------------ agreement the Board, the Chief Executive Officer of CSGS, or a Permitted Assignee materially alters the duties and responsibilities of the Executive provided for in Paragraph 1 or assigns to the Executive duties and responsibilities materially inappropriate to an executive vice president of the Companies without the Executive's written consent, then, at the election of the Executive (such election to be made by written notice from the Executive to the Board or the Permitted Assignee, as may be appropriate in the circumstances), (i) such action by the Board, the Chief Executive Officer of CSGS, or such Permitted Assignee shall constitute a constructive termination of the Executive's employment by the Companies for a reason other than cause (the "Constructive Termination"), (ii) the Executive thereupon may resign from his offices and positions with the Companies and shall not be obligated to perform any further services of any kind to or for the Companies, and (iii) the Executive shall be entitled to receive from the Companies (and the Permitted Assignee, if applicable) at the applicable times all of the compensation, benefits, and other payments described in subparagraph (d) or subparagraph (e) of this Paragraph 10 (whichever may be applicable), as if the effective date of the Executive's resignation were the effective date of his termination of employment for purposes of determining such compensation, benefits, and other payments. Notwithstanding the foregoing provisions of this subparagraph (f), before exercising any of his rights pursuant to the preceding sentence, the Executive shall give written notice to the Chief Executive Officer of CSGS setting forth the Executive's intent to exercise such rights and specifying the Constructive Termination which the Executive claims to be the basis for such intended exercise; and the Companies shall have twenty (20) days after the Chief Executive Officer has received such notice to take such actions, if any, as the Companies may deem appropriate to eliminate such claimed Constructive Termination (without thereby admitting that a Constructive Termination had occurred). If the Companies so act to eliminate such claimed Constructive Termination, then the Executive shall not have any rights under this subparagraph (f) with respect to such claimed Constructive Termination. (g) Voluntary Resignation. If the Executive voluntarily resigns as an --------------------- employee of the Companies and thereby voluntarily terminates his employment under this agreement and if none of subparagraphs (a) through (f) of this Paragraph 10 is applicable to such termination, then the Executive shall be entitled to receive only the following compensation, benefits, and other payments from the Companies: (i) The Base Salary through the effective date of such voluntary resignation; 8 (ii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such voluntary resignation; (iii) If (and only if) the Executive's voluntary resignation is effective on December 31 of a particular calendar year, the Executive's annual incentive bonus (if any) for such calendar year, to be paid in accordance with the regular schedule for its payment; and (iv) Any other benefits payable to the Executive upon his voluntary resignation, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such voluntary resignation. The Executive understands and agrees that if this subparagraph (g) is applicable to the termination of the Executive's employment with the Companies, then, unless his voluntary resignation is effective on December 31 of a particular calendar year, the Executive will not be entitled to any annual incentive bonus for the calendar year in which his voluntary resignation becomes effective. (h) Liquidated Damages. The Executive agrees to accept the compensation, ------------------ benefits, and other payments provided for in subparagraph (d), subparagraph (e), or subparagraph (f) of this Paragraph 10, as the case may be, as full and complete liquidated damages for any breach of this agreement resulting from the actual or constructive termination of the Executive's employment under this agreement for a reason other than cause or the Executive's death or disability; and the Executive shall not have and hereby waives and relinquishes any other rights or claims in respect of such breach. (i) Notice of Other Employment and of Benefits. The Executive promptly ------------------------------------------ shall notify the Companies in writing of (i) his acceptance of the Other Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the effective date of such Other Employment, and (iii) the amount of salary, cash bonus, and consulting fees which the Executive receives or is entitled to receive from the Other Employment for services performed by him during the period from the commencement of the Other Employment through the Ending Date. Whenever relevant for purposes of this Paragraph 10, the Executive also promptly shall notify the Companies of his receipt from another employer of any benefits of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph 10. Such information shall be updated by the Executive whenever necessary to keep the Companies informed on a current basis. (j) Modification of Benefit Plans or Programs. Nothing contained in this ----------------------------------------- Paragraph 10 shall obligate the Companies to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan or program referred to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such actions are similarly applicable to senior executives of the Companies generally. 9 (k) Rights of Estate. If the Executive dies prior to his receipt of all ---------------- of the cash payments to which he may be entitled pursuant to subparagraph (b), (c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes applicable, then the unpaid portion of such cash payments shall be paid by the Companies to the personal representative of the Executive's estate at the same time or times that the payments would have been made to the Executive if he still were living. (l) Excess Parachute Payments. If any of the payments required to be made ------------------------- to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10 constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder, and the Executive becomes liable for any excise tax on such "excess parachute payments" and any interest or penalties thereon (such excise tax, interest, and penalties, collectively, the "Tax Penalties"), then the Companies (and the Permitted Assignee, if applicable) promptly shall make a cash payment (the "Additional Payment") to the Executive in an amount equal to the Tax Penalties. The Companies also promptly shall make an additional cash payment to the Executive in an amount rounded to the nearest $100.00 which is equal to any additional income, excise, and other taxes (using the individual tax rates applicable to the Executive for the year for which such Tax Penalties are owed) for which the Executive will be liable as a result of the Executive's receipt of the Additional Payment (the additional cash payment provided for in this sentence being referred to as a "Gross-Up Payment"). In addition, the Executive shall be entitled to promptly receive from the Companies (and the Permitted Assignee, if applicable) a further Gross-Up Payment in respect of each prior Gross-Up Payment until the amount of the last Gross-Up Payment is less than $100.00. 11. Nondisclosure. During the term of this agreement and thereafter, the ------------- Executive shall not, without the prior written consent of the Board or a person (other than the Executive) so authorized by the Board, disclose or use for any purpose (except in the course of his employment under this agreement and in furtherance of the business of the Companies or any of their respective subsidiaries) any confidential information, trade secrets, or proprietary data of the Companies or any of their respective subsidiaries (collectively, for purposes of this agreement, "Confidential Information"); provided, however, that Confidential Information shall not include any information then known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Companies or their respective subsidiaries, as the case may be. 12. Successors and Assigns. This agreement and all rights under this ---------------------- agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, successors, and assigns. This agreement is personal in nature, and none of the parties to this agreement shall, without the written consent of the others, assign or transfer this agreement or any right or obligation under this agreement to any other person or entity, except as permitted by Paragraph 14. 13. Notices. For purposes of this agreement, notices and other ------- communications provided for in this agreement shall be deemed to be properly given if delivered personally or sent either by next-business-day prepaid express delivery by a recognized national express 10 delivery service or by United States certified mail, return receipt requested, postage prepaid, in either case addressed as follows: If to the Executive: J. Richard Abramson c/o CSG Systems, Inc. 7887 East Belleview Avenue, Suite 1000 Englewood, Colorado 80111 If to the Companies: CSG Systems International, Inc. and CSG Systems, Inc. 7887 East Belleview Avenue, Suite 1000 Englewood, Colorado 80111, or to such other address as either party may have furnished to the other party in writing in accordance with this paragraph. Such notices or other communications shall be effective only upon receipt. 14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger ------------------------------------- of Systems with another corporation (other than CSGS) in a transaction in which Systems is not the surviving corporation, (b) the consolidation of Systems into a new corporation resulting from such consolidation, (c) the sale or other disposition of all or substantially all of the assets of Systems, the Companies may assign this agreement and all of the rights and obligations of the Companies under this agreement to the surviving, resulting, or acquiring entity (for purposes of this agreement, a "Permitted Assignee"); provided, that such surviving, resulting, or acquiring entity shall in writing assume and agree to perform all of the obligations of the Companies under this agreement; and provided further, that the Companies shall remain jointly and severally liable for the performance of the obligations of the Companies under this agreement in the event of a failure of the Permitted Assignee to perform its obligations under this agreement. 15. Change of Control. For purposes of this agreement, a "Change of ----------------- Control" shall be deemed to have occurred upon the happening of any of the following events: (a) CSGS is merged or consolidated into another corporation, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of CSGS immediately prior to the effectiveness of such merger or consolidation do not own (directly or indirectly) a majority of the outstanding shares of voting capital stock of the surviving or resulting corporation in such merger or consolidation, (b) CSGS ceases to own (directly or indirectly) a majority of the outstanding shares of voting capital stock of Systems (unless such event results from the merger of Systems into CSGS, with no change in the ownership of the voting capital stock of CSGS, or from the dissolution of Systems and the continuation of its business by CSGS), (c) Systems is merged or consolidated into a corporation other than CSGS, and at any time after such merger or consolidation becomes effective 11 CSGS does not own (directly or indirectly) a majority of the outstanding shares of voting capital stock of the surviving or resulting corporation in such merger or consolidation, (d) the stockholders of Systems vote (or act by written consent) to dissolve Systems (unless the business of Systems will be continued by CSGS) or to sell or otherwise dispose of all or substantially all of the property and assets of Systems (other than to an entity or group of entities which is then under common ownership (directly or indirectly) with Systems), (e) any person, entity, or group of persons within the meaning of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act") and the rules promulgated thereunder becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of thirty percent (30%) or more of the outstanding voting capital stock of CSGS, or (f) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of CSGS cease, for any reason, to constitute at least a majority of the Board of Directors of CSGS, unless the election or nomination for election of each new director of CSGS who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of CSGS still in office at the time of such election or nomination for election who were directors of CSGS at the beginning of such period. 16. Miscellaneous. No provision of this agreement may be modified, ------------- waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and is signed by the Executive and an officer of CSGS (other than the Executive) so authorized by the Board. No waiver by any party to this agreement at any time of any breach by any other party of, or compliance by any other party with, any condition or provision of this agreement to be performed by such other party shall be deemed to be a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this agreement have been made by any party that are not expressly set forth in this agreement. 17. Representations of Companies. The Companies severally represent and ---------------------------- warrant to the Executive that they have full legal power and authority to enter into this agreement, that the execution and delivery of this agreement by the Companies have been duly authorized by their respective boards of directors, and that the performance of their respective obligations under this agreement will not violate any agreement between the Companies, or either of them, and any other person, firm, or organization. 18. Non-Solicitation of Employees. For a period of one (1) year after ----------------------------- the effective date of the termination of the Executive's employment under this agreement for any reason, whether voluntarily or involuntarily and with or without cause, without the prior written consent of CSGS the Executive agrees (i) not to directly or indirectly employ, solicit for employment, assist any other person in employing or soliciting for employment, or advise or recommend to any other person that such other person employ or solicit for employment any person who then is an 12 employee of the Companies (or either of them) or any of the respective subsidiaries of the Companies and (ii) not to recommend to any then employee of the Companies (or either of them) or any of the respective subsidiaries of the Companies that such employee leave the employ of such employer. 19. Post-Termination Noncompetition. Because the Confidential ------------------------------- Information known to or developed by the Executive during his employment by the Companies encompasses at the highest level information concerning the plans, strategies, products, operations, and existing and prospective customers of the Companies and could not practically be disregarded by the Executive, the Executive acknowledges that his provision of executive services to a competitor of the Companies or either of them soon after the termination of the Executive's employment by the Companies would inevitably result in the use of the Confidential Information by the Executive in his performance of such executive services, even if the Executive were to use his best efforts to avoid such use of the Confidential Information. To prevent such use of the Confidential Information and the resulting unfair competition and wrongful appropriation of the goodwill and other valuable proprietary interests of the Companies, the Executive agrees that for a period of one (1) year after the termination of his employment by the Companies for any reason, whether voluntarily or involuntarily and with or without cause, the Executive will not, directly or indirectly: (a) engage, whether as an employee, agent, consultant, independent contractor, owner, partner, member, or otherwise, in a business activity which then competes in a material way with a business activity then being actively engaged in by the Companies or either of them; (b) solicit or recommend to any other person that such period solicit any then customer of the Companies or either or them, which customer also was a customer of the Companies or either of them at any time during the one (1) year period prior to the termination of the Executive's employment by the Companies, for the purpose of obtaining the business of such customer in competition with the Companies or either of them; or (c) induce or attempt to induce any then customer or prospective customer of the Companies or either of them to terminate or not commence a business relationship with the Companies or either of them. The Companies and the Executive acknowledge and agree that the restrictions contained in this Paragraph 19 are both reasonable and necessary in view of the Executive's positions with the Companies and that the Executive's compensation and benefits under this agreement are sufficient consideration for the Executive's acceptance of such restrictions. Nevertheless, if any of the restrictions contained in this Paragraph 19 are found by a court having jurisdiction to be unreasonable, or excessively broad as to geographic area or time, or otherwise unenforceable, then the parties intend that the restrictions contained in this Paragraph 19 be modified by such court so as to be reasonable and enforceable and, as so modified by the court, be fully enforced. Nothing contained in this paragraph shall be construed to preclude the investment by the Executive of any of his assets in any publicly owned entity so long as the Executive has no direct or indirect involvement in the business of such entity and owns less than 2% of the voting equity securities of such entity. Nothing contained in this paragraph shall be construed to preclude the 13 Executive from becoming employed by or serving as a consultant to or having dealings with a publicly owned entity one of whose businesses is a competitor of the Companies or either of them so long as such employment, consultation, or dealings do not directly or indirectly involve or relate to the business of such entity which is a competitor of the Companies or either of them. 20. Joint and Several Obligations. All of the obligations of the ----------------------------- Companies under this agreement are joint and several; and neither the bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization nor the cessation of business or corporate existence of one of the Companies shall affect, impair, or diminish the obligations under this agreement of the other of the Companies. The compensation and benefits to which the Executive is entitled under this agreement are aggregate compensation and benefits, and the payment of such compensation or the provision of such benefits by one of the Companies shall to the extent of such payment or provision satisfy the obligations of the other of the Companies. The Companies may agree between themselves as to which of them will be responsible for some or all of the Executive's compensation and benefits under this agreement, but any such agreement between the Companies shall not diminish to any extent the joint and several liability of the Companies to the Executive for all of such compensation and benefits. 21. Injunctive Relief. The Executive acknowledges that his violation of ----------------- the provisions and restrictions contained in Paragraphs 11, 18, and 19 could cause significant injury to the Companies for which the Companies would have no adequate remedy at law. Accordingly, the Executive agrees that the Companies will be entitled, in addition to any other rights and remedies that then may be available to the Companies, to seek and obtain injunctive relief to prevent any breach or potential breach of any of the provisions and restrictions contained in Paragraph 11, 18, or 19. 22. Dispute Resolution. Subject to the provisions of Paragraph 21, any ------------------ claim by the Executive or the Companies arising from or in connection with this agreement, whether based on contract, tort, common law, equity, statute, regulation, order, or otherwise (a "Dispute"), shall be resolved as follows: (a) Such Dispute shall be submitted to mandatory and binding arbitration at the election of either the Executive or the particular Company involved (the "Disputing Party"). Except as otherwise provided in this Paragraph 22, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). (b) To initiate the arbitration, the Disputing Party shall notify the other party in writing within 30 days after the occurrence of the event or events which give rise to the Dispute (the "Arbitration Demand"), which notice shall (i) describe in reasonable detail the nature of the Dispute, (ii) state the amount of any claim, (iii) specify the requested relief, and (iv) name an arbitrator who (A) has been licensed to practice law in the U.S. for at least ten years, (B) has no past or present relationship with either the Executive or the Companies, and (C) is experienced in representing clients in connection with employment related disputes (the "Basic Qualifications"). Within fifteen (15) days after the other party's receipt of the Arbitration Demand, such other party shall serve on the Disputing Party a written statement (i) answering the claims set forth in the Arbitration Demand and including any affirmative 14 defenses of such party, (ii) asserting any counterclaim, which statement shall (A) describe in reasonable detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief, and (iii) naming a second arbitrator satisfying the Basic Qualifications. Promptly, but in any event within five (5) days thereafter, the two arbitrators so named shall select a third neutral arbitrator from a list provided by the AAA of potential arbitrators who satisfy the Basic Qualifications and who have no past or present relationship with the parties' counsel, except as otherwise disclosed in writing to and approved by the parties. The arbitration will be heard by a panel of the three arbitrators so chosen (the "Arbitration Panel"), with the third arbitrator so chosen serving as the chairperson of the Arbitration Panel. Decisions of a majority of the members of the Arbitration Panel shall be determinative. (c) The arbitration hearing shall be held in Denver, Colorado. The Arbitration Panel is specifically authorized to render partial or full summary judgment as provided for in the Federal Rules of Civil Procedure. The Arbitration Panel will have no power or authority, under the Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this agreement, including, without limitation, the provisions of this Paragraph 22. (d) If an arbitrator refuses or is unable to proceed with arbitration proceedings as called for by this Paragraph 22, such arbitrator shall be replaced by the party who selected such arbitrator or, if such arbitrator was selected by the two party-appointed arbitrators, by such two party-appointed arbitrators' selecting a new third arbitrator in accordance with Paragraph 22(b), in either case within five (5) days after such declining or withdrawing arbitrator's giving notice of refusal or inability to proceed. Each such replacement arbitrator shall satisfy the Basic Qualifications. If an arbitrator is replaced pursuant to this Paragraph 22(d) after the arbitration hearing has commenced, then a rehearing shall take place in accordance with the provisions of this Paragraph 22(d) and the Commercial Arbitration Rules of the AAA. (e) Within ten (10) days after the closing of the arbitration hearing, the Arbitration Panel shall prepare and distribute to the parties a writing setting forth the Arbitration Panel's finding of facts and conclusions of law relating to the Dispute, including the reason for the giving or denial of any award. The findings and conclusions and the award, if any, shall be deemed to be confidential information. (f) The Arbitration Panel is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. The Arbitration Panel is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding. 15 (g) Any award rendered by the Arbitration Panel will be final, conclusive, and binding upon the parties, and any judgment on such award may be entered and enforced in any court of competent jurisdiction. (h) Each party will bear a pro rata share of all fees, costs, and expenses of the arbitrators; and, notwithstanding any law to the contrary, each party will bear all of the fees, costs, and expenses of his or its own attorneys, experts, and witnesses. However, in connection with any judicial proceeding to compel arbitration pursuant to this agreement or to enforce any award rendered by the Arbitration Panel, the prevailing party in such a proceeding will be entitled to recover reasonable attorneys' fees and expenses incurred in connection with such proceedings, in addition to any other relief to which such party may be entitled. (i) Nothing contained in the preceding provisions of this Paragraph 22 shall be construed to prevent either party from seeking from a court a temporary restraining order or other injunctive relief pending final resolution of a Dispute pursuant to this Paragraph 22. 23. No Duty to Seek Employment. The Executive shall not be under any -------------------------- duty or obligation to seek or accept other employment following the termination of his employment by the Companies; and, except as expressly provided in subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment, or benefit due the Executive under this agreement shall be reduced, suspended, or discontinued if the Executive accepts such other employment. 24. Withholding of Taxes. The Companies may withhold from any amounts -------------------- payable to the Executive under this agreement all federal, state, and local taxes which are required to be so withheld by any applicable law or governmental regulation or ruling. 25. Validity. The invalidity or unenforceability of any provision or -------- provisions of this agreement shall not affect the validity or enforceability of any other provision of this agreement, which other provision shall remain in full force and effect; nor shall the invalidity or unenforceability of a portion of any provision of this agreement affect the validity or enforceability of the balance of such provision. 26. Counterparts. This document may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original and all of which together shall constitute a single agreement. 27. Headings. The headings of the paragraphs contained in this document -------- are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this agreement. 28. Applicable Law. This agreement shall be governed by and construed in -------------- accordance with the internal substantive laws, and not the choice of law rules, of the State of Colorado. 16 IN WITNESS WHEREOF, the Companies and the Executive have executed this agreement on the day and year first above written. CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation By: /s/ Neal C. Hansen ------------------------------------- Neal C. Hansen, Chairman of the Board and Chief Executive Officer CSG SYSTEMS, INC., a Delaware corporation By: /s/ Neal C. Hansen ------------------------------------- Neal C. Hansen, Chairman of the Board and Chief Executive Officer /s/ J. Richard Abramson ---------------------------------------- J. Richard Abramson 17 EX-27 5 0005.txt FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-2000 JAN-01-2000 SEP-30-2000 50,776 32,958 103,332 4,150 0 190,140 75,240 39,332 335,643 96,584 39,385 0 0 532 198,666 335,643 290,195 290,195 110,862 110,862 30,941 0 4,478 105,545 39,822 65,723 0 0 0 65,723 1.26 1.16 In thousands, except per share amounts.
EX-99.01 6 0006.txt CERTAIN CAUTIONARY STATEMENTS & RISK FACTORS 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. RELIANCE ON CCS - --------------- The Company derived approximately 78.3% and 78.0% of its total revenues from its primary product, Communications Control System, and related products and services (collectively, "CCS") in the years ended December 31, 1999 and 1998, respectively. CCS is expected to provide the substantial majority of the Company's total revenues in the foreseeable future. The Company continues to develop new products and services to address the evolving needs of its new and existing clients as they roll out new product offerings and enter new markets. A substantial portion of the Company's new products and services require enhancements to the core functionality of CCS. There is an inherent risk of technical problems in maintaining and operating CCS as its complexity is increased. The Company's results will depend upon continued market acceptance of CCS, as well as the Company's ability to continue to adapt, modify, maintain, and operate CCS to meet the changing needs of its clients without sacrificing the reliability or quality of service. Any reduction in demand for CCS would have a material adverse effect on the financial condition and results of operations of the Company. AT&T RELATIONSHIP - ----------------- Contract Rights and Obligations (as amended on October 10, 2000) - ---------------------------------------------------------------- The AT&T Contract had an original term of 15 years and expires in 2012. The AT&T Contract includes minimum financial commitments by AT&T over the life of the contract, and as amended, includes exclusive rights for the Company to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high speed data services, and print and mail services. The AT&T Contract contains certain performance criteria and other obligations to be met by the Company. The Company is subject to various remedies and penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. If an audit determines the Company is not providing such an innovation and it fails to do so in the manner and time period dictated by the contract, then AT&T would be released from its exclusivity obligation to the extent necessary to obtain the innovation from a third party. To fulfill the AT&T Contract and to remain competitive, the Company believes it will be required to develop new and advanced features to existing products and services, as well as new products and services, all of which will require substantial research and development, as well as implementation and operational aptitude. AT&T has the right to terminate the AT&T Contract in the event of certain defaults by the Company. To date, the Company believes it has complied with the terms of the contract. Should the Company fail to meet its obligations under the AT&T Contract, and should AT&T be successful in any action to either terminate the AT&T Contract in whole or in part, or collect damages caused by an alleged breach, it would have a material impact on the Company's results of operations. Indeed, in the Company's third quarter ended September 30, 2000, AT&T filed a Demand for Arbitration relating to the AT&T Contract, causing a significant drop in the trading price of the Company's common stock. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion of the arbitration claim and the Company's business relationship with AT&T. Business Activities and Dependence On AT&T - ------------------------------------------ AT&T completed its merger with Tele-Communications, Inc. (TCI) in March 1999 and recently completed its merger with MediaOne Group, Inc. (MediaOne). During the nine months ended September 30, 2000 and 1999, revenues from AT&T and affiliated companies generated under the AT&T Contract represented approximately 47.4% and 47.5% of total revenues, respectively. The Company expects to continue to generate a significant portion of its total revenues from AT&T and affiliated companies in the future. There are inherent risks whenever this large of a percentage of total revenues is concentrated with one customer. One such risk is that, should AT&T's business generally decline or not grow as rapidly as anticipated, it would have a material impact on the Company's results of operations. If the Company were to fail to continue to perform successfully under the AT&T Contract, that would have a material adverse effect on the financial condition and results of operations of the Company. Likewise, if AT&T were to breach its material obligations to the Company, that would have a material adverse effect on the financial condition and results of operations of the Company. Historically, a substantial portion of the Company's revenue growth resulted from the sale of software and professional services to AT&T, both of which are in excess of the minimum financial commitments included in the contract. There can be no assurance that the Company will continue to sell products and services to AT&T in excess of the minimum financial commitments included in the contract. RENEWAL OF TIME WARNER CONTRACTS - -------------------------------- During the years ended December 31, 1999 and 1998, revenues from Time Warner represented approximately 10.2% and 14.1% of total revenues, respectively. The Company provides services to Time Warner under multiple, separate contracts with various Time Warner affiliates. These contracts are scheduled to expire on various dates. The failure of Time Warner to renew contracts representing a significant part of its business with the Company would have a material adverse effect on the financial condition and results of operations of the Company. America Online, Inc. ("AOL") and Time Warner have announced their intention to merge their companies. It would be premature to predict the impact, if any, the successful consummation of this transaction would have on the financial condition or results of operations of the Company. CONVERSION TO THE COMPANY'S SYSTEMS - ----------------------------------- The Company's ability to convert new client sites to its customer care and billing systems on a timely and accurate basis is necessary to meet the Company's contractual commitments and to achieve its business objectives. Converting multiple sites under the schedules required by contracts or business requirements is a difficult and complex process. One of the difficulties in the conversion process is that competition for the necessary qualified personnel is intense and the Company may not be successful in attracting and retaining the personnel necessary to complete conversions on a timely and accurate basis. The inability of the Company to perform the conversion process timely and accurately would have a material adverse effect on the results of operations of the Company. INDUSTRY CONSOLIDATION AND DEPENDENCE ON CABLE TELEVISION AND DBS INDUSTRIES - ---------------------------------------------------------------------------- The Company's business is concentrated in the cable television and Direct Broadcast Satellite ("DBS") industries, making the Company susceptible to a downturn in those industries. During the years ended December 31, 1999 and 1998, the Company derived 75.8% and 77.7%, and 15.5% and 13.0% of its total revenues from companies in the U.S. cable television and U.S. and Canadian DBS industries, respectively. A decrease in the number of customers served by the Company's clients, loss of business due to non-renewal of client contracts, industry consolidation, and/or changing consumer demand for services would adversely effect the results of operations of the Company. There can be no assurance that new entrants into the cable television market will become clients of the Company. Also, there can be no assurance that cable television providers will be successful in expanding into other segments of the converging communications markets. Even if major forays into new markets are successful, the Company may be unable to meet the special billing and customer care needs of that market. The cable television industry is undergoing significant ownership changes at an accelerated pace. One facet of these changes is that cable television providers are consolidating, decreasing the potential number of buyers for the Company's products and services. Currently, seven providers account for 85% of the U.S. cable television market and two providers account for almost the entire U.S. DBS market. The Company processes at least a portion of the customers (i) for five of the seven cable television providers, and (ii) for both of the DBS providers. For the year ended December 31, 1999, approximately 83% of the Company's total revenues were generated from companies either under the control of, or expected to come under the control of, these seven providers. Consolidation in the industry may put at risk the Company's ability to leverage its existing relationships. Should this consolidation result in a concentration of cable television customer accounts being owned by companies with whom the Company does not have a relationship, or with whom competitors are entrenched, it could negatively effect the Company's ability to maintain or expand its market share, thereby adversely effecting the results of operations. NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE - ------------------------------------------- The market for customer care and billing 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 in sustaining and growing the annual revenue per customer account depends upon continued market acceptance of its current products, including CCS, and its ability to enhance its current products and develop new products that address the increasingly complex and evolving needs of its clients. Substantial research and development will be required to maintain the competitiveness of the Company's products and services in the market. Development projects can be lengthy and costly, and are subject to changing requirements, programming difficulties, a shortage of qualified personnel, and unforeseen factors which can result in delays. In addition, the Company is typically responsible for the implementation of new products, and depending upon the specific product, may also be responsible for operations of the product. There is an inherent risk in the successful implementation and operations of these products as the technological complexity increases. There can be no assurance (i) of continued market acceptance of the Company's current products, (ii) 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, or (iii) that the Company will be successful in supporting the implementation and/or operations of product enhancements or new products. CONVERGING COMMUNICATIONS MARKETS - --------------------------------- The Company's growth strategy is based in large part on the continuing convergence and growth of the cable television, 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 solution for combining multiple communications services for a customer, there could be a material adverse effect on the Company's growth. COMPETITION - ----------- 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. In addition, some independent providers are entering into strategic alliances with other independent providers, resulting in either a new competitor, or a competitor(s) with greater resources. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, and many already have significant international operations. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. ATTRACTION AND RETENTION OF PERSONNEL - ------------------------------------- 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. The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, operational, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense, particularly in the areas of research and development and technical support. The Company may not be successful in attracting and retaining the personnel it requires, which would adversely effect the Company's ability to meet its commitments and new product delivery objectives. VARIABILITY OF QUARTERLY RESULTS - -------------------------------- The Company's quarterly revenues and results, particularly relating to software and professional services, may fluctuate depending on various factors, including the timing of executed contracts and the delivery of contracted services or products, the cancellation of the Company's services and products by existing or new clients, the hiring of additional staff, new product development and other expenses, and changes in sales commission policies. No assurance can be given that results will not vary due to these factors. As the Company's overall revenue grows, so too does the risk associated with meeting financial expectations for revenue derived from its software and services offerings. As a result, there is a proportionately increased likelihood that the Company may fail to meet revenue and earnings expectations of the analyst community. With the current volatility of the stock market, should the Company fail to meet analyst expectations by even a relatively small amount it would most likely have a disproportionately negative impact upon the market price for the Company's common stock. DEPENDENCE ON PROPRIETARY TECHNOLOGY - ------------------------------------ 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. The Company also holds a limited number of patents on some of its newer products, and does not rely upon patents as a primary means of protecting its rights in its intellectual property. 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. INTERNATIONAL OPERATIONS - ------------------------ The Company's business strategy includes a commitment to the marketing of its products and services internationally, and the Company has acquired and established 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 such as the conversion to EURO currency, 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 firmly established significant 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. INTEGRATION OF ACQUISITIONS - --------------------------- As part of its growth strategy, the Company seeks to acquire assets, technology, and businesses which would provide the technology and technical personnel to expedite the Company's product development efforts, provide complementary products or services or provide access to new markets and clients. Acquisitions involve a number of risks and difficulties, including expansion into new geographic markets and business areas, the requirement to understand local business practices, the diversion of management's attention to the assimilation of acquired operations and personnel, potential adverse short-term effects on the Company's operating results, and the amortization of acquired intangible assets. SYSTEM SECURITY - --------------- The end users of the Company systems are continuously connected to the Company's products through a variety of public and private telecommunications networks. The Company has plans to integrate the Internet more closely into its product offerings thereby permitting, for example, a customer to use the Internet to review account balances, order a pay per view event or execute similar account management functions. The Company also operates an extensive internal network of computers and systems used to manage internal communications, financial information, development data and the like. The Company's product and internal communications networks and systems carry an inherent risk of failure as a result of human error, acts of nature and intentional, unauthorized attacks from computer "hackers." Opening up these networks and systems to permit access via the Internet increases their vulnerability to unauthorized access and corruption, as well as increasing the dependency of the systems' reliability on the availability and performance of the Internet's infrastructure. Certain system security and other controls for CCS are reviewed annually by an independent party. The Company has recently undergone a security review of its internal systems by an independent party, and is currently implementing a plan intended to minimize the risk of an unauthorized access to the networks and systems. The method, manner, cause and timing of an extended interruption or outage in the Company's networks or systems is impossible to predict. As a result, there can be no assurances that the networks and systems will not fail, nor that the Company's business recovery plans will adequately mitigate any damages incurred as a consequence. In addition, should the Company's networks or systems be significantly compromised, it would most likely have a material adverse effect on the operations of the Company, including its ability to meet product delivery obligations or client expectations. Likewise, should the Company's networks or systems experience an extended interruption or outage, have their security compromised or data lost or corrupted, it would most likely result in an immediate loss of revenue, as well as damaging the reputation of the Company. Any of these events could have both an immediate, negative impact upon the Company's short term revenue and profit expectations, as well as its long term ability to attract and retain new clients. PRODUCT OPERATIONS AND SYSTEM AVAILABILITY - ------------------------------------------ The Company's product operations are run in both mainframe and distributed system computing environments, as follows: Mainframe Environment --------------------- CCS operates in a mainframe data processing center managed by FDC (the "FDC Data Center"), with end users dispersed throughout the United States and Canada. These services are provided under an agreement with FDC, which was recently extended and is now scheduled to expire June 30, 2005. The Company believes it could obtain mainframe data processing services from alternative sources, if necessary. The Company has a business recovery plan as part of its agreement with FDC should the FDC Data Center suffer an extended business interruption or outage. This plan is tested on an annual basis. Distributed Systems Environment ------------------------------- The Company also operates certain of its new product applications in its own distributed systems data processing center (the "CSG Data Center") for the benefit of certain clients. Typically, these distributed product applications interface to and operate in conjunction with CCS via telecommunication networks. The Company is currently implementing its business recovery plan for the CSG Data Center. The Company has extensive experience in running applications within the mainframe computing platform, and only within the last few years, began running applications within the CSG Data Center. In addition, the mainframe computing environment and related technology is mature and has proven to be a highly reliable and scaleable computing platform. The distributed systems computing platform is not at the same level of maturity as the mainframe computing platform. The end users of the Company systems are continuously connected to the Company's products through a variety of public and private telecommunications networks, and are highly dependent upon the continued availability of the Company's systems to conduct their business operations. Should the FDC Data Center or CSG Data Center, or any particular product application or internal system which is operated within the data centers, as well as the connecting telecommunications networks, experience an extended business interruption or outage, it could have an immediate impact to the business operations of the Company's clients, which could have a material adverse effect on the financial condition and results of operations of the Company. -----END PRIVACY-ENHANCED MESSAGE-----