-----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, BBeAo5zFZEqRKit49kY+VZV5OekB0yo6zn2e0YhImD8zS+JW/fYo9bU8qyOBLBjW Ugka+vtHyDL6f1XybX1SGA== 0000927356-01-500174.txt : 20010516 0000927356-01-500174.hdr.sgml : 20010516 ACCESSION NUMBER: 0000927356-01-500174 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27512 FILM NUMBER: 1639404 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: 7887 E. BELLVIEW AVE. STREET 2: SUITE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 d10q.txt 1ST QUARTER 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 March 31, 2001 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 May 10, 2001: 52,899,163 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q For the Quarter Ended March 31, 2001 INDEX Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of March 31, 2001 and December 31, 2000....................................................3 Condensed Consolidated Statements of Income for the Three Months Ended March 31, 2001 and 2000........................................4 Condensed Consolidated Statements of Cash Flows for the Three Months Ended March 31, 2001 and 2000.................................5 Notes to Condensed Consolidated Financial Statements.................6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................8 Item 3. Quantitative and Qualitative Disclosures About Market Risk..........14 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K....................................15 Signatures..........................................................16 Index to Exhibits...................................................17 2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
March 31, December 31, 2001 2000 --------- --------- ASSETS (unaudited) Current assets: Cash and cash equivalents ....................................................... $ 30,187 $ 32,751 Short-term investments .......................................................... 22,178 10,982 --------- --------- Total cash, cash equivalents and short-term investments ...................... 52,365 43,733 Accounts receivable- Trade- Billed, net of allowance of $4,756 and $5,001 ............................ 79,898 128,902 Unbilled ................................................................. 8,335 4,306 Other ........................................................................ 2,811 1,259 Deferred income taxes ........................................................... 3,815 3,247 Other current assets ............................................................ 8,576 7,507 --------- --------- Total current assets ......................................................... 155,800 188,954 Property and equipment, net of depreciation of $45,575 and $42,457 ................. 39,881 36,630 Software, net of amortization of $36,162 and $39,112 ............................... 3,819 4,284 Goodwill, net of amortization of $4,926 and $4,883 ................................. 1,686 1,894 Client contracts and related intangibles, net of amortization of $28,416 and $28,855 51,386 52,368 Deferred income taxes .............................................................. 46,387 47,331 Other assets ....................................................................... 536 628 --------- --------- Total assets ................................................................ $ 299,495 $ 332,089 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt ............................................ $ 26,250 $ 25,436 Client deposits ................................................................. 12,785 12,391 Trade accounts payable .......................................................... 11,920 14,850 Accrued employee compensation ................................................... 13,072 19,147 Deferred revenue ................................................................ 11,246 8,172 Accrued income taxes ............................................................ 22,559 15,633 Other current liabilities ....................................................... 14,476 12,008 --------- --------- Total current liabilities .................................................... 112,308 107,637 --------- --------- Non-current liabilities: Long-term debt, net of current maturities ....................................... 26,250 32,820 Deferred revenue ................................................................ 451 463 --------- --------- Total non-current liabilities ................................................ 26,701 33,283 --------- --------- 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; 52,392,240 shares and 52,530,203 shares outstanding .......................... 565 543 Common stock warrants; zero and 2,000,000 warrants outstanding .................. -- 17,430 Additional paid-in capital ...................................................... 225,401 180,750 Accumulated other comprehensive income (loss): Unrealized gain (loss) on short-term investments, net of tax ................. 12 (350) Cumulative translation adjustments ........................................... (813) (654) Treasury stock, at cost, 4,110,986 shares and 1,830,986 shares .................. (156,692) (71,497) Accumulated earnings ............................................................ 92,013 64,947 --------- --------- Total stockholders' equity ................................................... 160,486 191,169 --------- --------- Total liabilities and stockholders' equity ................................... $ 299,495 $ 332,089 ========= =========
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 ---------------------- March 31, March 31, 2001 2000 --------- --------- Revenues: Processing and related services .......... $ 79,098 $ 70,627 Software and professional services ....... 35,001 21,436 --------- --------- Total revenues .................. 114,099 92,063 --------- --------- Cost of Revenues: Cost of processing and related services .. 28,515 25,770 Cost of software and professional services 13,279 10,516 --------- --------- Total cost of revenues .......... 41,794 36,286 --------- --------- Gross margin (exclusive of depreciation) ..... 72,305 55,777 --------- --------- Operating expenses: Research and development ................. 11,611 9,888 Selling, general and administrative ...... 13,540 10,088 Depreciation ............................. 3,350 2,812 --------- --------- Total operating expenses ........ 28,501 22,788 --------- --------- Operating income ............................. 43,804 32,989 --------- --------- Other income (expense): Interest expense ...................... (1,082) (1,541) Interest and investment income, net ... 947 1,263 Other ................................. (19) 7 --------- --------- Total other ..................... (154) (271) --------- --------- Income before income taxes ................... 43,650 32,718 Income tax provision ..................... (16,584) (12,409) --------- --------- Net income ................................... $ 27,066 $ 20,309 ========= ========= Basic net income per common share: Net income available to common stockholders $ 0.52 $ 0.39 ========= ========= Weighted average common shares ............ 52,469 51,857 ========= ========= Diluted net income per common share: Net income available to common stockholders $ 0.49 $ 0.36 ========= ========= Weighted average common shares ............ 55,135 56,830 ========= ========= 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)
Three Months ended --------------------- March 31, March 31, 2001 2000 -------- -------- Cash flows from operating activities: Net income ...................................................................... $ 27,066 $ 20,309 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation ................................................................. 3,350 2,812 Amortization ................................................................. 1,777 1,838 Loss on short-term investment ................................................ 495 -- Deferred income taxes ........................................................ 158 1,446 Stock-based employee compensation ............................................ -- 30 Changes in operating assets and liabilities: Trade accounts and other receivables, net ................................... 43,423 5,345 Other current and noncurrent assets ......................................... (1,121) (1,087) Accounts payable and accrued liabilities .................................... 4,793 (5,645) -------- -------- Net cash provided by operating activities ................................ 79,941 25,048 -------- -------- Cash flows from investing activities: Purchases of property and equipment ............................................. (6,587) (6,442) Purchases of short-term investments ............................................. (16,993) -- Proceeds from sale of short-term investments .................................... 5,882 -- Investment in client contracts .................................................. (30) -- -------- -------- Net cash used in investing activities .................................... (17,728) (6,442) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock .......................................... 2,299 7,059 Proceeds from exercise of stock warrants ........................................ 24,000 -- Repurchase of common stock ...................................................... (85,195) (2,987) Payments on notes receivable from employee stockholders ......................... -- 27 Payments on long-term debt ...................................................... (5,756) (5,000) -------- -------- Net cash used in financing activities .................................... (64,652) (901) -------- -------- Effect of exchange rate fluctuations on cash ....................................... (125) (104) -------- -------- Net increase (decrease) in cash and cash equivalents ............................... (2,564) 17,601 Cash and cash equivalents, beginning of period ..................................... 32,751 48,676 -------- -------- Cash and cash equivalents, end of period ........................................... $ 30,187 $ 66,277 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for- Interest ....................................................................... $ 970 $ 1,393 Income taxes ................................................................... $ 8,598 $ 3,942
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 March 31, 2001, and for the three 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, 2000, filed with the Securities and Exchange Commission (the Company's 2000 10-K). The results of operations for the three months ended March 31, 2001, are not necessarily indicative of the results for the entire year ending December 31, 2001. 2. STOCKHOLDERS' EQUITY Common Stock Warrants. On February 28, 2001, AT&T exercised its rights under the Warrants to purchase 2.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $24.0 million. Immediately following the exercise of the Warrants, the Company repurchased the 2.0 million shares for $37.00 per share (approximately the closing price on February 28, 2001) for a total repurchase price of $74.0 million, pursuant to the Company's stock repurchase program. As a result, the net cash outlay paid to AT&T for this transaction was $50.0 million, which was paid by the Company with available corporate funds. After this transaction, AT&T no longer has any warrants or other rights to purchase the Company's Common Stock. 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 March 31, 2001, the Company repurchased 2.28 million shares under the program for approximately $85.2 million (a weighted-average price of $37.37 per share), including the 2.0 million shares repurchased as part of the AT&T warrant exercise discussed above. As of March 31, 2001, the Company has purchased a total of 4.03 million shares for approximately $156.5 million (a weighted-average price of $38.88 per share) since the program was announced in 1999. 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 $0.9 million and $5.0 million for the three months ended March 31, 2001 and 2000. 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. 3. 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 6 reconciliation of the EPS numerators is necessary as net income is used as the numerator for each period presented. The reconciliation of the EPS denominators is as follows (in thousands): Three Months Ended March 31, ------------------- 2001 2000 ------ ------ Basic common shares outstanding ............. 52,469 51,857 Dilutive effect of common stock options...... 1,724 2,693 Dilutive effect of common stock warrants..... 942 2,280 ------ ------ Diluted common shares outstanding............ 55,135 56,830 ====== ====== Common Stock options of 1,703,950 shares and 23,000 shares for the three months ended March 31, 2001 and 2000, 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. 4. COMPREHENSIVE INCOME The Company's components of comprehensive income were as follows (in thousands): Three Months Ended March 31, ------------------ 2001 2000 ------- ------- Net income ....................................... $27,066 $20,309 Other comprehensive income (loss), net of tax, if any: Foreign currency translation adjustments ...... (159) (103) Reclassification adjustment for loss included in net income ............................... 335 -- Unrealized gain on short-term investments ..... 27 -- ------- ------- Comprehensive income ............................. $27,269 $20,206 ======= ======= 5. RECENT ACCOUNTING PRONOUNCEMENTS Statement of Financial Accounting Standards No. 133, "Accounting for Derivative Instruments and Hedging Activities", as amended (SFAS 133), became effective for the Company on January 1, 2001. SFAS 133 establishes accounting and reporting standards requiring every derivative instrument, as defined, to be recorded in the consolidated balance sheet as either an asset or liability measured at its fair value. SFAS 133 requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. Adoption of SFAS 133 effective January 1, 2001 did not have a significant effect on the Company's consolidated financial statements. The Company has only one derivative financial instrument at this time; an interest rate cap agreement related to its long-term debt. The fair value of this agreement is insignificant. See the Company's 2000 10-K for further discussion of this matter. 7 CSG SYSTEMS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The following table sets forth certain financial data and the percentage of total revenues of the Company for the period indicated (in thousands):
Three months ended March 31, ---------------------------------------- 2001 2000 ------------------- ------------------- % of % of Amount Revenue Amount Revenue --------- ------- --------- ------- Revenues: Processing and related services .......... $ 79,098 69.3% $ 70,627 76.7% Software and professional services ....... 35,001 30.7 21,436 23.3 --------- ----- --------- ----- Total revenues .................. 114,099 100.0 92,063 100.0 --------- ----- --------- ----- Cost of Revenues: Cost of processing and related services .. 28,515 25.0 25,770 28.0 Cost of software and professional services 13,279 11.6 10,516 11.4 --------- ----- --------- ----- Total cost of revenues .......... 41,794 36.6 36,286 39.4 --------- ----- --------- ----- Gross margin (exclusive of depreciation) .... 72,305 63.4 55,777 60.6 --------- ----- --------- ----- Operating expenses: Research and development ................. 11,611 10.2 9,888 10.7 Selling, general and administrative ...... 13,540 11.9 10,088 11.0 Depreciation ............................. 3,350 2.9 2,812 3.1 --------- ----- --------- ----- Total operating expenses ............. 28,501 25.0 22,788 24.8 --------- ----- --------- ----- Operating income ............................ 43,804 38.4 32,989 35.8 --------- ----- --------- ----- Other income (expense): Interest expense ....................... (1,082) (1.0) (1,541) (1.7) Interest and investment income, net .... 947 0.8 1,263 1.4 Other .................................. (19) -- 7 -- --------- ----- --------- ----- Total other .......................... (154) (0.2) (271) (0.3) --------- ----- --------- ----- Income before income taxes .................. 43,650 38.2 32,718 35.5 Income tax provision ..................... (16,584) (14.5) (12,409) (13.4) --------- ----- --------- ----- Net income .................................. $ 27,066 23.7% $ 20,309 22.1% ========= ===== ========= =====
8 Three Months Ended March 31, 2001 Compared to Three Months Ended March 31, 2000 Revenues. Total revenues for the three months ended March 31, 2001, increased 23.9% to $114.1 million, from $92.1 million for the three months ended March 31, 2000. Revenues from processing and related services for the three months ended March 31, 2001, increased 12.0% to $79.1 million, from $70.6 million for the three months ended March 31, 2000. Of the total increase in revenue, approximately 90% resulted from an increase in the number of customers of the Company's clients which were serviced by the Company and approximately 10% was due to increased revenue per customer. Customers served were as follows (in thousands): As of March 31, ------------------------------ 2001 2000 Increase ------ ------ -------- Video................................... 34,076 32,745 1,331 Internet................................ 2,302 1,441 861 Telephony............................... 630 124 506 ------ ------ ----- Total.............................. 37,008 34,310 2,698 ====== ====== ====== 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 April 1, 2000 through March 31, 2001, the Company converted and processed approximately 1.4 million new customers on its systems, including approximately 0.4 million for the first quarter of 2001. As of March 31, 2001, the Company had a total conversion backlog of approximately 4.8 million customers, which are expected to be converted to the Company's processing system during the remainder of 2001. Total annualized processing revenue per video and Internet account was as follows: For the three months ended March 31, ------------------------------ Increase 2001 2000 (Decrease) ----- ----- ---------- Video account...................... $8.43 $8.31 1.4% Internet account................... $4.94 $5.46 (9.5%) The change in processing revenues per account relates primarily to (i) changes in the usage of ancillary services by clients, (ii) the introduction of new products and services and the clients use of these products and services, and (iii) price changes included in client contracts (e.g., price escalators for inflationary factors, tiered pricing, etc.). Revenues from software and professional services for the three months ended March 31, 2001, increased 63.3% to $35.0 million, from $21.5 million for the three months ended March 31, 2000. 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, primarily its workforce automation application (CSG Workforce Express). Cost of Processing and Related Services. Processing costs as a percentage of related processing revenues were 36.1% for the three months ended March 31, 2001, compared to 36.5% for the three months ended March 31, 2000. The costs as a percentage of related revenues between periods remained relatively unchanged as the Company continues to (i) focus on cost controls and cost reductions within its core processing business, and 9 (ii) experience better overall leveraging of its processing costs as a result of the continued growth of the customer base processed on the Company's systems. Cost of Software and Professional Services. The cost of software and professional services as a percentage of related revenues was 37.9% for the three months ended March 31, 2001, compared to 49.1% for the three months ended March 31, 2000. The improvement between periods relates primarily to better overall leveraging of costs as a result of higher software and professional services revenues for the quarter. Gross Margin. Overall gross margin for the three months ended March 31, 2001, increased 29.6% to $72.3 million, from $55.8 million for the three months ended March 31, 2000, due primarily to revenue growth. The overall gross margin percentage increased to 63.4% for the three months ended March 31, 2001, compared to 60.6% for the three months ended March 31, 2000. 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. Research and development (R&D) expense for the three months ended March 31, 2001, increased 17.4% to $11.6 million, from $9.9 million for the three months ended March 31, 2000. As a percentage of total revenues, R&D expense decreased to 10.2% for the three months ended March 31, 2001, from 10.7% for the three months ended March 31, 2000. The Company did not capitalize any software development costs during the three months ended March 31, 2001 and 2000. 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 first quarter of 2001 were focused primarily on the development of products to: o address the international customer care and billing system market (primarily, CSG NextGen), o increase the efficiencies and productivity of its clients' operations, o address the systems needed to support the convergence of the communications markets, o support a web-enabled, customer self-care and electronic bill presentment/payment application, and o 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). The Company expects its development efforts to focus on similar tasks through the remainder of 2001. Selling, General and Administrative Expense. Selling, general and administrative (SG&A) expense for the three months ended March 31, 2001, increased 34.2% to $13.5 million, from $10.1 million for the three months ended March 31, 2000. As a percentage of total revenues, SG&A expense increased to 11.9% for the three months ended March 31, 2001, from 11.0% for the three months ended March 31, 2000. The increase in SG&A expense relates primarily to sales and administrative costs to support the Company's overall growth and its international business expansion. Depreciation Expense. Depreciation expense for the three months ended March 31, 2001, increased 19.1% to $3.4 million, from $2.8 million for the three months ended March 31, 2000. The increase in expense relates to capital expenditures made during the last nine months of 2000 and the first three months of 2001 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 and internal infrastructure 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. 10 Operating Income. Operating income for the three months ended March 31, 2001, was $43.8 million or 38.4% of total revenues, compared to $33.0 million or 35.8% of total revenues for the three months ended March 31, 2000. The increase between years relates to the factors discussed above. Interest Expense. Interest expense for the three months ended March 31, 2001, decreased 29.8% to $1.1 million, from $1.5 million for the three months ended March 31, 2000, with the decrease due primarily to scheduled principal payments on the Company's long-term debt during 2000 and a decrease in interest rates. The balance of the Company's long-term debt as of March 31, 2001, was $52.5 million, compared to $76.0 million as of March 31, 2000, a decrease of $23.5 million. Interest and Investment Income. Interest and investment income for the three months ended March 31, 2001, decreased 25.0% to $0.9 million, from $1.3 million for the three months ended March 31, 2000, with the decrease due primarily to the Company recording a charge of $0.5 million for an "other-than-temporary" decline in market value for a short-term investment during the three months ended March 31, 2001. Income Tax Provision. For the three months ended March 31, 2001, the Company recorded an income tax provision of $16.6 million, or an effective income tax rate of approximately 38%, which represents the Company's estimate of the effective book income tax rate for 2001. The Company's effective income tax rate for 2000 was also approximately 38%. As of March 31, 2001, management continues to believe that sufficient taxable income will be generated to realize the entire benefit of the Company's deferred tax assets. The Company's assumptions of future profitable operations are supported by its strong operating performances over the last several years. Financial Condition, Liquidity and Capital Resources - ---------------------------------------------------- As of March 31, 2001, the Company's principal sources of liquidity included cash, cash equivalents and short-term investments of $52.4 million. The Company also has a revolving credit facility in the amount of $40.0 million, of which there were no borrowings outstanding as of March 31, 2001. The Company's ability to borrow under the revolving credit facility is subject to maintenance of certain levels of eligible receivables. At March 31, 2001, all of the $40.0 million revolving credit facility was available to the Company. The revolving credit facility expires in September 2002. As of March 31, 2001 and December 31, 2000, respectively, the Company had $79.9 million and $128.9 million in net billed trade accounts receivable. The decrease between periods relates primarily to the collection (in January 2001) of a large receivable from a software transaction that was outstanding at yearend. The payment terms on this transaction were scheduled three weeks across yearend to assist a client in its capital planning. 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 March 31, 2001 and 2000 were 56 days and 54 days, respectively. The Company improved from its fourth quarter 2000 DBO of 72 days as a result of strong cash collections during the quarter, in particular, the large software receivable mentioned in the previous paragraph. The Company's target range for DBOs is 55 to 60 days. The Company's net cash flows from operating activities for the three months ended March 31, 2001 and 2000 were $79.9 million and $25.0 million, respectively. The increase of $54.9 million between periods relates to (i) an increase in net cash flows from operations of $6.4 million and (ii) an increase in the net changes in operating assets and liabilities of $48.5 million. The increase in the net changes in operating assets and liabilities relates primarily to the large decrease in December 31, 2000 billed accounts receivable, for the reasons stated above. The Company's cash flows from operating activities would have 11 been approximately $43.0 million for the first quarter of 2001 if the receivable for the large software transaction mentioned above would have been collected in the fourth quarter of 2000 rather than in the first quarter of 2001. The Company's net cash flows used in investing activities totaled $17.7 million for the three months ended March 31, 2001, compared to $6.4 million for the three months ended March 31, 2000, an increase of $11.3 million. The increase between periods relates primarily to net purchases of short-term investments of $11.1 million during the first quarter of 2001. During the third quarter of 2000, the Company began investing its excess cash balances in various low-risk, short-term investments. The Company's net cash flows used in financing activities was $64.7 million for the three months ended March 31, 2001, compared to $0.9 million for the three months ended March 31, 2000, an increase of $63.8 million. The increase between periods relates to (i) an increase in stock repurchases of $82.2 million, as discussed below, and (ii) an increase in debt payments of $0.8 million. This increase is offset by a change in proceeds between periods of $19.2 million from the exercise of stock options and warrants. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the three months ended March 31, 2001 was $48.3 million, or 42.3% of total revenues, compared to $37.5 million, or 40.7% of total revenues for the three months ended March 31, 2000. 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 in accordance with generally accepted accounting principles. Interest rates for the Company's long-term debt and revolving credit facility 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 March 31, 2001, the spread on the LIBOR rate and the prime rate was 0.50% and 0%, respectively. As of March 31, 2001, the entire amount of the debt was under a one-month LIBOR contract with an interest rate of 5.58% (i.e., LIBOR at 5.08% plus spread of 0.50%). On February 28, 2001, AT&T exercised its rights under the Warrants to purchase 2.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $24.0 million. Immediately following the exercise of the Warrants, the Company repurchased the 2.0 million shares for $37.00 per share (approximately the closing price on February 28, 2001) for a total repurchase price of $74.0 million, pursuant to the Company's stock repurchase program. As a result, the net cash outlay paid to AT&T for this transaction was $50.0 million, which was paid by the Company with available corporate funds. After this transaction AT&T no longer has any warrants or other rights to purchase the Company's Common Stock. 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 three months ended March 31, 2001, the Company repurchased 2.28 million shares of Common Stock for approximately $85.2 million (a weighted-average price of $37.37 per share), including the 2.0 million shares repurchased as part of the AT&T warrant exercise discussed above. As of March 31, 2001, the Company had purchased a total of 4.03 million shares for approximately $156.5 million (a weighted-average price of $38.88 per share) since the program was announced. The repurchased shares are held as treasury shares. The Company continues to make significant investments in client contracts, capital equipment, facilities, research and development, and at its discretion, may continue to make stock repurchases under its stock repurchase program. In addition, as part of its growth strategy, the Company expects to expand its international business and is continually evaluating potential business and asset acquisitions. The Company had no significant capital commitments as of March 31, 2001. The Company believes that cash generated from operations, together with its 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 12 cash requirements for operations, income taxes, debt service, capital expenditures, investments in client contracts, and stock repurchases for both its short and long-term purposes. The Company also believes it has significant additional 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. Dependence on AT&T - ------------------ AT&T completed its merger with Tele-Communications, Inc. (TCI) in 1999 and completed its merger with MediaOne Group, Inc. (MediaOne) in 2000. During the three months ended March 31, 2001 and 2000, revenues from AT&T Broadband and affiliated companies (AT&T) represented approximately 61.9% and 50.0% of total revenues, respectively. The increase in the percentage between periods relates primarily to the timing and the amount of software purchases by AT&T. There are inherent risks whenever this large of a percentage of total revenues is concentrated with one client. One such risk is that, should AT&T's business generally decline, it would have a material impact on the Company's results of operations. Contract Rights and Obligations (as amended) - -------------------------------------------- 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 Company also has certain contractual rights to continue to process certain AT&T customers for a specified time period in the event that AT&T sells a portion of its customers to another company. During the fourth quarter of 2000, the Company relinguished its exclusive rights to process AT&T's wireline telephony customers, and expects these AT&T customers to be fully converted to another service provider by the end of 2001. The Company does not expect the loss of these customers to have a material impact on the Company's result of operations, and this matter has been considered in determining the Company's financial guidance for 2001. 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 adverse impact on the Company's results of operations. 13 Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- There have been no material changes to the Company's market risks during the three months ended March 31, 2001. See the Company's 2000 10-K for additional discussion regarding the Company's market risks. 14 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Item 1-5. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan 10.44 CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors 10.48 Employment Agreement with Peter Kalan, dated January 18, 2001 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 March 1, 2001, under Item 5, Other Events, was filed with the Securities and Exchange Commission which included a press release dated March 1, 2001. The press release announced that the Company had executed a Warrant Exercise and Stock Purchase Agreement with AT&T for 2.0 million shares of the Company's Common Stock. 15 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: May 15, 2001 CSG SYSTEMS INTERNATIONAL, INC. /s/ Neal C. Hansen ----------------------------------------- Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Peter E. Kalan ----------------------------------------- Peter E. Kalan Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Randy R. Wiese ------------------------------------------ Randy R. Wiese Vice President and Controller (Principal Accounting Officer) 16 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan 10.44 CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors 10.48 Employment Agreement with Peter Kalan, dated January 18, 2001 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors 17 EX-10.03 2 dex1003.txt 1996 STOCK INCENTIVE PLAN Exhibit 10.03 [As amended through 1-18-2001] CSG SYSTEMS INTERNATIONAL, INC. 1996 STOCK INCENTIVE PLAN 1. Purpose. The purpose of the CSG Systems International, Inc. 1996 Stock Incentive Plan (the "Plan") is to foster and promote the long-term financial success of the Company and its Subsidiaries and thereby increase stockholder value by providing incentives to those officers and other key employees who are likely to be responsible for achieving such success. 2. Certain Definitions. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. References to a particular section of the Code shall include any regulations issued under such section. "Committee" shall have the meaning provided in Section 3 of the Plan. "Common Stock" means the Common Stock, $0.01 par value per share, of the Company. "Company" means CSG Systems International, Inc., a Delaware corporation. "Disability" means (i) with respect to the exercise of an Incentive Stock Option after termination of employment, a disability within the meaning of Section 22(e)(3) of the Code and (ii) for all other purposes, a mental or physical condition which, in the opinion of the Committee, renders a grantee unable or incompetent to carry out the job responsibilities which such grantee held or the tasks to which such grantee was assigned at the time the disability was incurred and which is expected to be permanent or for an indefinite duration exceeding one year. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" means, as determined by the Committee, the last sale price of the Common Stock as quoted on the Nasdaq National Market System on the trading day for which the determination is being made, or, in the event that no such sale takes place on such day, the average of the reported closing bid and asked prices on such day, or, if the Common Stock of the Company is listed on a national securities exchange, the last reported sale price on the principal national securities exchange on which the Common Stock is listed or admitted to trading on the trading day for which the determination is being made, or, if no such reported sale takes place on such day, the average of the closing bid and asked prices on such day on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not quoted on such National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on the day for which the determination is being made as reported through Nasdaq, or, if bid and asked prices for the Common Stock on such day are not reported through Nasdaq, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Committee, or, if none of the foregoing is applicable, then the fair market value of the Common Stock as determined in good faith by the Committee in its sole discretion. "Incentive Stock Option" means any stock option intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Code. "Non-Qualified Stock Option" means any stock option that is not intended to be an Incentive Stock Option, including any stock option that provides (as of the time such option is granted) that it will not be treated as an Incentive Stock Option. "Parent Corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the granting of the option, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Performance Unit Award" means an award granted pursuant to Section 8. "Plan Year" means the twelve-month period beginning on January 1 and ending on December 31; provided, that the first Plan Year shall be a short Plan Year beginning on January 3, 1996, and ending on December 31, 1996. "Restricted Stock Award" means an award of Common Stock granted pursuant to Section 9. "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as in effect from time to time. "Stock Appreciation Right" means an award granted pursuant to Section 7. "Stock Bonus Award" means an award of Common Stock granted pursuant to Section 10. "Stock Option" means any option to purchase Common Stock granted pursuant to Section 6. "Subsidiary" means (i) as it relates to Incentive Stock Options, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the option, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain and (ii) for all other purposes, a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the 2 Company or by a Subsidiary, whether or not such corporation now exists or hereafter is organized or acquired by the Company or by a Subsidiary. 3. Administration. The Plan shall be administered by a committee composed solely of two or more members of the Board (the "Committee") selected by the Board, each of whom shall qualify as a "Non-Employee Director" within the meaning of Rule 16b-3 and as an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall have authority to grant to eligible employees of the Company or its Subsidiaries, pursuant to the terms of the Plan, (a) Stock Options, (b) Stock Appreciation Rights, (c) Restricted Stock Awards, (d) Performance Unit Awards, (e) Stock Bonus Awards, or (f) any combination of the foregoing. Subject to the applicable provisions of the Plan, the Committee shall have authority to interpret the provisions of the Plan and to decide all questions of fact arising in the application of such provisions; to select the officers and other key employees to whom awards or options shall be granted under the Plan; to determine whether and to what extent awards or options shall be granted under the Plan; to determine the types of awards and options to be granted under the Plan and the amount, size, terms and conditions of each such award or option; to determine the time when awards or options shall be granted under the Plan; to determine whether, to what extent and under what circumstances the payment of Common Stock and other amounts payable with respect to an award granted under the Plan shall be deferred either automatically or at the election of the grantee; to determine the Fair Market Value of the Common Stock from time to time; to authorize persons to execute on behalf of the Company any agreement required to be entered into under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as the Committee from time to time shall deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all decisions and determinations made by the Committee pursuant to the provisions of the Plan shall be made in the sole discretion of the Committee and shall be final and binding on all persons, including but not limited to the Company and its Subsidiaries, the officers and other key employees to whom awards and options are granted under the Plan, the heirs and legal representatives of such officers and key employees, and the personal representatives and beneficiaries of the estates of such officers and key employees. The Committee may delegate to any officer or officers of the Company any of the Committee's duties, powers, and authorities under the Plan upon such conditions and with such limitations as the Committee may determine; provided, that only the Committee may select for awards or options under the Plan, and make grants of awards or options under the Plan to, officers and other key employees of the Company or any Subsidiary who are subject to Section 16 of the Exchange Act at the time of such selection or the making of such a grant. 4. Common Stock Subject to the Plan. Subject to adjustment pursuant to Section 19, the maximum number of shares of Common Stock which may be issued under the Plan on and after May 20, 1999, is the sum of (a) the number of shares of Common Stock which were subject 3 to outstanding Stock Options as of May 19, 1999, plus (b) the number of shares of Common Stock available for, but not yet subject to, the grant of an award or option under the Plan as of May 19, 1999, plus (c) 3,000,000 shares of Common Stock; and the Company shall reserve and keep available for issuance under the Plan such maximum number of shares, subject to adjustment pursuant to Section 19. Such shares may consist in whole or in part of authorized and unissued shares or treasury shares or any combination thereof. The aggregate number of shares of Common Stock subject to or issuable in payment of (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Stock Bonus Awards, (iv) Restricted Stock Awards or (v) Performance Unit Awards granted under the Plan in any Plan Year to any individual may not exceed 480,000, subject to adjustment pursuant to Section 19. Except as otherwise provided in the Plan, any shares subject to an option or right which expires for any reason or terminates unexercised as to such shares shall again be available for the grant of awards or options under the Plan. If any shares of Common Stock have been pledged as collateral for indebtedness incurred by an optionee in connection with the exercise of a Stock Option and such shares are returned to the Company in satisfaction of such indebtedness, then such shares shall again be available for the grant of awards or options under the Plan. 5. Eligibility to Receive Awards and Options. Awards and options may be granted under the Plan to those officers and other key employees of the Company or any Subsidiary who are responsible for or contribute to, or are likely to be responsible for or contribute to, the management, growth and success of the Company or any Subsidiary. The granting of an award or option under the Plan to an officer or other key employee of the Company or any Subsidiary shall conclusively evidence the Committee's determination that such grantee meets one or more of the criteria referred to in the preceding sentence. Directors of the Company or of any Subsidiary who are not employees of the Company or any Subsidiary shall not be eligible to participate in the Plan. 6. Stock Options. A Stock Option may be an Incentive Stock Option or a Non-Qualified Stock Option. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non-Qualified Stock Option. Stock Options may be granted alone or in addition to other awards made under the Plan. Stock Options shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Type of Option. Each option agreement shall identify the Stock Option represented thereby as an Incentive Stock Option or a Non-Qualified Stock Option, as the case may be. (b) Option Price. The option exercise price per share shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted and in no event shall be less than the par value of the Common Stock. (c) Term. Each option agreement shall state the period or periods of time within which the Stock Option may be exercised, in whole or in part, which shall be such 4 period or periods of time as the Committee may determine at the time of the Stock Option grant; provided, that no Stock Option granted under the Plan shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Option granted under the Plan shall become exercisable one year after the date of its grant, unless the option agreement specifically provides otherwise. The Committee shall have authority to accelerate previously established exercise rights, subject to the requirements set forth in the Plan, under such circumstances and upon such terms and conditions as the Committee shall deem appropriate. (d) Payment for Shares. The Committee may permit all or part of the payment of the option exercise price to be made (i) in cash, by check or by wire transfer or (ii) in shares of Common Stock (A) which already are owned by the optionee and which are surrendered to the Company in good form for transfer or (B) which are retained by the Company from the shares of the Common Stock which would otherwise be issued to the optionee upon the optionee's exercise of the Stock Option. Such shares shall be valued at their Fair Market Value on the date of exercise of the Stock Option. In lieu of payment in fractions of shares, payment of any fractional share amount shall be made in cash or check payable to the Company. The Committee also may provide that the exercise price may be paid by delivering a properly executed exercise notice in a form approved by the Committee together with irrevocable instructions to a broker to promptly deliver to the Company the amount of the applicable sale or loan proceeds required to pay the exercise price. No shares of Common Stock shall be issued to any optionee upon the exercise of a Stock Option until the Company receives full payment therefor as described above. (e) Rights upon Termination of Employment. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries for any reason other than such optionee's death or Disability, any rights of the optionee under any Stock Option then in effect immediately shall terminate; provided, that the optionee (or the optionee's legal representative) shall have the right to exercise the Stock Option during its term within a period of three (3) months after such termination of employment to the extent that the Stock Option was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. Notwithstanding the foregoing provisions of this Section 6(e), the optionee (and the optionee's legal representative) shall not have any rights under any Stock Option, and the Company shall not be obligated to sell or deliver shares of Common Stock (or have any other obligation or liability) under any Stock Option, if the Committee shall determine that (i) the employment of the optionee with the Company or any Subsidiary has been terminated for cause or (ii) the optionee has engaged or may engage in employment or activities competitive with the Company or any Subsidiary or contrary, in the opinion of the Committee, to the best interests of the Company or any Subsidiary. In the event of such determination, the optionee (and the optionee's legal representative) shall have no right under any Stock Option to purchase any shares of Common Stock regardless of whether the optionee (or the optionee's legal representative) shall have delivered a notice of exercise prior to the Committee's making of such determination. Any Stock Option may be terminated entirely by the Committee at the 5 time of or at any time subsequent to a determination by the Committee under this Section 6(e) which has the effect of eliminating the Company's obligation to sell or deliver shares of Common Stock under such Stock Option. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries by reason of such optionee's Disability, prior to the expiration of a Stock Option and without such optionee's having fully exercised such Stock Option, such optionee or such optionee's legal representative shall have the right to exercise such Stock Option during its term within a period of six (6) months after such termination of employment to the extent that such Stock Option was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries by reason of such optionee's death, prior to the expiration of a Stock Option and without such optionee's having fully exercised such Stock Option, the personal representative of such optionee's estate or the person who acquired the right to exercise such Stock Option by bequest or inheritance from such optionee shall have the right to exercise such Stock Option during its term within a period of twelve (12) months after the date of such optionee's death to the extent that such Stock Option was exercisable at the time of such death or within such other period and subject to such other terms and conditions as may be specified by the Committee. To the extent that the aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options granted under the Plan (and all other plans of the Company and its Subsidiaries) become exercisable for the first time by any individual in any calendar year exceeds $100,000, such Stock Options shall be treated as Non-Qualified Stock Options. No Incentive Stock Option shall be granted to any employee if, at the time the option is granted, the employee (in his or her own right or by reason of the attribution rules applicable under Section 424(d) of the Code) owns more than 10% of the total combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary unless at the time such option is granted the option price is at least 110% of the Fair Market Value of the stock subject to such Stock Option and such Stock Option by its terms is not exercisable after the expiration of five years from the date of its grant. 7. Stock Appreciation Rights. Stock Appreciation Rights shall enable the grantees thereof to benefit from increases in the Fair Market Value of shares of Common Stock and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Award. A Stock Appreciation Right shall entitle the grantee, subject to such terms and conditions as the Committee may prescribe, to receive upon the exercise thereof an award equal to all or a portion of the excess of (i) the Fair Market Value of a specified number of shares of Common Stock at the time of the exercise of such right 6 over (ii) a specified price which shall not be less than the Fair Market Value of the Common Stock at the time the right is granted or, if connected with a previously granted Stock Option, not less than the Fair Market Value of the Common Stock at the time such Stock Option was granted. Subject to the limitations set forth in Section 4, such award may be paid by the Company in cash, shares of Common Stock (valued at their then Fair Market Value) or any combination thereof, as the Committee may determine. Stock Appreciation Rights may be, but are not required to be, granted in connection with a previously or contemporaneously granted Stock Option. In the event of the exercise of a Stock Appreciation Right, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares covered by the Stock Appreciation Right as to which such exercise occurs. (b) Term. Each agreement shall state the period or periods of time within which the Stock Appreciation Right may be exercised, in whole or in part, subject to such terms and conditions prescribed for such purpose by the Committee; provided, that no Stock Appreciation Right shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Appreciation Right granted under the Plan shall become exercisable one year after the date of its grant, unless the agreement specifically provides otherwise. The Committee shall have authority to accelerate previously established exercise rights, subject to the requirements set forth in the Plan, under such circumstances and upon such terms and conditions as the Committee shall deem appropriate. (c) Rights upon Termination of Employment. In the event that a grantee of a Stock Appreciation Right ceases to be employed by the Company and all of its Subsidiaries for any reason other than such grantee's death or Disability, any rights of the grantee under any Stock Appreciation Right then in effect immediately shall terminate; provided, that the grantee (or the grantee's legal representative) shall have the right to exercise the Stock Appreciation Right during its term within a period of three (3) months after such termination of employment to the extent that the Stock Appreciation Right was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. Notwithstanding the foregoing provisions of this Section 7(c), the grantee (and the grantee's legal representative) shall not have any rights under any Stock Appreciation Right, and the Company shall not be obligated to pay or deliver any cash, Common Stock or any combination thereof (or have any other obligation or liability) under any Stock Appreciation Right, if the Committee shall determine that (i) the employment of the grantee with the Company or any Subsidiary has been terminated for cause or (ii) the grantee has engaged or may engage in employment or activities competitive with the Company or any Subsidiary or contrary, in the opinion of the Committee, to the best interests of the Company or any Subsidiary. In the event of such determination, the grantee (and the grantee's legal representative) shall have no right under any Stock Appreciation Right regardless of whether the grantee (or the grantee's legal representative) shall have delivered a notice of exercise prior to the Committee's making of such determination. Any Stock Appreciation Right may be terminated entirely by the Committee at the time of or at any time subsequent to a determination by the Committee 7 under this Section 7(c) which has the effect of eliminating the Company's obligations under such Stock Appreciation Right. In the event that a grantee of a Stock Appreciation Right ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's Disability, prior to the expiration of a Stock Appreciation Right and without such grantee's having fully exercised such Stock Appreciation Right, such grantee or such grantee's legal representative shall have the right to exercise such Stock Appreciation Right during its term within a period of six (6) months after such termination of employment to the extent that such Stock Appreciation Right was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. In the event that a grantee ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's death, prior to the expiration of a Stock Appreciation Right and without such grantee's having fully exercised such Stock Appreciation Right, the personal representative of the grantee's estate or the person who acquired the right to exercise such Stock Appreciation Right by bequest or inheritance from such grantee shall have the right to exercise such Stock Appreciate Right during its term within a period of twelve (12) months after the date of such grantee's death to the extent that such Stock Appreciation Right was exercisable at the time of such death or within such other period and subject to such other terms and conditions as may be specified by the Committee. 8. Performance Unit Awards. Performance Unit Awards shall entitle the grantees thereof to receive future payments based upon and subject to the achievement of preestablished long-term performance targets and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Performance Period. The Committee shall establish with respect to each Performance Unit Award a performance period of not fewer than two years nor more than five years. (b) Unit Value. The Committee shall establish with respect to each Performance Unit Award a value for each unit which shall not change thereafter or which may vary thereafter on the basis of criteria specified by the Committee. (c) Performance Targets. The Committee shall establish with respect to each Performance Unit Award maximum and minimum performance targets to be achieved during the applicable performance period. The achievement of the maximum targets shall entitle a grantee to payment with respect to the full value of a Performance Unit Award. The achievement of less than the maximum targets, but in excess of the minimum targets, shall entitle a grantee to payment with respect to a portion of a Performance Unit Award according to the level of achievement of the applicable targets as specified by the 8 Committee. To the extent the Committee deems necessary or appropriate to protect against the loss of deductibility pursuant to Section 162(m) of the Code, such targets shall be established in conformity with the requirements of Section 162(m) of the Code. (d) Performance Measures. Performance targets established by the Committee shall relate to corporate, division, subsidiary, group or unit performance in terms of objective financial criteria or performance goals which satisfy the requirements of Section 162(m) of the Code or, with respect to grantees not subject to Section 162(m) of the Code, such other measures or standards of performance as the Committee may determine. Multiple targets may be used and may have the same or different weighting, and the targets may relate to absolute performance or relative performance measured against other companies, businesses or indexes. (e) Adjustments. At any time prior to the payment of a Performance Unit Award, the Committee may adjust previously established performance targets or other terms and conditions of such Performance Unit Award, including the Company's or another company's financial performance for Plan purposes, in order to reduce or eliminate, but not to increase, the payment with respect to a Performance Unit Award that otherwise would be due upon the attainment of such previously established performance targets. Such adjustments shall be made to reflect major unforeseen events such as changes in laws, regulations or accounting practices, mergers, acquisitions or divestitures or other extraordinary, unusual or nonrecurring items or events. (f) Payment of Performance Unit Awards. Upon the conclusion of each performance period, the Committee shall determine the extent to which the applicable performance targets have been attained and any other terms and conditions have been satisfied for such period and shall provide such certification thereof as may be necessary to satisfy the requirements of Section 162(m) of the Code. The Committee shall determine what, if any, payment is due on a Performance Unit Award and, subject to the limitations set forth in Section 4, whether such payment shall be made in cash, shares of Common Stock (valued at their then Fair Market Value) or a combination thereof. Payment of a Performance Unit Award shall be made in a lump sum or in installments, as determined by the Committee, commencing as promptly as practicable after the end of the performance period unless such payment is deferred upon such terms and conditions as may be specified by the Committee. (g) Termination of Employment. In the event that a grantee of a Performance Unit Award ceases to be employed by the Company and all of its Subsidiaries for any reason other than such grantee's death or Disability, any rights of such grantee under any Performance Unit Award then in effect whose performance period has not ended shall terminate immediately; provided, that the Committee may authorize the partial payment of any such Performance Unit Award if the Committee determines such action to be equitable. In the event that a grantee of a Performance Unit Award ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's death or Disability, 9 any rights of such grantee under any Performance Unit Award then in effect whose performance period has not ended shall terminate immediately; provided, that the Committee may authorize the payment to such grantee or such grantee's legal representative of all or any portion of such Performance Unit Award to the extent earned under the applicable performance targets, even though the applicable performance period has not ended, upon such terms and conditions as may be specified by the Committee. 9. Restricted Stock Awards. Restricted Stock Awards shall consist of shares of Common Stock restricted against transfer, subject to a substantial risk of forfeiture and to other terms and conditions intended to further the purpose of the Plan as the Committee may determine, and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Restriction Period. The Common Stock covered by Restricted Stock Awards shall be subject to the applicable restrictions established by the Committee over such period as the Committee shall determine. To the extent the Committee deems necessary or appropriate to protect against the loss of deductibility pursuant to Section 162(m) of the Code, Restricted Stock Awards also may be subject to the attainment of one or more preestablished performance objectives which relate to corporate, subsidiary, division, group or unit performance in terms of objective financial criteria or performance goals which satisfy the requirements of Section 162(m) of the Code; provided, that any such preestablished financial criteria or performance goals subsequently may be adjusted by the Committee to reduce or eliminate, but not to increase, a Restricted Stock Award in order to take into account unforeseen events or changes in circumstances. (b) Restriction upon Transfer. Shares of Common Stock covered by Restricted Stock Awards may not be sold, assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered, except as provided in the Plan or in any Restricted Stock Award agreement entered into between the Company and a grantee, during the restriction period applicable to such shares. Notwithstanding the foregoing provisions of this Section 9(b), and except as otherwise provided in the Plan or the applicable Restricted Stock Award agreement, a grantee of a Restricted Stock Award shall have all of the other rights of a holder of Common Stock including but not limited to the right to receive dividends and the right to vote such shares. (c) Payment. The Committee shall determine the amount, form and time of payment, if any, that shall be required from the grantee of a Restricted Stock Award in consideration of the issuance and delivery of the shares of Common Stock covered by such Restricted Stock Award. (d) Certificates. Each certificate issued in respect of shares of Common Stock covered by a Restricted Stock Award shall be registered in the name of the grantee and shall bear the following legend (in addition to any other legends which may be appropriate): 10 "This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CSG Systems International, Inc. 1996 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and CSG Systems International, Inc. Release from such terms and conditions may be obtained only in accordance with the provisions of such Plan and Agreement, a copy of each of which is on file in the office of the Secretary of CSG Systems International, Inc." The Committee may require the grantee of a Restricted Stock Award to enter into an escrow agreement providing that the certificates representing the shares covered by such Restricted Stock Award will remain in the physical custody of an escrow agent until all restrictions are removed or expire. The Committee also may require that the certificates held in such escrow be accompanied by a stock power, endorsed in blank by the grantee, relating to the Common Stock covered by such certificates. (e) Lapse of Restrictions. Except for preestablished performance objectives established with respect to Restricted Stock Awards to grantees subject to Section 162(m) of the Code, the Committee may provide for the lapse of restrictions applicable to Common Stock subject to Restricted Stock Awards in installments and may waive such restrictions in whole or in part based upon such factors and such circumstances as the Committee shall determine. Upon the lapse of such restrictions, certificates for shares of Common Stock, free of the restrictive legend set forth in Section 9(c), shall be issued to the grantee or the grantee's legal representative. The Committee shall have authority to accelerate the expiration of the applicable restriction period with respect to all or any portion of the shares of Common Stock covered by a Restricted Stock Award except, with respect to grantees subject to Section 162(m) of the Code, to the extent such acceleration would result in the loss of the deductibility of such Restricted Stock Award pursuant to Section 162(m) of the Code. (f) Termination of Employment. In the event that a grantee of a Restricted Stock Award ceases to be employed by the Company and all of its Subsidiaries for any reason, any rights of such grantee with respect to shares of Common Stock that remain subject to restrictions under such Restricted Stock Award shall terminate immediately, and any shares of Common Stock covered by a Restricted Stock Award with unlapsed restrictions shall be subject to reacquisition by the Company upon the terms set forth in the applicable agreement with such grantee. The Committee may provide for complete or partial exceptions to such employment requirement if the Committee determines such action to be equitable. 10. Stock Bonus Awards. The Committee may grant a Stock Bonus Award to an eligible grantee under the Plan based upon corporate, division, subsidiary, group or unit performance in terms of preestablished objective financial criteria or performance goals or, with respect to participants not subject to Section 162(m) of the Code, such other measures or 11 standards of performance (including but not limited to performance already accomplished) as the Committee may determine; provided, that any such preestablished financial criteria or performance goals subsequently may be adjusted to reduce or eliminate, but not to increase, a Stock Bonus Award in order to take into account unforeseen events or changes in circumstances. If appropriate in the sole discretion of the Committee, Stock Bonus Awards shall be evidenced by agreements in such form as the Committee shall approve from time to time. In addition to any applicable performance goals or standards and subject to the terms of the Plan, shares of Common Stock which are the subject of a Stock Bonus Award may be (i) subject to additional restrictions (including but not limited to restrictions on transfer) or (ii) granted directly to a grantee free of any restrictions, as the Committee shall deem appropriate. 11. General Restrictions. Each award or grant under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, (ii) the consent or approval of any governmental regulatory body, or (iii) an agreement by the grantee of an award or grant with respect to the disposition of the shares of Common Stock subject or related thereto is necessary or desirable as a condition of, or in connection with, such award or grant or the issuance or purchase of shares of Common Stock thereunder, then such award or grant may not be consummated and any rights thereunder may not be exercised in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained upon conditions acceptable to the Committee. Awards or grants under the Plan shall be subject to such additional terms and conditions, not inconsistent with the Plan, as the Committee in its sole discretion deems necessary or desirable, including but not limited to such terms and conditions as are necessary to enable a grantee to avoid any short-swing profit recapture liability under Section 16 of the Exchange Act. 12. Single or Multiple Agreements. Multiple forms of awards or grants or combinations thereof may be evidenced either by a single agreement or by multiple agreements, as determined by the Committee. 13. Rights of a Stockholder. Unless otherwise provided by the Plan, the grantee of any award or grant under the Plan shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject or related to such award or grant unless and until certificates for such shares of Common Stock are issued to such grantee. 14. No Right to Continue Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any grantee the right to continue in the employment of the Company or any Subsidiary or affect any right which the Company or any Subsidiary may have to terminate the employment of any grantee with or without cause. 15. Withholding. The Company's obligation to (i) deliver shares of Common Stock or pay cash upon the exercise of any Stock Option or Stock Appreciation Right, (ii) deliver shares of Common Stock or pay cash in payment of any Performance Unit Award, (iii) deliver stock certificates upon the vesting of any Restricted Stock Award, and (iv) deliver shares of Common 12 Stock upon the grant of any Stock Bonus Award shall be subject to applicable federal, state and local tax withholding requirements. In the discretion of the Committee, amounts required to be withheld for taxes may be paid by the grantee in cash or shares of Common Stock (either through the surrender of previously held shares of Common Stock or the withholding of shares of Common Stock otherwise issuable upon the exercise or payment of such Stock Option, Stock Appreciation Right or Award) having a Fair Market Value equal to the required tax withholding amount and upon such other terms and conditions as the Committee shall determine; provided, that any election by a grantee subject to Section 16(b) of the Exchange Act to pay any tax withholding in shares of Common Stock shall be subject to and must comply with any applicable rules under Section 16(b) of the Exchange Act. 16. Indemnification. No member of the Board or the Committee, nor any officer or employee of the Company or a Subsidiary acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan; and all members of the Board or the Committee and each and any officer or employee of the Company or any Subsidiary acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 17. Non-Assignability. No award or grant under the Plan shall be assignable or transferable by the recipient thereof except by will, by the laws of descent and distribution or, in the case of awards or grants other than Incentive Stock Options, pursuant to a qualified domestic relations order or by such other means (if any) or in such other manner (if any) as the Committee may approve from time to time. No right or benefit under the Plan shall be liable for the debts, liabilities, or alimony obligations of the person entitled to such right or benefit, either by assignment, attachment, or any other method, and shall not be subject to be taken by the creditors of the person entitled to such right or benefit by any process whatsoever. 18. Nonuniform Determinations. The Committee's determinations under the Plan (including but not limited to determinations of the persons to receive awards or grants, the form, amount and timing of such awards or grants, the terms and provisions of such awards or grants and the agreements evidencing them and the establishment of values and performance targets) need not be uniform and may be made by the Committee selectively among the persons who receive, or are eligible to receive, awards or grants under the Plan, whether or not such persons are similarly situated. 19. Adjustments. In the event of any change in the outstanding shares of Common Stock, by reason of a stock dividend or distribution, stock split, recapitalization, merger, reorganization, consolidation, split-up, spin-off, combination of shares, exchange of shares or other change in corporate structure affecting the Common Stock, the Committee shall make appropriate adjustments in (a) the aggregate number of shares of Common Stock (i) reserved for issuance under the Plan, (ii) for which grants or awards may be made to an individual grantee and (iii) covered by outstanding awards and grants denominated in shares or units of Common Stock, (b) the exercise or other applicable price related to outstanding awards or grants and (c) the appropriate Fair Market Value and other price determinations relevant to outstanding awards or grants and shall make such other adjustments as may be equitable under the circumstances; 13 provided, that the number of shares subject to any award or grant always shall be a whole number. 20. Terms of Payment. Subject to any other applicable provisions of the Plan and to any applicable laws, whenever payment by a grantee is required with respect to shares of Common Stock which are the subject of an award or grant under the Plan, the Committee shall determine the time, form and manner of such payment, including but not limited to lump-sum payments and installment payments upon such terms and conditions as the Committee may prescribe. Installment payment obligations of a grantee may be evidenced by full-recourse, limited-recourse or non-recourse promissory notes or other instruments, with or without interest and with or without collateral or other security as the Committee may determine. 21. Termination and Amendment. The Board may terminate the Plan or amend the Plan or any portion thereof at any time, including but not limited to amendments to the Plan necessary to comply with the requirements of Section 16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code or regulations issued under any of such statutory provisions. The termination or any amendment of the Plan shall not, without the consent of a grantee, adversely affect such grantee's rights under an award or grant previously made to such grantee under the Plan. The Committee may amend the terms of any award or grant previously made under the Plan, prospectively or retroactively; but, except as otherwise expressly permitted by the Plan and subject to the provisions of Section 19, no such amendment shall adversely affect the rights of the grantee of such award or grant without such grantee's consent. Notwithstanding the foregoing provisions of this Section 21, stockholder approval of any action referred to in this Section 21 shall be required whenever necessary to satisfy the applicable requirements of Section 16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code or any regulations issued under any of such statutory provisions. 22. Severability. With respect to participants subject to Section 16 of the Exchange Act, (i) the Plan is intended to comply with all applicable conditions of Rule 16b-3 or any successor to such rule, (ii) all transactions involving grantees who are subject to Section 16(b) of the Exchange Act are subject to such conditions, regardless of whether the conditions are expressly set forth in the Plan and (iii) any provision of the Plan that is contrary to a condition of Rule 16b-3 shall not apply to grantees who are subject to Section 16(b) of the Exchange Act. If any of the terms or provisions of the Plan, or awards or grants made under the Plan, conflict with the requirements of Section 162(m) or Section 422 of the Code with respect to awards or grants subject to or governed by Section 162(m) or Section 422 of the Code, as the case may be, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Section 162(m) or Section 422 of the Code, as the case may be. With respect to an Incentive Stock Option, if the Plan does not contain any provision required to be included in the Plan under Section 422 of the Code (as amended from time to time) or any successor to such section, then such provision shall be deemed to be incorporated in the Plan with the same force and effect as if such provision had been expressly set out in the Plan. 23. Effect on Other Plans. Participation in the Plan shall not affect an employee's eligibility to participate in any other benefit or incentive plan of the Company or any Subsidiary. Any awards made pursuant to the Plan shall not be taken into account in determining the benefits 14 provided or to be provided under any other plan of the Company or any Subsidiary unless otherwise specifically provided in such other plan. 24. Term of Plan. The Plan shall become effective on January 3, 1996, and shall terminate for purposes of further grants on the first to occur of (i) December 31, 2005, or (ii) the effective date of the termination of the Plan by the Board pursuant to Section 21. No awards or options may be granted under the Plan after the termination of the Plan, but such termination shall not affect any awards or options outstanding at the time of such termination or the authority of the Committee to continue to administer the Plan apart from the making of further grants. 25. Governing Law. The Plan shall be governed by and construed in accordance with the laws of Delaware. 15 EX-10.44 3 dex1044.txt STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS Exhibit 10.44 [As amended through January 18, 2001] CSG SYSTEMS INTERNATIONAL, INC. STOCK OPTION PLAN FOR NON-EMPLOYEE DIRECTORS 1. Purpose. The purpose of the CSG Systems International, Inc. Stock Option Plan for Non-Employee Directors (the "Plan") is to foster and promote the long-term financial success of the Company and thereby increase stockholder value by attracting and retaining as directors of the Company highly qualified persons who are not employees of the Company or a Subsidiary. 2. Certain Definitions. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. References to a particular section of the Code shall include any regulations issued under such section. "Common Stock" means the Common Stock, $0.01 par value per share, of the Company. "Company" means CSG Systems International, Inc., a Delaware corporation. "Director" means a person then serving as a member of the Board of the Company. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" means, as determined by the Board, the last sale price of the Common Stock as quoted on the Nasdaq National Market System on the trading day for which the determination is being made, or, in the event that no such sale takes place on such day, the average of the reported closing bid and asked prices on such day, or, if the Common Stock of the Company is listed on a national securities exchange, the last reported sale price on the principal national securities exchange on which the Common Stock is listed or admitted to trading on the trading day for which the determination is being made, or, if no such reported sale takes place on such day, the average of the closing bid and asked prices on such day on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not quoted on such National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on the day for which the determination is being made as reported through Nasdaq, or, if bid and asked prices for the Common Stock on such day are not reported through Nasdaq, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Board, or, if none of the foregoing is applicable, then the fair market value of the Common Stock as determined in good faith by the Board in its sole discretion. "Stock Option" means an option to purchase Common Stock granted pursuant to the Plan. "Subsidiary" means a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or by a Subsidiary, whether or not such corporation now exists or hereafter is organized or acquired by the Company or by a Subsidiary. 3. Administration. The Plan shall be administered by the Board, and the Board shall have authority to grant Stock Options to eligible Directors from time to time pursuant to the Plan. Subject to the applicable provisions of the Plan, the Board shall have authority to interpret the provisions of the Plan and to decide all questions of fact arising in the application of such provisions; to select the Directors to whom Stock Options shall be granted; to determine when, whether, and in what amounts Stock Options shall be granted; to determine the amount, terms, and conditions of each Stock Option; to determine the Fair Market Value of the Common Stock from time to time; to authorize persons to execute on behalf of the Company any agreement required to be entered into under the Plan; to adopt, alter, and repeal such administrative rules, guidelines, and practices governing the Plan as the Board from time to time shall deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all decisions and determinations made by the Board pursuant to the provisions of the Plan shall be made in the sole discretion of the Board and shall be final and binding on all persons, including but not limited to the Company, the Directors to whom Stock Options are granted, the heirs and legal representatives of such Directors, and the personal representatives and beneficiaries of the estates of such Directors. 4. Common Stock Subject to the Plan. The Company shall reserve and keep available for issuance under the Plan four hundred fifty thousand (450,000) shares of Common Stock, subject to adjustment pursuant to Section 17. Such shares may consist in whole or in part of authorized and unissued shares or treasury shares or any combination thereof. Except as otherwise provided in the Plan, any shares subject to a Stock Option which expires or terminates unexercised as to such shares shall again be available for the grant of Stock Options. 5. Eligibility to Receive Stock Options. Stock Options may be granted under the Plan only to Directors who are not employees of the Company or a Subsidiary on the date of the grant. 6. Stock Options. All Stock Options shall be nonqualified stock options for purposes of the Code. Stock Options shall be evidenced by agreements in such form as the Board shall approve from time to time; such agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Board shall deem appropriate: (a) Type of Option. Each option agreement shall identify the Stock Option evidenced thereby as a nonqualified stock option for purposes of the Code. (b) Option Price. Each option agreement shall set forth the number of shares of Common Stock covered by the stock option and the applicable option exercise price per 2 share, which price shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted or less than the par value of the Common Stock. (c) Term. Each option agreement shall state the period or periods of time during which the Stock Option may be exercised, in whole or in part, which shall be such period or periods of time as the Board may determine at the time the Stock Option is granted; provided, that no Stock Option shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Option shall become and remain exercisable as provided in the option agreement relating to such Stock Option. (d) Payment for Shares. Each option agreement shall require the option exercise price per share to be paid in full in cash at the time the Stock Option is exercised with respect to any of the shares covered by such Stock Option. 7. Cessation of Service as a Director. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option ceases to be a Director for any reason other than retirement from the Board under the circumstances described in Section 8 or death, then each outstanding but unexercised Stock Option held by such grantee shall continue to be exercisable only to the extent that it was exercisable at the time that such grantee ceased to be a Director and only until the earlier of (i) ninety days after such grantee ceased to be a Director or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 8. Retirement from Board. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option ceases to be a Director (other than by reason of death) and at the time of such occurrence (the "Retirement Date") is at least age 65 with ten or more years of service as a Director or is at least age 70 with five or more years of service as a Director, then each outstanding but unexercised Stock Option held by such grantee on the Retirement Date shall continue to be or become exercisable in accordance with its terms until the earlier of (i) five years after the Retirement Date or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 9. Death. Unless the applicable option agreement provides otherwise, if the grantee of a Stock Option dies, then each outstanding but unexercised Stock Option which had been held by such grantee for at least twelve months as of the date of such grantee's death automatically shall become exercisable in full (if not already exercisable) upon such grantee's death. Each outstanding but unexercised Stock Option which becomes exercisable pursuant to the preceding sentence and each outstanding but unexercised Stock Option held by such grantee which was exercisable on the date of such grantee's death may be exercised by the legal representative of such grantee's estate or by the beneficiaries of such estate to whom such Stock Option is distributed until the earlier of (i) three years after the date of such grantee's death or (ii) the expiration of the term of such Stock Option; and to the extent not exercisable or not exercised (if exercisable) by such applicable date, such Stock Option shall terminate and be of no further force or effect. 3 10. Acceleration of Exercisability. The Board shall have the authority to accelerate the exercisability of any outstanding Stock Option, subject to any applicable requirements of the Plan, under such circumstances and upon such terms and conditions as the Board shall deem appropriate. 11. General Restrictions. Each Stock Option grant under the Plan shall be subject to the requirement that if at any time the Board shall determine that (i) the listing, registration, or qualification of the shares of Common Stock subject or related thereto upon any securities market or securities exchange or under any state or federal law, (ii) the consent or approval of any governmental regulatory body, or (iii) an agreement by the grantee of such Stock Option with respect to the disposition of the shares of Common Stock subject thereto is necessary or desirable as a condition of, or in connection with, such grant or the issuance of shares of Common Stock thereunder, then such Stock Option grant may not be consummated and any rights under such Stock Option may not be exercised in whole or in part unless and until such listing, registration, qualification, consent, approval, or agreement shall have been effected or obtained upon conditions acceptable to the Board. 12. Rights of a Stockholder. The grantee of a Stock Option shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject to such Stock Option unless and until certificates for such shares of Common Stock are issued to such grantee upon the timely and proper exercise of such Stock Option. 13. No Right to Continue as a Director. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any Director the right to continue to serve as a Director of the Company. 14. Indemnification. No member of the Board, and no officer or employee of the Company acting on behalf of the Board, shall be personally liable for any action, determination, or interpretation taken or made in good faith with respect to the Plan; and all members of the Board and each officer or employee of the Company acting on behalf of the Board shall, to the extent permitted by law, be fully indemnified by the Company in respect of any such action, determination, or interpretation. 15. Non-Assignability. No Stock Option granted under the Plan shall be assignable or transferable by the grantee thereof except by will, by the laws of descent and distribution, or by such other means (if any) or in such other manner (if any) as the Board may approve from time to time. No right or benefit under the Plan or any Stock Option granted under the Plan shall be liable for the debts, liabilities, or alimony obligations of the person entitled to such right or benefit, either by assignment, attachment, or any other method, and shall not be subject to be taken by the creditors of the person entitled to such right or benefit by any process whatsoever. 16. Nonuniform Determinations. The Board's determinations under the Plan (including but not limited to determinations of the persons to receive Stock Option grants, the amount and timing of such grants, and the terms and provisions of such grants) need not be uniform and may be 4 made by the Board selectively among the Directors who receive, or are eligible to receive, Stock Option grants. 17. Adjustments. In the event of any change in the outstanding shares of Common Stock by reason of a stock dividend or distribution, stock split, recapitalization, merger, reorganization, consolidation, split-up, spin-off, combination of shares, exchange of shares, or other change in corporate structure affecting the Common Stock, the Board shall make appropriate adjustments in (a) the aggregate number of shares of Common Stock (i) reserved for issuance under the Plan and (ii) covered by outstanding Stock Option grants and (b) the exercise price related to outstanding Stock Options; provided, that the number of shares subject to any Stock Option always shall be a whole number. 18. Termination and Amendment. The Board may terminate the Plan or amend the Plan or any portion thereof at any time, including but not limited to amendments to the Plan necessary to comply with the requirements of Section 16(b) of the Exchange Act or applicable regulations thereunder, except that the Board may not increase the maximum number of shares which may be issued under the Plan (other than by way of adjustments made pursuant to Section 17), extend the maximum period during which any Stock Option may be exercised, extend the term of the Plan, decrease the minimum option price to less than the Fair Market Value on the date of the grant of a Stock Option, or change the category of persons eligible to participate in the Plan without stockholder approval if such approval is required by the applicable rules of the Securities and Exchange Commission, the Nasdaq National Market, or any national securities exchange on which the Common Stock is listed. The termination or any amendment of the Plan shall not, without the consent of a Stock Option grantee, adversely affect such grantee's rights under a Stock Option previously granted to such grantee. The Board may amend the terms and conditions of any Stock Option grant previously made, prospectively or retroactively, as long as such amendment is not inconsistent with the terms of the Plan; but, except as otherwise expressly permitted by the Plan and subject to Section 17, no such amendment shall adversely affect the rights of the grantee of such Stock Option without such grantee's consent. 19. Term of Plan. Subject to approval of the Plan by the stockholders of the Company not later than December 31, 1997, the Plan shall become effective on the date on which the Plan is approved and adopted by the Board and shall terminate for purposes of further Stock Option grants on the first to occur of (i) December 31, 2006, or (ii) the effective date of the termination of the Plan by the Board pursuant to Section 18. No Stock Options may be granted under the Plan after the termination of the Plan, but such termination shall not affect any Stock Options outstanding at the time of such termination or the authority of the Board to continue to administer the Plan apart from the making of further Stock Option grants. The Board may grant Stock Options under the Plan prior to approval of the Plan by the stockholders of the Company, but any Stock Options so granted shall be subject in all respects to such approval. Notwithstanding the provisions of any option agreement evidencing a Stock Option granted prior to approval of the Plan by the stockholders of the Company, such Stock Option may not be exercised to any extent prior to such stockholder approval. If such stockholder approval is not given by December 31, 1997, then the Plan and all Stock Options granted thereunder automatically shall terminate and be of no further force or effect at the close of business on December 31, 1997. 5 20. Governing Law. The Plan shall be governed by and construed in accordance with the laws of Delaware. 6 EX-10.48 4 dex1048.txt EMPLOYMENT AGREEMENT WITH PETER KALAN EXHIBIT 10.48 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made and entered into on the 18/th/ day of January, 2001, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and PETER KALAN (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 a Vice President and the Chief Financial Officer of both of the Companies; and WHEREAS, the Companies desire to provide for the continued employment of the Executive as a Vice President and their Chief Financial Officer; 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 a Vice President and its Chief Financial Officer throughout the term of this agreement and agrees to cause the Executive from time to time to be elected or appointed to such corporate offices or positions. The duties and responsibilities of the Executive shall include the duties and responsibilities of the Executive's corporate offices and positions referred to in the preceding sentence which are set forth in the respective bylaws of the Companies from time to time, general supervision of the financial affairs of the Companies, and such other duties and responsibilities consistent with the Executive's corporate offices and positions 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 January 1, 2001, 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, 2001, 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 not less than $225,000; 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 November immediately preceding such January 1 increased over the CPI-U for the November 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. As soon as practicable after the execution of ---------------------- this agreement, 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 or the Executive of various non- financial objectives. Such incentive bonus program for each calendar year shall provide the opportunity for the Executive to earn an incentive bonus of not less than fifty percent (50%) 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. 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 2 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 5 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, (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; 6 (ii) 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), 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 percent (50%) 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 7 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)); 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 percent (100%) 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 the chief financial officer 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 8 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; (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. 9 (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. (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 10 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 delivery service or by United States certified mail, return receipt requested, postage prepaid, in either case addressed as follows: If to the Executive: Peter Kalan 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 Attn: Chief Executive Officer, 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, 11 (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 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 12 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 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. 13 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 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"). 14 (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 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. 15 (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. (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 16 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. 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 Hansen --------------------------------- Neal C. Hansen, Chairman of the Board and Chief Executive Officer /s/ Peter Kalan ------------------------------------- Peter Kalan 17 EX-99.01 5 dex9901.txt SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Exhibit 99.01 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN CAUTIONARY STATEMENTS AND RISK FACTORS CSG Systems International, Inc. and its subsidiaries (collectively, the Company) or their representatives from time-to-time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS. This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND THAT SUCH DIFFERENCES MAY BE MATERIAL. RELIANCE ON CCS - --------------- The Company derived approximately 75.8% and 78.3% of its total revenues from its primary product, Communications Control System, and related products and services (collectively, "CCS") in the years ended December 31, 2000 and 1999, 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) - -------------------------------------------- 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 Company also has certain contractual rights to continue to process certain AT&T customers for a specified time period in the event that AT&T sells a portion of its customers to another company. During the fourth quarter of 2000, the Company relinguished its exclusive rights to process AT&T's wireline telephony customers, and expects these AT&T customers to be fully converted to another service provider by the end of 2001. The Company does not expect the loss of these customers to have a material impact on the Company's result of operations, and this matter has been considered in determining the Company's financial guidance for 2001. 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 adverse 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. The AT&T Contract and its amendments (including the amendment executed as part of the agreement to withdraw the Demand for Arbitration) have been included as exhibits to the Company's filings with the Securities and Exchange Commission. See the Company's 2000 10-K 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 completed its merger with MediaOne Group, Inc. (MediaOne) in 2000. During the three months ended March 31, 2001 and 2000, revenues from AT&T and affiliated companies represented approximately 61.9% and 50.0% of total revenues, respectively. The increase in the percentage between periods relates primarily to the timing and the amount of software purchases by AT&T. 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, 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 has resulted from the sale of products and 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 AOL TIME WARNER CONTRACTS - ------------------------------------ America Online, Inc. ("AOL") and Time Warner completed their merger in 2000, and now operate under the name AOL Time Warner Inc. ("AOL Time Warner"). During the years ended December 31, 2000 and 1999, revenues from AOL Time Warner represented approximately 8.3% and 10.2% of total revenues, respectively. The Company provides services to AOL Time Warner under multiple, separate contracts with various AOL Time Warner affiliates. These contracts are scheduled to expire on various dates. The failure of AOL Time Warner to renew contracts representing a significant part of its business with the Company would have a material adverse impact on the financial condition and results of operations of the Company. It would be premature to predict the impact, if any, the result the AOL Time Warner merger will 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 impact on the results of operations of the Company. The Company is currently scheduled to convert approximately 4.8 million customers (of which approximately 4.0 million are the MediaOne customers acquired by AT&T in 2000) onto its processing system during the remainder of 2001. INDUSTRY CONSOLIDATION AND DEPENDENCE ON VIDEO INDUSTRY - CABLE TELEVISION AND - ------------------------------------------------------------------------------ DBS - --- 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, 2000 and 1999, the Company derived 77.7% and 75.8%, and 16.0% and 15.5% 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 video market will become clients of the Company. Also, there can be no assurance that video 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 both domestically and internationally 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 over 85% of the U.S. cable television market and two providers account for almost the entire U.S. DBS market. The Company processes and/or provides statement printing for at least a portion of the customers (i) for five of the seven cable television providers, and (ii) for one of the DBS providers. For the year ended December 31, 2000, approximately 72% of the Company's total revenues were generated from companies either under the control of, or expected to come under the control of, these six 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 processing revenue per customer account and the software and professional services revenues 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 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, conversions 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 the local 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, an adverse impact to the Company's overall effective tax rate resulting from (i) operations in foreign countries with higher tax rates than the United States, (ii) inefficient use of foreign tax credits, and (iii) the inability to utilize some or all of losses generated in one or more foreign countries, 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's systems are continuously connected to the Company's products through a variety of public and private telecommunications networks. The Company plans to expand its use of the Internet with its product offerings thereby permitting, for example, our clients' customer to use the Internet to review account balances, order services 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 periodically undergoes a security review of its internal systems by an independent party, and has implemented a plan intended to limit the risk of an unauthorized access to the networks and systems, including network firewalls, intrusion detection systems and antivirus applications. 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 Company's 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 ------------------------------- Several of the Company's new product applications operate in a distributed systems environment (also known as "open systems"), running on multiple servers for the benefit of certain clients. The Company recently completed the migration of these distributed systems servers from its own internal data center to the FDC Data Center. Under an agreement with FDC that runs through June 30, 2005, FDC provides the operations monitoring and facilities management services, while the Company provides hardware, operating systems and application support. 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 these applications. The Company and FDC have extensive experience in running applications within the mainframe computing platform, and only within the last few years began running applications within a distributed systems environment. 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. In addition, security attacks on distributed systems throughout the industry are more prevalent than on mainframe environments due to the open nature of those systems. 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 any particular product application or internal system which is operated within the FDC Data Center or the Company's facilities, 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 impact on the financial condition and results of operations of the Company, as well as negatively affect the Company's ability to attract and retain new clients. -----END PRIVACY-ENHANCED MESSAGE-----