-----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, OzZy0hWfwTmZcBcb7Xc7STUrHXPAzFqsQ+9vXG0Cptr6k7g/vOoNNEsyOU73y9hN ccuWPQr9s7n1U1zkLiPYaA== 0000927356-96-001030.txt : 19961113 0000927356-96-001030.hdr.sgml : 19961113 ACCESSION NUMBER: 0000927356-96-001030 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 6 CONFORMED PERIOD OF REPORT: 19960930 FILED AS OF DATE: 19961112 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27512 FILM NUMBER: 96658909 BUSINESS ADDRESS: STREET 1: 5251 DTC PARKWAY SUITE 625 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037962850 MAIL ADDRESS: STREET 1: 5251 DTC PARKWAY SUITE 625 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 FORM 10-Q PERIOD ENDED 09/30/96 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 1996 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.) 5251 DTC PARKWAY, SUITE 625 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 October 31, 1996: 25,483,002. 1 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1996 INDEX
PAGE NO. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of September 30, 1996 and December 31, 1995................................................... 3 Condensed Consolidated Statements of Operations for the Quarter and Nine Months Ended September 30, 1996 and 1995................................ 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 1996 and 1995....................................... 5 Notes to Condensed Consolidated Financial Statements.................... 6 - 7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations................................................... 8 - 12 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K........................................ 13 Signatures.............................................................. 14 Index to Exhibits....................................................... 15
2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
SEPTEMBER 30, DECEMBER 31, 1996 1995 ------------- ------------ (UNAUDITED) ASSETS ------ Current Assets: Cash and cash equivalents................................................................. $ 5,706 $ 3,603 Accounts receivable- Trade- Billed, net of allowance of $677 and $521............................................ 28,674 22,400 Unbilled............................................................................. 3,052 803 Other................................................................................ 1,208 1,925 Deferred income taxes..................................................................... 168 - Other current assets...................................................................... 1,612 585 ------------- ------------ Total current assets..................................................................... 40,420 29,316 ------------- ------------ Equipment and furniture, net of depreciation of $9,483 and $5,759......................... 9,980 9,881 Investment in discontinued operations..................................................... 732 2,732 Software, net of amortization of $20,167 and $11,917...................................... 13,881 21,083 Noncompete agreements and goodwill, net of amortization of $10,820 and $6,154............. 27,080 25,657 Client contracts and related intangibles, net of amortization of $7,504 and $4,433........ 10,776 13,846 Deferred income taxes..................................................................... 2,159 - Other assets.............................................................................. 2,809 3,038 ------------- ------------ Total assets............................................................................ $ 107,837 $ 105,553 ============= ============ LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current Liabilities: Current maturities of long-term debt...................................................... $ 10,000 $ 10,000 Customer deposits......................................................................... 6,004 5,505 Trade accounts payable.................................................................... 11,123 6,110 Accrued liabilities....................................................................... 8,288 4,421 Deferred revenue.......................................................................... 2,610 622 Accrued income taxes...................................................................... 1,856 - Other current liabilities................................................................. 293 299 ------------- ----------- Total current liabilities................................................................ 40,174 26,957 ------------- ----------- Long-term debt, net of current maturities................................................. 25,000 75,068 Deferred revenue.......................................................................... 5,292 2,531 Redeemable convertible preferred stock, par value $.01 per share; zero shares and 9,500,000 shares authorized; zero shares and 8,999,999 shares issued and outstanding...... - 62,985 Stockholders' equity: Preferred stock, par value $.01 per share; 10,000,000 shares and zero shares authorized; zero shares issued and outstanding........................................... - - Common stock, par value $.01 per share; 100,000,000 shares and 50,000,000 shares authorized; 25,483,002 shares and 4,243,000 shares issued and outstanding................ 255 42 Additional paid-in capital................................................................ 111,288 7,720 Deferred employee compensation............................................................ (1,303) (4,968) Notes receivable from employee stockholders............................................... (971) (976) Accumulated translation adjustments....................................................... 40 - Accumulated deficit....................................................................... (71,938) (63,806) ------------- ----------- Total stockholders' equity (deficit)..................................................... 37,371 (61,988) ------------- ----------- Total liabilities and stockholders' equity............................................... $ 107,837 $ 105,553 ============= =========== The accompanying notes are an integral part of these condensed consolidated financial statements.
3 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS-UNAUDITED (in thousands, except share and per share amounts)
Quarter ended Nine months ended -------------------------- ---------------------------- September 30, September 30 September 30, September 30, 1996 1995 1996 1995 ------------ ------------ ------------- ------------- Total revenues........................................... $ 35,320 $ 23,789 $ 92,508 $ 70,725 Expenses: Cost of revenues: Cost of services....................................... 15,824 11,383 43,024 34,300 Amortization of acquired software...................... 2,751 2,750 8,252 8,250 Amortization of client contracts and related intangibles................................. 1,023 1,023 3,069 3,069 ------------ ------------ ------------ ------------- Total cost of revenues.............................. 19,598 15,156 54,345 45,619 ------------ ------------ ------------ ------------- Gross margin............................................. 15,722 8,633 38,163 25,106 ------------ ------------ ------------ ------------- Operating expenses: Research and development............................... 5,514 3,607 14,862 10,073 Selling and marketing.................................. 2,015 897 5,005 2,328 General and administrative: General and administrative ........................... 3,549 2,995 9,977 7,975 Amortization of noncompete agreements and goodwill.... 1,723 1,420 4,662 4,260 Stock-based employee compensation..................... 98 401 3,472 435 Depreciation........................................... 1,282 1,473 3,718 4,149 ------------ ------------ ------------ ------------ Total operating expenses........................... 14,181 10,793 41,696 29,220 ------------ ------------ ------------ ------------ Operating income (loss).................................. 1,541 (2,160) (3,533) (4,114) ------------ ------------ ------------ ------------ Other income (expense): Interest expense....................................... (780) (2,227) (3,390) (6,904) Interest income........................................ 187 151 672 470 ------------ ------------ ------------ ------------ Total other........................................ (593) (2,076) (2,718) (6,434) ------------ ------------ ------------ ------------ Income (loss) before income taxes, extraordinary item and discontinued operations....................... 948 (4,236) (6,251) (10,548) Income tax (provision) benefit.......................... - - - - ------------ ------------ ------------ ------------ Income (loss) before extraordinary item and discontinued operations................................ 948 (4,236) (6,251) (10,548) Extraordinary loss from early extinguishment of debt..... - - (1,260) - ------------ ------------ ------------ ------------ Income (loss) from continuing operations................. 948 (4,236) (7,511) (10,548) ------------ ------------ ------------ ------------ Discontinued operations: Loss from operations.................................... - (1,003) - (3,093) Loss from disposition................................... - (660) - (660) ------------ ------------ ------------ ------------ Total loss from discontinued operations............ - (1,663) - (3,753) ------------ ------------ ------------ ------------ Net income (loss)........................................$ 948 $ (5,899) $ (7,511) $ (14,301) ============ ============ ============ ============ Net income (loss) per share: Income (loss) before extraordinary item and discontinued operations...........................$ 0.04 $ (0.19) $ (0.25) $ (0.47) Extraordinary loss from early extinguishment of debt.... - - (0.05) - Loss from discontinued operations....................... - (0.07) - (0.17) ------------ ------------ ------------ ------------ Net income (loss).......................................$ 0.04 $ (0.26) $ (0.30) $ (0.64) ============ ============ ============ ============ Weighted average common shares and equivalents...........25,486,383 22,494,748 24,822,720 22,494,748
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS-UNAUDITED (in thousands, except share amounts)
Nine months ended --------------------------- September 30, September 30, 1996 1995 ----------- ------------- Cash flows from operating activities: Net loss............................................................ $ (7,511) $ (14,301) Adjustments to reconcile net loss to net cash provided by operating activities- Depreciation...................................................... 3,718 4,149 Amortization...................................................... 16,525 16,274 Stock-based employee compensation................................. 3,472 435 Extraordinary loss from early extinguishment of debt.............. 1,260 - Loss from discontinued operations................................. - 3,753 Changes in operating assets and liabilities: Trade accounts receivable, net................................... (6,220) (4,347) Other receivables................................................ 717 191 Deferred income taxes............................................ (2,327) - Other current assets and noncurrent assets....................... (2,509) (40) Customer deposits................................................ 499 788 Trade accounts payable and accrued liabilities................... 5,752 (2,432) Deferred revenue................................................. 4,749 2,850 Other current liabilities........................................ (6) 125 ----------- ------------- Net cash provided by operating activities....................... 18,119 7,445 ----------- ------------- Cash flows from investing activities: Purchases of equipment and furniture, net........................... (3,662) (4,713) Additions to software............................................... (1,048) - Acquisition of businesses, net of cash acquired..................... (3,518) - Net investment in discontinued operations........................... 2,000 (92) ----------- ------------- Net cash used in investing activities........................... (6,228) (4,805) ----------- ------------- Cash flows from financing activities: Proceeds from issuance of common stock.............................. 44,804 367 Purchase and cancellation of common stock........................... (23) - Payment of dividends for redeemable convertible preferred stock..... (4,497) - Payments on long-term debt.......................................... (50,068) (8,057) ----------- ------------- Net cash used in financing activities........................... (9,784) (7,690) ----------- ------------- Effect of exchange rate fluctuations on cash......................... (4) - ----------- ------------- Net increase (decrease) in cash and cash equivalents................. 2,103 (5,050) Cash and cash equivalents, beginning of period....................... 3,603 6,650 ----------- ------------- Cash and cash equivalents, end of period............................. $ 5,706 $ 1,600 ========== ============ Supplemental disclosures of cash flow information: Cash paid (received) during the period for- Interest........................................................... $ 3,294 $ 6,409 Income taxes....................................................... $ (586) $ 1,176 Supplemental disclosure of noncash financing activities: During March 1996, the Company converted 8,999,999 shares of redeemable convertible preferred stock into 17,999,998 shares of common stock. The accompanying notes are an integral part of these condensed consolidated financial statements.
5 CSG SYSTEMS INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The condensed consolidated financial statements at September 30, 1996 and for the three and nine months then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Form S-1 Registration Statement filed with the Securities and Exchange Commission (Registration No. 333-244). The results of operations for the three and nine months ended September 30, 1996 are not necessarily indicative of the results for the entire year ending December 31, 1996. 2. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS Certain December 31, 1995 amounts have been reclassified to conform with the September 30, 1996 presentation. 3. STOCKHOLDERS' EQUITY The Company completed an initial public offering (IPO) of common stock in March 1996. The Company sold 3,335,000 shares of common stock at an initial public offering price of $15 per share, resulting in net proceeds to the Company, after deducting underwriting discounts and offering expenses, of approximately $44,794,000. As of the closing of the IPO, all of the 8,999,999 outstanding shares of redeemable convertible Series A Preferred Stock were automatically converted into 17,999,998 shares of common stock. 4. NET INCOME (LOSS) PER SHARE Net income (loss) per common and equivalent share for the three and nine months ended September 30, 1996, is based on the weighted average number of shares of common stock and common equivalent shares related to redeemable convertible Series A Preferred Stock. Common equivalent shares related to stock options have been excluded from the weighted average number of shares. Pursuant to Securities and Exchange Commission Staff Accounting Bulletin No. 83, all shares and options issued during the twelve-month period prior to the Company's IPO have been treated as if they were outstanding for all periods presented, including periods in which the effect is antidilutive. 5. EXTRAORDINARY LOSS The Company used $40.3 million of the IPO proceeds to repay a portion of outstanding bank indebtedness (the Indebtedness). Upon repayment of the Indebtedness, the Company recorded an extraordinary loss of $1.3 million for the write-off of deferred financing costs. 6 6. ACQUISITION On June 28, 1996, the Company acquired the capital stock of Bytel Limited, a United Kingdom-based company which provides customer management software systems to the cable and telecommunications industries. The total purchase price was approximately $4.7 million consisting of cash payments of approximately $3.1 million and assumption of certain payables to one of the sellers of approximately $1.6 million. The cash portion of the purchase price was paid out of corporate funds. The acquisition was accounted for under the purchase method. 7 CSG SYSTEMS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated (in thousands). The Company acquired Bytel Limited (Bytel) on June 28, 1996. The results of Bytel's operations for the three months ended September 30, 1996 are included in the following table and considered in the discussion of the Company's operations that follow:
Quarter ended September 30, Nine Months ended September 30, ------------------------------------- ------------------------------------- 1996 1995 1996 1995 ------------------------------------- ------------------------------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue ------- ------- ------- ------- ------- ------- ------- ------- Total revenues....................... $35,320 100.0% $23,789 100.0% $92,508 100.0% $70,725 100.0% Expenses: Cost of revenues: Cost of services................... 15,824 44.8% 11,383 47.8% 43,024 46.5% 34,300 48.5% Amortization of acquired software.......................... 2,751 7.8% 2,750 11.6% 8,252 8.9% 8,250 11.7% Amortization of client contracts and related intangibles........... 1,023 2.9% 1,023 4.3% 3,069 3.3% 3,069 4.3% ------- ------- ------- ------- ------- ------- ------- ------- Total cost of revenues........... 19,598 55.5% 15,156 63.7% 54,345 58.7% 45,619 64.5% ------- ------- ------- ------- ------- ------- ------- ------- Gross margin........................ 15,722 44.5% 8,633 36.3% 38,163 41.3% 25,106 35.5% ------- ------- ------- ------- ------- ------- ------- ------- Operating expenses: Research and development........... 5,514 15.6% 3,607 15.2% 14,862 16.1% 10,073 14.2% Selling and marketing.............. 2,015 5.7% 897 3.8% 5,005 5.4% 2,328 3.3% General and administrative: General and administrative ....... 3,549 10.0% 2,995 12.6% 9,977 10.8% 7,975 11.3% Amortization of noncompete agreements and goodwill.......... 1,723 4.9% 1,420 6.0% 4,662 5.0% 4,260 6.0% Stock-based employee compensation..................... 98 0.3% 401 1.7% 3,472 3.8% 435 0.6% Depreciation....................... 1,282 3.6% 1,473 6.2% 3,718 4.0% 4,149 5.9% ------- ------- ------- ------- ------- ------- ------- ------- Total operating expenses......... 14,181 40.1% 10,793 45.5% 41,696 45.1% 29,220 41.3% ------- ------- ------- ------- ------- ------- ------- ------- Operating income (loss).............. 1,541 4.4% (2,160) (9.2)% (3,533) (3.8)% (4,114) (5.8)% ------- ------- ------- ------- ------- ------- ------- ------- Other income (expense): Interest expense................... (780) (2.2)% (2,227) (9.4)% (3,390) (3.7)% (6,904) (9.8)% Interest income.................... 187 0.5% 151 0.6% 672 0.7% 470 0.7% ------- ------- ------- ------- ------- ------- ------- ------- Total other...................... (593) (1.7)% (2,076) (8.8)% (2,718) (3.0)% (6,434) (9.1)% ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before income taxes, extraordinary item and discontinued operations............ 948 2.7% (4,236) (18.0)% (6,251) (6.8)% (10,548) (14.9)% Income tax (provision) benefit.... - - - - - - - - ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) before extraordinary item and discontinued operations... 948 2.7% (4,236) (18.0)% (6,251) (6.8)% (10,548) (14.9)% Extraordinary loss from early extinguishment of debt............. - - - - (1,260) (1.4)% - - ------- ------- ------- ------- ------- ------- ------- ------- Income (loss) from continuing operations........................ 948 2.7% (4,236) (18.0)% (7,511) (8.2)% (10,548) (14.9)% ------- ------- ------- ------- ------- ------- ------- ------- Discontinued operations: Loss from operations................ - - (1,003) (4.2)% - - (3,093) (4.4)% Loss from disposition............... - - (660) (2.8)% - - (660) (0.9)% ------- ------- ------- ------- ------- ------- ------- ------- Total loss from discontinued operations..................... - - (1,663) (7.0)% - - (3,753) (5.3)% ------- ------- ------- ------- ------- ------- ------- ------- Net income (loss).................... $ 948 2.7% $(5,899) (25.0)% $(7,511) (8.2)% $(14,301) (20.2)% ======= ======= ======= ======= ======= ======= ======= =======
8 THREE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO THREE MONTHS ENDED SEPTEMBER 30, 1995 Revenues. Revenues increased 48.5% from $23.8 million in the three months ended September 30, 1995, to $35.3 million in the three months ended September 30, 1996, due primarily to increased revenue from the Company's existing processing and related ancillary services and to increased revenue from new software products and professional services. The increase in revenue from processing and related ancillary services is due primarily to an increased number of customers of the Company's clients which were serviced by the Company and increased revenue per customer. Customers serviced as of September 30, 1995 and 1996, were 17.4 million and 18.6 million, respectively. The increase in the number of customers serviced was due primarily to internal customer growth experienced by existing clients and the addition of new clients. Revenue per customer increased due to annual price increases included in client contracts and increased usage of ancillary services by existing clients. New software products, consisting primarily of license fees from Advanced Customer Service Representative (ACSR(TM)) and CSG Vantage Point(TM) (the Company's data warehouse product), and professional services generated $3.6 million of revenue for the three months ended September 30, 1996. Revenue from Bytel was $2.4 million in the three months ended September 30, 1996. Cost of Services. Cost of services increased 39.0% from $11.4 million in the three months ended September 30, 1995, to $15.8 million in the three months ended September 30, 1996, due primarily to the increased number of customers of the Company's clients serviced by the Company with its existing processing and related ancillary services and the cost to provide the new software products and professional services. As a percentage of revenues, cost of services decreased from 47.8% in the three months ended September 30, 1995, to 44.8% in the three months ended September 30, 1996. The decrease in cost of services as a percentage of revenue is due primarily to 1) the increased gross margin per customer for existing processing and related ancillary services, which resulted primarily from annual price increases included in customer contracts exceeding the corresponding cost to provide such services and increased usage of ancillary services by existing customers, and 2) the favorable change in sales mix to include more higher- margined new software products during the three months ended September 30, 1996. Research and Development Expense. Research and development expense increased 52.9% from $3.6 million in the three months ended September 30, 1995, to $5.5 million in the three months ended September 30, 1996, due primarily to continued efforts on several products which are in development, principally CSG Phoenix(TM), and to enhancements of the Company's existing products. The increase in expense consists primarily of increases in salaries, benefits, and other programming-related expenses. The Company intends to continue to increase its research and development expenditures. The Company capitalized software development costs of approximately $1.0 million in the three months ended September 30, 1996, related to CSG Telephony (the Company's telephony billing solution product), CSG.web(TM), and enhancements to CSG Vantage Point(TM). No software development costs were capitalized during 1995. Selling and Marketing Expense. Selling and marketing expense increased 124.6% from $0.9 million in the three months ended September 30, 1995, to $2.0 million in the three months ended September 30, 1996. As a percentage of revenues, selling and marketing expense increased from 3.8% in the three months ended September 30, 1995, to 5.7% in the three months ended September 30, 1996. The increase in expense is due primarily to a realignment of the Company's sales force. Following the change of ownership of the Company in late 1994, a substantial portion of the previous sales force was terminated during the three months ended March 31, 1995, and senior management focused on sales responsibilities in 1995. The Company began building a new direct sales force in mid-1995 and has added additional staff since that time. General and Administrative Expense. General and administrative (G&A) expense increased 18.5% from $3.0 million in the three months ended September 30, 1995, to $3.5 million in the three months ended September 30, 1996. As a percentage of revenues, G&A expense decreased from 12.6% in the three months ended September 30, 1995, to 10.0% in the three months ended September 30, 1996. The increase in expense relates primarily to the development of the Company's management team and to related administrative staff added during 1995 and the first nine months of 1996 to support the Company's growth. The decrease in G&A expense as a percentage of revenue is due primarily to increased leverage from the larger revenue base in relation to the level of G&A expenses incurred during the three months ended September 30, 1996. Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete agreements and goodwill increased 21.3% from $1.4 million in the three months ended September 30, 1995, to $1.7 million in the three months ended September 9 30, 1996. The increase in expense relates to amortization of goodwill from the Bytel acquisition and amortization of an additional noncompete agreement obtained in April 1996. Interest Expense. Interest expense decreased by 65.0% from $2.2 million in the three months ended September 30, 1995, to $0.8 million in the three months ended September 30, 1996, with the decrease attributable primarily to scheduled principal payments on the Company's long-term debt, the retirement of $40.3 million of long-term debt with proceeds from the IPO in March 1996, and a decrease in interest rates as a result of the Company favorably amending its long-term credit facility with its banks in April 1996 in conjunction with the $40.3 million retirement of long-term debt. Discontinued Operations. The loss of $1.7 million in the three months ended September 30, 1995, relates to the Company's investment in Anasazi Inc., which was disposed of during the third quarter of 1995. NINE MONTHS ENDED SEPTEMBER 30, 1996 COMPARED TO NINE MONTHS ENDED SEPTEMBER 30, 1995 Revenues. Revenues increased 30.8% from $70.7 million in the nine months ended September 30, 1995, to $92.5 million in the nine months ended September 30, 1996, due primarily to increased revenue from the Company's existing processing and related ancillary services and to increased revenue from new software products and professional services. The increase in processing and related ancillary services is due primarily to an increased number of customers of the Company's clients which were serviced by the Company and increased revenue per customer. The increase in the number of customers serviced was due primarily to internal customer growth experienced by existing clients and the addition of new clients. Revenue per customer increased due to annual price increases included in client contracts and increased usage of ancillary services by existing clients. New software products, consisting primarily of license fees from ACSR(TM) and CSG Vantage Point(TM) (the Company's data warehouse product), and professional services generated $6.5 million of revenue for the nine months ended September 30, 1996. Revenue from Bytel was $2.4 million in the nine months ended September 30, 1996. Cost of Services. Cost of services increased 25.4% from $34.3 million in the nine months ended September 30, 1995, to $43.0 million in the nine months ended September 30, 1996, due primarily to the increased number of customers of the Company's clients serviced by the Company with its existing processing and related ancillary services and the cost to provide the new software products and professional services. As a percentage of revenues, cost of services decreased from 48.5% in the nine months ended September 30, 1995, to 46.5% in the nine months ended September 30, 1996. The decrease in cost of services as a percentage of revenue is due primarily to the increased gross margin per customer for existing processing and related ancillary services, which resulted primarily from annual price increases included in customer contracts exceeding the corresponding cost to provide such services and increased usage of ancillary services by existing customers. Research and Development Expense. Research and development expense increased 47.5% from $10.1 million in the nine months ended September 30, 1995, to $14.9 million in the nine months ended September 30, 1996, due primarily to continued efforts on several products which are in development, principally CSG Phoenix(TM), and to enhancements of the Company's existing products. The increase in expense consists primarily of increases in salaries, benefits, and other programming-related expenses. The Company intends to continue to increase its research and development expenditures. The Company capitalized software development costs of approximately $1.0 million in the nine months ended September 30, 1996, related to CSG Telephony (the Company's telephony billing solution product), CSG.web(TM), and enhancements to CSG Vantage Point(TM). No software development costs were capitalized during 1995. Selling and Marketing Expense. Selling and marketing expense increased 115.0% from $2.3 million in the nine months ended September 30, 1995, to $5.0 million in the nine months ended September 30, 1996. As a percentage of revenues, selling and marketing expense increased from 3.3% in the nine months ended September 30, 1995, to 5.4% in the nine months ended September 30, 1996. The increase in expense is due primarily to a realignment of the Company's sales force. Following the change of ownership of the Company in late 1994, a substantial portion of the previous sales force was terminated during the three months ended March 31, 1995, and senior management focused on sales responsibilities in 1995. The Company began building a new direct sales force in mid-1995 and has added additional staff since that time. 10 General and Administrative Expense. General and administrative (G&A) expense increased 25.1% from $8.0 million in the nine months ended September 30, 1995, to $10.0 million in the nine months ended September 30, 1996. As a percentage of revenues, G&A expense decreased from 11.3% in the nine months ended September 30, 1995, to 10.8% in the nine months ended September 30, 1996. The increase in expense relates primarily to the development of the Company's management team and to related administrative staff added during 1995 and the first nine months of 1996 to support the Company's growth. The decrease in G&A expense as a percentage of revenue is due primarily to increased leverage from the larger revenue base in relation to the level of G&A expenses incurred during the nine months ended September 30, 1996. Amortization of Noncompete Agreements and Goodwill. Amortization of noncompete agreements and goodwill increased 9.4% from $4.3 million in the nine months ended September 30, 1995, to $4.7 million in the nine months ended September 30, 1996. The increase in expense relates to amortization of goodwill from the Bytel acquisition and amortization of an additional noncompete agreement obtained in April 1996. Stock-Based Employee Compensation. Stock-based employee compensation of $3.5 million in the nine months ended September 30, 1996, relates to purchases of the Company's common stock through performance stock purchase agreements with executive officers and key employees. The Company has the option to repurchase the shares upon the occurrence of certain events, principally termination of employment with the Company. The shares were to be released from the repurchase option on November 30, 2001. The structure of the performance stock agreements required "variable" accounting for the related shares until the performance conditions were removed, thereby establishing a measurement date of October 19, 1995. At that date, the Company recorded total deferred compensation of $5.8 million. The deferred compensation was being recognized as stock-based employee compensation expense on a straight-line basis through November 30, 2001. Upon the completion of the Company's initial public offering (IPO) of its common stock in March 1996, shares owned by certain executive officers were no longer subject to the repurchase option. In addition, the repurchase option for the remaining performance stock shares decreases 20% annually over a five-year period, commencing on the later of the employee's employment date or November 30, 1994. As a result, approximately $3.2 million of stock-based employee compensation expense was recorded in the month the IPO was completed. Annual stock-based employee compensation expense related to these shares subsequent to the IPO will be approximately $0.4 million until December 31, 2000. Interest Expense. Interest expense decreased by 50.9% from $6.9 million in the nine months ended September 30, 1995, to $3.4 million in the nine months ended September 30, 1996, with the decrease attributable to scheduled principal payments on the Company's long-term debt, the retirement of $40.3 million of long-term debt with proceeds from the IPO in March 1996, and a decrease in interest rates as a result of the Company favorably amending its long-term credit facility with its banks in April 1996 in conjunction with the $40.3 million retirement of long-term debt. Extraordinary Loss From Early Extinguishment Of Debt. Upon the repayment of the $40.3 million of long-term debt with IPO proceeds, the Company recorded an extraordinary charge of $1.3 million for the write-off of deferred financing costs attributable to the portion of the long-term debt repaid. Discontinued Operations. The loss of $3.8 million in the nine months ended September 30, 1995, relates to the Company's investment in Anasazi Inc., which was disposed of during the third quarter of 1995. General - ------- The Company's existing contract with Tele-Communications, Inc. (TCI), which was scheduled to expire December 31, 1996, has been extended automatically by its terms for one additional year. TCI, a significant client, is developing an in- house billing system, and the Company expects TCI's in-house system to replace the Company's system in the future. The first delivery of CSG Phoenix(TM), which is the Company's next generation customer care and billing system for the converging communications markets, is scheduled in the fourth quarter of 1996. The Company expects to install a beta site in the first quarter of 1997. The CSG Phoenix(TM) system is being developed on a three-tier client/server, object-oriented architecture. The system is being developed to enable clients to quickly deploy new convergence services such as voice, video and data, and to support large customer service sites. The statements regarding timing of the Company's delivery of CSG Phoenix(TM) and the installation of a beta site in the first quarter of 1997 are forward-looking statements. The actual timing is subject to delay due to the variety of factors inherent in the development and initial implementation of a new, complex 11 software system. Installation is also subject to factors relating to the integration of the new system with the client's existing systems. Income Taxes - ------------ As of September 30, 1996, the Company has net deferred tax assets of approximately $24.6 million. Based on the Company's history of operating losses, the Company has recorded a valuation allowance of approximately $22.3 million, primarily for deferred tax assets related to future deductible temporary differences since realization of these benefits is not sufficiently assured as of September 30, 1996. The Company expects a net loss for 1996 and anticipates recognizing a deferred tax benefit for this and prior operating losses and other net deferred tax assets to the extent the Company has a current tax provision. Thus, the Company anticipates no income tax expense will be recognized in 1996. Although the Company expects to incur a net loss in 1996, the Company expects to pay income taxes in 1996, due primarily to differences in the timing of recognition of the amortization of intangible assets for financial reporting and tax purposes. The Company intends to analyze the realizability of the net deferred tax assets at each future reporting period. Such analysis may indicate that the realization of various deferred tax benefits is more likely than not and, therefore, the amount of deferred tax assets recognized may be increased. Liquidity and Capital Resources - ------------------------------- As of September 30, 1996, the Company's principal sources of liquidity included cash and cash equivalents of $5.7 million. The Company also has a revolving bank line of credit in the amount of $5.0 million of which there were no borrowings outstanding. The line of credit expires December 31, 2000. During the nine months ended September 30, 1996, the Company generated $18.1 million in net cash flow from operating activities and received a $2.0 million principal payment on a note receivable from Anasazi Inc. Cash generated from these sources was used to fund capital expenditures of $3.7 million, additions to software of $1.0 million, acquisitions of $3.5 million and to repay long-term debt of $9.8 million. Also, in March 1996, the Company sold 3,335,000 shares of common stock at an initial public offering price of $15 per share, resulting in net proceeds to the Company, after deducting underwriting discounts and offering expenses, of approximately $44.8 million. The net proceeds from the IPO were used to repay long-term debt of $40.3 million and to pay accrued dividends of $4.5 million on redeemable convertible Series A Preferred Stock. In conjunction with the $40.3 million repayment of long-term debt, the Company decreased the interest rates on its long-term debt by favorably amending its credit facility with its banks in April 1996. As of the closing of the IPO, all of the 8,999,999 outstanding shares of redeemable convertible Series A Preferred Stock were automatically converted into 17,999,998 shares of common stock, at which time the accrued dividends became payable. Although the Company expects to incur a net loss in 1996, the Company expects to pay income taxes in 1996, due primarily to differences in the timing of recognition of the amortization of intangible assets for financial reporting and tax purposes. The Company believes that cash generated from operations and the amount available under the revolving bank line of credit will be sufficient to meet its anticipated cash requirements for operations, income taxes, debt service, and anticipated capital expenditures through the next twelve months. 12 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Items 1 - 5. None. Item 6. Exhibits and Reports on Form 8-K (a) Exhibits 2.18 First Amendment and Limited Waiver, dated August 14, 1996, to the Amended and Restated Loan Agreement among CSG Systems, Inc., certain lenders and Banque Paribas, as Agent 10.38 CSG Systems, Inc. Wealth Accumulation Plan 11.01 Statement re: Computation of Per Share Earnings 27.01 Financial Data Schedule (EDGAR Version Only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995 - Certain Cautionary Statements and Risk Factors. (b) Reports on Form 8-K Form 8-K dated July 9, 1996, as amended by Form 8-K(A) filed on September 9, 1996, and Form 8-K(A) Amendment No. 2 filed on September 25, 1996, under Item 2, Acquisition or Disposition of Assets, was filed with the Securities and Exchange Commission reporting the acquisition of the capital stock of Bytel Limited. The financial statements included in Form 8-K (A) were as follows: Financial statements for Bytel Limited as at and for the year ended 30 April 1996. Pro forma combined financial statements for CSG Systems International, Inc. and Bytel Limited for the year and six months ended December 31, 1995 and June 30, 1996, respectively. 13 SIGNATURES ---------- Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: November 11, 1996 CSG SYSTEMS INTERNATIONAL, INC. /s/ NEAL C. HANSEN ------------------------------ Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ DAVID I. BRENNER ------------------------------ David I. Brenner Executive Vice President and Chief Financial Officer (Principal Financial Officer) /s/ RANDY R. WIESE ------------------------------ Randy R. Wiese Controller and Principal Accounting Officer (Principal Accounting Officer) 14 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 2.18 First Amendment and Limited Waiver, dated August 14, 1996, to the Amended and Restated Loan Agreement among CSG Systems, Inc., certain lenders and Banque Paribas, as Agent 10.38 CSG Systems, Inc. Wealth Accumulation Plan 11.01 Statement re: Computation of Per Share Earnings 27.01 Financial Data Schedule (EDGAR Version Only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995 - Certain Cautionary Statements and Risk Factors. 15 EX-2.18 2 FIRST AMENDMENT AND LIMITED WAIVER FIRST AMENDMENT AND LIMITED WAIVER THIS FIRST AMENDMENT AND LIMITED WAIVER, dated as of August 14, 1996 ("Amendment and Waiver"), is entered into by and among CSG SYSTEMS, INC., a Delaware corporation (the "Borrower"), the Lenders party to the Restated Loan Agreement (as defined below), and BANQUE PARIBAS, as agent (not in its individual capacity, but solely as agent, the "Agent") on behalf of the Lenders. Capitalized terms used herein without definition shall have the same meanings herein as given to them in the Restated Loan Agreement. RECITALS A. The Borrower, the Lenders and the Agent have entered into that certain Amended and Restated Loan Agreement dated as of April 26, 1996 (the "Restated Loan Agreement"), pursuant to which the Lenders have extended and have agreed to extend and make available to the Borrower certain advances of money in accordance with their respective Commitments and upon the terms and conditions set forth in the Restated Loan Agreement and the other Loan Documents. B. On June 25, 1996, in order to finance the acquisition of Bytel Limited, a corporation organized under the laws of England and Wales ("Bytel"), by CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation of which the Borrower is a wholly-owned Subsidiary ("Holdings"), the Borrower made two (2) Upstream Loans to Holdings in the amounts of $2,500,000 and $844,827.88, respectively (the "Bytel Acquisition Loans"). The Borrower now desires to cancel the indebtedness of Holdings to the Borrower outstanding under the Bytel Acquisition Loans by declaring and paying Upstream Dividends to Holdings in the form of the cancellation of the two promissory notes of Holdings reflecting the Bytel Acquisition Loans in the amounts of $2,500,000 and $844,827.88, respectively, and the accrued interest thereon. Under SECTION 8.10 of the Restated Loan Agreement, the Borrower is permitted to make or pay one or more Upstream Loans or Upstream Dividends subject to an individual cap of $2,500,000 for each Upstream Loan and each Upstream Dividend and a cumulative cap on all such Upstream Loans and Upstream Dividends of $5,000,000. The making of the Bytel Acquisition Loans, combined with the subsequent cancellation of such Bytel Acquisition Loans and the accrued interest thereon, would result in cumulative Upstream Loans and Upstream Dividends exceeding the $5,000,000 cap. The Borrower desires and has requested that (i) the Bytel Acquisition Loans and subsequent Upstream Dividends arising upon the cancellation of such Bytel Acquisition Loans be collapsed and treated as single transactions for purposes of SECTION 8.10 of the Restated Loan Agreement, resulting in Upstream Dividends in the cumulative amount of $3,344,827.88, (ii) any Default or Event of Default arising under SECTIONS 8.9 or 8.10 of the Restated Loan Agreement as a result of the cancellation of the Bytel Acquisition Loans be waived, (iii) the cumulative cap on Upstream Loans and Upstream Dividends be increased from $5,000,000 to $10,000,000 and (iv) for purposes of SECTION 8.10 of the Restated Loan Agreement, future Upstream Loans made and subsequently cancelled by the Borrower be treated upon such Upstream Loans' cancellation as single transactions in the form of Upstream Dividends rather than Upstream Loans and subsequent additional Upstream Dividends. 1. C. In addition, the Borrower desires and has requested that (i) monthly financial reports for certain months be required to be delivered no later than the same day on which Holdings releases its earnings publicly rather than within fifteen (15) Business Days after the end of such months and (ii) Capital Expenditures limitations with respect to future periods be increased by $1,000,000 for each such period. D. The Lenders are willing to provide such limited waiver and amendments, but only on the terms, subject to the conditions and in reliance on the representations and warranties of the Borrower and Holdings set forth in this Amendment and Waiver. AGREEMENT NOW, THEREFORE, in consideration of the foregoing Recitals and intending to be legally bound, the parties hereto represent, warrant and agree as follows: 1. WAIVERS. The Lenders hereby waive any Default or Event of Default which has occurred or may occur under SECTION 10.1(e) of the Restated Loan Agreement as a result of a breach of SECTION 8.9 or 8.10 of the Restated Loan Agreement arising from the Borrower's extension of the Bytel Acquisition Loans to Holdings in the principal amounts of $2,500,000 and $844,827.88, and the subsequent cancellation of such Bytel Acquisition Loans and accrued interest thereon, resulting in Upstream Dividends in identical amounts. The Lenders hereby acknowledge that, pursuant to this Amendment and Waiver, the extension and cancellation of each Bytel Acquisition Loan shall each be treated as a single transaction, namely, the payment by the Borrower of an Upstream Dividend to Holdings in the amount of $2,500,000 and $844,827.88, respectively, without interest. SECTION 2. AMENDMENTS. (a) SECTION 8.10 is amended to delete the term "$5,000,000" contained in the final sentence and to replace such term with "$10,000,000", and thereafter to add the following additional sentence: "For purposes of this SECTION 8.10, any Upstream Loans made and thereafter cancelled or forgiven by the Borrower within one hundred eighty (180) days shall be treated upon any such cancellation or forgiveness as single transactions in the form of Upstream Dividends without interest rather than Upstream Loans and subsequent incremental Upstream Dividends." (b) SECTION 7.1(f) is amended to delete the words "As soon as practicable and in any event within fifteen (15) Business Days after the end of each calendar month," and to replace such words with the following: "As soon as practicable and in any event (i) within fifteen (15) Business Days after the end of each calendar month other than March, June, September and December 2. and (ii) with respect to March, June, September and December, no later than the close of business on the Business Day on which Holdings publicly releases or announces its earnings for the calendar quarter which includes such month," (c) SECTION 8.8 is amended to delete the following table: "FISCAL YEAR PERMITTED CAPITAL EXPENDITURES
1996 $ 7,500,000 1997 $ 8,000,000 1998 $ 8,500,000 1999 $ 9,000,000 2000 $ 9,500,000" and to replace such table in its entirety with the following table in its entirety: "FISCAL YEAR PERMITTED CAPITAL EXPENDITURES 1996 $ 8,500,000 1997 $ 9,000,000 1998 $ 9,500,000 1999 $ 10,000,000 2000 $ 10,500,000"
SECTION 3. LIMITATIONS ON AMENDMENTS AND WAIVER. (a) Each of the waiver set forth in SECTION 1 and the amendments set forth in SECTION 2, above, is effective for the purposes set forth herein and shall each be limited precisely as written and shall not be deemed to (i) be a consent to any other amendment, waiver or modification of any other term or condition of any Loan Document, or (ii) otherwise prejudice any right or remedy which the Lenders or the Agent may now have or may have in the future under or in connection with any Loan Document. (b) This Amendment and Waiver shall be construed in connection with and as part of the Loan Documents and all terms, conditions, representations, warranties, covenants and agreements set forth in the Loan Documents, except as herein waived or amended, are hereby ratified and confirmed and shall remain in full force and effect. SECTION 4. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent, on behalf of the Lenders, to enter into this Amendment and Waiver, each of the Borrower and Holdings hereby represents and warrants to the Agent and each Lender as follows: (a) After giving effect to this Amendment and Waiver (i) the representations and warranties contained in the Loan Documents (other than those which expressly speak as of a 3. different date) are true, accurate and complete in all material respects as of the date hereof and (ii) no Default or Event of Default has occurred and is continuing; (b) The Borrower has the corporate power and authority to execute and deliver this Amendment and Waiver and to perform its obligations under the Loan Documents to which it is a party; (c) The certificate of incorporation, bylaws and other organizational documents of the Borrower delivered to each Lender on the Second Closing are true, accurate and complete and have not been amended, supplemented or restated and are and continue to be in full force and effect, except as previously certified to the Lenders as of the Second Closing; (d) The execution and delivery by the Borrower of this Amendment and Waiver and the performance by the Borrower of its obligations under the Restated Loan Agreement and each of the other Loan Documents to which it is a party have been duly authorized by all necessary corporate action on the part of the Borrower; (e) The execution and delivery by the Borrower of this Amendment and Waiver and the performance by the Borrower of its obligations under the Loan Documents to which it is a party do not and will not contravene (i) any law or regulation binding on or affecting the Borrower, (ii) the certificate of incorporation or bylaws of the Borrower, (iii) any order, judgment or decree of any court or other governmental or public body or authority, or subdivision thereof, binding on the Borrower or (iv) any contractual restriction binding on or affecting the Borrower; (f) The execution and delivery by the Borrower of this Amendment and Waiver and the performance by the Borrower of its respective obligations under each of the Loan Documents to which it is a party do not require any order, consent, approval, license, authorization or validation of, or filing, recording or registration with, or exemption by any governmental or public body or authority, or subdivision thereof, binding on the Borrower, except as already has been obtained or made; and (g) This Amendment and Waiver has been duly executed and delivered by the Borrower and is the binding obligation of the Borrower, enforceable against it in accordance with its terms, except as such enforceability may be limited by bankruptcy, insolvency, reorganization, liquidation, moratorium or other similar laws of general application and equitable principles relating to or affecting creditors' rights. SECTION 5. REAFFIRMATION. The Borrower hereby reaffirms its obligations under each Loan Document to which it is a party. SECTION 6. EFFECTIVENESS. This Amendment and Waiver shall become effective upon the execution and delivery to the Agent of a copy of this Amendment and Waiver, whether the same or different copies, by the Borrower and by such Lenders as is sufficient to constitute 4. Required Lenders (with all agreements, documents and instruments being in form and substance satisfactory to the Agent). SECTION 7. RELEASE AND WAIVER. THE BORROWER HEREBY REPRESENTS AND WARRANTS TO THE AGENT AND EACH LENDER THAT IT HAS NO KNOWLEDGE OF ANY FACTS THAT WOULD SUPPORT A CLAIM, COUNTERCLAIM, DEFENSE OR RIGHT OF SET-OFF, AND HEREBY RELEASE THE AGENT AND LENDERS FROM ALL LIABILITY ARISING UNDER OR WITH RESPECT TO AND WAIVES ANY AND ALL CLAIMS, COUNTERCLAIMS, DEFENSES AND RIGHTS OF SET-OFF, AT LAW OR IN EQUITY, THAT THE BORROWER MAY HAVE AGAINST THE AGENT OR ANY LENDER EXISTING AS OF THE DATE OF THIS AMENDMENT AND WAIVER ARISING UNDER OR RELATED TO THIS AMENDMENT AND WAIVER, THE RESTATED LOAN AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR TO THE LOANS CONTEMPLATED HEREBY OR THEREBY OR TO ANY ACT OR OMISSION TO ACT BY THE AGENT OR ANY LENDER WITH RESPECT HERETO OR THERETO. SECTION 8. GOVERNING LAW. THIS AMENDMENT AND WAIVER SHALL BE GOVERNED BY AND SHALL BE CONSTRUED AND ENFORCED IN ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. SECTION 9. COUNTERPARTS. This Amendment and Waiver may be signed in any number of counterparts, and by different parties hereto in separate counterparts, with the same effect as if the signatures to each such counterpart were upon a single instrument. All counterparts shall be deemed an original of this Amendment and Waiver. IN WITNESS WHEREOF, the parties hereto have caused this Amendment and Waiver to be executed as of the date first written above. THE BORROWER CSG SYSTEMS, INC. By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ 5. THE AGENT BANQUE PARIBAS, as Agent By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ 6. THE LENDERS BANQUE NATIONALE DE PARIS By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ BANQUE PARIBAS By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ NATIONAL CITY BANK By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ NORWEST BANK COLORADO, N.A. By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ VAN KAMPEN AMERICAN CAPITAL PRIME RATE INCOME TRUST By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ UNION BANK OF CALIFORNIA, N.A. By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ 7. ACKNOWLEDGEMENT OF AMENDMENT AND WAIVER AND REAFFIRMATION OF GUARANTY 1. CSG Systems International, Inc., a Delaware corporation ("Holdings"), hereby acknowledges and confirms that it has reviewed and approved the terms and conditions of this Amendment and Waiver. 2. Holdings hereby consents to and agrees to be bound by this Amendment and Waiver and agrees that its Guaranty of the Obligations of the Borrower under the Loan Agreement shall continue in full force and effect, shall be valid and enforceable and shall not be impaired or otherwise affected by the execution of this Amendment and Waiver or any other document or instrument delivered in connection herewith. 3. Holdings represents and warrants that, after giving effect to this Amendment and Waiver, all representations and warranties contained in its Guaranty are true, accurate and complete as if made the date hereof. HOLDINGS CSG SYSTEMS INTERNATIONAL, INC. By:__________________________________________ Printed Name:________________________________ Title:_______________________________________ 8. EX-10.38 3 WEALTH ACCUMULATION PLAN CSG SYSTEMS, INC. WEALTH ACCUMULATION PLAN ------------------------ ARTICLE I --------- PURPOSE ------- The purpose of the CSG Systems, Inc. Wealth Accumulation Plan (the "Plan") is to enable CSG Systems, Inc. to attract and retain a select group of executive employees with exceptional ability by offering such executive employees a means of enhancing their compensation, building their net worth, and supplementing their retirement funds through the deferral of a portion of their compensation. ARTICLE II ---------- DEFINITIONS ----------- For purposes of the Plan, the following words and phrases shall have the meanings indicated, unless the context clearly indicates otherwise: 2.1 Adjusted Moody's Yield. "Adjusted Moody's Yield" means for ---------------------- any calendar year the Moody's Yield for such calendar year minus one percent (1%). 2.2 Base Salary. "Base Salary" means all regular cash ----------- compensation for services, other than Incentive Compensation, payable by Systems to a Participant during a Plan Year (before taking into account any deferral pursuant to the Plan or any other compensation or benefit program of Systems). 2.3 Beneficiary. "Beneficiary" or "Beneficiaries" means the ----------- person, persons, entity, or entities designated by a Participant pursuant to Article VIII, or otherwise provided in Article VIII, to receive any benefits payable under the Plan in the event of such Participant's death. 2.4 Board. "Board" means the Board of Directors of Systems. ----- 2.5 Committee. "Committee" means the Wealth Accumulation Plan --------- Committee appointed by or at the direction of the Board to perform the duties set forth in Article III. 2.6 Compensation. "Compensation" means the total aggregate Base ------------ Salary and Incentive Compensation payable to a Participant during a Plan Year (before taking into account any deferral pursuant to the Plan or any other compensation or benefit program of Systems). 2.7 Deferral Account. "Deferral Account" means an account ---------------- established and maintained for a Participant on the books of Systems pursuant to Section 5.1. 2.8 Deferral Agreement. "Deferral Agreement" means an agreement ------------------ signed and filed with the Committee by a Participant pursuant to Article IV. 2.9 Deferral Benefit. "Deferral Benefit" means the benefit ---------------- payable under the Plan to a Participant or a Participant's Beneficiary, as provided in Article VII. 2.10 Disability. "Disability" means a physical or mental illness ---------- or incapacity of a Participant which has resulted in a determination that such Participant is entitled to receive benefits (i) under a long-term disability insurance policy maintained by Systems for such Participant or (ii) if no such insurance policy is then in existence, under the federal social security disability insurance program. 2.11 Early Retirement Age. "Early Retirement Age" means that age -------------------- which is at least fifty-five (55) years but is less than sixty-five (65) years at which a Participant has been employed by Systems for a continuous period of at least ten (10) years. 2.12 Earnings Credits. "Earnings Credits" means the amounts ---------------- credited to a Participant's Deferral Account pursuant to Section 5.4 of the Plan. 2.13 Eligible Executive. "Eligible Executive" means an executive ------------------ employee of Systems who holds the corporate office of Vice President of Systems or a more senior corporate office of Systems. 2.14 Employer Credits. "Employer Credits" means the amounts ---------------- credited to a Participant's Deferral Account pursuant to Section 5.3 of the Plan. 2.15 Incentive Compensation. "Incentive Compensation" means any ---------------------- cash bonus or commission payable by Systems to a Participant for a Plan Year in addition to such Participant's Base Salary (before taking into account any deferral pursuant to the Plan or any other compensation or benefit program of Systems). 2.16 International. "International" means CSG Systems ------------- International, Inc., a Delaware corporation. 2 2.17 Moody's Yield. "Moody's Yield" means for any calendar year ------------- (a) two percent (2%) plus (b) the average of the Monthly Average annual percentage yields for the 12 months in such calendar year of the "Average Corporate" category of U.S. Corporate Bonds shown in the "Moody's Long-Term Corporate Bond Yield Averages" table in Moody's Bond Record or another ------------------- publication of Moody's Investors Service, Inc. or its successor. 2.18 Normal Retirement Age. "Normal Retirement Age" means age --------------------- sixty-five (65). 2.19 Other Event Sub-Account. "Other Event Sub-Account" is ----------------------- defined in Section 5.1. 2.20 Participant. "Participant" means an Eligible Executive who ------------ has elected to participate in the Plan by entering into a Deferral Agreement for any calendar year or portion thereof. 2.21 Plan Year. "Plan Year" means the calendar year, except that --------- the first Plan Year shall begin on September 1, 1996, and end on December 31, 1996. 2.22 Systems. "Systems" means CSG Systems, Inc., a Delaware ------- corporation. 2.23 Termination Event. "Termination Event" means the ----------------- termination of a Participant's employment by Systems by reason of such Participant's death, Disability, retirement at or after Early Retirement Age, or retirement at or after Normal Retirement Age. 2.24 Termination Event Sub-Account. "Termination Event Sub- ----------------------------- Account" is defined in Section 5.1. ARTICLE III ----------- ADMINISTRATION OF PLAN ---------------------- 3.1 Administration. The Plan shall be administered by the -------------- Committee or its delegate. The Committee or its delegate shall have the authority to interpret the Plan, to make, amend, interpret, apply, and enforce all appropriate rules and regulations for the administration of the Plan, and to decide any and all questions which may arise in connection with the Plan. Any delegate of the Committee for purposes of administration of the Plan shall not make any discretionary decision on behalf of the Committee which pertains directly to such delegate as a Participant. 3.2 Binding Effect of Decisions. The decision or action of the --------------------------- Committee or its delegate with respect to any question arising out of or in connection with the administration or interpretation of the Plan and the rules and regulations promulgated under the Plan shall be final, 3 conclusive, and binding upon all persons having any interest in the Plan, unless a written appeal from the affected Participant or Beneficiary is received by the Committee or its delegate within thirty (30) days after the disputed decision or action of the Committee or its delegate has been made or taken. Upon timely receipt of such appeal, the Committee shall reconsider the disputed decision or action; and the decision of the Committee with respect to such appeal shall be final, conclusive, and binding on the person lodging such appeal and all persons claiming by, through, or under such person. ARTICLE IV ---------- ELECTIVE DEFERRALS ------------------ 4.1 Election to Participate in Plan. Except as otherwise ------------------------------- provided in Section 4.2, an Eligible Executive may elect to participate in the Plan by signing and filing with the Committee or its delegate a Deferral Agreement in the form prescribed by the Committee or its delegate. To be effective, a Deferral Agreement must be filed with the Committee or its delegate not later than December 15 of the calendar year immediately preceding the Plan Year in which the Eligible Executive will commence participation in the Plan and will be effective as of the first day of such Plan Year. 4.2 Initial Deferral Agreement. A Deferral Agreement may be -------------------------- signed and filed with the Committee or its delegate by an Eligible Executive not later than August 31, 1996, for the purpose of deferring a portion of the Eligible Executive's Base Salary payable during 1996 after August 31, 1996, and for the purpose of deferring a portion of the Eligible Executive's Incentive Compensation for 1996. An employee who becomes an Eligible Executive during a Plan Year may sign a Deferral Agreement and file it with the Committee or its delegate not later than thirty (30) days after such employee becomes an Eligible Executive for the purpose of deferring a portion of the Eligible Executive's Base Salary earned during such Plan Year after the filing of such Deferral Agreement and for the purpose of deferring a portion of the Eligible Executive's Incentive Compensation for such Plan Year. 4.3 Compensation Which May Be Deferred. A Deferral Agreement ---------------------------------- signed and filed with the Committee by an Eligible Executive may provide for the deferral of not less than five percent (5%) and not more than twenty-five percent (25%) of the Eligible Executive's Base Salary payable during the period to which such Deferral Agreement pertains and not less than five percent (5%) and not more than one hundred percent (100%) of the Eligible Executive's Incentive Compensation for the period to which such Deferral Agreement pertains. Notwithstanding the provisions of the first sentence of this Section 4.3, in the case of Eligible Executives other than the Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice President, and the Chief Financial Officer of Systems, the maximum aggregate amount of Base Salary and Incentive Compensation which an Eligible Executive may defer for 4 any Plan Year is $25,000; and if any Deferral Agreement would result in the deferral of an aggregate amount greater than $25,000 for any Plan Year, then the actual deferral shall be limited to $25,000. Notwithstanding the provisions of the first sentence of this Section 4.3, in the case of an Eligible Executive who is the Chairman of the Board, the Chief Executive Officer, the President, an Executive Vice President, or the Chief Financial Officer of Systems, the maximum aggregate amount of Base Salary and Incentive Compensation which such Eligible Executive may defer for any Plan Year is $200,000; and if any Deferral Agreement would result in the deferral of an aggregate amount greater than $200,000 for any Plan Year, then the actual deferral shall be limited to $200,000. A deferral percentage provided for in a Participant's Deferral Agreement pursuant to this Section 4.3 may be expressed either as a percentage (in which case the deferred amount will change as the Participant's Base Salary or Incentive Compensation, as the case may be, changes) or as a fixed amount falling within the permitted percentage range (in which case the deferred amount will not change as the Participant's Base Salary or Incentive Compensation, as the case may be, changes). Except as otherwise provided in the Plan, a signed Deferral Agreement shall become irrevocable upon its filing with the Committee or its delegate. 4.4 Period Covered by Deferral Agreement. Except as otherwise ------------------------------------ provided in the Plan, unless a Deferral Agreement is amended pursuant to Section 4.5, such Deferral Agreement shall remain in effect for the first Plan Year (or portion thereof) to which it applies and to the following six (6) Plan Years. However, a Deferral Agreement automatically shall terminate prospectively if a Participant ceases to be an Eligible Executive or upon the termination of a Participant's employment by Systems for any reason, including but not limited to death, Disability, or retirement. 4.5 Amendment of Deferral Agreement. A Participant may amend a ------------------------------- Deferral Agreement previously filed by such Participant with the Committee or its delegate for the purpose of changing the amounts or percentages of Base Salary or Incentive Compensation to be deferred by such Participant for the remaining Plan Years covered by the Deferral Agreement being amended. Any amended Deferral Agreement must be signed and delivered to the Committee or its delegate at least fifteen (15) days prior to the commencement of the first Plan Year to which such amended Deferral Agreement applies. The most recently dated Deferral Agreement signed and delivered to the Committee or its delegate by a Participant on a timely basis shall govern as to that Participant, but an amended Deferral Agreement shall have no effect on such Participant's deferral amounts or percentages for Plan Years prior to the first Plan Year to which such amended Deferral Agreement applies. 4.6 Effect on Other Plans. Systems shall not make a --------------------- supplemental payment to any Participant to offset any reduction in benefits under any other employee benefit plan of Systems which results from the deferral of Base Salary or Incentive Compensation pursuant to the Plan. However, Systems shall compute life insurance and disability benefits for any Participant payable 5 under any employee benefit plan of Systems which is based on compensation without reduction for the amount of any Base Salary or Incentive Compensation deferred pursuant to the Plan. 4.7 Suspension of Elective Deferral. The Committee or its ------------------------------- delegate, in its sole and absolute discretion, may prospectively suspend the effectiveness of a Participant's Deferral Agreement upon the written request of such Participant based upon the occurrence of an unforeseeable emergency. For purposes of this Section 4.7, "unforeseeable emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant if suspension of the effectiveness of such Participant's Deferral Agreement were not permitted. ARTICLE V --------- DEFERRAL ACCOUNT AND CREDITS ---------------------------- 5.1 Establishment of Account. Systems shall establish and ------------------------ maintain on its books a separate Deferral Account for each Participant. Each Deferral Account and the periodic credits thereto shall be reflected in two alternative sub-accounts, one of which shall be applicable upon the occurrence of a Termination Event with respect to the Participant (the "Termination Event Sub-Account") and the other of which shall be applicable in the event that the Participant's employment by Systems terminates other than by reason of a Termination Event (the "Other Event Sub-Account"). Credits to a Deferral Account made pursuant to Sections 5.2 and 5.3 shall be made identically to both the Termination Event Sub-Account and the Other Event Sub-Account. Credits to a Deferral Account made pursuant to Section 5.4 shall be made as provided in Section 5.4. A Participant's Deferral Account shall be used solely as a bookkeeping device for purposes of the Plan and shall not constitute or be treated as a trust fund or reserve of any kind or require the segregation of any assets of Systems. 5.2 Deferral Credits. At the end of each payroll period, ---------------- Systems shall credit to the Deferral Account of each Participant who has entered into a Deferral Agreement applicable to such payroll period an amount equal to the Compensation of such Participant deferred for such payroll period pursuant to the Plan and such Deferral Agreement. To the extent that Systems is required to withhold any taxes or other amounts in respect of such deferred Compensation pursuant to any state, federal, or local law, such amounts shall be withheld from the Participant's other compensation which is not deferred under the Plan or shall be paid to Systems in cash by the Participant. 5.3 Employer Credits. Concurrently with the crediting of ---------------- deferred Compensation amounts pursuant to Section 5.2, Systems also shall credit to the Deferral Account of each Participant an amount equal to twenty-five percent (25%) of the deferred Compensation of such Participant then being credited; provided, that the aggregate additional amount credited to any 6 Participant's Deferral Account pursuant to this Section 5.3 shall not exceed $6,250 for any one Plan Year. In its absolute discretion, Systems may make a supplemental credit to the Deferral Accounts of Participants for any Plan Year in addition to the credit required by the first sentence of this Section 5.3; but the making of any such supplemental credit for any Plan Year shall not entitle any Participant to a supplemental credit for any other Plan Year. Any supplemental credit made by Systems pursuant to the preceding sentence of this Section 5.3 may be made on a uniform or non-uniform basis among all Participants or among only some Participants and may be made to the Deferral Accounts of any one or more Participants to the exclusion of the Deferral Accounts of any one or more other Participants. 5.4 Earnings Credits. As soon as practicable after the end of ---------------- each calendar month but as of the last day of such calendar month (after the making of all other credits to a Participant's Deferral Account which are to be made as of such last day), Systems shall multiply the average of the beginning and ending balances for such calendar month in the Termination Event Sub-Account of such Deferral Account by one-twelfth (1/12) of the Moody's Yield for the calendar year immediately preceding the calendar year which includes such calendar month and then shall credit the product of such multiplication to such Termination Event Sub-Account. As soon as practicable after the end of each calendar month but as of the last day of such calendar month (after the making of all other credits to a Participant's Deferral Account which are to be made as of such last day), Systems shall multiply the average of the beginning and ending balances for such calendar month in the Other Event Sub-Account of such Deferral Account by one-twelfth (1/12) of the Adjusted Moody's Yield for the calendar year immediately preceding the calendar year which includes such calendar month and then shall credit the product of such multiplication to such Other Event Sub-Account. 5.5 Statement of Account. Systems shall provide to each -------------------- Participant, within 60 days after the end of each June and December, a statement in such form as Systems deems appropriate setting forth the balance to the credit of each sub-account of such Participant's Deferral Account as of the last day of such month (after the making of all credits to such Deferral Account which are to be made pursuant to the Plan as of such last day). ARTICLE VI ---------- VESTING ------- 6.1 Vesting of Deferred Compensation. A Participant shall be -------------------------------- fully vested at all times in one hundred percent (100%) of the deferred Compensation credited to such Participant's Deferral Account, and no portion of such deferred Compensation shall be subject to forfeiture by a Participant. 7 6.2 Vesting of Employer Credits and Earnings Credits. The ------------------------------------------------ Employer Credits and the Earnings Credits credited to a Participant's Deferral Account shall fully vest in such Participant and become entirely nonforfeitable by such Participant on the first to occur of (i) three (3) years after the effective date of such Participant's participation in the Plan, (ii) the death of such Participant, (iii) the termination of such Participant's employment by Systems after such Participant has reached Normal Retirement Age, (iv) the termination of such Participant's employment by Systems solely by reason of such Participant's Disability, (v) the completion by such Participant of five (5) years of continuous employment by Systems, or (vi) the acceleration of such vesting by action of the Board pursuant to Section 6.4. 6.3 Forfeiture of Non-Vested Credits. If the Employer Credits -------------------------------- and the Earnings Credits credited to a Participant's Deferral Account have not become fully vested and entirely nonforfeitable pursuant to Section 6.2 at the time or as a result of the termination of such Participant's employment by Systems, then upon the termination of such Participant's employment by Systems the aggregate amount of such Participant's non-vested Employer Credits and non- vested Earnings Credits shall be deducted from such Participant's Deferral Account, and neither such Participant nor his or her Beneficiary shall have any further rights with respect to the aggregate amount so deducted. Such deduction, if any, shall be made as of the last day of the calendar month during which such termination of employment occurs. 6.4 Accelerated Vesting. The Board reserves the right in its sole ------------------- and absolute discretion at any time to accelerate the time of vesting of any Employer Credits or Earnings Credits credited to a Participant's Deferral Account. ARTICLE VII ----------- PAY-OUT OF DEFERRAL BENEFITS ---------------------------- 7.1 Termination of Employment Other Than by Death. Upon the --------------------------------------------- termination of a Participant's employment by Systems by reason of a Termination Event other than such Participant's death, such Participant shall be entitled to receive a Deferral Benefit equal to 100% of the Termination Event Sub-Account of such Participant's Deferral Account as of the last day of the calendar month during which such termination of employment occurs (after the making of all credits to such Deferral Account which are to be made pursuant to the Plan prior to or as of such last day). Upon the termination of a Participant's employment by Systems other than by reason of a Termination Event, such Participant shall be entitled to receive a Deferral Benefit equal to 100% of the Other Event Sub- Account of such Participant's Deferral Account as of the last day of the calendar month during which such termination of employment occurs (after the making of all credits to and all deductions from such Deferral Account which are to be made pursuant to the Plan prior to or as of such last day). A Deferral Benefit under this Section 7.1 shall be payable to such Participant in accordance with Section 7.4. 8 7.2 Death. Upon the death of a Participant while he or she is ----- employed by Systems, such Participant's Beneficiary or Beneficiaries shall be entitled to receive a Deferral Benefit equal to 100% of the Termination Event Sub-Account of such Participant's Deferral Account as of the last day of the calendar month during which such death occurs (after the making of all credits to such Deferral Account which are to be made pursuant to the Plan prior to or as of such last day). A Deferral Benefit under this Section 7.2 shall be payable to such Beneficiary or Beneficiaries in accordance with Section 7.4. The Deferral Benefit provided for in this Section 7.2 shall be in lieu of all other benefits under the Plan in the event of a Participant's death. Any Deferral Benefit which becomes payable under this Section 7.2 to a person who is a minor for purposes of the Nebraska Uniform Transfers to Minors Act may instead be paid by Systems to a custodian for such person under such Act. 7.3 Accelerated Distributions. The Committee or its delegate, ------------------------- in its sole and absolute discretion, may accelerate the time of payment to a Participant of the then vested balance of the Other Event Sub-Account of such Participant's Deferral Account upon the written request of a Participant based upon the occurrence of an unforeseeable emergency; however, the amount of such accelerated payment shall not exceed the amount necessary to meet the particular emergency. For purposes of this Section 7.3, "unforeseeable emergency" shall mean an unanticipated emergency that is caused by an event beyond the control of the Participant and that would result in severe financial hardship to the Participant if such accelerated payment were not permitted. 7.4 Form of Benefit Payment. Upon the happening of an event ----------------------- referred to in Section 7.1 or Section 7.2 which is a Termination Event, Systems shall pay to the Participant involved (or to such Participant's Beneficiary in the case of such Participant's death) the applicable amount referred to in Section 7.1 or Section 7.2 (the "Account Principal"), as the case may be, in whichever of the following methods was selected by such Participant in the most recent effective Deferral Agreement applicable to such Participant: (a) A lump-sum payment; or (b) A monthly payment of a fixed amount which will amortize the Account Principal in equal monthly payments over a period of from two (2) to one hundred eighty (180) months, as specified by such Participant in such most recent effective Deferral Agreement, with interest as provided in the following sentences. For purposes of determining the amount of such monthly payments if the Participant's termination of employment occurred by reason of a Termination Event, the rate of interest shall be the Moody's Yield for the calendar year immediately preceding the calendar year in which the Participant's death or other termination of employment occurred. For purposes of determining the amount of such monthly 9 payments if the Participant's termination of employment occurred other than by reason of a Termination Event, the rate of interest shall be the Moody's Yield for the calendar year immediately preceding the calendar year in which the Participant's termination of employment occurred minus one percent (1%). Upon the termination of a Participant's employment by Systems other than by reason of a Termination Event or if a Participant did not select a method of payment in the most recent effective Deferral Agreement applicable to such Participant, the method of payment of such Participant's applicable Deferral Benefit shall be determined by the Committee or its delegate from the alternative methods set forth above in this Section 7.4. Payments pursuant to this Article VII shall begin as soon as practicable after the amount thereof has been determined. ARTICLE VIII ------------ BENEFICIARY DESIGNATION ----------------------- 8.1 Beneficiary Designation. Each Participant shall have the ----------------------- right at any time during his or her lifetime to designate in writing on a form prescribed by the Committee or its delegate any person, persons, entity, or entities as the Beneficiary or Beneficiaries (primary or contingent) to whom benefits under the Plan shall be paid in the event of the Participant's death prior to full payment of the benefits due the Participant under the Plan. Such form shall be filed with the Committee or its delegate during the Participant's lifetime and shall become effective when so filed. 8.2 Change of Beneficiary. Any Beneficiary designation made by a --------------------- Participant may be changed by such Participant at any time during such Participant's lifetime by the filing of such change in writing on a form prescribed by the Committee or its delegate. Effective upon its filing with the Committee or its delegate prior to a Participant's death, the most recently filed Beneficiary designation will cancel all Beneficiary designations previously filed by such Participant. 8.3 No Beneficiary Designation. If a Participant fails to -------------------------- designate a Beneficiary pursuant to this Article VIII, or if all designated Beneficiaries predecease the Participant, then the Participant's designated Beneficiary shall be deemed to be the person or persons surviving the Participant in the first of the following classes in which there is a survivor, in equal shares by representation: (a) The Participant's surviving spouse; (b) The Participant's descendants; or 10 (c) The personal representative of the Participant's estate. ARTICLE IX ---------- AMENDMENT AND TERMINATION OF PLAN --------------------------------- 9.1 Amendment. The Board may amend the Plan at any time in --------- whole or in part without terminating the Plan; however, no amendment of the Plan shall decrease any amount already credited to a Deferral Account then in existence without the written consent of the affected Participant. 9.2 Termination. The Board may terminate the Plan at any time. ----------- Upon such termination, Systems shall make the Deferral Account credits required under Article V as of the effective date of the Plan termination, and all Participants thereupon shall be fully vested in their respective Deferral Accounts and promptly shall be paid the then balance in their respective Deferral Accounts in a lump sum. ARTICLE X --------- MISCELLANEOUS ------------- 10.1 Creditor Status. Participants and their Beneficiaries shall --------------- have no legal or equitable rights, interests, or claims in or to any particular property or assets of Systems, nor shall they be beneficiaries of, or have any rights, claims, or interests in or to, any life insurance policies or annuity contracts (or the proceeds therefrom) now owned or which hereafter may be acquired by Systems ("Policies"). The assets of Systems and such Policies (if any) shall be, and remain, the general and unrestricted assets of Systems. Participants and their Beneficiaries are and have the status of general unsecured creditors of Systems, and the Plan constitutes a mere unfunded and unsecured promise of Systems to make benefit payments in the future. Any trust created by Systems and any assets held in such trust to assist Systems in meeting its obligations under the Plan shall conform to the terms of the model trust described in Revenue Procedure 92-64 of the Internal Revenue Service. 10.2 Nonassignability. Neither a Participant nor a Beneficiary ---------------- nor any other person shall have any right to commute, sell, assign, transfer, pledge, anticipate, mortgage, or otherwise encumber, alienate, hypothecate, or convey in advance of actual receipt any amounts payable under the Plan, or any part thereof, all of which are, and all rights to which are, nonassignable and nontransferable. No part of any amounts payable under the Plan shall, prior to actual payment, be subject to attachment, garnishment, or seizure for the payment of any debts, judgments, alimony, child support, or separate maintenance owed by a Participant or any other 11 person nor be transferable by operation of law in the event of a Participant's or any other person's bankruptcy or insolvency. 10.3 Not a Contract of Employment. The terms and conditions of ---------------------------- the Plan and of any Deferral Agreement entered into pursuant to the Plan shall not be deemed to constitute a contract of employment between Systems and a Participant, and a Participant (or a Participant's Beneficiary) shall have no rights against Systems under the Plan except as may be specifically provided in the Plan. Moreover, nothing in the Plan shall be deemed to give a Participant any right (i) to be retained in the employ or other service of Systems for any specific length of time, (ii) to interfere with the right of Systems to discipline or discharge the Participant at any time, (iii) to hold any particular position or responsibility with Systems, or (iv) to receive any particular compensation from Systems. 10.4 Withholding; Payroll Taxes. To the extent required by -------------------------- applicable laws in effect at the time payments are made under the Plan, Systems shall withhold from such payments any taxes or other obligations required to be withheld from such payments by federal, state, or local laws. 10.5 Participant Cooperation. Each Participant shall cooperate ----------------------- with Systems by furnishing any and all information requested by Systems to facilitate the payment of benefits under the Plan, by taking such physical examinations as Systems may deem necessary for insurance or other purposes, and by taking such other actions as reasonably may be requested by Systems. 10.6 Incompetency. If the Committee or its delegate reasonably ------------ determines that any Participant or Beneficiary to whom a benefit is payable under the Plan is unable to manage his or her own affairs because of illness or accident, then any payment due such Participant or Beneficiary (unless prior claim therefor shall have been made by a duly authorized guardian or other legal representative) may be paid, upon appropriate indemnification of Systems, to the person deemed by the Committee or its delegate to have current responsibility for the handling of the affairs of such Participant or Beneficiary. Any such payment shall be a payment for the account of the Participant or Beneficiary and shall be a complete discharge of any liability of Systems therefor. 10.7 Governing Law. The provisions of the Plan shall be governed ------------- by and construed according to the laws of the State of Nebraska. 10.8 Number and Gender. Unless the context otherwise requires, ----------------- for all purposes of the Plan, words in the singular number include their plural, words in the plural include their singular, and words of one gender include the other genders. 12 10.9 Section Titles. The titles of the various sections of the Plan -------------- are for convenient reference only and shall not be considered in the interpretation of the Plan. 10.10 Severability. If any provision of the Plan is determined by ------------ any court to be invalid, then such invalidity shall not affect any other provision of the Plan to which effect reasonably can be given without such invalid provision; and for such purpose the provisions of the Plan shall be severable from one another. 10.11 Successors. The provisions of the Plan shall be binding ---------- upon and inure to the benefit of Systems, each Participant, and each Beneficiary and their respective, heirs, personal representatives, successors, and permitted assigns (if any). 10.12 Unfunded Plan. The Plan is and shall be unfunded within ------------- the meaning of the Employee Retirement Income Security Act of 1974 ("ERISA") for purposes of Title I of ERISA and for income tax purposes. 10.13 Effective Date. The Plan shall become effective upon -------------- its approval by the Board. 13 EX-11.01 4 STATEMENT OF NET INCOME PER SHARE Exhibit 11.01 CSG SYSTEMS INTERNATIONAL, INC. STATEMENT OF NET INCOME (LOSS) PER COMMON AND EQUIVALENT SHARE For the three months ended September 30, 1996:
Weighted average common shares outstanding....... 25,486,383 ----------- Shares used in computation....................... 25,486,383 =========== Net income....................................... $ 948,000 =========== Net income per common and equivalent share.. $ 0.04 ===========
For the three months ended September 30, 1995:
Weighted average common shares outstanding............ 4,243,000 Common equivalent shares from stock options granted during the twelve-month period prior to the Company's initial public offering............... 251,750 Common equivalent shares attributable to: Redeemable convertible Series A Preferred Stock.. 17,999,998 ---------- Shares used in computation............................ 22,494,748 ========== Loss before discontinued operations................... $(4,236,000) Loss from discontinued operations..................... (1,663,000) ----------- Net loss.............................................. $(5,899,000) =========== Net loss per common and equivalent share: Loss before discontinued operations.............. $ (.19) Loss from discontinued operations................ (.07) ----------- Net loss per common and equivalent share......... $ (.26) ===========
EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS OF SEPTEMBER 30, 1996 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 9-MOS DEC-31-1996 JAN-01-1996 SEP-30-1996 5,706 0 33,611 677 0 40,420 19,463 9,483 107,837 40,174 25,000 0 0 255 37,116 107,837 0 92,508 0 54,345 14,862 0 3,390 (6,251) 0 (6,251) 0 (1,260) 0 (7,511) (.30) 0 EPS is Basic EPS as common stock equivalents are antidilutive.
EX-99.01 6 SAFE HARBOR FORWARD-LOOKING STATEMENTS EXHIBIT 99.01 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN CAUTIONARY STATEMENTS AND RISK FACTORS CSG Systems International, Inc. and its subsidiaries (collectively, the Company) or their representatives from time to time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS. This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND THAT SUCH DIFFERENCES MAY BE MATERIAL. The Company has recorded net losses since inception (October 17, 1994) through June 30, 1996. These net losses have resulted from several factors, including amortization of intangible assets (acquired software, client contracts and related intangibles, and noncompete agreements and goodwill), interest expense, stock-based employee compensation expense, and loss from discontinued operations. Certain of these factors will continue to affect the Company's results of operations in the future. While the Company recently reported net income for the third quarter of 1996, the Company expects to report a net loss for the year ending December 31, 1996. There can be no assurance that the Company will sustain profitability in the future. CCS and related services are expected to provide the substantial majority of the Company's revenues in the foreseeable future. The market for customer management systems is characterized by rapid changes in technology and is highly competitive with respect to the need for timely product innovations and new product introductions. The Company believes that its future success depends upon continued market acceptance of its current products, including CCS and related services, and its ability to enhance its current products and develop new products that address the increasingly complex and evolving needs of its clients. In particular, the Company believes that it must respond quickly to clients' needs for additional functionality and distributed architecture for data processing. Development projects can be lengthy and are subject to changing requirements, programming difficulties, and unforeseen factors which can result in delays. There can be no assurance of continued market acceptance of the Company's current products or that the Company will be successful in the timely development of product enhancements or new products that respond to technological advances or changing client needs. CSG Phoenix(TM) is the Company's next generation customer care and billing system for the converging communications markets. The Company is using technologies and development tools that are new to the Company in CSG Phoenix(TM). In addition, CSG Phoenix(TM) will contain functionality that is new to the Company and will be offered in a variety of configurations in addition to the Company's existing service bureau operations. The Company is scheduled to deliver CSG Phoenix(TM) to its first client in the fourth quarter of 1996. There can be no assurance that the CSG Phoenix(TM) product will be delivered on time or that CSG Phoenix(TM) will operate in an acceptable manner. The actual timing of delivery and implementation is subject to delay due to the variety of factors inherent in the development and initial implementation of a new, complex software system, which in the case of CSG Phoenix(TM), employs technologies and development tools which are new to the Company. Implementation is also subject to factors relating to the integration of the new system with the client's existing systems. Sales and support of CSG Phoenix(TM) will require the Company to develop new capabilities. The failure of the Company to deliver and support the CSG PhoenixO product successfully and on time could have a material adverse effect on the financial condition and results of operations of the Company. Revenues from Time Warner Cable and its affiliated companies ("Time Warner") and revenues from Tele-Communications, Inc. ("TCI") each represent a substantial percentage of the Company's total revenues. TCI is developing an in- house cable television billing system. TCI has announced that it is testing this system and plans to begin deploying it nationwide by 1997. The existing contract between the Company and TCI which was scheduled to expire December 31, 1996, has been extended automatically by its terms for one additional year. The Company expects revenues from TCI will be reduced in the future as TCI's in-house system replaces the Company's CCS system. Loss of all or a significant part of the business of either Time Warner or TCI would have a material adverse effect on the financial condition and results of operations of the Company. The Company's quarterly revenues and operating results may fluctuate depending on various factors, including the timing of executed contracts and the delivery of contracted services or products, the timing of conversions to the Company's systems by new and existing clients, the cancellation of the Company's services and products by existing or new clients and related conversions to other systems, the hiring of additional staff, new product development and other expenses, and changes in sales commission policies. No assurance can be given that operating results will not vary due to these factors. Fluctuations in quarterly operating results may result in volatility in the market price of the Company's Common Stock. The Company's business is concentrated in the cable television industry, making the Company susceptible to a downturn in that industry. A decrease in the number of customers served by the Company's clients would result in lower revenues for the Company. In addition, cable television providers are consolidating, decreasing the potential number of buyers for the Company's products and services. Furthermore, there can be no assurance that cable television providers will be successful in expanding into other segments of the converging communications markets. There can be no assurance that new entrants into the cable television market will become clients of the Company. Any adverse development in the cable television industry could have a material adverse effect on the financial condition and results of operations of the Company. The Company's growth strategy is based in large part on the continuing convergence and growth of the cable television, Direct Broadcast Satellite (DBS), telecommunications, and on-line services markets. If these markets fail to converge, grow more slowly than anticipated, or if providers in the converging markets do not accept the Company's products and services, there could be a material adverse effect on the financial condition and results of operations of the Company. The market for the Company's products and services is highly competitive. The Company directly competes with both independent providers of products and services and in-house systems developed by existing and potential clients. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, and many are already operating internationally. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. The Company is expanding into new products, services, and markets, which is placing demands on its managerial and operational resources. The inability to manage growth could have a material adverse effect on the financial condition and results of operations of the Company. -2- Substantially all of the Company's revenues are derived from the sale of services or products under contracts with its clients. The Company does not have the option to extend unilaterally the contracts upon expiration of their terms. The Company's contracts typically do not require clients to make any minimum purchases, and contracts are cancelable by clients under certain conditions. The failure of clients to renew or to fully use any contracts, or the cancellation of contracts, could have a material adverse effect on the Company's financial condition and results of operations. The Company's future success depends in large part on the continued service of its key management, sales, product development, and operational personnel. The Company is particularly dependent on its executive officers. Only two of those executive officers are parties to employment agreements with the Company, and those agreements are terminable by them upon 30 days' notice. The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense. The Company may not be successful in attracting and retaining the personnel it requires, which could have a material adverse effect on the financial condition and results of operations of the Company. The Company relies on a combination of trade secret and copyright laws, nondisclosure agreements, and other contractual and technical measures to protect its proprietary rights in its products. There can be no assurance that these provisions will be adequate to protect its proprietary rights. Although the Company believes that its intellectual property rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or the Company's clients. TCI has advised the Company that a third party has asserted that patents held by it may be infringed by the client's use of certain interfaces offered by the Company. The Company believes that it has sufficient rights to the patents to conduct its current business and that its clients have sufficient rights to use CSG products and services. The Company does not believe that efforts to enforce these patents would have a material adverse effect on the Company's financial condition or results of operations, but there can be no assurance in this regard. The Company's business strategy includes a significant commitment to the marketing of its products and services internationally, and the Company has begun to acquire and establish operations outside of the U.S. The Company is subject to certain inherent risks associated with operating internationally. There can be no assurance that the Company will be able to manage successfully the risks related to selling its products and services in international markets. The inability to manage these risks successfully would have a material adverse effect on the financial condition and results of operations of the Company. -3- -----END PRIVACY-ENHANCED MESSAGE-----