-----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, RFXqVUC5BjN7UAyiAeOniiZI0F2qLy++4dLP1RilB6VWSvwzIiGTbKoeynnLFsdZ JulYMBLBf6S3t+2kcJb2kA== 0000927356-99-001386.txt : 19990817 0000927356-99-001386.hdr.sgml : 19990817 ACCESSION NUMBER: 0000927356-99-001386 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19990630 FILED AS OF DATE: 19990816 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 000-27512 FILM NUMBER: 99692273 BUSINESS ADDRESS: STREET 1: 7887 EAST BELLEVIEW AVE STREET 2: SUITE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037962850 MAIL ADDRESS: STREET 1: 5251 DTC PARKWAY SUITE 625 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 2ND QUARTER 10-Q FOR CSG SYSTEMS, INC. FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended June 30, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _________________ Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7887 East Belleview, Suite 1000 Englewood, Colorado 80111 (Address of principal executive offices, including zip code) (303) 796-2850 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ---- ---- Shares of common stock outstanding at August 11, 1999: 51,784,556 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q For the Quarter Ended June 30, 1999 INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of June 30, 1999 and December 31, 1998....................................................... 3 Condensed Consolidated Statements of Income for the Three and Six Months Ended June 30, 1999 and 1998 ........................................ 4 Condensed Consolidated Statements of Cash Flows for the Three and Six Months Ended June 30, 1999 and 1998......................................... 5 Notes to Condensed Consolidated Financial Statements........................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations....................................................... 8 Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 17 Part II - OTHER INFORMATION Item 4. Submission of Matters to a Vote of Security Holders......................... 18 Item 6. Exhibits and Reports on Form 8-K............................................ 18 Signatures.................................................................. 20 Index to Exhibits........................................................... 21
2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
June 30, December 31, 1999 1998 ----------- ------------ ASSETS (unaudited) Current assets: Cash and cash equivalents................................................................. $ 34,066 $ 39,593 Accounts receivable- Trade- Billed, net of allowance of $2,852 and $2,051...................................... 59,047 60,529 Unbilled........................................................................... 8,100 2,828 Other.................................................................................. 914 1,179 Deferred income taxes..................................................................... 2,070 1,803 Other current assets...................................................................... 2,479 2,275 ----------- ------------ Total current assets................................................................... 106,676 108,207 ----------- ------------ Property and equipment, net of depreciation of $28,505 and $23,765.......................... 24,107 24,711 Software, net of amortization of $36,321 and $35,391........................................ 8,422 9,422 Noncompete agreements and goodwill, net of amortization of $27,436 and $24,878.............. 4,861 7,596 Client contracts and related intangibles, net of amortization of $21,268 and $17,671........ 57,644 59,791 Deferred income taxes....................................................................... 54,208 59,389 Other assets................................................................................ 1,812 2,380 ----------- ------------ Total assets.......................................................................... $ 257,730 $ 271,496 =========== ============ LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Current maturities of long-term debt...................................................... $ 18,710 $ 19,125 Customer deposits......................................................................... 9,892 10,018 Trade accounts payable.................................................................... 11,266 10,471 Accrued employee compensation............................................................. 11,233 12,276 Deferred revenue.......................................................................... 9,163 13,470 Conversion incentive payments............................................................. 15,277 22,032 Accrued income taxes...................................................................... 8,958 6,756 Other current liabilities................................................................. 8,055 7,009 ----------- ------------ Total current liabilities.............................................................. 92,554 101,157 ----------- ------------ Non-current liabilities: Long-term debt, net of current maturities................................................. 72,290 109,125 Deferred revenue.......................................................................... 714 216 ----------- ------------ Total non-current liabilities.......................................................... 73,004 109,341 ----------- ------------ Stockholders' equity: Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding..................................................... - - Common stock, par value $.01 per share; 100,000,000 shares authorized; 51,778,380 shares and 51,465,646 shares outstanding.................................... 518 515 Common stock warrants; 3,000,000 warrants outstanding..................................... 26,145 26,145 Additional paid-in capital................................................................ 126,629 120,599 Deferred employee compensation............................................................ (182) (328) Notes receivable from employee stockholders............................................... (216) (478) Accumulated other comprehensive income (loss)-cumulative translation adjustments.......... (269) 38 Treasury stock, at cost, 66,986 shares and 66,000 shares.................................. (132) (97) Accumulated deficit....................................................................... (60,321) (85,396) ----------- ------------ Total stockholders' equity ............................................................ 92,172 60,998 ----------- ------------ Total liabilities and stockholders' equity............................................. $ 257,730 $ 271,496 =========== ============
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED (in thousands, except per share amounts)
Three months ended Six months ended -------------------------- --------------------------- June 30, June 30, June 30, June 30, 1999 1998 1999 1998 ---------- ----------- ------------ ------------ Total revenues....................................................... $ 76,510 $ 54,244 $ 147,597 $ 103,552 Expenses: Cost of revenues: Direct costs.................................................. 29,839 23,916 57,935 45,998 Amortization of client contracts.............................. 1,871 1,176 3,660 2,244 ---------- ----------- ------------ ------------ Total cost of revenues.................................. 31,710 25,092 61,595 48,242 ---------- ----------- ------------ ------------ Gross margin (exclusive of depreciation)............................. 44,800 29,152 86,002 55,310 ---------- ----------- ------------ ------------ Operating expenses: Research and development......................................... 8,217 6,781 15,837 13,306 Selling and marketing............................................ 3,729 2,639 7,002 5,036 General and administrative: General and administrative.................................... 6,252 5,616 12,534 11,218 Amortization of noncompete agreements and goodwill............ 1,318 1,347 2,636 2,688 Stock-based employee compensation............................. 73 74 146 148 Depreciation..................................................... 2,495 1,988 4,904 3,830 ---------- ----------- ------------ ------------ Total operating expenses................................ 22,084 18,445 43,059 36,226 ---------- ----------- ------------ ------------ Operating income..................................................... 22,716 10,707 42,943 19,084 ---------- ----------- ------------ ------------ Other income (expense): Interest expense.............................................. (1,809) (2,462) (4,033) (5,008) Interest income............................................... 816 473 1,457 1,133 Other......................................................... 4 (67) (17) (74) ---------- ----------- ------------ ------------ Total other............................................. (989) (2,056) (2,593) (3,949) ---------- ----------- ------------ ------------ Income before income taxes........................................... 21,727 8,651 40,350 15,135 Income tax provision............................................. (8,234) - (15,275) - ---------- ----------- ------------ ------------ Net income........................................................... $ 13,493 $ 8,651 $ 25,075 $ 15,135 ========== =========== ============ ============ Basic net income per common share: Net income available to common stockholders........................ $ 0.26 $ 0.17 $ 0.49 $ 0.30 ========== =========== ============ ============ Weighted average common shares..................................... 51,710 51,125 51,637 51,075 ========== =========== ============ ============ Diluted net income per common share: Net income available to common stockholders........................ $ 0.25 $ 0.16 $ 0.46 $ 0.29 ========== =========== ============ ============ Weighted average common shares..................................... 54,031 52,840 54,123 52,789 ========== =========== ============ ============
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)
Six months ended -------------------------- June 30, June 30, 1999 1998 ----------- ------------ Cash flows from operating activities: Net income..................................................................................... $ 25,075 $ 15,135 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation................................................................................ 4,904 3,830 Amortization................................................................................ 7,764 5,897 Deferred income taxes....................................................................... 4,911 (5,402) Stock-based employee compensation........................................................... 146 148 Changes in operating assets and liabilities: Trade accounts and other receivables, net................................................. (3,662) (9,685) Other current and noncurrent assets....................................................... (231) (1,180) Accounts payable and accrued liabilities.................................................. 1,546 5,194 ----------- ------------ Net cash provided by operating activities............................................... 40,453 13,937 ----------- ------------ Cash flows from investing activities: Purchases of property and equipment, net....................................................... (4,346) (6,647) Additions to software.......................................................................... - (1,410) Conversion and other incentive payments........................................................ (8,205) (640) ----------- ------------ Net cash used in investing activities................................................... (12,551) (8,697) ----------- ------------ Cash flows from financing activities: Proceeds from issuance of common stock......................................................... 3,888 2,741 Repurchase of common stock..................................................................... - (2) Payments on notes receivable from employee stockholders........................................ 325 - Payments on long-term debt..................................................................... (37,250) (2,250) ----------- ------------ Net cash provided by (used in) financing activities..................................... (33,037) 489 ----------- ------------ Effect of exchange rate fluctuations on cash..................................................... (392) 28 ----------- ------------ Net increase (decrease) in cash and cash equivalents............................................. (5,527) 5,757 Cash and cash equivalents, beginning of period................................................... 39,593 20,417 ----------- ------------ Cash and cash equivalents, end of period......................................................... $ 34,066 $ 26,174 =========== ============ Supplemental disclosures of cash flow information: Cash paid during the period for- Interest..................................................................................... $ 3,689 $ 4,534 Income taxes................................................................................. $ 6,029 $ 828
The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CSG SYSTEMS INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 1. GENERAL The condensed consolidated financial statements at June 30, 1999, and for the three and six months then ended are unaudited and reflect all adjustments (consisting only of normal recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of the financial position and operating results for the interim period. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 1998, filed with the Securities and Exchange Commission (the Company's 1998 10-K). The results of operations for the three and six months ended June 30, 1999, are not necessarily indicative of the results for the entire year ending December 31, 1999. 2. STOCK SPLIT On March 5, 1999, the Company completed a two-for-one stock split, effected as a stock dividend, for stockholders of record on February 8, 1999. Share and per share data for all periods presented herein reflect the effect of the split. 3. NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing income available to common stockholders by the weighted average number of common shares outstanding during the period. Diluted net income per common share is consistent with the calculation of basic net income per common share while giving effect to dilutive potential common shares outstanding during the period. For all periods presented, dilutive potential common shares consisted entirely of stock options. For the quarters ended June 30, 1999 and 1998, weighted average outstanding stock options of 564,285 and 76,244 have been excluded from the computation of diluted net income per common share because the exercise prices of these options were greater than the average market price of the common shares for the respective quarters. For the three and six months ended June 30, 1999 and 1998, the weighted average dilutive potential common shares (calculated using the treasury stock method) from Common Stock Warrants are excluded from the diluted net income per common share calculation as the events necessary to allow the exercise of the warrants had not been satisfied as of June 30, 1999 or 1998. For the three and six month periods ended June 30, 1999 and 1998, the weighted average diluted potential common shares from Common Stock Warrants excluded from diluted net income per common share are as follows:
For the Three For the Six Months Ended Months Ended ------------- ------------ June 30, 1999........................ 1,934,766 1,973,647 June 30, 1998........................ 1,343,540 1,284,463
The Company expects certain of these warrants to become exercisable during 1999. See additional discussion of the Common Stock Warrants in the Company's 1998 10-K. 6 4. COMPREHENSIVE INCOME The Company's components of comprehensive income were as follows (in thousands):
Three Months Ended Six Months Ended ------------------------------------ ------------------------------------ June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998 ----------------- ----------------- ----------------- ----------------- Net income............................. $13,493 $8,651 $25,075 $15,135 Foreign currency translation adjustments.......................... (143) (11) (307) 69 ------- ------ ------- ------- Comprehensive income................... $13,350 $8,640 $24,768 $15,204 ======= ====== ======= =======
5. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS Certain June 30, 1998 amounts have been reclassified to conform with the June 30, 1999 presentation. 6. SUBSEQUENT EVENT - STOCK REPURCHASE PLAN Effective August 4, 1999, the Company's Board of Directors approved a stock repurchase plan which authorizes the Company at its discretion to purchase up to a total of 5.0 million shares of its Common Stock from time to time as market and business conditions warrant. This program represents approximately 10% of the Company's outstanding shares. The stock repurchase plan will be in effect until terminated by the Board of Directors of the Company. The stock may be used in connection with stock option and warrant exercises, employee stock purchases, possible acquisitions, and other corporate purposes. 7. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities" (SFAS 133) was issued. The Statement establishes accounting and reporting standards requiring every derivative instrument, as defined, to be recorded in the balance sheet as either an asset or liability measured at its fair value. The Statement requires that changes in the derivative's fair value be recognized currently in earnings unless specific hedge accounting criteria are met. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133" (SFAS 137) was issued. SFAS 137 defers the effective date of SFAS 133. The Company expects to adopt SFAS 133 no later than fiscal year 2001, and does not expect the adoption of this Statement to have a significant effect on the Company's consolidated financial statements. 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):
Three months ended June 30, Six months ended June 30, --------------------------------------- --------------------------------------- 1999 1998 1999 1998 -------------------- ----------------- ------------------ ------------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue ---------- --------- --------- ------- --------- ------- --------- -------- Total revenues ................................ $ 76,510 100.0% $ 54,244 100.0% $ 147,597 100.0% $ 103,552 100.0% Expenses: Cost of revenues: Direct costs ............................. 29,839 39.0 23,916 44.1 57,935 39.2 45,998 44.4 Amortization of client contracts ......... 1,871 2.4 1,176 2.2 3,660 2.5 2,244 2.2 --------- ----- --------- ----- --------- ----- --------- ----- Total cost of revenues ............. 31,710 41.4 25,092 46.3 61,595 41.7 48,242 46.6 --------- ----- --------- ----- --------- ----- --------- ----- Gross margin (exclusive of depreciation) ... 44,800 58.6 29,152 53.7 86,002 58.3 55,310 53.4 --------- ----- --------- ----- --------- ----- --------- ----- Operating expenses: Research and development ................. 8,217 10.7 6,781 12.5 15,837 10.7 13,306 12.9 Selling and marketing .................... 3,729 4.9 2,639 4.9 7,002 4.8 5,036 4.9 General and administrative: General and administrative .............. 6,252 8.2 5,616 10.3 12,534 8.5 11,218 10.8 Amortization of noncompete agreements and goodwill ........................... 1,318 1.7 1,347 2.5 2,636 1.8 2,688 2.6 Stock-based employee compensation ....... 73 0.1 74 0.1 146 0.1 148 0.1 Depreciation ............................. 2,495 3.3 1,988 3.7 4,904 3.3 3,830 3.7 --------- ----- --------- ----- --------- ----- --------- ----- Total operating expenses ................ 22,084 28.9 18,445 34.0 43,059 29.2 36,226 35.0 --------- ----- --------- ----- --------- ----- --------- ----- Operating income .............................. 22,716 29.7 10,707 19.7 42,943 29.1 19,084 18.4 --------- ----- --------- ----- --------- ----- --------- ----- Other income (expense): Interest expense ......................... (1,809) (2.4) (2,462) (4.5) (4,033) (2.8) (5,008) (4.8) Interest income .......................... 816 1.1 473 0.8 1,457 1.0 1,133 1.1 Other .................................... 4 -- (67) (0.1) (17) -- (74) (0.1) --------- ----- --------- ----- --------- ----- --------- ----- Total other ............................. (989) (1.3) (2,056) (3.8) (2,593) (1.8) (3,949) (3.8) --------- ----- --------- ----- --------- ----- --------- ----- Income before income taxes .................... 21,727 28.4 8,651 15.9 40,350 27.3 15,135 14.6 Income tax provision ....................... (8,234) (10.8) -- -- (15,275) (10.3) -- -- --------- ----- --------- ----- --------- ----- --------- ----- Net income .................................... $ 13,493 17.6% $ 8,651 15.9% $ 25,075 17.0% $ 15,135 14.6% ========= ===== ========= ===== ========= ===== ========= =====
8 Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998 Revenues. Total revenues for the three months ended June 30, 1999, increased 41.0% to $76.5 million, from $54.2 million for the three months ended June 30, 1998. Revenues from processing and related services for the three months ended June 30, 1999, increased 39.5% to $61.5 million, from $44.1 million for the three months ended June 30, 1998. Of the total increase in revenue, approximately 61% resulted from an increase in the number of customers of the Company's clients which were serviced by the Company and approximately 39% was due to increased revenue per customer. Customers serviced as of June 30, 1999 and 1998, respectively, were 31.2 million and 25.4 million, an increase of 22.7%. The increase in the number of customers serviced was due to the conversion of additional customers by new and existing clients to the Company's systems, and internal customer growth experienced by existing clients. From April 1, 1999 through June 30, 1999, the Company converted and processed approximately 0.8 million new customers on its systems. Revenues from software and related product sales and professional consulting services for the three months ended June 30, 1999, increased 47.8% to $15.0 million, from $10.1 million for the three months ended June 30, 1998. This increase relates primarily to the continued penetration of sales of the Company's software products and services to the Company's existing client base, as well as sales to new clients. Total annualized domestic revenue per customer account for the second quarter of 1999 was $9.49, compared to $8.25 for the same period in 1998, an increase of 15.0%. Revenue per customer increased primarily due to (i) a greater percentage of processing revenues in 1999 being generated under the AT&T Broadband and Internet Services (BIS) processing contract (the AT&T Contract), (ii) increased usage of ancillary processing services, (iii) price increases included in client contracts, and (iv) increased software sales to new and exisiting clients. Cost of Revenues. Direct costs as a percentage of related revenues were 39.0% for the three months ended June 30, 1999, compared to 44.1% for the three months ended June 30, 1998. The improvement between periods relates primarily to better overall leveraging of processing costs as a result of the continued growth of the customer base processed on the Company's system. Amortization of client contracts for the three months ended June 30, 1999, increased 59.1% to $1.9 million, from $1.2 million for the three months ended June 30, 1998. The increase in expense is due primarily to an increase in amortization of the value assigned to the AT&T Contract. The value assigned to the AT&T Contract is being amortized over the life of the contract in proportion to the financial minimums included in the contract. Gross Margin. Gross margin for the three months ended June 30, 1999, increased 53.7% to $44.8 million, from $29.2 million for the three months ended June 30, 1998, due primarily to revenue growth. The gross margin percentage increased to 58.6% for the three months ended June 30, 1999, compared to 53.7% for the three months ended June 30, 1998. The overall increase in the gross margin percentage is due primarily to the increase in processing and related services revenue per customer while controlling the cost of delivering such services. Research and Development Expense. Research and development (R&D) expense for the three months ended June 30, 1999, increased 21.1% to $8.2 million, from $6.8 million for the three months ended June 30, 1998. As a percentage of total revenues, R&D expense decreased to 10.7% for the three months ended June 30, 1999, from 12.5% for the three months ended June 30, 1998. The Company did not capitalize any software development costs during the three months ended June 30, 1999. During the three months ended June 30, 1998, the Company capitalized third party, contracted programming costs of approximately $0.8 million, related primarily to enhancements to existing products. As a result, total R&D development expenditures (i.e., the total R&D costs expensed, plus the capitalized development costs) for the three months ended June 30, 1999 and 1998, were $8.2 million, or 10.7% of total revenues, and $7.6 million, or 14.1% of total revenues, respectively. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products which are in 9 development and enhancements of the Company's existing products. The increased R&D expenditures consist primarily of increases in salaries, benefits, and other programming-related expenses. Selling and Marketing Expense. Selling and marketing (S&M) expense for the three months ended June 30, 1999, increased 41.3% to $3.7 million, from $2.6 million for the three months ended June 30, 1998. As a percentage of total revenues, S&M expense remained the same at 4.9% for both periods. The overall increase in S&M expenses is due primarily to increased sales activities. General and Administrative Expense. General and administrative (G&A) expense for the three months ended June 30, 1999, increased 11.3% to $6.3 million, from $5.6 million for the three months ended June 30, 1998. As a percentage of total revenues, G&A expense decreased to 8.2% for the three months ended June 30, 1999, from 10.3% for the three months ended June 30, 1998. The increase in G&A expenses relates primarily to the continued expansion of the Company's administrative staff and other administrative costs to support the Company's overall growth. The decrease in G&A expenses as a percentage of total revenues is due primarily to increased revenues, while controlling G&A costs. Depreciation Expense. Depreciation expense for the three months ended June 30, 1999, increased 25.5% to $2.5 million, from $2.0 million for the three months ended June 30, 1998. The increase in expense relates to capital expenditures made during 1998 and the first six months of 1999 in support of the overall growth of the Company, consisting principally of computer hardware and related equipment and statement processing equipment and related facilities. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the three months ended June 30, 1999, was $22.7 million or 29.7% of total revenues, compared to $10.7 million or 19.7% of total revenues for the three months ended June 30, 1998. The increase between years relates to the factors discussed above. Interest Expense. Interest expense for the three months ended June 30, 1999, decreased 26.5% to $1.8 million, from $2.5 million for the three months ended June 30, 1998, with the decrease attributable primarily to (i) scheduled principal payments on the Company's long-term debt (ii) an optional prepayment on long-term debt of $15 million made on March 31, 1999, and (iii) a decrease in interest rates between periods. Income Tax Provision. As of December 31, 1997, the Company had recorded a valuation allowance against certain deferred tax assets since realization of future tax benefits was not sufficiently assured as of that date. During 1998, the Company realized a portion of the deferred tax assets such that the overall income tax provision for the quarter was zero. During the fourth quarter of 1998, the Company concluded that it was more likely than not that it would realize the entire tax benefit from its deferred tax assets and eliminated the entire valuation allowance as of December 31, 1998. For the three months ended June 30, 1999, the Company recorded an income tax provision of $8.2 million, or an effective income tax rate of approximately 38%, which represents the Company's estimate of the effective book income tax rate for 1999. Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998 Revenues. Total revenues for the six months ended June 30, 1999, increased 42.5% to $147.6 million, from $103.6 million for the six months ended June 30, 1998. Revenues from processing and related services for the six months ended June 30, 1999, increased 43.5% to $120.5 million, from $83.9 million for the six months ended June 30, 1998. Of the total increase in revenue, approximately 65% resulted from an increase in the number of customers of the Company's clients which were serviced by the Company and approximately 35% was due to increased revenue per customer. The 10 increase in the number of customers serviced was due to the conversion of additional customers by new and existing clients to the Company's systems, and internal customer growth experienced by existing clients. From January 1, 1999 through June 30, 1999, the Company converted and processed approximately 1.8 million new customers on its systems. Revenues from software and related product sales and professional consulting services for the six months ended June 30, 1999, increased 38.2% to $27.1 million, from $19.7 million for the six months ended June 30, 1998. This increase relates primarily to the continued penetration of sales of the Company's software products and services to the Company's existing client base, as well as sales to new clients. Total annualized domestic revenue per customer account for the six months ended June 30, 1999 was $9.30, compared to $8.19 for the same period in 1998, an increase of 13.5%. Revenue per customer increased primarily due to (i) a greater percentage of processing revenues in 1999 being generated under the AT&T Contract, (ii) increased usage of ancillary processing services, (iii) price increases included in client contracts, and (iv) increased software sales to new and existing clients. Cost of Revenues. Direct costs as a percentage of related revenues were 39.2% for the six months ended June 30, 1999, compared to 44.4% for the six months ended June 30, 1998. The improvement between periods relates primarily to better overall leveraging of processing costs as a result of the continued growth of the customer base processed on the Company's system. Amortization of client contracts for the six months ended June 30, 1999, increased 63.1% to $3.7 million, from $2.2 million for the six months ended June 30, 1998. The increase in expense is due primarily to an increase in amortization of the value assigned to the AT&T Contract. The value assigned to the AT&T Contract is being amortized over the life of the contract in proportion to the financial minimums included in the contract. Gross Margin. Gross margin for the six months ended June 30, 1999, increased 55.5% to $86.0 million, from $55.3 million for the six months ended June 30, 1998, due primarily to revenue growth. The gross margin percentage increased to 58.3% for the six months ended June 30, 1999, compared to 53.4% for the six months ended June 30, 1998. The overall increase in the gross margin percentage is due primarily to the increase in processing and related services revenue per customer while controlling the cost of delivering such services. Research and Development Expense. R&D expense for the six months ended June 30, 1999, increased 19.0% to $15.8 million, from $13.3 million for the six months ended June 30, 1998. As a percentage of total revenues, R&D expense decreased to 10.7% for the six months ended June 30, 1999, from 12.9% for the six months ended June 30, 1998. The Company did not capitalize any software development costs during the six months ended June 30, 1999. During the six months ended June 30, 1998, the Company capitalized third party, contracted programming costs of approximately $1.4 million, related primarily to enhancements to existing products. As a result, total R&D development expenditures (i.e., the total R&D costs expensed, plus the capitalized development costs) for the six months ended June 30, 1999 and 1998, were $15.8 million, or 10.7% of total revenues, and $14.7 million, or 14.2% of total revenues, respectively. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products which are in development and enhancements of the Company's existing products. The increased R&D expenditures consist primarily of increases in salaries, benefits, and other programming-related expenses. Selling and Marketing Expense. S&M expense for the six months ended June 30, 1999, increased 39.0% to $7.0 million, from $5.0 million for the six months ended June 30, 1998. As a percentage of total revenues, S&M expense decreased to 4.8% for the six months ended June 30, 1999, from 4.9% for the six months ended June 30, 1998. The overall increase in S&M expenses is due primarily to increased sales activities. General and Administrative Expense. G&A expense for the six months ended June 30, 1999, increased 11.7% to $12.5 million, from $11.2 million for the six months ended June 30, 1998. As a percentage of total revenues, G&A expense decreased to 8.5% for the six months ended June 30, 1999, from 10.8% for the six months ended June 30, 1998. The increase in G&A expenses relates primarily to the continued expansion of the Company's administrative staff and other administrative costs to support the Company's overall growth. 11 The decrease in G&A expenses as a percentage of total revenues is due primarily to increased revenues, while controlling G&A costs. Depreciation Expense. Depreciation expense for the six months ended June 30, 1999, increased 28.0% to $4.9 million, from $3.8 million for the six months ended June 30, 1998. The increase in expense relates to capital expenditures made during 1998 and the first six months of 1999 in support of the overall growth of the Company, consisting principally of computer hardware and related equipment and statement processing equipment and related facilities. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the six months ended June 30, 1999, was $42.9 million or 29.1% of total revenues, compared to $19.1 million or 18.4% of total revenues for the six months ended June 30, 1998. The increase between years relates to the factors discussed above. Interest Expense. Interest expense for the six months ended June 30, 1999, decreased 19.5% to $4.0 million, from $5.0 million for the six months ended June 30, 1998, with the decrease attributable primarily to (i) scheduled principal payments on the Company's long-term debt (ii) an optional prepayment on long- term debt of $15 million made on March 31, 1999, and (iii) a decrease in interest rates between periods. Income Tax Provision. Due to the factors discussed above, the Company's income tax expense for the first six months of 1998 was zero. For the six months ended June 30, 1999, the Company recorded an income tax provision of $15.3 million, or an effective income tax rate of approximately 38%, which represents the Company's estimate of the effective book income tax rate for 1999. Adjusted Results of Operations - ------------------------------ The Company incurred certain one-time or acquisition-related charges (Acquisition Charges) in connection with the CSG Acquisition in November 1994. The Acquisition Charges include amortization of acquired software, client contracts and related intangibles, noncompete agreement, goodwill, and stock- based compensation. These charges totaled $2.0 million and $2.1 million for the three months ended June 30, 1999 and 1998, and $4.1 million and $4.1 million for the six months ended June 30, 1999 and 1998, respectively. The Company's adjusted results of operations excluding the impact of these items are shown in the following table. In addition to the exclusion of these expenses from the calculation, the adjusted results of operations were computed using an effective income tax rate of 38% for all periods, and outstanding shares on a diluted basis. See the Company's "Management's Discussion and Analysis of Financial Condition and Results of Operations" contained in the Company's 1998 10-K for additional discussion regarding the Acquisition Charges and the impact of such charges on operations.
For the Three Months For the Six Months Ended June 30, Ended June 30, ------------------------------------ ------------------------------------ 1999 1998 1999 1998 ----------------- ----------------- ----------------- ----------------- (in thousands, except per share amounts) Adjusted Results of Operations: Operating income..................... $24,742 $12,760 $46,993 $23,188 Operating income margin.............. 32.3% 23.5% 31.8% 22.4% Income before income taxes........... 23,753 10,704 44,400 19,239 Net income........................... 14,727 6,636 27,528 11,928 Earnings per diluted common share.... 0.27 0.13 0.51 0.23 Weighted average diluted common shares............................. 54,031 52,840 54,123 52,789
12 AT&T Contract and Merger - ------------------------ AT&T completed its merger with TCI in March 1999 and has consolidated the TCI operations into AT&T Broadband and Internet Services (BIS). During the six months ended June 30, 1999 and 1998, revenues from AT&T and affiliated companies generated under the AT&T Contract represented approximately 43.0% and 38.5% of total revenues, respectively. The AT&T Contract has a 15-year term and expires in 2012. The AT&T Contract has minimum financial commitments over the term of the contract and includes exclusive rights to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high- speed data services, residential wireline telephony services, and print and mail services. The AT&T Contract provides certain performance criteria and other obligations to be met by the Company. The Company is required to perform certain remedial efforts and is subject to certain penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. To date, the Company believes it has complied with the terms of the contract. Since execution of the AT&T Contract in September 1997 through June 30, 1999, the Company has successfully converted approximately 9.2 million AT&T cable television customers onto its system. At this time, it is too early to determine the near- and long-term impact, if any, the AT&T and TCI merger will have on the Company's relationship with the combined entity. AT&T has announced its planned efforts to provide convergent communications services in several United States cities during 1999. The Company is participating in those convergent trials and is working closely with AT&T to provide customer care and billing services to customers in those cities. The Company expects to continue performing successfully under the AT&T Contract, and is hopeful that it can continue to sell products and services to the combined entity that are in excess of the minimum financial commitments and exclusive rights included in the contract. AT&T holds 3.0 million warrants to purchase the Company's Common Stock at an exercise price of $12 per share. AT&T will be able to exercise 2.0 million of the warrants when the Company processes a total of 13.0 million AT&T customers on its system. The remaining 1.0 million warrants are exercisable at various increments as additional qualifying AT&T customers are converted to the Company's system in excess of the 13.0 million customers (the Excess Customers). Dependent upon the source of the Excess Customers, the 1.0 million warrants may be exercisable with a minimum of 1.25 million Excess Customers, but require no more than 2.5 million Excess Customers to become fully exercisable. The Company expects certain of these warrants to become exercisable during 1999. The warrants expire in September 2002. Liquidity and Capital Resources - ------------------------------- As of June 30, 1999, the Company's principal sources of liquidity included cash and cash equivalents of $34.1 million. The Company also has a revolving credit facility in the amount of $40.0 million, of which there were no borrowings outstanding. The Company's ability to borrow under the revolving credit facility is subject to maintenance of certain levels of eligible receivables. At June 30, 1999, all of the $40.0 million revolving credit facility was available to the Company. The revolving credit facility expires in September 2002. As of June 30, 1999 and December 31, 1998, respectively, the Company had $59.0 million and $60.5 million in net trade accounts receivable, a decrease of $1.5 million. The Company's trade accounts receivable balance includes billings for several non-revenue items, such as postage, communication lines, travel and entertainment reimbursements, sales tax, and deferred items. As a result, the Company evaluates its performance in collecting its accounts receivable through its calculation of days billings outstanding (DBO) rather than a typical days sales outstanding (DSO) calculation. DBO is calculated based on the billings for the period (including non-revenue items) divided by the average net trade accounts receivable balance for the period. The Company's DBO calculations for the quarters ended June 30, 1999 and 1998 were 55 days and 58 days, respectively. During the six months ended June 30, 1999, the Company generated $40.5 million of net cash flow from operating activities. Cash generated from these sources and the proceeds of $3.9 million from the issuance of common stock through the Company's stock incentive plans were used to (i) fund capital expenditures of $4.3 million, (ii) pay conversion and other incentive payments of $8.2 million, and (iii) repay long-term debt of $37.3 million, which includes $7.3 million of scheduled payments and optional prepayments totaling $30.0 million. 13 Earnings before interest, taxes, depreciation and amortization (EBITDA) for the six months ended June 30, 1999 was $55.2 million or 37.4% of total revenues, compared to $28.4 million or 27.4% of total revenues for the six months ended June 30, 1998. EBITDA is presented here as a measure of the Company's debt service ability and is not intended to represent cash flows for the periods. Interest rates for the term and revolving credit facilities are chosen at the option of the Company and are based on the LIBOR rate or the prime rate, plus an additional spread, with the spread dependent upon the Company's leverage ratio. Effective April 1, 1999, the spread on the LIBOR rate and the prime rate was 0.50% and 0%, respectively. As of June 30, 1999, the entire amount of the debt was under either three or six-month LIBOR contracts with an overall weighted average interest rate of 5.67% (i.e., LIBOR at 5.17% plus spread of 0.50%), compared to 5.89% as of December 31, 1998. In December 1997, the Company entered into a three-year interest rate collar with a major bank to manage its risk from its variable rate long-term debt. The underlying notional amount covered by the collar agreement is $66.9 million as of June 30, 1999, and decreases over the three-year term in relation to the scheduled principal payments on the long-term debt. Any payment on the 4.9% (LIBOR) interest rate floor, or receipt on the 7.5% (LIBOR) interest rate cap component of the collar, would be recognized as an adjustment to interest expense in the period incurred. There are no amounts due or receivable under this agreement as of June 30, 1999, and the agreement had no effect on the Company's interest expense for 1999 or 1998. The Company is required to make certain conversion incentive payments under the AT&T Contract, with the amounts and the timing of the payments based principally upon the number of AT&T customers converted to, and the total number of AT&T customers processed on, the Company's customer care and billing system. Total payments as of June 30, 1999 have been approximately $10.7 million. Based on the conversions performed to date and the future conversions scheduled as of June 30, 1999, the Company expects to pay the remaining $15.3 million in the third quarter of 1999. The Company continues to make significant investments in capital equipment, facilities, and research and development, and recently approved a discretionary stock repurchase plan (see Note 6 to the Condensed Consolidated Financial Statements). The Company had no significant capital commitments as of June 30, 1999. The Company believes that cash generated from operations, together with the current cash and cash equivalents and the amount available under its current revolving credit facility will be sufficient to meet its anticipated cash requirements for operations, income taxes, debt service, conversion incentive payments, capital expenditures, and stock repurchases for both its short and long-term purposes. The Company also believes it has significant unused borrowing capacity and could obtain additional cash resources by amending its current credit facility and/or establishing a new credit facility. Year 2000 - --------- The Company's business is dependent upon various computer software programs and operating systems that utilize dates and process data beyond the year 2000. The Company's actions to address the risks associated with the year 2000 are as follows: The Company's State of Readiness. The Company has established a corporate program to coordinate its year 2000 (Y2K) compliance efforts across all business functions and geographic areas. The scope of the program includes addressing the risks associated with the Company's (i) information technology (IT) systems (including the Company's products and services), (ii) non-IT systems that include embedded technology, and (iii) significant vendors and their Y2K readiness. The Company is utilizing the following steps in executing its Y2K compliance program: (1) awareness, (2) assessment, (3) renovation (including upgrades and enhancements to the Company's products), (4) validation and testing, and (5) implementation. The Company has completed the awareness and assessment steps for all areas. Products and Services. The renovation step has been substantially completed --------------------- for all significant products and services, and the Company now is focusing its efforts on validation and testing. The Company's most significant renovation effort involved its core product Communications Control System (CCS). CCS utilizes one subroutine for calculating dates, with the various computer programs within CCS with date dependent calculations accessing this subroutine. As a result, all date calculations are performed in one location. The renovation of this subroutine and the related interfaces to the various date dependent programs has been completed. The Company has completed the testing of the CCS application using its standard testing methodologies, while adding date simulation to specifically address the Y2K risk. Such date simulation considered 14 pre-2000, cross over, and post-2000 time frames, including year 2000 leap year considerations. The renovated and tested version of CCS has been implemented into the production environment. The Company has substantially completed its testing of third party interfaces (e.g., addressable devices) to CCS. The Company is dependent upon the third parties for such testing, and expects to complete the remaining testing by the end of the third quarter of 1999. The interfaces are not complex and are considered low risk by the Company. For the Company's software products, no significant renovation was necessary, as the products are relatively new and were designed to be Y2K compliant. The Company is testing these products with similar date simulation techniques discussed above to ensure they are Y2K compliant. Such testing is substantially completed, with the remaining testing expected to be done by the end of the third quarter of 1999. The Company has developed a process to manage further updates or enhancements to any product related software code which has been tested and internally certified as Y2K compliant, and intends to "freeze" all changes to mission critical product related software during November 1999. The Company also plans to retest CCS (through an initial program load of the CCS system) in the fourth quarter of 1999 to ensure continued Y2K compliance. Several CSG clients are conducting tests of the Company's products in conjunction with their own operating environments. Several test phases have been completed (beginning in December 1998), with additional phases continuing into the third quarter of 1999, including participation by AT&T in such testing. Internal Systems. Renovation and testing of the Company's significant ----------------- internal use IT Systems (e.g., payroll systems, accounting systems, etc.) is substantially complete, with the two remaining applications scheduled to be tested and implemented by the end of the third quarter of 1999. The Company has a substantial number of non-IT systems that include embedded technology (e.g., buildings, plant, equipment and other infrastructure) that are owned and managed by the lessors of the buildings in which the Company is located. The Company has sent letters to its lessors requesting certifications of the Y2K compliance of the embedded systems. The Company has received substantially all of the certifications from lessors and expects to receive the six remaining certifications (considered low risk by the Company) by the end of the third quarter of 1999. Letters have also been sent to third parties providing other internal non-IT systems with embedded technology (e.g., statement insertion machines, copy machines, etc.). All of these Y2K certifications and/or upgrades have been completed. Significant Vendors. As part of the Company's Y2K compliance program, the -------------------- Company has contacted its significant vendors to assess their Y2K readiness. For substantially all mission critical third party software embedded in or specified for use in conjunction with the Company's IT systems and products, the Company's communications with the vendors indicates that the vendors believe they are fully Y2K compliant. The remaining vendors indicate that they are substantially Y2K compliant. The Company expects to receive further enhancements from these vendors as they become available throughout 1999 to bring the products into full Y2K compliance. Such third party software has been or is being tested in conjunction with the testing of the IT systems and products discussed above. All other significant vendors (including the Company's vendor who provides data processing services for CCS) have indicated they are Y2K compliant. There can be no assurance that (i) the Company's significant vendors will succeed in their Y2K compliance efforts, or (ii) the failure of vendors to address Y2K compliance will not have a material adverse effect on the Company's business or results of operations. The Costs to Address the Company's Year 2000 Issues. Since inception of its program in 1995 through June 30, 1999, the Company has incurred and expensed costs of approximately $3.6 million related to Y2K compliance efforts. The total estimated costs to complete the Company's Y2K compliance effort are approximately $0.5 million. The estimated costs to complete, which does not include any costs which may 15 be incurred by the Company if its significant vendors fail to timely address Y2K compliance, is based on currently known circumstances and various assumptions regarding future events. However, there can be no assurance that these estimates will be achieved and actual results could differ materially from those anticipated. The Risks of the Company's Year 2000 Issues. The Company's failure to timely resolve the Y2K risks could result in system failures, the generation of erroneous information, and other significant disruptions of business activities, including among others, access to CCS and the use of related software products, and timely printing and delivery of clients' customers' statements. Although the Company believes it will be successful in its Y2K compliance efforts, there can be no assurance that the Company's systems and products contain all necessary date code changes. In addition, the Company's operations may be at risk if its vendors and other third parties (including public and private infrastructure services, such as electricity, water, gas, transportation, and communications) fail to adequately address the Y2K issue or if software conversions result in system incompatibilities with these third parties. To the extent that either the Company or a third party vendor or service provider on which the Company relies does not achieve Y2K compliance, the Company's results of operations could be materially adversely affected. Furthermore, it has been widely reported that a significant amount of litigation surrounding business interruption will arise out of Y2K issues. It is uncertain whether, or to what extent, the Company may be affected by such litigation. As is the case with many software companies and service providers, if the Company's current or future clients experience significant business interruptions due to their failure to achieve Y2K compliance, the Company's results of operations could be materially adversely affected. There can be no assurance that the Company's current or future clients will adequately and successfully address their Y2K risk and not experience any business interruptions. The Company's Contingency Plan. The Company is addressing the need for any Y2K specific contingency plan as part of its overall business continuity planning, with modifications to the plan where Y2K specific exposures are identified as the Company continues to execute its Y2K compliance project during 1999. The Company has established a Y2K task force for all mission critical operations of the Company which will provide dedicated personnel to escalate the resolution of any Y2K specific matters that may occur. The Company has implemented a restricted vacation policy for December 1999 and January 2000 to ensure all mission critical personnel are available if any Y2K specific matters occur. The (i) inability to timely implement a contingency plan, if deemed necessary, and (ii) the cost to develop and implement such a plan, may have a material adverse effect on the Company's results of operations. Certain Factors That May Affect Future Results of Operations. Except for statements of existing or historical facts, the foregoing discussion of Y2K consists of forward-looking statements and assumptions relating to forward- looking statements, including without limitation the statements relating to future costs, the timetable for completion of Y2K compliance efforts, potential problems relating to Y2K, the Company's state of readiness, third party representations, and the Company's plans and objectives for addressing Y2K problems. Certain factors could cause actual results to differ materially from the Company's expectations, including without limitation (i) the failure of vendors and service providers to timely achieve Y2K compliance, (ii) system incompatibilities with third parties resulting from software conversions, (iii) the Company's systems and products not containing all necessary date code changes, (iv) the failure of existing or future clients to achieve Y2K compliance, (v) potential litigation arising out of Y2K issues, the risk of which may be greater for information technology based service providers such as the Company, (vi) the failure of the Company's validation and testing phase to detect operational problems internal to the Company, in the Company's products or services or in the Company's interface with service providers, vendors or clients, whether such failure results from the technical inadequacy of the Company's validation and testing efforts, the technological infeasibility of testing certain non-IT systems, the perceived cost-benefit constraints against conducting all available testing, or the unavailability of third 16 parties to participate in testing, or (vii) the failure to timely implement a contingency plan to the extent Y2K compliance is not achieved. Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- There have been no material changes to the Company's market risks during the six months ended June 30, 1999. See the Company's 1998 10-K for additional discussion regarding the Company's market risks. 17 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Item 1-3. None. Item 4. Submission of Matters to a Vote of Security Holders. (a) The 1999 annual meeting (the "Annual Meeting") of stockholders of CSG Systems International, Inc. was held on May 20, 1999. (b) The following persons were elected as directors at the Annual Meeting: Class II (term expiring in 2002) -------------------------------- Royce J. Holland Bernard W. Reznicek The following directors' term of office continued after the Annual Meeting: Janice I. Obuchowski John P. Pogge Rockwell A. Schnabel George F. Haddix Neal C. Hansen Frank V. Sica (c) Votes were cast or withheld at the Annual Meeting as follows:
(i) Election of directors: Director For Withheld -------- --- -------- Royce, J. Holland 44,727,662 1,091,462 Bernard W. Reznicek 45,647,074 172,050
(ii) Increase the 1996 Stock Incentive Plan by 3,000,000 shares of Common Stock:
For Against Abstain --- ------- ------- 23,106,600 18,766,198 38,884
Item 5. None Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 2.19I* Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Seventh, Twenty-Eighth, Thirtieth, Thirty-Fourth Amendments and Schedule Q to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and TCI Cable Management Corporation. 10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan 18 27.01 Financial Data Schedule (EDGAR Version only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors (b) Reports on Form 8-K None __________________ * Portions of the exhibit have been omitted pursuant to an application for confidential treatment, and the omitted portions have been filed separately with the Commission. 19 SIGNATURES - ---------- Pursuant to the requirements of the Securities and Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. Dated: August 16, 1999 CSG SYSTEMS INTERNATIONAL, INC. /s/ Neal C. Hansen ------------------------------------------ Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Greg A. Parker ------------------------------------------ Greg A. Parker Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Randy R. Wiese ------------------------------------------ Randy R. Wiese Vice President and Controller (Principal Accounting Officer) 20 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 2.19I* Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Seventh, Twenty- Eighth, Thirtieth, Thirty-Fourth Amendments and Schedule Q to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and TCI Cable Management Corporation. 10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan 27.01 Financial Data Schedule (EDGAR Version only) 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors __________________ * Portions of the exhibit have been omitted pursuant to an application for confidential treatment, and the omitted portions have been filed separately with the Commission. 21 EX-2.19 2 AMENDED AND RESTATED MASTER SUB. MAN. SYSTEM AGREE EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). TWENTY-THIRD AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Twenty-Third Amendment (the "Amendment") is executed this 8th day of June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. Customer desires to utilize CSG's "auto-attendant" application in connection with its use of CSG InfoExpress. Therefore, the definition of "Products" and all references thereto in the Agreement shall be amended to include this application. The auto-attendant application automatically routes callers to a particular extension or department, avoiding human intervention and related personnel costs. Customer shall use the auto- attendant application in the same Designated Environment as CSG InfoExpress, for the fees set forth below. 2. Schedule D shall be amended to include the following fees to be paid by Customer for the auto-attendant application of CSG InfoExpress: A. Software License Fees: -------------------------- Perpetual License Fee for auto-attendant application $(***) per IVR (minimum initial purchase of 10 licenses) B. Software License Annual Maintenance Fees: (*****) percent ((***)%) -------------------------------------------- of License Fee C. Software License and Maintenance Payment Terms: --------------------------------------------------- "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." (for initial purchase of 10 licenses and related maintenance fees) . Software License Fees: - $(***) due upon Execution of this Agreement. . Software License Annual Maintenance Fees: - $(***) due upon Execution of this Agreement in relation to the maintenance period through December 31, 1999. . Subsequent year's annual maintenance fees, at the rate set forth in item B above, shall be due on each January 1, beginning January 1, 2000, and continuing throughout the term of the Agreement. D. Implementation Services: ---------------------------- . Initial menu build $(***) per menu build . Subsequent menu builds $(***) per menu build E. Additional Consulting or Training Services: ----------------------------------------------- (fees set forth in Schedule D). THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery -------------------------------- --------------------------------- Name: Joseph T. Ruble Name: Ann Montgomery ---------------------------- ------------------------------- Title: V. P. & General Counsel Title: EVP Fulfillment Operations ----------------------------- ------------------------------- 2 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). TWENTY-FOURTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Twenty-Fourth Amendment (the "Amendment") is executed this 13th day of April, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. To help ensure the accuracy of phone number data for subscribers who order Pay-Per-View movies and events through CSG Ticket Express, Customer desires to have CSG utilize the "phone scrub" process. The phone scrub process will compare the subscriber's phone number to the phone number in the vendor's data files and overlay incorrect or incomplete subscriber phone number data with CSG's vendor telephone data. Neither CSG or its vendor makes any warranty, express or implied, with respect to the data selected from CSG's vendor's database, including, but not limited to, warranties of accuracy, completeness, currentness, merchantability or fitness for a particular purpose. 2. Customer desires to utilize CSG's Product and Service Ordering System, which will provide the ability for a potential customer to call a centralized toll-free number and be directed through an IVR prompt to place an order for a specified product or service. The IVR will gather necessary information from the caller and will produce an output file to be made available to Customer for manual processing of the order. This system will use the existing CSG Ticket Express service and centralized IVR system. 3. Schedule D of the Agreement shall be amended to include the following fees for the phone scrub process and the non Pay-Per-View Ordering service: I. Fees for Phone Scrub Process: . Initial data analysis and exception reporting $(***) per request . Database update from the exception report $(***) per database update II. Fees for the non Pay-Per-View Ordering Service: a. One-time Setup Fee: $(***) per promotion
"Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." Note: The One-time Set-up Fee for Customer's initial promotion of Cable Guide (**********************). b. Transaction Fees*: 0-20 seconds $(***) per call 21-25 seconds $(***) per call 26-30 seconds $(***) per call 31-35 seconds $(***) per call 36-40 seconds $(***) per call 41-45 seconds $(***) per call 46-50 seconds $(***) per call 51-55 seconds $(***) per call 56 seconds or greater $(***) per call * Based on the average call duration for a specific month (e.g., the total number of seconds of all calls received during the month divided by the total number of calls received during the month). c. Transcription Fee: $(***) per completed order d. Script Change Fee: $(***) per page of typed script Note: The Script Change Fee for Customer's initial promotion of Cable Guide (**********************). THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Robyn L. Renicke ------------------------------- --------------------------------------- Name: Joseph T. Ruble Name: Robyn L. Renicke ----------------------------- ------------------------------------- Title: V.P. & General Counsel Title: Director of Partnership Mktg. & PPV ---------------------------- ------------------------------------ 2 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). TWENTY-FIFTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Twenty-Fifth Amendment (the "Amendment") is executed this 8th day of June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. For the fees set forth in paragraph 4 below, Customer desires to license CSG Screen Express(TM), a computer software program that Customer shall use with ACSR, which provides automated call services to cable television and telecommunications companies. Therefore, the definition of "Products" in the Agreement shall be amended to include CSG Screen Express(TM), which Customer shall be licensed to use on one hundred eighty (180) workstations at Customer's System Site in Pittsburgh, PA. Customer shall also receive one (1) license to use CSG's AOI product, which is an application interface that allows third party applications to be used in conjunction with ACSR. Customer agrees that it will only use AOI to operate CSG Screen Express, and for no other purpose. The installation services to be provided by CSG in connection with CSG Screen Express, and the Designated Environment for CSG Screen Express are set forth in paragraphs 2 and 3 below. 2. The Designated Environment for CSG Screen Express is as follows: Servers & Workstations: 1. CTI Server for Sun: Sun Microsystems Sparc 5 workstation, 128MB RAM, minimum 2 GB HD available. *For Y2K compliance, the operating system needs to be Solaris 2.6 or greater. 2. CTI Server for Windows NT: Pentium II, 200 Mhz or greater, 128 MB RAM, minimum 200MB available HD. *For Y2K compliance, all appropriate NT service packs must be installed. 3. Desktop Workstation: Windows 95 or NT. No minimum requirements for memory, minimum 3MB HD. 4. Desktop workstation should have current designated environment for ACSR ACDs: 1. Aspect ACD: Requires Application Bridge Link (Ethernet). *Aspect Operating System must be version 6.2 or greater for Y2K. "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." 2. Lucent G3: To be determined 3. Rolm: To be determined. 3. Customer shall receive the following installation services in connection with CSG Screen Express: Installation Installation of CTI server Configuration between CTI server and phone switch Installation of client application, on-site, excluding Reimbursable Expenses (as defined in the Agreement) End-to-end testing 1 day on-site training 4. Schedule D of the Agreement shall be amended to include the following fees for CSG Screen Express: A. CSG Screen Express(TM) ---------------------- Perpetual License Fee $(***) per CSR workstation Annual Software Maintenance $(***) per CSR workstation Installation Services Fee $(***) per server installation plus Reimbursable Expenses B. Pilot System Site ----------------- The following terms shall apply with respect to Customer's Pittsburgh System Site, during the periods described below. At all times thereafter, the terms and conditions of the Agreement shall govern Customer's use of CSG Screen Express. (i) Customer shall purchase a minimum of one hundred eighty (180) licenses of CSG Screen Express at a price of $(***) per CSR workstation. CSG shall invoice Customer for such licenses on the "Commencement Date." (ii) (***************) the annual software maintenance on the one hundred and eighty (180) (**********************************). Annual software maintenance on the one hundred eighty (180) licenses (**********************************************) at the rates set forth in paragraph 4.A above. (iii) (***************) the Installation Services Fee for the Pilot Site only. (iv) For purposes of this Amendment, the term "Commencement Date" shall be deemed to be the date upon which CSG Screen Express and other Products and Services contemplated by this Amendment are fully installed and operational. THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By:/s/ Joseph T. Ruble By:/s/ Ann Montgomery ----------------------------- ------------------------------- Name: Joseph T. Ruble Name: Ann Montgomery --------------------------- ----------------------------- Title: V.P. & General Counsel Title: EVP Fulfillment Operations -------------------------- ---------------------------- 2 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). TWENTY-SEVENTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Twenty-Seventh Amendment (the "Amendment") is executed this 30th day of June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. Section 7 of Schedule D shall be amended to provide as follows: Effective April 1, 1999, Basic Vantage Reporting shall be amended to increase the included CPU minutes per 1,000 Basic Subscribers from 0.5 CPU minutes to 0.65 CPU minutes. Additionally, the One-Time Setup Fee and the monthly fees for Scheduling Calendar for one monthly schedule stored is included in the Basic Vantage Reporting. Additional months of monthly schedules stored are additional. 2. Effective April 1, 1999, Section 6, Item I.D. of Schedule D is amended to change the per data frame fee as follows: 0 to 24,000,000 Total Data Frames per month - $(***) per data frame 24,000,001 and greater Total Data Frames per month - $(***) per data frame 3. Section 10 of Schedule D shall be amended to add the following language: Effective April 1, 1999, each party for itself, its attorneys, officers, directors, agents, representatives, employees, successors and assigns, does hereby fully release and forever discharge the other parties, any parent corporations of the other parties, and their subsidiaries, "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." affiliates, attorneys, officers, directors, agents, representatives, employees, successors and assigns, and their heirs, executors and administrators of and from any and all debts, claims, contracts, suits or causes of action of any nature whatsoever, whether known, unknown, or unforseen, arising out of or relating to or in connection with the Agreement as it pertains to CSG's Vantage Point product and the parties' obligations in connection therewith. 4. Effective April 1, 1999, Section 1 of Schedule D shall be amended to include in the CCS Ancillary Service Fees the following: II. AD. Infoquest Transmission - Off Production Option I - Current Transmission Schedule* $(***) per sub/per month Option II - Weekly Transmission Schedule $(***) per sub/per month *Combination of weekly and bi-weekly schedule by system. THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery ------------------------------ ------------------------------------------ Name: Joseph T. Ruble Name: Ann Montgomery ---------------------------- ----------------------------------------- Title: V.P. & General Counsel Title: Exec. V.P. Fulfillment & Operations --------------------------- --------------------------------------- 2 EXHIBIT 2.19I TWENTY-EIGHTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Twenty-Eighth Amendment (the "Amendment") is executed this 12th day of May, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. Pursuant to Schedule T of the Agreement, Customer is licensed to use CSG Statement Express on one hundred sixty (160) ACSR integrated workstations. For the fees set forth in Schedule D, and under the terms and conditions of the Agreement (including, but not limited to, Schedule T), Customer now desires to license an additional sixty (60) ACSR integrated workstations of Statement Express. Therefore, the total number of Customer's Statement Express licenses shall be increased from one hundred sixty (160) to two hundred twenty (220). 2. Exhibit T-1 of the Agreement states that Customer's Pilot System Site shall be determined by Customer. Exhibit T-1 shall be amended to provide that Customer's Pilot System Site shall be located at Livermore, CA. THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Jerry Kulin ---------------------------------- ---------------------------------- Name: Joseph T. Ruble Name: Jerry Kulin ------------------------------ -------------------------------- Title: V.P. & General Counsel Title: V.P., Billing & Info. Syst. ----------------------------- ------------------------------- 1 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). THIRTIETH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Thirtieth Amendment (the "Amendment") is executed this 30th day of June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. Customer desires to receive from CSG, and CSG is willing to provide to Customer, certain products and services as part of Customer's Workforce Package (the "Workforce Package"), subject to the terms and conditions of the Agreement, including, but not limited to, Schedule Q and the fees set forth in paragraph 2 below. The fees set forth below shall be added to Schedule D of the Agreement, but will only be made available to Customer in connection with products and/or services provided in connection with the Workforce Package. If, between the date of execution of this Amendment and December 31, 2000, Customer desires to receive additional products and/or services as part of the Workforce Package, CSG and Customer shall execute separate amendments to the Agreement which expressly identify the products and/or services as being provided as part of the Workforce Package, in which case such products and/or services will be provided for the fees set forth in this Amendment. Further, between the date of execution of this Amendment and December 31, 2000, Customer and CSG agree to negotiate in good faith regarding any additional volume discounts beyond the fees set forth below. With respect to Products and Services set forth in this Amendment, CSG and Customer agree that, except as otherwise expressly agreed in writing between the parties, their rights and obligations relating thereto are set forth in the Master Agreement, and the execution of this Amendment shall not be deemed or construed to alter, impair create or evidence such rights or obligations. "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." 2. Fees for CSG Workforce Express(TM) ------------------------------ Software License Fees: (Prices include third party software) ---------------------- CSG Workforce Management(TM) ---------------------------- Server Perpetual License for (***) subscribers $ (***) per subscriber $(***) Dispatch Perpetual License for (***) workstations $(***)/ workstation $(***) CSG TechNet(TM) --------------- TechNet Perpetual License for (***) TechNet $(***) per TechNet $(***) Software Maintenance Fees: -------------------------- CSG Workforce Management(TM) ---------------------------- Annual Server Software Maintenance for (***) subscribers $ (***) Annual Dispatch Software Maintenance for (***) workstations $ (***) CSG TechNet(TM) --------------- Annual TechNet Software Maintenance for (***) TechNet $ (***) Note: Initial software maintenance fees will be for the period from date of execution through December 31, 2000. Thereafter, beginning on January 1, 2001, the software maintenance fees will be for calendar years. Software License and Maintenance Payment Terms ---------------------------------------------- Software License Fees --------------------- Due August 15, 1999 $ (***) Due November 15, 1999 $ (***) Due February 15, 2000 $ (***) Initial Annual Software Maintenance Fees ---------------------------------------- Due November 15, 1999 $ (***) Due March 15, 1999 $ (***) Due September 15, 2000 $ (***) Subsequent Annual Software Maintenance Fees will be billed in the month prior to the start of the maintenance period. CSG Workforce Express(TM) Operations Fee: ----------------------------------------- Monthly per Subscriber Fee $ (***) per Subscriber (CSG Workforce Express(TM) Operations Fee includes the hardware and third party software located at CSG or its agents' site.) 2 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." Monthly Operations Fee Minimums: Contract Execution through June 30, 2000 $ (***) July 1, 2000 through December 31, 2002 $ (***) Implementation Services: ------------------------ Implementation services will be set forth in separate Statements of Work for each System Site, as mutually agreed upon and executed by CSG and Customer. Any such Statement of Work will set forth all relevant terms and conditions in connection with the implementation of products and services provided under the Workforce Package, including, but not limited to, software installation, training and performance of CSG's implementation services. 3. Upon execution of this Amendment, that certain "Proposal & Agreement For CSG Workforce Express" signed by Customer and CSG on April 1, 1999 (the "Proposal") shall be terminated and of no further force or effect. Accordingly, each party for itself, its attorneys, officers, directors, agents, representatives, employees, successors and assigns, does hereby fully release and forever discharge the other party, any parent corporations of the other parties, and their subsidiaries, affiliates, attorneys, officers, directors, agents, representatives, employees, successors and assigns, and their heirs, executors and administrators of and from any and all debts, claims, contracts, suits or causes of action of any nature whatsoever, whether known, unknown, or unforeseen, arising out of or relating to or in connection with the Proposal. THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery ------------------------- ---------------------------------------- Name: Joseph T. Ruble Name: Ann Montgomery ------------------------ -------------------------------------- Title: V.P. & General Counsel Title: EVP Fulfillment Services & Operations ---------------------- ------------------------------------- 3 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission," and places where information has been redacted have been marked with (***). THIRTY-FOURTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND TCI CABLE MANAGEMENT CORPORATION This Thirty-Fourth Amendment (the "Amendment") is executed this 30th day of June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer entered into a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. CSG and Customer agree as follows: 1. Customer desires to receive from CSG, and CSG is willing to provide to Customer, certain products and services as part of Customer's HFC Release 1 Call Center Package (the "Package"), subject to the terms and conditions of the Agreement, including, but not limited to, the fees set forth below. The fees set forth below shall be added to Schedule D of the Agreement, but will only be made available to Customer in connection with products and/or services provided in connection with the Package. Paragraphs 2, 3, 4, 5, and 6 below sets forth the products and/or services that Customer desires to receive as of the date of execution of this Amendment. If, between the date of execution of this Amendment and December 31, 2000, Customer desires to receive additional products and/or services as part of the Package, CSG and Customer shall execute separate amendments to the Agreement which expressly identify the products and/or services as being provided as part of the Package, in which case such products and/or services will be provided for the fees set forth in this Amendment. Further, between the date of execution of this Amendment and December 31, 2000, Customer and CSG agree to negotiate in good faith regarding any volume discounts beyond the fees set forth below. With respect to the products and services set forth in paragraphs 3, 4, 5 and 6 below, CSG acknowledges and agrees that it is not the sole or exclusive provider of such products or services to Customer. With respect to the products and services set forth in paragraph 2 below, CSG and Customer agree that their obligations and rights relating thereto are set forth in the Agreement, and that the execution of this Amendment and its performance shall not alter, impair or create such rights or obligations. 2. For the fees set forth below, Customer desires to receive, and CSG is willing to grant, a perpetual license to use ACSR(R) Telephony on an additional (***) workstations. ACSR Telephony -------------- Perpetual license for (***) workstations $ (***) Prices exclude third party software, hardware, implementation, installation and customization (outlined in the Agreement). "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." Annual Maintenance for (***) workstations $ (***) Initial maintenance period is between the date of execution of this Amendment and December 31, 2000. Thereafter, maintenance fees will apply to calendar years. Implementation includes the implementation services set forth in the Agreement. 3. For the fees set forth below, Customer desires to receive, and CSG is willing to grant, a perpetual license to use CIT(R) with CBT on (***) workstations. In accordance with the terms and conditions of the 9th Amendment to the Agreement, Customer's license to use CIT on (***) workstations terminated on January 31, 1999. However, the description of CIT and the Designated Environment set forth in paragraphs 2 and 6, respectively, shall remain in full force and effect. CIT with CBT ------------ Perpetual license for (***) workstations $ (***) Price includes third party software but excludes hardware, implementation, installation and customization. Annual Maintenance for (***) workstations $ (***) Initial maintenance period is between the date of execution of this Amendment and December 31, 2000. Thereafter, maintenance fees will apply to calendar years. Price includes third party software maintenance. Implementation services will be outlined in a Statement of Work mutually agreed upon and executed by CSG and Customer. 4. For the fees set forth below, Customer desires to receive, and CSG is willing to grant, a perpetual license to use CSG Screen Express(TM) on an additional (***) workstations. Screen Express -------------- Perpetual license for (***) workstations $ (***) Price excludes third party software, hardware, implementation, installation and customization. Annual maintenance for (***) workstations $ (***) Initial maintenance period is between the date of execution of this Amendment and December 31, 2000. Thereafter, maintenance fees will apply to calendar years. Implementation - per Screen Express Server $ (***) Implementation includes the services outlined in paragraph 3 of the 25th Amendment to the Agreement. Reimbursable Expenses are additional. 5. For the fees set forth below, Customer desires to receive, and CSG is willing to grant, a perpetual license to use CSG Statement Express(TM) on an additional (***) workstations. 2 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." Statement Express ----------------- Perpetual license for (***) workstations $ (***) Price excludes third party software, hardware, implementation, installation and customization. Annual maintenance for (***) workstations $ (***) Initial maintenance period is between the date of execution of this Amendment through December 31, 2000. Thereafter, maintenance fees will apply to calendar years. Implementation - per site $ (***) Implementation includes services outlined in Exhibit T-3 of the Agreement. Reimbursable Expenses are additional. Statement Archive Fee - per data frame $ (***) -------------------------------------- Monthly Statement Archive Fee Minimums: Contract execution through December 31, 1999 $ (***) January 1, 2000 through June 30, 2000 $ (***) July 1, 2000 through December 31, 2004 $ (***) 6. In addition to the implementation services described above as part of annual maintenance, Customer shall receive one (1) annual refresher T3 (train-the-trainer) session per System Site at which the products or services provided as part of the Package are installed, not to exceed a total of fifteen (15) sessions per year. If any such session is held at a location other than a CSG training facility, Customer shall be responsible for CSG's Reimbursable Expenses. 7. Payment Terms ------------- Except as noted in this paragraph 7, the terms and conditions set forth in the Agreement shall apply with respect to products or services provided as part of the Package. Payment of the license fees and maintenance fees for the initial maintenance term shall be as follows: Due 45 days from date of execution of this Amendment by Customer $ (***) Due October 15, 1999 $ (***) Due January 15, 2000 $ (***) Due March 15, 2000 $ (***) Due June 15, 2000 $ (***) Implementation services will be invoiced upon completion of work. Statement archive fees will be invoiced monthly. THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery -------------------------- ------------------------------------- Name: Joseph T. Ruble Name: Ann Montgomery -------------------------- ------------------------------------- Title: V.P. & General Counsel Title: EVP Fulfillment Services & Operations -------------------------- -------------------------------------- 3 EXHIBIT 2.19I Pages where confidential treatment has been requested are stamped "Confidential Treatment Requested and the Redacted Material has been seperately filed with the Commission" and places where information has been radacted have been marked with (***). SCHEDULE Q CSG WORKFORCE EXPRESS --------------------- This Schedule Q is made as of this 30th day of June, 1999, between CSG Systems, ---------- Inc. ("CSG"), and TCI Cable Management Corporation ("Customer"), pursuant to the CSG Systems Master Subscriber Management Agreement executed as of August 8, 1997 (the "Master Agreement"), and of which this Schedule Q forms an integral part. ---------- 1. License. Subject to Section 26 of the Master Agreement, CSG hereby grants Customer, and Customer hereby accepts from CSG, a non-exclusive, non- transferable and perpetual right to use the software products known as CSG TechNet and CSG Workforce Management (collectively, the "CSG Workforce ExpressSM Products"), which are end-user software products that may be utilized by Customer in conjunction with CSG's CCS or ACSR billing products in the designated environment described in Section 3 below (the "Designated Environment"), for the fees set forth in Schedule D, at the System Sites and ---------- number of workstations described in Exhibit Q-2, and subject to the terms and conditions specified below and in the Master Agreement. "CSG Workforce Express " includes (i) the CSG Workforce Express Products servers resident on CSG's centralized equipment and (ii) the CSG Workforce Express Products clients which run on the designated client equipment specified in Section 3 below. Customer will not permit any person other than Customer's employees, consultants or designees (such as other contract installers or third party dispatchers) to access the CSG Workforce Express Products. Customer will not download or otherwise copy or decompile, disassemble or otherwise reverse engineer the CSG Workforce Express Products or any software accessed through CSG Workforce Express Products. Nothing in this Schedule Q will entitle Customer to receive ---------- the source code of the CSG Workforce Express Products or Enhancements, in whole or in part. With respect to Products and Services set forth in this Schedule Q and/or the 30th Amendment, CSG and Customer agree that, except as otherwise expressly agreed in writing between the parties, their rights and obligations relating thereto are set forth in the Master Agreement, and the execution of this Schedule Q and/or the 30th Amendment shall not be deemed or construed to alter, impair create or evidence such rights or obligations. 2. Communication Lines. Customer shall be responsible for the installation and use of data communications lines from Customer's applications to the CSG Workforce Express Products and all associated fees and charges. 3. Designated Environment. "Designated Environment" means the combination of the other computer programs and hardware equipment as specified by CSG. CSG will be solely responsible for upgrading the server portion of the Designated Environment to the certified specifications that CSG provides. If Customer alters the client portion of the Designated Environment, CSG will have no obligation to continue maintaining and supporting the CSG Workforce Express Products. CSG shall certify the Designated Environment prior to the commencement of CSG's obligations under this Schedule Q, including its obligations to ---------- maintain and support the CSG Workforce Express Products. Any other use or transfer of the CSG Workforce Express Products will require CSG's prior approval, which may be subject to additional charges. 4. Support. For the fees set forth in Schedule D, CSG will provide ---------- Customer its standard support and maintenance of the then-current version of the CSG Workforce Express Products (the "Support Services"). Customer agrees to pay the fees set forth in Schedule D, which are identified in Schedule D as ----------- ---------- maintenance fees, for the Support Services for the term of this Master Agreement. Included in the Support Services is support of the then-current version of the CSG Workforce Express Products via the Product Support Center, publication updates, and the fixes and updates that CSG may make generally available as part of its maintenance and support packages (the "Updates"). The Updates will not include any upgrade or new version of the CSG Workforce Express Products that CSG decides, in its sole discretion, to make generally available as a separately priced item. In such a case, Customer may decide, at its sole option, whether to install an 1 Update. This Section will not be interpreted to require CSG to (i) develop and release Updates or (ii) customize the Updates to satisfy Customers' particular requests. 5. Monthly Operations Services. For the fees set forth in Schedule D, CSG shall provide and Customer shall purchase the CSG Workforce Express monthly operations services set forth in Exhibit Q-3. 6. Term. The term of this Schedule Q shall begin on the date set forth above ---------- and shall continue in effect for the term of the Master Agreement, unless terminated pursuant to Section 16 thereof. Agreed and accepted this 30th day of June, 1999, by: CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION ("Customer") By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery ------------------------------ ---------------------------- EXHIBIT Q-1 DESIGNATED ENVIRONMENT EXHIBIT Q-2 SYSTEM SITES AND WORKSTATIONS EXHIBIT Q-3 MONTHLY OPERATIONS SERVICES 2 EXHIBIT Q-1 ----------- DESIGNATED ENVIRONMENT FOR THE CSG WORKFORCE EXPRESS PRODUCTS -------------------------------------------------------------- The Support Services do not include support of the CSG Workforce Express Products if the Product Components are used outside the certified Designated Environment (i.e. other hardware, software, or other modifications have been introduced by Customer that are outside the certified Designated Environment). In such a case, CSG may agree to provide customized technical support for CSG's then-current fees for such services. OPERATING SYSTEM SUPPORT & NETWORK SUPPORT - ------------------------------------------ NT 4.0 (or a later version as supported by CSG at CSG's sole discretion) PocketNet(TM) (CSG TechNet) handheld device or other device supported by CSG Processor: Intel Pentium II, 166 MHz or higher (200MHz recommended) Operating System: Windows NT 4.0 with Service Pack 3 Memory: 96 MB or higher Network Connection: Ethernet 10/100 Card Monitor: 17" display minimum (19" recommended) Must support 1024 x 768 screen resolution and 65,536 colors Video Card: Must support 1024 x 768 screen resolution and 65,536 colors Recommended card: Matrox Millenium II Graphics Controller, 4 MB, Part No. 270246-B21 Hard Drive Space Required: 500 MB CD-ROM: 4X minimum Other Equipment: Keyboard and mouse Postscript printer (24 ppm), which can be shared with other Work Force Management workstations
3 "Confidential Treatment Requested and the Redacted Material has been seperately filed with the Commission." EXHIBIT Q-2 ----------- SYSTEM SITES AND WORKSTATIONS ----------------------------- System Sites: - ------------- Denver, CO TBD Number of Licenses: - -------------------- Workforce Express Subscribers: (***) Workforce Express Workstations: (***) TechNet: (***)
4 EXHIBIT Q-3 ----------- CSG WORKFORCE EXPRESS MONTHLY OPERATIONS SERVICES ------------------------------------------------- Database Administration Database Backup and Recovery - CSG will be responsible for the integrity of the database and backing up client data stored in the database. Backup Tape Management - CSG will provide the capability to place client data on magnetic tape for archival purposes. Offsite Tape Storage - CSG will be responsible for providing a process by which database backups are stored offsite. The methodology and frequency are at the discretion of the CSG Operations department. Database Tuning - CSG will be responsible for engineering database solutions that allow our customers to meet their business needs. Functions included under this category are tablespace maintenance, buffer efficiencies, user maintenance which includes password security, user creation and user profile management. Database Performance Monitoring - CSG will provide automated monitoring solutions that will allow CSG to proactively respond to problems before they lead to an outage situation. An example of a monitored function would be tablespace extent allocations. System Administration User Administration - CSG will be responsible for all user id's and passwords for all CSG application and UNIX server accounts. Application and Server Security - CSG will closely manage the access to all servers in the service bureau environment. Only CSG certified System Administrators will have root access. Application Engineering and Configuration - CSG will be responsible for overall system usability and availability. CSG will be responsible for maintaining the currency of any vendor software required by the application. Hardware Configuration Management - CSG is responsible for hardware configuration of the server , network access to the server, and server peripheral hardware. OS Configuration Management - CSG is responsible for maintaining the currency of the server operating system by installing fixes and upgrading to new levels of the operating system when required. Operating System Backup and Recovery - CSG will be responsible for maintaining operating system backups. A backup would include the operating system itself as well as all pertinent application configuration elements. Offsite Tape Storage - CSG will be responsible for providing a process by which operating system backups are stored offsite. The methodology and frequency are at the discretion of the CSG Operations department. Resource Analysis and Capacity Planning - CSG will be responsible for server and disk sizing to meet current and future customer volume requirements. 5 Operations Support Operations - CSG will be responsible for 24x7 monitoring of the server hardware, operating system and applications. CSG will proactively detect issues with any failing component and contact the appropriate support personnel to return the failing component to operation. Service Level Reporting - CSG will provide service level reporting server hardware, software and application on a monthly basis to be made available to the customer. 6 EX-10.3 3 1996 STOCK INCENTIVE PLAN EXHIBIT 10.03 [As amended through 5-20-99] CSG SYSTEMS INTERNATIONAL, INC. 1996 STOCK INCENTIVE PLAN 1. Purpose. The purpose of the CSG Systems International, Inc. 1996 Stock Incentive Plan (the "Plan") is to foster and promote the long-term financial success of the Company and its Subsidiaries and thereby increase stockholder value by providing incentives to those officers and other key employees who are likely to be responsible for achieving such success. 2. Certain Definitions. "Board" means the Board of Directors of the Company. "Code" means the Internal Revenue Code of 1986, as amended from time to time, or any successor thereto. References to a particular section of the Code shall include any regulations issued under such section. "Committee" shall have the meaning provided in Section 3 of the Plan. "Common Stock" means the Common Stock, $0.01 par value per share, of the Company. "Company" means CSG Systems International, Inc., a Delaware corporation. "Disability" means (i) with respect to the exercise of an Incentive Stock Option after termination of employment, a disability within the meaning of Section 22(e)(3) of the Code and (ii) for all other purposes, a mental or physical condition which, in the opinion of the Committee, renders a grantee unable or incompetent to carry out the job responsibilities which such grantee held or the tasks to which such grantee was assigned at the time the disability was incurred and which is expected to be permanent or for an indefinite duration exceeding one year. "Exchange Act" means the Securities Exchange Act of 1934, as amended from time to time. "Fair Market Value" means, as determined by the Committee, the last sale price of the Common Stock as quoted on the Nasdaq National Market System on the trading day for which the determination is being made, or, in the event that no such sale takes place on such day, the average of the reported closing bid and asked prices on such day, or, if the Common Stock of the Company is listed on a national securities exchange, the last reported sale price on the principal national securities exchange on which the Common Stock is listed or admitted to trading on the trading day for which the determination is being made, or, if no such reported sale takes place on such day, the average of the closing bid and asked prices on such day on the principal national securities exchange on which the Common Stock is listed or admitted to trading, or, if the Common Stock is not quoted on such National Market System nor listed or admitted to trading on a national securities exchange, the average of the closing bid and asked prices in the over-the-counter market on the day for which the determination is being made as reported through Nasdaq, or, if bid and asked prices for the Common Stock on such day are not reported through Nasdaq, the average of the bid and asked prices for such day as furnished by any New York Stock Exchange member firm regularly making a market in the Common Stock selected for such purpose by the Committee, or, if none of the foregoing is applicable, then the fair market value of the Common Stock as determined in good faith by the Committee in its sole discretion. "Incentive Stock Option" means any stock option intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Code. "Non-Qualified Stock Option" means any stock option that is not intended to be an Incentive Stock Option, including any stock option that provides (as of the time such option is granted) that it will not be treated as an Incentive Stock Option. "Parent Corporation" means any corporation (other than the Company) in an unbroken chain of corporations ending with the Company if, at the time of the granting of the option, each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain. "Performance Unit Award" means an award granted pursuant to Section 8. "Plan Year" means the twelve-month period beginning on January 1 and ending on December 31; provided, that the first Plan Year shall be a short Plan Year beginning on January 3, 1996, and ending on December 31, 1996. "Restricted Stock Award" means an award of Common Stock granted pursuant to Section 9. "Rule 16b-3" means Rule 16b-3 under the Exchange Act, as in effect from time to time. "Stock Appreciation Right" means an award granted pursuant to Section 7. "Stock Bonus Award" means an award of Common Stock granted pursuant to Section 10. "Stock Option" means any option to purchase Common Stock granted pursuant to Section 6. "Subsidiary" means (i) as it relates to Incentive Stock Options, any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company if, at the time of the granting of the option, each of the corporations (other than the last corporation in the unbroken chain) owns stock possessing 50% or more of the total combined voting power of all 2 classes of stock in one of the other corporations in such chain and (ii) for all other purposes, a corporation, domestic or foreign, of which not less than 50% of the voting shares are held by the Company or by a Subsidiary, whether or not such corporation now exists or hereafter is organized or acquired by the Company or by a Subsidiary. 3. Administration. The Plan shall be administered by a committee composed solely of two or more members of the Board (the "Committee") selected by the Board, each of whom shall qualify as a "Non-Employee Director" within the meaning of Rule 16b-3 and as an "outside director" within the meaning of Section 162(m) of the Code. The Committee shall have authority to grant to eligible employees of the Company or its Subsidiaries, pursuant to the terms of the Plan, (a) Stock Options, (b) Stock Appreciation Rights, (c) Restricted Stock Awards, (d) Performance Unit Awards, (e) Stock Bonus Awards, or (f) any combination of the foregoing. Subject to the applicable provisions of the Plan, the Committee shall have authority to interpret the provisions of the Plan and to decide all questions of fact arising in the application of such provisions; to select the officers and other key employees to whom awards or options shall be granted under the Plan; to determine whether and to what extent awards or options shall be granted under the Plan; to determine the types of awards and options to be granted under the Plan and the amount, size, terms and conditions of each such award or option; to determine the time when awards or options shall be granted under the Plan; to determine whether, to what extent and under what circumstances the payment of Common Stock and other amounts payable with respect to an award granted under the Plan shall be deferred either automatically or at the election of the grantee; to determine the Fair Market Value of the Common Stock from time to time; to authorize persons to execute on behalf of the Company any agreement required to be entered into under the Plan; to adopt, alter and repeal such administrative rules, guidelines and practices governing the Plan as the Committee from time to time shall deem advisable; and to make all other determinations necessary or advisable for the administration of the Plan. Unless otherwise expressly provided in the Plan, all decisions and determinations made by the Committee pursuant to the provisions of the Plan shall be made in the sole discretion of the Committee and shall be final and binding on all persons, including but not limited to the Company and its Subsidiaries, the officers and other key employees to whom awards and options are granted under the Plan, the heirs and legal representatives of such officers and key employees, and the personal representatives and beneficiaries of the estates of such officers and key employees. The Committee may delegate to any officer or officers of the Company any of the Committee's duties, powers, and authorities under the Plan upon such conditions and with such limitations as the Committee may determine; provided, that only the Committee may select for awards or options under the Plan, and make grants of awards or options under the Plan to, officers and other key employees of the Company or any Subsidiary who are subject to Section 16 of the Exchange Act at the time of such selection or the making of such a grant. 3 4. Common Stock Subject to the Plan. Subject to adjustment pursuant to Section 19, the maximum number of shares of Common Stock which may be issued under the Plan on and after May 20, 1999, is the sum of (a) the number of shares of Common Stock which were subject to outstanding Stock Options as of May 19, 1999, plus (b) the number of shares of Common Stock available for, but not yet subject to, the grant of an award or option under the Plan as of May 19, 1999, plus (c) 3,000,000 shares of Common Stock; and the Company shall reserve and keep available for issuance under the Plan such maximum number of shares, subject to adjustment pursuant to Section 19. Such shares may consist in whole or in part of authorized and unissued shares or treasury shares or any combination thereof. The aggregate number of shares of Common Stock subject to or issuable in payment of (i) Stock Options, (ii) Stock Appreciation Rights, (iii) Stock Bonus Awards, (iv) Restricted Stock Awards or (v) Performance Unit Awards granted under the Plan in any Plan Year to any individual may not exceed 480,000, subject to adjustment pursuant to Section 19. Except as otherwise provided in the Plan, any shares subject to an option or right which expires for any reason or terminates unexercised as to such shares shall again be available for the grant of awards or options under the Plan. If any shares of Common Stock have been pledged as collateral for indebtedness incurred by an optionee in connection with the exercise of a Stock Option and such shares are returned to the Company in satisfaction of such indebtedness, then such shares shall again be available for the grant of awards or options under the Plan. 5. Eligibility to Receive Awards and Options. Awards and options may be granted under the Plan to those officers and other key employees of the Company or any Subsidiary who are responsible for or contribute to, or are likely to be responsible for or contribute to, the management, growth and success of the Company or any Subsidiary. The granting of an award or option under the Plan to an officer or other key employee of the Company or any Subsidiary shall conclusively evidence the Committee's determination that such grantee meets one or more of the criteria referred to in the preceding sentence. Directors of the Company or of any Subsidiary who are not employees of the Company or any Subsidiary shall not be eligible to participate in the Plan. 6. Stock Options. A Stock Option may be an Incentive Stock Option or a Non-Qualified Stock Option. To the extent that any Stock Option does not qualify as an Incentive Stock Option, it shall constitute a separate Non- Qualified Stock Option. Stock Options may be granted alone or in addition to other awards made under the Plan. Stock Options shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Type of Option. Each option agreement shall identify the Stock Option represented thereby as an Incentive Stock Option or a Non-Qualified Stock Option, as the case may be. (b) Option Price. The option exercise price per share shall not be less than the Fair Market Value of the Common Stock on the date the Stock Option is granted and in no event shall be less than the par value of the Common Stock. 4 (c) Term. Each option agreement shall state the period or periods of time within which the Stock Option may be exercised, in whole or in part, which shall be such period or periods of time as the Committee may determine at the time of the Stock Option grant; provided, that no Stock Option granted under the Plan shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Option granted under the Plan shall become exercisable one year after the date of its grant, unless the option agreement specifically provides otherwise. The Committee shall have authority to accelerate previously established exercise rights, subject to the requirements set forth in the Plan, under such circumstances and upon such terms and conditions as the Committee shall deem appropriate. (d) Payment for Shares. The Committee may permit all or part of the payment of the option exercise price to be made (i) in cash, by check or by wire transfer or (ii) in shares of Common Stock (A) which already are owned by the optionee and which are surrendered to the Company in good form for transfer or (B) which are retained by the Company from the shares of the Common Stock which would otherwise be issued to the optionee upon the optionee's exercise of the Stock Option. Such shares shall be valued at their Fair Market Value on the date of exercise of the Stock Option. In lieu of payment in fractions of shares, payment of any fractional share amount shall be made in cash or check payable to the Company. The Committee also may provide that the exercise price may be paid by delivering a properly executed exercise notice in a form approved by the Committee together with irrevocable instructions to a broker to promptly deliver to the Company the amount of the applicable sale or loan proceeds required to pay the exercise price. No shares of Common Stock shall be issued to any optionee upon the exercise of a Stock Option until the Company receives full payment therefor as described above. (e) Rights upon Termination of Employment. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries for any reason other than such optionee's death or Disability, any rights of the optionee under any Stock Option then in effect immediately shall terminate; provided, that the optionee (or the optionee's legal representative) shall have the right to exercise the Stock Option during its term within a period of three (3) months after such termination of employment to the extent that the Stock Option was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. Notwithstanding the foregoing provisions of this Section 6(e), the optionee (and the optionee's legal representative) shall not have any rights under any Stock Option, and the Company shall not be obligated to sell or deliver shares of Common Stock (or have any other obligation or liability) under any Stock Option, if the Committee shall determine that (i) the employment of the optionee with the Company or any Subsidiary has been terminated for cause or (ii) the optionee has engaged or may engage in employment or activities competitive with the Company or any Subsidiary or contrary, in the opinion of the Committee, to the best interests of the Company or any Subsidiary. In the event of such determination, the optionee (and the optionee's legal representative) shall have no right under any Stock Option to purchase any shares of 5 Common Stock regardless of whether the optionee (or the optionee's legal representative) shall have delivered a notice of exercise prior to the Committee's making of such determination. Any Stock Option may be terminated entirely by the Committee at the time of or at any time subsequent to a determination by the Committee under this Section 6(e) which has the effect of eliminating the Company's obligation to sell or deliver shares of Common Stock under such Stock Option. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries by reason of such optionee's Disability, prior to the expiration of a Stock Option and without such optionee's having fully exercised such Stock Option, such optionee or such optionee's legal representative shall have the right to exercise such Stock Option during its term within a period of six (6) months after such termination of employment to the extent that such Stock Option was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. In the event that an optionee ceases to be employed by the Company and all of its Subsidiaries by reason of such optionee's death, prior to the expiration of a Stock Option and without such optionee's having fully exercised such Stock Option, the personal representative of such optionee's estate or the person who acquired the right to exercise such Stock Option by bequest or inheritance from such optionee shall have the right to exercise such Stock Option during its term within a period of twelve (12) months after the date of such optionee's death to the extent that such Stock Option was exercisable at the time of such death or within such other period and subject to such other terms and conditions as may be specified by the Committee. To the extent that the aggregate Fair Market Value (determined as of the time the option is granted) of the Common Stock with respect to which Incentive Stock Options granted under the Plan (and all other plans of the Company and its Subsidiaries) become exercisable for the first time by any individual in any calendar year exceeds $100,000, such Stock Options shall be treated as Non- Qualified Stock Options. No Incentive Stock Option shall be granted to any employee if, at the time the option is granted, the employee (in his or her own right or by reason of the attribution rules applicable under Section 424(d) of the Code) owns more than 10% of the total combined voting power of all classes of stock of the Company or any Parent Corporation or Subsidiary unless at the time such option is granted the option price is at least 110% of the Fair Market Value of the stock subject to such Stock Option and such Stock Option by its terms is not exercisable after the expiration of five years from the date of its grant. 7. Stock Appreciation Rights. Stock Appreciation Rights shall enable the grantees thereof to benefit from increases in the Fair Market Value of shares of Common Stock and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: 6 (a) Award. A Stock Appreciation Right shall entitle the grantee, subject to such terms and conditions as the Committee may prescribe, to receive upon the exercise thereof an award equal to all or a portion of the excess of (i) the Fair Market Value of a specified number of shares of Common Stock at the time of the exercise of such right over (ii) a specified price which shall not be less than the Fair Market Value of the Common Stock at the time the right is granted or, if connected with a previously granted Stock Option, not less than the Fair Market Value of the Common Stock at the time such Stock Option was granted. Subject to the limitations set forth in Section 4, such award may be paid by the Company in cash, shares of Common Stock (valued at their then Fair Market Value) or any combination thereof, as the Committee may determine. Stock Appreciation Rights may be, but are not required to be, granted in connection with a previously or contemporaneously granted Stock Option. In the event of the exercise of a Stock Appreciation Right, the number of shares reserved for issuance under the Plan shall be reduced by the number of shares covered by the Stock Appreciation Right as to which such exercise occurs. (b) Term. Each agreement shall state the period or periods of time within which the Stock Appreciation Right may be exercised, in whole or in part, subject to such terms and conditions prescribed for such purpose by the Committee; provided, that no Stock Appreciation Right shall be exercisable more than ten years after the date of its grant; and provided further, that each Stock Appreciation Right granted under the Plan shall become exercisable one year after the date of its grant, unless the agreement specifically provides otherwise. The Committee shall have authority to accelerate previously established exercise rights, subject to the requirements set forth in the Plan, under such circumstances and upon such terms and conditions as the Committee shall deem appropriate. (c) Rights upon Termination of Employment. In the event that a grantee of a Stock Appreciation Right ceases to be employed by the Company and all of its Subsidiaries for any reason other than such grantee's death or Disability, any rights of the grantee under any Stock Appreciation Right then in effect immediately shall terminate; provided, that the grantee (or the grantee's legal representative) shall have the right to exercise the Stock Appreciation Right during its term within a period of three (3) months after such termination of employment to the extent that the Stock Appreciation Right was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. Notwithstanding the foregoing provisions of this Section 7(c), the grantee (and the grantee's legal representative) shall not have any rights under any Stock Appreciation Right, and the Company shall not be obligated to pay or deliver any cash, Common Stock or any combination thereof (or have any other obligation or liability) under any Stock Appreciation Right, if the Committee shall determine that (i) the employment of the grantee with the Company or any Subsidiary has been terminated for cause or (ii) the grantee has engaged or may engage in employment or activities competitive with the Company or any Subsidiary or contrary, in the opinion of the Committee, to the best interests of the Company or any Subsidiary. In the event of such determination, the grantee (and the grantee's legal representative) shall have no right under any Stock 7 Appreciation Right regardless of whether the grantee (or the grantee's legal representative) shall have delivered a notice of exercise prior to the Committee's making of such determination. Any Stock Appreciation Right may be terminated entirely by the Committee at the time of or at any time subsequent to a determination by the Committee under this Section 7(c) which has the effect of eliminating the Company's obligations under such Stock Appreciation Right. In the event that a grantee of a Stock Appreciation Right ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's Disability, prior to the expiration of a Stock Appreciation Right and without such grantee's having fully exercised such Stock Appreciation Right, such grantee or such grantee's legal representative shall have the right to exercise such Stock Appreciation Right during its term within a period of six (6) months after such termination of employment to the extent that such Stock Appreciation Right was exercisable at the time of such termination or within such other period and subject to such other terms and conditions as may be specified by the Committee. In the event that a grantee ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's death, prior to the expiration of a Stock Appreciation Right and without such grantee's having fully exercised such Stock Appreciation Right, the personal representative of the grantee's estate or the person who acquired the right to exercise such Stock Appreciation Right by bequest or inheritance from such grantee shall have the right to exercise such Stock Appreciate Right during its term within a period of twelve (12) months after the date of such grantee's death to the extent that such Stock Appreciation Right was exercisable at the time of such death or within such other period and subject to such other terms and conditions as may be specified by the Committee. 8. Performance Unit Awards. Performance Unit Awards shall entitle the grantees thereof to receive future payments based upon and subject to the achievement of preestablished long-term performance targets and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Performance Period. The Committee shall establish with respect to each Performance Unit Award a performance period of not fewer than two years nor more than five years. (b) Unit Value. The Committee shall establish with respect to each Performance Unit Award a value for each unit which shall not change thereafter or which may vary thereafter on the basis of criteria specified by the Committee. (c) Performance Targets. The Committee shall establish with respect to each Performance Unit Award maximum and minimum performance targets to be achieved during the applicable performance period. The achievement of the maximum targets 8 shall entitle a grantee to payment with respect to the full value of a Performance Unit Award. The achievement of less than the maximum targets, but in excess of the minimum targets, shall entitle a grantee to payment with respect to a portion of a Performance Unit Award according to the level of achievement of the applicable targets as specified by the Committee. To the extent the Committee deems necessary or appropriate to protect against the loss of deductibility pursuant to Section 162(m) of the Code, such targets shall be established in conformity with the requirements of Section 162(m) of the Code. (d) Performance Measures. Performance targets established by the Committee shall relate to corporate, division, subsidiary, group or unit performance in terms of objective financial criteria or performance goals which satisfy the requirements of Section 162(m) of the Code or, with respect to grantees not subject to Section 162(m) of the Code, such other measures or standards of performance as the Committee may determine. Multiple targets may be used and may have the same or different weighting, and the targets may relate to absolute performance or relative performance measured against other companies, businesses or indexes. (e) Adjustments. At any time prior to the payment of a Performance Unit Award, the Committee may adjust previously established performance targets or other terms and conditions of such Performance Unit Award, including the Company's or another company's financial performance for Plan purposes, in order to reduce or eliminate, but not to increase, the payment with respect to a Performance Unit Award that otherwise would be due upon the attainment of such previously established performance targets. Such adjustments shall be made to reflect major unforeseen events such as changes in laws, regulations or accounting practices, mergers, acquisitions or divestitures or other extraordinary, unusual or nonrecurring items or events. (f) Payment of Performance Unit Awards. Upon the conclusion of each performance period, the Committee shall determine the extent to which the applicable performance targets have been attained and any other terms and conditions have been satisfied for such period and shall provide such certification thereof as may be necessary to satisfy the requirements of Section 162(m) of the Code. The Committee shall determine what, if any, payment is due on a Performance Unit Award and, subject to the limitations set forth in Section 4, whether such payment shall be made in cash, shares of Common Stock (valued at their then Fair Market Value) or a combination thereof. Payment of a Performance Unit Award shall be made in a lump sum or in installments, as determined by the Committee, commencing as promptly as practicable after the end of the performance period unless such payment is deferred upon such terms and conditions as may be specified by the Committee. (g) Termination of Employment. In the event that a grantee of a Performance Unit Award ceases to be employed by the Company and all of its Subsidiaries for any reason other than such grantee's death or Disability, any rights of such grantee under any Performance Unit Award then in effect whose performance period has not ended shall terminate immediately; provided, that the Committee may authorize the partial payment 9 of any such Performance Unit Award if the Committee determines such action to be equitable. In the event that a grantee of a Performance Unit Award ceases to be employed by the Company and all of its Subsidiaries by reason of such grantee's death or Disability, any rights of such grantee under any Performance Unit Award then in effect whose performance period has not ended shall terminate immediately; provided, that the Committee may authorize the payment to such grantee or such grantee's legal representative of all or any portion of such Performance Unit Award to the extent earned under the applicable performance targets, even though the applicable performance period has not ended, upon such terms and conditions as may be specified by the Committee. 9. Restricted Stock Awards. Restricted Stock Awards shall consist of shares of Common Stock restricted against transfer, subject to a substantial risk of forfeiture and to other terms and conditions intended to further the purpose of the Plan as the Committee may determine, and shall be evidenced by agreements in such form as the Committee shall approve from time to time. The agreements shall contain in substance the following terms and conditions and may contain such additional terms and conditions, not inconsistent with the terms of the Plan, as the Committee shall deem appropriate: (a) Restriction Period. The Common Stock covered by Restricted Stock Awards shall be subject to the applicable restrictions established by the Committee over such period as the Committee shall determine. To the extent the Committee deems necessary or appropriate to protect against the loss of deductibility pursuant to Section 162(m) of the Code, Restricted Stock Awards also may be subject to the attainment of one or more preestablished performance objectives which relate to corporate, subsidiary, division, group or unit performance in terms of objective financial criteria or performance goals which satisfy the requirements of Section 162(m) of the Code; provided, that any such preestablished financial criteria or performance goals subsequently may be adjusted by the Committee to reduce or eliminate, but not to increase, a Restricted Stock Award in order to take into account unforeseen events or changes in circumstances. (b) Restriction upon Transfer. Shares of Common Stock covered by Restricted Stock Awards may not be sold, assigned, transferred, exchanged, pledged, hypothecated or otherwise encumbered, except as provided in the Plan or in any Restricted Stock Award agreement entered into between the Company and a grantee, during the restriction period applicable to such shares. Notwithstanding the foregoing provisions of this Section 9(b), and except as otherwise provided in the Plan or the applicable Restricted Stock Award agreement, a grantee of a Restricted Stock Award shall have all of the other rights of a holder of Common Stock including but not limited to the right to receive dividends and the right to vote such shares. (c) Payment. The Committee shall determine the amount, form and time of payment, if any, that shall be required from the grantee of a Restricted Stock Award in consideration of the issuance and delivery of the shares of Common Stock covered by such Restricted Stock Award. 10 (d) Certificates. Each certificate issued in respect of shares of Common Stock covered by a Restricted Stock Award shall be registered in the name of the grantee and shall bear the following legend (in addition to any other legends which may be appropriate): "This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CSG Systems International, Inc. 1996 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and CSG Systems International, Inc. Release from such terms and conditions may be obtained only in accordance with the provisions of such Plan and Agreement, a copy of each of which is on file in the office of the Secretary of CSG Systems International, Inc." The Committee may require the grantee of a Restricted Stock Award to enter into an escrow agreement providing that the certificates representing the shares covered by such Restricted Stock Award will remain in the physical custody of an escrow agent until all restrictions are removed or expire. The Committee also may require that the certificates held in such escrow be accompanied by a stock power, endorsed in blank by the grantee, relating to the Common Stock covered by such certificates. (e) Lapse of Restrictions. Except for preestablished performance objectives established with respect to Restricted Stock Awards to grantees subject to Section 162(m) of the Code, the Committee may provide for the lapse of restrictions applicable to Common Stock subject to Restricted Stock Awards in installments and may waive such restrictions in whole or in part based upon such factors and such circumstances as the Committee shall determine. Upon the lapse of such restrictions, certificates for shares of Common Stock, free of the restrictive legend set forth in Section 9(c), shall be issued to the grantee or the grantee's legal representative. The Committee shall have authority to accelerate the expiration of the applicable restriction period with respect to all or any portion of the shares of Common Stock covered by a Restricted Stock Award except, with respect to grantees subject to Section 162(m) of the Code, to the extent such acceleration would result in the loss of the deductibility of such Restricted Stock Award pursuant to Section 162(m) of the Code. (f) Termination of Employment. In the event that a grantee of a Restricted Stock Award ceases to be employed by the Company and all of its Subsidiaries for any reason, any rights of such grantee with respect to shares of Common Stock that remain subject to restrictions under such Restricted Stock Award shall terminate immediately, and any shares of Common Stock covered by a Restricted Stock Award with unlapsed restrictions shall be subject to reacquisition by the Company upon the terms set forth in the applicable agreement with such grantee. The Committee may provide for complete or partial exceptions to such employment requirement if the Committee determines such action to be equitable. 11 10. Stock Bonus Awards. The Committee may grant a Stock Bonus Award to an eligible grantee under the Plan based upon corporate, division, subsidiary, group or unit performance in terms of preestablished objective financial criteria or performance goals or, with respect to participants not subject to Section 162(m) of the Code, such other measures or standards of performance (including but not limited to performance already accomplished) as the Committee may determine; provided, that any such preestablished financial criteria or performance goals subsequently may be adjusted to reduce or eliminate, but not to increase, a Stock Bonus Award in order to take into account unforeseen events or changes in circumstances. If appropriate in the sole discretion of the Committee, Stock Bonus Awards shall be evidenced by agreements in such form as the Committee shall approve from time to time. In addition to any applicable performance goals or standards and subject to the terms of the Plan, shares of Common Stock which are the subject of a Stock Bonus Award may be (i) subject to additional restrictions (including but not limited to restrictions on transfer) or (ii) granted directly to a grantee free of any restrictions, as the Committee shall deem appropriate. 11. General Restrictions. Each award or grant under the Plan shall be subject to the requirement that if at any time the Committee shall determine that (i) the listing, registration or qualification of the shares of Common Stock subject or related thereto upon any securities exchange or under any state or federal law, (ii) the consent or approval of any governmental regulatory body, or (iii) an agreement by the grantee of an award or grant with respect to the disposition of the shares of Common Stock subject or related thereto is necessary or desirable as a condition of, or in connection with, such award or grant or the issuance or purchase of shares of Common Stock thereunder, then such award or grant may not be consummated and any rights thereunder may not be exercised in whole or in part unless such listing, registration, qualification, consent, approval or agreement shall have been effected or obtained upon conditions acceptable to the Committee. Awards or grants under the Plan shall be subject to such additional terms and conditions, not inconsistent with the Plan, as the Committee in its sole discretion deems necessary or desirable, including but not limited to such terms and conditions as are necessary to enable a grantee to avoid any short-swing profit recapture liability under Section 16 of the Exchange Act. 12. Single or Multiple Agreements. Multiple forms of awards or grants or combinations thereof may be evidenced either by a single agreement or by multiple agreements, as determined by the Committee. 13. Rights of a Stockholder. Unless otherwise provided by the Plan, the grantee of any award or grant under the Plan shall have no rights as a stockholder of the Company with respect to the shares of Common Stock subject or related to such award or grant unless and until certificates for such shares of Common Stock are issued to such grantee. 14. No Right to Continue Employment. Nothing in the Plan or in any agreement entered into pursuant to the Plan shall confer upon any grantee the right to continue in the employment of the Company or any Subsidiary or affect any right which the Company or any Subsidiary may have to terminate the employment of any grantee with or without cause. 12 15. Withholding. The Company's obligation to (i) deliver shares of Common Stock or pay cash upon the exercise of any Stock Option or Stock Appreciation Right, (ii) deliver shares of Common Stock or pay cash in payment of any Performance Unit Award, (iii) deliver stock certificates upon the vesting of any Restricted Stock Award, and (iv) deliver shares of Common Stock upon the grant of any Stock Bonus Award shall be subject to applicable federal, state and local tax withholding requirements. In the discretion of the Committee, amounts required to be withheld for taxes may be paid by the grantee in cash or shares of Common Stock (either through the surrender of previously held shares of Common Stock or the withholding of shares of Common Stock otherwise issuable upon the exercise or payment of such Stock Option, Stock Appreciation Right or Award) having a Fair Market Value equal to the required tax withholding amount and upon such other terms and conditions as the Committee shall determine; provided, that any election by a grantee subject to Section 16(b) of the Exchange Act to pay any tax withholding in shares of Common Stock shall be subject to and must comply with any applicable rules under Section 16(b) of the Exchange Act. 16. Indemnification. No member of the Board or the Committee, nor any officer or employee of the Company or a Subsidiary acting on behalf of the Board or the Committee, shall be personally liable for any action, determination or interpretation taken or made in good faith with respect to the Plan; and all members of the Board or the Committee and each and any officer or employee of the Company or any Subsidiary acting on their behalf shall, to the extent permitted by law, be fully indemnified and protected by the Company in respect of any such action, determination or interpretation. 17. Non-Assignability. No award or grant under the Plan shall be assignable or transferable by the recipient thereof except by will, by the laws of descent and distribution or, in the case of awards or grants other than Incentive Stock Options, pursuant to a qualified domestic relations order or by such other means (if any) as the Committee may approve from time to time with respect to holders whose transactions in the Common Stock are not subject to Section 16(b) of the Exchange Act. No right or benefit under the Plan shall in any manner be subject to the debts, contracts, liabilities or torts of the person entitled to such right or benefit. 18. Nonuniform Determinations. The Committee's determinations under the Plan (including but not limited to determinations of the persons to receive awards or grants, the form, amount and timing of such awards or grants, the terms and provisions of such awards or grants and the agreements evidencing them and the establishment of values and performance targets) need not be uniform and may be made by the Committee selectively among the persons who receive, or are eligible to receive, awards or grants under the Plan, whether or not such persons are similarly situated. 19. Adjustments. In the event of any change in the outstanding shares of Common Stock, by reason of a stock dividend or distribution, stock split, recapitalization, merger, reorganization, consolidation, split-up, spin-off, combination of shares, exchange of shares or other change in corporate structure affecting the Common Stock, the Committee shall make appropriate adjustments in (a) the aggregate number of shares of Common Stock (i) reserved for issuance under the Plan, (ii) for which grants or awards may be made to an individual grantee 13 and (iii) covered by outstanding awards and grants denominated in shares or units of Common Stock, (b) the exercise or other applicable price related to outstanding awards or grants and (c) the appropriate Fair Market Value and other price determinations relevant to outstanding awards or grants and shall make such other adjustments as may be equitable under the circumstances; provided, that the number of shares subject to any award or grant always shall be a whole number. 20. Terms of Payment. Subject to any other applicable provisions of the Plan and to any applicable laws, whenever payment by a grantee is required with respect to shares of Common Stock which are the subject of an award or grant under the Plan, the Committee shall determine the time, form and manner of such payment, including but not limited to lump-sum payments and installment payments upon such terms and conditions as the Committee may prescribe. Installment payment obligations of a grantee may be evidenced by full-recourse, limited- recourse or non-recourse promissory notes or other instruments, with or without interest and with or without collateral or other security as the Committee may determine. 21. Termination and Amendment. The Board may terminate the Plan or amend the Plan or any portion thereof at any time, including but not limited to amendments to the Plan necessary to comply with the requirements of Section 16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code or regulations issued under any of such statutory provisions. The termination or any amendment of the Plan shall not, without the consent of a grantee, adversely affect such grantee's rights under an award or grant previously made to such grantee under the Plan. The Committee may amend the terms of any award or grant previously made under the Plan, prospectively or retroactively; but, except as otherwise expressly permitted by the Plan and subject to the provisions of Section 19, no such amendment shall adversely affect the rights of the grantee of such award or grant without such grantee's consent. Notwithstanding the foregoing provisions of this Section 21, stockholder approval of any action referred to in this Section 21 shall be required whenever necessary to satisfy the applicable requirements of Section 16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code or any regulations issued under any of such statutory provisions. 22. Severability. With respect to participants subject to Section 16 of the Exchange Act, (i) the Plan is intended to comply with all applicable conditions of Rule 16b-3 or any successor to such rule, (ii) all transactions involving grantees who are subject to Section 16(b) of the Exchange Act are subject to such conditions, regardless of whether the conditions are expressly set forth in the Plan and (iii) any provision of the Plan that is contrary to a condition of Rule 16b-3 shall not apply to grantees who are subject to Section 16(b) of the Exchange Act. If any of the terms or provisions of the Plan, or awards or grants made under the Plan, conflict with the requirements of Section 162(m) or Section 422 of the Code with respect to awards or grants subject to or governed by Section 162(m) or Section 422 of the Code, as the case may be, then such terms or provisions shall be deemed inoperative to the extent they so conflict with the requirements of Section 162(m) or Section 422 of the Code, as the case may be. With respect to an Incentive Stock Option, if the Plan does not contain any provision required to be included in the Plan under Section 422 of the Code (as amended from time to time) or any successor to such section, then such provision shall be deemed to be incorporated in the Plan with the same force and effect as if such provision had been expressly set out in the Plan. 14 23. Effect on Other Plans. Participation in the Plan shall not affect an employee's eligibility to participate in any other benefit or incentive plan of the Company or any Subsidiary. Any awards made pursuant to the Plan shall not be taken into account in determining the benefits provided or to be provided under any other plan of the Company or any Subsidiary unless otherwise specifically provided in such other plan. 24. Term of Plan. The Plan shall become effective on January 3, 1996, and shall terminate for purposes of further grants on the first to occur of (i) December 31, 2005, or (ii) the effective date of the termination of the Plan by the Board pursuant to Section 21. No awards or options may be granted under the Plan after the termination of the Plan, but such termination shall not affect any awards or options outstanding at the time of such termination or the authority of the Committee to continue to administer the Plan apart from the making of further grants. 25. Governing Law. The Plan shall be governed by and construed in accordance with the laws of Delaware. 15 EX-99.01 4 CERTAIN CAUTIONARY STATEMENTS & RISK FACTORS Exhibit 99.01 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN CAUTIONARY STATEMENTS AND RISK FACTORS CSG Systems International, Inc. and its subsidiaries (collectively, the Company) or their representatives from time to time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS. This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND THAT SUCH DIFFERENCES MAY BE MATERIAL. RELIANCE ON CCS - --------------- The Company derived approximately 78% and 77% of its total revenues from its primary product, Communications Control System (CCS), and related products and services in the years ended December 31, 1998 and 1997, respectively. CCS and related products and services are expected to provide the substantial majority of the Company's total revenues in the foreseeable future. The Company's results will depend upon continued market acceptance of CCS and related products and services, as well as the Company's ability to continue to adapt and modify them to meet the changing needs of its clients. Any reduction in demand for CCS would have a material adverse effect on the financial condition and results of operations of the Company. REQUIREMENTS OF THE AT&T CONTRACT - --------------------------------- The AT&T Contract requires the conversion of additional AT&T customers onto the Company's customer care and billing system. The AT&T Contract provides certain performance criteria and other obligations to be met by the Company. The Company is subject to various remedies and penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. If an audit determines the Company is not providing such an innovation and it fails to do so in the manner and time period dictated by the contract, then AT&T would be released from its exclusivity obligation to the extent necessary to obtain the innovation from a third party. To fulfill the AT&T Contract and to remain competitive, the Company believes it will be required to develop new and advanced features to existing products and services, as well as new products and services, all of which will require substantial research and development. AT&T also would have the right to terminate the AT&T Contract in the event of certain defaults by the Company. The termination of the AT&T Contract or of any of AT&T's commitments under the contract would have a material adverse effect on the financial condition and results of operations of the Company. AT&T CONTRACT AND MERGER - ------------------------ AT&T completed its merger with TCI in March 1999 and has consolidated the TCI operations into AT&T Broadband and Internet Services (BIS). During the six months ended June 30, 1999 and 1998, revenues from AT&T and affiliated companies represented approximately 43.0% and 38.5% of total revenues, respectively. The AT&T Contract has minimum financial commitments over the 15-year life of the contract and includes exclusive rights to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high speed data services, residential wireline telephony services, and print and mail services. As discussed above, the AT&T Contract provides certain performance criteria and other obligations to be met by the Company. To date, the Company believes it has complied with the terms of the contract. Since execution of the AT&T Contract in September 1997 through June 30, 1999, the Company has successfully converted approximately 9.2 million AT&T cable television customers onto its system. At this time, it is too early to determine the near- and long-term impact, if any, the AT&T and TCI merger will have on the Company's relationship with the combined entity. AT&T has announced its planned efforts to provide convergent communications services in several United States cities during 1999. The Company is participating in those convergent trials and is working closely with AT&T to provide customer care and billing services to customers in those cities. The Company expects to continue performing successfully under the AT&T Contract, but its failure to do so would have a material adverse effect on the financial condition and results of operations of the Company. CONVERSION TO THE COMPANY'S SYSTEMS - ----------------------------------- The Company's ability to convert new client sites to its customer care and billing systems on a timely and accurate basis is necessary to meet the Company's contractual commitments and to achieve its business objectives. Converting multiple sites under the schedules required by contracts or business requirements is a difficult and complex process. One of the difficulties in the conversion process is that competition for the necessary qualified personnel is intense and the Company may not be successful in attracting and retaining the personnel necessary to complete conversions on a timely and accurate basis. The inability of the Company to perform the conversion process timely and accurately would have a material adverse effect on the results of operations of the Company. DEPENDENCE ON CABLE TELEVISION AND DBS INDUSTRIES - ------------------------------------------------- The Company's business is concentrated in the cable television and Direct Broadcast Satellite (DBS) industries, making the Company susceptible to a downturn in those industries. During the years ended December 31, 1998 and 1997, the Company derived 78% and 73%, and 13% and 11% of its total revenues from companies in the U.S. cable television and U.S. DBS industries, respectively. A decrease in the number of customers served by the Company's clients, loss of business due to non-renewal of client contracts, industry consolidation, and/or changing consumer demand for services would adversely effect the results of operations of the Company. There can be no assurance that new entrants into the cable television market will become clients of the Company. Also, there can be no assurance that cable television providers will be successful in expanding into other segments of the converging communications markets. Even if major forays into new markets are successful, the Company may be unable to meet the special billing and customer care needs of that market. The cable television industry is undergoing significant ownership changes at an accelerated pace. In addition, cable television providers are consolidating, decreasing the potential number of buyers for the Company's products and services. Consolidation in the industry may put at risk the Company's ability to leverage its existing relationships. Should this consolidation result in a concentration of cable television customer accounts being owned by companies with whom the Company does not have a relationship, or with whom competitors are entrenched, it could negatively effect the Company's ability to maintain or expand its market share, thereby adversely effecting the results of operations. NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE - ------------------------------------------- The market for customer care and billing systems is characterized by rapid changes in technology and is highly competitive with respect to the need for timely product innovations and new product introductions. The Company believes that its future success in sustaining and growing the annual revenue per customer account depends upon continued market acceptance of its current products, including CCS and related products and services, and its ability to enhance its current products and develop new products that address the increasingly complex and evolving needs of its clients. Substantial research and development will be required to maintain the competitiveness of the Company's products and services in the market. Development projects can be lengthy and costly, and are subject to changing requirements, programming difficulties, a shortage of qualified personnel, and unforeseen factors which can result in delays. 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. Also, the introduction and consumer acceptance of billing statements that are presented and paid electronically over the Internet may happen more rapidly than the Company anticipates. If electronic bill presentation and payment proliferates and the Company is unable to respond with a solution quickly, such failure could have a material adverse effect on the Company's results of operations. CONVERGING COMMUNICATIONS MARKETS - --------------------------------- The Company's growth strategy is based in large part on the continuing convergence and growth of the cable television, DBS, telecommunications, and on- line services markets. If these markets fail to converge, grow more slowly than anticipated, or if providers in the converging markets do not accept the Company's solution for presenting multiple communications services on a single bill, there could be a material adverse effect on the Company's growth. COMPETITION - ----------- The market for the Company's products and services is highly competitive. The Company directly competes with both independent providers of products and services and in-house systems developed by existing and potential clients. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, and many already have significant international operations. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. ATTRACTION AND RETENTION OF PERSONNEL - ------------------------------------- The Company's future success depends in large part on the continued service of its key management, sales, product development, and operational personnel. The Company is particularly dependent on its executive officers. The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense, particularly in the areas of research and development and technical support. The Company may not be successful in attracting and retaining the personnel it requires, which would adversely effect the Company's ability to meet its commitments and new product delivery objectives. VARIABILITY OF QUARTERLY RESULTS - -------------------------------- The Company's quarterly revenues and results, particularly relating to software and professional services, may fluctuate depending on various factors, including the timing of executed contracts and the delivery of contracted services or products, the cancellation of the Company's services and products by existing or new clients, the hiring of additional staff, new product development and other expenses, and changes in sales commission policies. No assurance can be given that results will not vary due to these factors. Fluctuations in quarterly results may result in volatility in the market price of the Company's Common Stock. DEPENDENCE ON PROPRIETARY TECHNOLOGY - ------------------------------------ The Company relies on a combination of trade secret and copyright laws, nondisclosure agreements, and other contractual and technical measures to protect its proprietary rights in its products. The Company also holds a limited number of patents on some of its newer products, and does not rely upon patents as a primary means of protecting its rights in its intellectual property. There can be no assurance that these provisions will be adequate to protect its proprietary rights. Although the Company believes that its intellectual property rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or the Company's clients. INTERNATIONAL OPERATIONS - ------------------------ The Company's business strategy includes a commitment to the marketing of its products and services internationally, and the Company has acquired and established operations outside of the U.S. The Company is subject to certain inherent risks associated with operating internationally. Risks include product development to meet local requirements such as the conversion to EURO currency, difficulties in staffing and management, reliance on independent distributors or strategic alliance partners, fluctuations in foreign currency exchange rates, compliance with foreign regulatory requirements, variability of foreign economic conditions, changing restrictions imposed by U.S. export laws, and competition from U.S.-based companies which have firmly established significant international operations. There can be no assurance that the Company will be able to manage successfully the risks related to selling its products and services in international markets. INTEGRATION OF ACQUISITIONS - --------------------------- As part of its growth strategy, the Company seeks to acquire assets, technology, and businesses which would provide the technology and technical personnel to expedite the Company's product development efforts, provide complementary products or services or provide access to new markets and clients. Acquisitions involve a number of risks and difficulties, including expansion into new geographic markets and business areas, the requirement to understand local business practices, the diversion of management's attention to the assimilation of acquired operations and personnel, potential adverse short-term effects on the Company's operating results, and the amortization of acquired intangible assets. YEAR 2000 - --------- The Company's business is dependent upon various computer software programs and operating systems that utilize dates and process data beyond the year 2000. If the actions taken by the Company to mitigate its risks associated with the year 2000 are inadequate, there could be a material adverse effect on the financial condition and results of operations of the Company. See "Management's Discussion and Analysis of Financial Condition and Results of Operations" for additional discussion of the Company's efforts to address the year 2000 risks. RELATIONSHIP WITH FIRST DATA CORPORATION - ---------------------------------------- The Company has entered into a data processing services agreement with FDC. The Company is dependent upon FDC to perform these services for the operation of CCS. The inability of FDC to perform these services satisfactorily could have a material adverse effect on the financial condition and results of operations of the Company. The existing agreement is scheduled to expire in December 2001. EX-27 5 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 1,000 6-MOS DEC-31-1999 JAN-01-1999 JUN-30-1999 34,066 0 70,913 2,852 0 106,676 52,612 28,505 257,730 92,554 72,290 0 0 518 91,654 257,730 147,597 147,597 61,595 61,595 15,837 0 4,033 40,350 15,275 25,075 0 0 0 25,075 0.49 0.46 *In thousands except per share amounts.
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