-----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, AMwKe8snhxY84afkBtSMbJhY9NhidxLsz2X9qTm4NAsbmVmK2LhVkAyPwmG5781P piGLo4DP7Ca+jRPWdqTglA== 0000950131-01-504148.txt : 20020410 0000950131-01-504148.hdr.sgml : 20020410 ACCESSION NUMBER: 0000950131-01-504148 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 4 CONFORMED PERIOD OF REPORT: 20010930 FILED AS OF DATE: 20011114 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CSG SYSTEMS INTERNATIONAL INC CENTRAL INDEX KEY: 0001005757 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-COMPUTER PROCESSING & DATA PREPARATION [7374] IRS NUMBER: 470783182 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-27512 FILM NUMBER: 1787485 BUSINESS ADDRESS: STREET 1: 7887 EAST BELLEVIEW AVE STREET 2: SUITE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111 BUSINESS PHONE: 3037962850 MAIL ADDRESS: STREET 1: 7887 E. BELLVIEW AVE. STREET 2: SUITE 1000 CITY: ENGLEWOOD STATE: CO ZIP: 80111 10-Q 1 d10q.txt FORM 10-Q FORM 10-Q UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2001 OR [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to ________________ Commission file number 0-27512 CSG SYSTEMS INTERNATIONAL, INC. (Exact name of registrant as specified in its charter) Delaware 47-0783182 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification No.) 7887 East Belleview, Suite 1000 Englewood, Colorado 80111 (Address of principal executive offices, including zip code) (303) 796-2850 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports) and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- Shares of common stock outstanding at November 9, 2001: 53,040,953 CSG SYSTEMS INTERNATIONAL, INC. FORM 10-Q For the Quarter Ended September 30, 2001 INDEX
Page No. -------- Part I - FINANCIAL INFORMATION Item 1. Condensed Consolidated Balance Sheets as of September 30, 2001 and December 31, 2000 .................................................. 3 Condensed Consolidated Statements of Income for the Three and Nine Months Ended September 30, 2001 and 2000 ........................... 4 Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2001 and 2000............................ 5 Notes to Condensed Consolidated Financial Statements................ 6 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations............................................... 10 Item 3. Quantitative and Qualitative Disclosures About Market Risk.......... 18 Part II - OTHER INFORMATION Item 6. Exhibits and Reports on Form 8-K.................................... 19 Signatures.......................................................... 20 Index to Exhibits................................................... 21
2 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (in thousands, except share and per share amounts)
September 30, December 31, 2001 2000 ------------- ------------ ASSETS (unaudited) ------ Current assets: Cash and cash equivalents..................................................................... $ 28,632 $ 32,751 Short-term investments........................................................................ 45,417 10,982 --------- --------- Total cash, cash equivalents and short-term investments...................................... 74,049 43,733 Accounts receivable- Trade- Billed, net of allowance of $5,810 and $5,001............................................... 102,068 128,902 Unbilled.................................................................................... 14,490 4,306 Other........................................................................................ 3,301 1,259 Deferred income taxes......................................................................... 5,005 3,247 Other current assets.......................................................................... 6,761 7,507 --------- --------- Total current assets......................................................................... 205,674 188,954 Property and equipment, net of depreciation of $52,618 and $42,457............................. 39,736 36,630 Software, net of amortization of $37,106 and $39,112........................................... 3,903 4,284 Goodwill, net of amortization of $3,887 and $4,883............................................. 13,578 1,894 Client contracts and related intangibles, net of amortization of $30,160 and $28,855........... 67,765 52,368 Deferred income taxes.......................................................................... 43,536 47,331 Other assets................................................................................... 431 628 --------- --------- Total assets................................................................................. $ 374,623 $ 332,089 ========= ========= LIABILITIES AND STOCKHOLDERS' EQUITY ------------------------------------ Current liabilities: Current maturities of long-term debt.......................................................... $ 38,500 $ 25,436 Client deposits............................................................................... 13,972 12,391 Trade accounts payable........................................................................ 13,337 14,850 Accrued employee compensation................................................................. 21,594 19,147 Deferred revenue.............................................................................. 13,877 8,172 Accrued income taxes.......................................................................... 11,083 15,633 Other current liabilities..................................................................... 17,419 12,008 --------- --------- Total current liabilities.................................................................. 129,782 107,637 --------- --------- Non-current liabilities: Long-term debt, net of current maturities..................................................... - 32,820 Deferred revenue.............................................................................. 294 463 --------- --------- Total non-current liabilities.............................................................. 294 33,283 --------- --------- Stockholders' equity: Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding.......................................................... - - Common stock, par value $.01 per share; 100,000,000 shares authorized; 53,341,698 shares and 52,530,203 shares outstanding......................................... 575 543 Common stock warrants; zero and 2,000,000 warrants outstanding................................ - 17,430 Additional paid-in capital.................................................................... 251,084 180,750 Accumulated other comprehensive income (loss): Unrealized gain (loss) on short-term investments, net of tax................................ 174 (350) Cumulative translation adjustments.......................................................... (764) (654) Treasury stock, at cost, 4,110,986 shares and 1,830,986 shares................................ (156,692) (71,497) Accumulated earnings.......................................................................... 150,170 64,947 --------- --------- Total stockholders' equity................................................................... 244,547 191,169 --------- --------- Total liabilities and stockholders' equity................................................... $ 374,623 $ 332,089 ========= =========
The accompanying notes are an integral part of these condensed consolidated financial statements. 3 CSG SYSTEMS INTERNATIONAL INC. CONDENSED CONSOLIDATED STATEMENTS - UNAUDITED (in thousands, except share and per share amounts)
Three months ended Nine months ended ------------------------------- ----------------------------- September 30, September 30, September 30, September 30, 2001 2000 2001 2000 ------------- ------------- ------------- ------------- Revenues: Processing and related services.......................... $ 87,150 $ 74,622 $249,717 $218,170 Software and professional services....................... 37,229 27,448 108,847 72,025 -------- -------- -------- -------- Total revenues....................................... 124,379 102,070 358,564 290,195 -------- -------- -------- -------- Cost of Revenues: Cost of processing and related services.................. 31,479 26,863 89,856 78,948 Cost of software and professional services............... 13,366 11,495 40,738 31,914 -------- -------- -------- -------- Total cost of revenues............................... 44,845 38,358 130,594 110,862 -------- -------- -------- -------- Gross margin (exclusive of depreciation)................... 79,534 63,712 227,970 179,333 -------- -------- -------- -------- Operating expenses: Research and development................................. 14,398 10,687 39,575 30,941 Selling, general and administrative...................... 14,886 12,618 41,537 33,790 Depreciation............................................. 3,679 3,076 10,547 8,850 -------- -------- -------- -------- Total operating expenses............................. 32,963 26,381 91,659 73,581 -------- -------- -------- -------- Operating income........................................... 46,571 37,331 136,311 105,752 -------- -------- -------- -------- Other income (expense): Interest expense....................................... (681) (1,455) (2,576) (4,478) Interest and investment income, net.................... 1,299 1,683 3,133 4,301 Other.................................................. 59 (13) 36 (30) -------- -------- -------- -------- Total other......................................... 677 215 593 (207) -------- -------- -------- -------- Income before income taxes................................. 47,248 37,546 136,904 105,545 Income tax provision..................................... (17,618) (14,118) (51,681) (39,822) -------- -------- -------- -------- Net income................................................. $ 29,630 $ 23,428 $ 85,223 $ 65,723 ======== ======== ======== ======== Basic net income per common share: Net income available to common stockholders.............. $ 0.56 $ 0.45 $ 1.61 $ 1.26 ======== ======== ======== ======== Weighted average common shares........................... 53,238 52,314 52,858 52,109 ======== ======== ======== ======== Diluted net income per common share: Net income available to common stockholders.............. $ 0.54 $ 0.41 $ 1.55 $ 1.16 ======== ======== ======== ======== Weighted average common shares........................... 54,677 56,878 54,909 56,873 ======== ======== ======== ========
The accompanying notes are an integral part of these condensed consolidated financial statements. 4 CSG SYSTEMS INTERNATIONAL, INC. CONDENSED CONSILIDATED STATEMENTS OF CASH FLOWS - UNAUDITED (in thousands)
Nine months ended --------------------------------- September 30, September 30, 2001 2000 ------------- ------------- Cash flows from operating activities: Net income................................ $ 85,223 $ 65,723 Adjustments to reconcile net income to net cash provided by operating activities- Depreciation........................... 10,547 8,850 Amortization........................... 6,132 5,476 Loss on short-term investment.......... 724 - Deferred income taxes.................. 6,158 3,777 Stock-based employee compensation...... - 48 Changes in operating assets and liabilities: Trade accounts and other receivables, net..................... 16,063 (22,503) Other current and noncurrent assets............................... 568 (1,969) Accounts payable and accrued liabilities.......................... 5,301 3,816 -------- -------- Net cash provided by operating activities............... 130,716 63,218 -------- -------- Cash flows from investing activities: Purchases of property and equipment................................ (13,247) (18,216) Purchases of short-term investments.............................. (74,634) (33,021) Proceeds from sale of short-term investments.............................. 40,215 - Acquisition of assets and business, net of cash acquired..................... (17,750) - Acquisitions of and investments in client contracts...................... (4,291) (1,100) -------- -------- Net cash used in investing activities......................... (69,707) (52,337) -------- -------- Cash flows from financing activities: Proceeds from issuance of common stock............................. 15,936 12,335 Proceeds from exercise of stock warrants........................... 24,000 - Repurchase of common stock................ (85,195) (3,659) Payments on notes receivable from employee stockholders............... - 81 Payments on long-term debt................ (19,756) (17,000) -------- -------- Net cash used in financing activities......................... (65,015) (8,243) -------- -------- Effect of exchange rate fluctuations on cash...................... (113) (538) -------- -------- Net increase (decrease) in cash and cash equivalents...................... (4,119) 2,100 Cash and cash equivalents, beginning of period....................... 32,751 48,676 -------- -------- Cash and cash equivalents, end of period................................. $ 28,632 $ 50,776 ======== ======== Supplemental disclosures of cash flow information: Cash paid during the period for- Interest................................. $ 1,933 $ 4,429 Income taxes............................. $ 36,908 $ 25,783
Supplemental disclosure of non-cash operating and investing activities: During the nine months ended September 30, 2001, the Company acquired certain client contract rights valued at approximately $15.0 million in exchange for the performance of certain services. The accompanying notes are an integral part of these condensed consolidated financial statements. 5 CSG SYSTEMS INTERNATIONAL, INC. NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS - UNAUDITED 1. GENERAL The accompanying condensed consolidated financial statements at September 30, 2001, and for the three and nine months then ended of CSG Systems International, Inc. (the Company), 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 periods. The condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and notes thereto, together with management's discussion and analysis of financial condition and results of operations, contained in the Company's Annual Report on Form 10-K for the year ended December 31, 2000, filed with the Securities and Exchange Commission (the Company's 2000 10-K). The results of operations for the three and nine months ended September 30, 2001, are not necessarily indicative of the results to be expected for the entire year ending December 31, 2001. 2. STOCKHOLDERS' EQUITY Common Stock Warrants. On February 28, 2001, AT&T exercised its rights under the Warrants to purchase 2.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $24.0 million. Immediately following the exercise of the Warrants, the Company repurchased the 2.0 million shares for $37.00 per share (approximately the closing price on February 28, 2001) for a total repurchase price of $74.0 million, pursuant to the Company's stock repurchase program. As a result, the net cash outlay paid to AT&T for this transaction was $50.0 million, which was paid by the Company with available corporate funds. After this transaction, AT&T no longer has any warrants or other rights to purchase the Company's Common Stock. Stock Repurchase Program. In August 1999, the Company's Board of Directors approved a stock repurchase program which authorized the Company at its discretion to purchase up to a total of 5.0 million shares of its Common Stock from time-to-time as market and business conditions warrant. In September 2001, the Board of Directors amended the program to authorize the Company to purchase up to a total of 10.0 million shares. During the three-month periods ended June 30, 2001 and September 30, 2001, the Company did not repurchase any shares under the program. During the three months ended March 31, 2001, the Company repurchased 2.28 million shares under the program for approximately $85.2 million (a weighted-average price of $37.37 per share), including the 2.0 million shares repurchased as part of the AT&T warrant exercise discussed above. The repurchased shares are held as treasury shares. See Note 7 for additional discussion of the stock repurchase program. Stock Incentive Plan. In September 2001, the Company's Board of Directors adopted the 2001 Incentive Stock Plan (the "2001 Plan") whereby 750,000 shares of the Company's Common Stock have been reserved for issuance to eligible employees of the Company in the form of nonqualified stock options, stock appreciation rights, stock bonus awards, restricted stock awards, or performance unit awards. Awards and options under the 2001 Plan may be granted to key employees of the Company or its subsidiaries that are not (i) officers or directors of the Company, (ii) "covered employees" of the Company for purposes of Section 162(m) of the Internal Revenue Code, or (iii) persons subject to Section 16 of the Securities Exchange Act of 1934. The stock option exercise price shall not be less than the fair market value of the Company's Common Stock as of the date of grant. The stock options vest one year after the date of grant, unless the option agreement provides otherwise. 6 Income Tax Benefit from Exercise of Stock Options. Income tax benefits associated with nonqualified stock options and disqualifying dispositions of incentive stock options reduced accrued income taxes by $1.2 million and $2.3 million for the three months ended September 30, 2001 and 2000, and $13.0 million and $8.5 million for the nine months ended September 30, 2001 and 2000, respectively. Such benefits were recorded as an increase to additional paid-in capital and are included in net cash provided by operating activities in the Company's Condensed Consolidated Statements of Cash Flows. 3. NET INCOME PER COMMON SHARE Basic net income per common share is computed by dividing income available to common stockholders by the weighted-average number of common shares outstanding during the period. Diluted net income per common share is consistent with the calculation of basic net income per common share while giving effect to dilutive potential common shares outstanding during the period. Basic and diluted earnings per share (EPS) are presented on the face of the Company's Condensed Consolidated Statements of Income. No reconciliation of the EPS numerators is necessary as net income is used as the numerator for each period presented. The reconciliation of the EPS denominators is as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, -------------------------------------------------------- 2001 2000 2001 2000 -------------------------------------------------------- Basic common shares outstanding................... 53,238 52,314 52,858 52,109 Dilutive effect of common stock options........... 1,439 2,289 1,737 2,485 Dilutive effect of common stock warrants.......... - 2,275 314 2,279 ------ ------ ------ ------ Diluted common shares outstanding................. 54,677 56,878 54,909 56,873 ====== ====== ====== ======
Common Stock options of 455,075 shares and 140,000 shares for the three months ended September 30, 2001 and 2000, and 382,775 and 125,000 shares for the nine months ended September 30, 2001 and 2000, respectively, have been excluded from the computation of diluted EPS because the exercise prices of these options were greater than the average market price of the common shares for the respective periods. 4. COMPREHENSIVE INCOME The Company's components of comprehensive income were as follows (in thousands):
Three Months Ended Nine Months Ended September 30, September 30, ---------------------------------------------------------------------- 2001 2000 2001 2000 ---------------------------------------------------------------------- Net income............................................... $29,630 $23,428 $85,223 $65,723 Other comprehensive income (loss), net of tax, if any: Foreign currency translation adjustments................ 35 (174) (110) (577) Reclassification adjustment for loss included in net income.................................................. --- --- 335 --- Unrealized gain (loss) on short-term investments... 167 (39) 189 (39) ------- ------- ------- ------- Comprehensive income..................................... $29,832 $23,215 $85,637 $65,107 ======= ======= ======= =======
7 5. ACQUISITION OF BUSINESS On September 18, 2001, the Company acquired 100 percent of the common stock of plaNet Consulting, Inc. (plaNet), a Delaware corporation, for $16.7 million in cash. plaNet, with over 100 employees located in Omaha, Nebraska and Denver, Colorado, provides e-business solutions and services to enable companies to transact business via the Internet and in real-time. At the date of acquisition, plaNet derived the majority of its revenues from consulting services. The Company acquired plaNet primarily to obtain its assembled management and consulting workforce to expand the Company's professional services capabilities. The results of operations of plaNet are included in the Company's Consolidated Statements of Income for the periods subsequent to the acquisition date. The following table summarizes the estimated fair values of the assets acquired and liabilities assumed at the date of acquisition (in thousands):
Current assets $ 1,456 Property and equipment, net 422 Deferred income tax assets 4,337 Goodwill 12,200 ------- Total assets acquired 18,415 Current liabilities 1,661 ------- Net assets acquired $16,754 =======
The deferred income tax assets represent (i) a net operating loss carryforward of approximately $7.9 million which the Company believes is more likely than not to be realized over approximately 10 years, and (ii) the difference between the tax basis and the assigned value of certain plaNet assets that existed on the date of acquisition. The $12.2 million of goodwill is not deductible for tax purposes. Pro forma information on the Company's results of operations for the three and nine month periods ended September 30, 2001 and 2000, to reflect the acquisition of plaNet, is not presented as plaNet's results of operations during those periods are not material to the Company's results of operations. The Company has followed the provisions of Statement of Financial Accounting Standards No. 141, "Business Combinations" in accounting for the acquisition of plaNet. 6. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE In June 2001, the Financial Accounting Standards Board (FASB) issued SFAS No. 142, "Goodwill and Other Intangible Assets" (SFAS 142). SFAS 142 addresses financial accounting and reporting for acquired goodwill and other intangible assets and supercedes APB Opinion No. 17, "Intangible Assets". SFAS 142 addresses how intangible assets that are acquired individually or with a group of other assets (but not those acquired in a business combination) should be accounted for in the financial statements upon their acquisition. SFAS 142 also addresses how goodwill and other intangibles should be accounted for after they have been initially recognized in the financial statements. SFAS 142 is required to be applied by the Company beginning January 1, 2002 to all goodwill and other intangible assets recognized in the financial statements at that date. Goodwill and intangible assets acquired after June 30, 2001, are subject immediately to the nonamortization and amortization provisions of SFAS 142. In August 2001, the FASB issued SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets" (SFAS 144). SFAS 144 supercedes SFAS No. 121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of" (SFAS 121). SFAS 144 was issued to resolve certain implementation issues related to SFAS 121, and to establish a single accounting model for long-lived assets to be disposed of by sale, to include the accounting for a segment of a business accounted 8 for as a discontinued operation under Accounting Principles Board Opinion No. 30, "Reporting the Results of Operations -- Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and Transactions." SFAS 144 also removes goodwill from the scope of long-lived asset impairment testing. The Company is required to adopt SFAS 142 and 144 on January 1, 2002. The adoption of SFAS 142 and 144 is not expected to have a significant effect on the Company's consolidated financial statements. 7. SUBSEQUENT EVENT Subsequent to September 30, 2001, through November 9, 2001, the Company purchased an additional 310,000 shares of its Common Stock on the open market for $10.4 million (weighted-average price of $33.59). The amounts were paid with available corporate funds. The shares repurchased under the Company's stock repurchase program as of November 9, 2001, totaled 4.34 million shares at a total cost of $166.9 million (weighted-average price of $38.50 per share). 9 CSG SYSTEMS INTERNATIONAL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Results of Operations - --------------------- The following table sets forth certain financial data and the percentage of total revenues of the Company for the periods indicated (in thousands):
Three months ended September 30, Nine months ended September 30, ------------------------------------------ ----------------------------------------- 2001 2000 2001 2000 ------------------- --------------------- ------------------ -------------------- % of % of % of % of Amount Revenue Amount Revenue Amount Revenue Amount Revenue ---------- ------- ---------- -------- -------- ------- --------- ------- Revenues: Processing and related services............... $ 87,150 70.1% $ 74,622 73.1% $ 249,717 69.6% $ 218,170 75.2% Software and professional services............ 37,229 29.9 27,448 26.9 108,847 30.4 72,025 24.8 -------- ----- -------- ----- --------- ----- --------- ----- Total revenues............................. 124,379 100.0 102,070 100.0 358,564 100.0 290,195 100.0 -------- ----- -------- ----- --------- ----- --------- ----- Cost of Revenues: Cost of processing and related services....... 31,479 25.3 26,863 26.3 89,856 25.1 78,948 27.2 Cost of software and professional services.... 13,366 10.7 11,495 11.3 40,738 11.4 31,914 10.9 -------- ----- -------- ----- --------- ----- --------- ----- Total cost of revenues..................... 44,845 36.0 38,358 37.6 130,594 36.5 110,862 38.1 -------- ----- -------- ----- --------- ----- --------- ----- Gross margin (exclusive of depreciation)....... 79,534 63.9 63,712 62.4 227,970 63.6 179,333 61.8 -------- ----- -------- ----- --------- ----- --------- ----- Operating expenses: Research and development...................... 14,398 11.6 10,687 10.5 39,575 11.0 30,941 10.7 Selling, general and administrative........... 14,886 12.0 12,618 12.4 41,537 11.6 33,790 11.5 Depreciation.................................. 3,679 3.0 3,076 3.0 10,547 2.9 8,850 3.0 -------- ----- -------- ----- --------- ----- --------- ----- Total operating expenses................... 32,963 26.6 26,381 25.9 91,659 25.5 73,581 25.2 -------- ----- -------- ----- --------- ----- --------- ----- Operating income............................... 46,571 37.3 37,331 36.5 136,311 38.1 105,752 36.6 -------- ----- -------- ----- --------- ----- --------- ----- Other income (expense): Interest expense............................. (681) (0.6) (1,455) (1.4) (2,576) (0.7) (4,478) (1.5) Interest and investment income, net.......... 1,299 1.0 1,683 1.6 3,133 0.9 4,301 1.5 Other........................................ 59 - (13) - 36 - (30) - -------- ----- -------- ----- --------- ----- --------- ----- Total other................................ 677 0.4 215 0.2 593 0.2 (207) - -------- ----- -------- ----- --------- ----- --------- ----- Income before income taxes..................... 47,248 37.7 37,546 36.7 136,904 38.3 105,545 36.6 Income tax provision.......................... (17,618) (14.1) (14,118) (13.8) (51,681) (14.4) (39,822) (13.7) -------- ----- -------- ----- --------- ----- --------- ----- Net income..................................... $ 29,630 23.6% $ 23,428 22.9% $ 85,223 23.9% $ 65,723 22.9% ======== ===== ======== ===== ========= ===== ======== =====
10 Three Months Ended September 30, 2001 Compared to Three Months Ended September 30, 2000 Revenues. Total revenues for the three months ended September 30, 2001, increased 21.9% to $124.4 million, from $102.1 million for the three months ended September 30, 2000. Revenues from processing and related services for the three months ended September 30, 2001, increased 16.8% to $87.2 million, from $74.6 million for the three months ended September 30, 2000. Of the total increase in these revenues, approximately 79% resulted from an increase in the number of customers of the Company's clients that were serviced by the Company and approximately 21% was due to increased revenue per customer. Customers served were as follows (in thousands):
As of September 30, -------------------------------------------- Increase 2001 2000 (Decrease) -------------------------------------------- Video............................................ 37,413 32,806 4,607 Internet......................................... 3,169 1,664 1,505 Telephony........................................ 217 344 (127) ------ ------ ----- Total......................................... 40,799 34,814 5,985 ====== ====== =====
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 October 1, 2000 through September 30, 2001, the Company converted and processed approximately 4.4 million new customers on its systems, including approximately 2.0 million for the third quarter of 2001. As of September 30, 2001, the Company had approximately 2.3 million customers scheduled to be converted onto its processing system during the next twelve months. Total annualized processing revenue per video and Internet account was as follows:
For the three months ended September 30, -------------------------------------------- Increase 2001 2000 (Decrease) -------------------------------------------- Video account.................................... $8.86 $8.46 4.7% Internet account................................. $4.29 $4.68 (8.3%)
The increase in processing revenues per video account relates primarily to (i) changes in the usage of ancillary services by clients, (ii) the introduction of new products and services and the clients use of these products and services, and (iii) price changes included in client contracts (e.g., price escalators for inflationary factors, tiered pricing, etc.). The decrease in processing revenues per Internet account is due primarily to the ability of Internet clients to spread their processing costs, some of which are fixed, across a larger customer base. Revenues from software and professional services for the three months ended September 30, 2001, increased 35.6% to $37.2 million, from $27.4 million for the three months ended September 30, 2000. The Company sells its software products and professional services principally to its existing client base to (i) enhance the core functionality of its service bureau processing application, (ii) increase the efficiency and productivity of its clients' operations, and (iii) allow clients to effectively rollout new products and services to new and existing markets. The increase in revenue between periods relates to the continued demand for the Company's existing software products and services to meet the changing needs of the Company's client base. Cost of Processing and Related Services. Processing costs as a percentage of related processing revenues were 36.1% for the three months ended September 30, 2001, compared to 36.0% for the three months ended September 30, 2000. The costs as a percentage of related revenues remained relatively unchanged between 11 periods as the Company continues to (i) focus on cost controls and cost reductions within its core processing business, and (ii) experience better overall leveraging of its processing costs as a result of the continued growth of the customer base processed on the Company's systems. Cost of Software and Professional Services. The cost of software and professional services as a percentage of related revenues was 35.9% for the three months ended September 30, 2001, compared to 41.9% for the three months ended September 30, 2000. The improvement between periods relates primarily to better overall leveraging of costs as a result of higher software and professional services revenues for the quarter. Gross Margin. Overall gross margin for the three months ended September 30, 2001, increased 24.8% to $79.5 million, from $63.7 million for the three months ended September 30, 2000, due primarily to revenue growth. The overall gross margin percentage increased to 63.9% for the three months ended September 30, 2001, compared to 62.4% for the three months ended September 30, 2000. The overall increase in the gross margin percentage is due primarily to the increase in gross margin for software and professional services due to the factors discussed above. Research and Development Expense. Research and development (R&D) expense for the three months ended September 30, 2001, increased 34.7% to $14.4 million, from $10.7 million for the three months ended September 30, 2000. As a percentage of total revenues, R&D expense increased to 11.6% for the three months ended September 30, 2001, from 10.5% for the three months ended September 30, 2000. The Company did not capitalize any software development costs during the three months ended September 30, 2001 and 2000. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products that are in development and enhancements of the Company's existing products. The Company's development efforts for the third quarter of 2001 were focused primarily on the development of products to: . address the international customer care and billing system market, . increase the efficiencies and productivity of its clients' operations, . address the systems needed to support the convergence of the communications markets, . support a web-enabled, customer self-care and electronic bill presentment/payment application, and . allow clients to effectively rollout new products and services to new and existing markets, such as residential telephony, High-Speed Data/ISP and IP markets. The Company expects its development efforts to focus on similar tasks through the remainder of 2001. Selling, General and Administrative Expense. Selling, general and administrative (SG&A) expense for the three months ended September 30, 2001, increased 18.0% to $14.9 million, from $12.6 million for the three months ended September 30, 2000. The increase in SG&A expense relates primarily to sales and administrative costs to support the Company's overall growth, its international business expansion and its merger and acquisition activities. As a percentage of total revenues, SG&A expense decreased to 12.0% for the three months ended September 30, 2001, from 12.4% for the three months ended September 30, 2000. The decrease in SG&A expenses as a percentage of total revenues is due primarily to revenues increasing at a faster pace than the SG&A expenses. Included in SG&A expense for the three months ended September 30, 2001, is approximately $0.2 million in amortization expense on goodwill acquired prior to July 1, 2001. Beginning January 1, 2002, amortization of this goodwill will cease. Instead, the goodwill will be subject to the impairment testing requirements of (SFAS 142). See Note 7 to the Notes to Condensed Consolidated Financial Statements for a further discussion of the impact of SFAS 142. 12 Depreciation Expense. Depreciation expense for the three months ended September 30, 2001, increased 19.6% to $3.7 million, from $3.1 million for the three months ended September 30, 2000. The increase in expense relates to capital expenditures made during the last three months of 2000 and the first nine months of 2001 in support of the overall growth of the Company, consisting principally of (i) computer hardware and related equipment, (ii) statement processing equipment, and (iii) facilities and internal infrastructure expansion. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the three months ended September 30, 2001, was $46.6 million or 37.3% of total revenues, compared to $37.3 million or 36.5% of total revenues for the three months ended September 30, 2000. The increase between periods relates to the factors discussed above. Interest Expense. Interest expense for the three months ended September 30, 2001, decreased 53.2% to $0.7 million, from $1.5 million for the three months ended September 30, 2000, with the decrease due primarily to scheduled principal payments on the Company's long-term debt and a decrease in interest rates. The balance of the Company's long-term debt as of September 30, 2001, was $38.5 million, compared to $64.0 million as of September 30, 2000, a decrease of $25.5 million. Interest and Investment Income, Net. Interest and investment income, net for the three months ended September 30, 2001, decreased 22.8% to $1.3 million, from $1.7 million for the three months ended September 30, 2000, with the decrease due primarily to a decrease in returns on short-term investments. Income Tax Provision. For the three months ended September 30, 2001, the Company recorded an income tax provision of $17.6 million, or an effective income tax rate of approximately 37.3%, to reflect the Company's estimate of its effective book income tax rate for 2001 of approximately 37.8%. The Company's effective income tax rate for 2000 was approximately 37.7%. As of September 30, 2001, management continues to believe that sufficient taxable income will be generated to realize the entire benefit of the Company's deferred income tax assets. The Company's assumptions of future profitable operations are supported by its strong operating performances over the last several years. Nine Months Ended September 30, 2001 Compared to Nine Months Ended September 30, 2000 Revenues. Total revenues for the nine months ended September 30, 2001, increased 23.6% to $358.6 million, from $290.2 million for the nine months ended September 30, 2000. Revenues from processing and related services for the nine months ended September 30, 2001, increased 14.5% to $249.7 million, from $218.2 million for the nine months ended September 30, 2000. Of the total increase in these revenues, approximately 83% resulted from an increase in the number of customers of the Company's clients that were serviced by the Company and approximately 17% was due to increased revenue per customer. From October 1, 2000 through September 30, 2001, the Company converted and processed approximately 4.4 million new customers on its systems, including approximately 4.0 million for the nine months ended September 30, 2001. Total annualized processing revenue per video and Internet account was as follows:
For the nine months ended September 30, ---------------------------------------------------- Increase 2001 2000 (Decrease) ---------------------------------------------------- Video account.................................... $8.67 $8.40 3.2% Internet account................................. $4.69 $5.13 (8.6%)
13 The increase in processing revenues per video account relates primarily to (i) changes in the usage of ancillary services by clients, (ii) the introduction of new products and services and the clients use of these products and services, and (iii) price changes included in client contracts (e.g., price escalators for inflationary factors, tiered pricing, etc.). The decrease in processing revenues per Internet account is due primarily to the ability of Internet clients to spread their processing costs, some of which are fixed, across a larger customer base. Revenues from software and professional services for the nine months ended September 30, 2001, increased 51.1% to $108.8 million, from $72.0 million for the nine months ended September 30, 2000. The Company sells its software products and professional services principally to its existing client base to (i) enhance the core functionality of its service bureau processing application, (ii) increase the efficiency and productivity of its clients' operations, and (iii) allow clients to effectively rollout new products and services to new and existing markets. The increase in revenue between periods relates to the continued demand for the Company's existing software products and services to meet the changing needs of the Company's client base. Cost of Processing and Related Services. Processing costs as a percentage of related processing revenues were 36.0% for the nine months ended September 30, 2001, compared to 36.2% for the nine months ended September 30, 2000. The costs as a percentage of related revenues remained relatively unchanged between periods as the Company continues to (i) focus on cost controls and cost reductions within its core processing business, and (ii) experience better overall leveraging of its processing costs as a result of the continued growth of the customer base processed on the Company's systems. Cost of Software and Professional Services. The cost of software and professional services as a percentage of related revenues was 37.4% for the nine months ended September 30, 2001, compared to 44.3% for the nine months ended September 30, 2000. The improvement between periods relates primarily to better overall leveraging of costs as a result of higher software and professional services revenues for the period. Gross Margin. Overall gross margin for the nine months ended September 30, 2001, increased 27.1% to $228.0 million, from $179.3 million for the nine months ended September 30, 2000, due primarily to revenue growth. The overall gross margin percentage increased to 63.6% for the nine months ended September 30, 2001, compared to 61.8% for the nine months ended September 30, 2000. The overall increase in the gross margin percentage is due primarily to the increase in gross margin for software and professional services due to the factors discussed above. Research and Development Expense. R&D expense for the nine months ended September 30, 2001, increased 27.9% to $39.6 million, from $30.9 million for the nine months ended September 30, 2000. As a percentage of total revenues, R&D expense increased to 11.0% for the nine months ended September 30, 2001 from 10.7% for the nine months ended September 30, 2000. The Company did not capitalize any software development costs during the nine months ended September 30, 2001 and 2000. The overall increase in the R&D expenditures between periods is due primarily to increased efforts on several products that are in development and enhancements of the Company's existing products. The Company's development efforts for the nine months ended September 30, 2001 were focused primarily on the development of products to: . address the international customer care and billing system market, . increase the efficiencies and productivity of its clients' operations, . address the systems needed to support the convergence of the communications markets, . support a web-enabled, customer self-care and electronic bill presentment/payment application, and . allow clients to effectively rollout new products and services to new and existing markets, such as residential telephony, High-Speed Data/ISP and IP markets. Selling, General and Administrative Expense. SG&A expense for the nine months ended September 30, 2001, increased 22.9% to $41.5 million, from $33.8 million for the nine months ended September 30, 2000. The 14 increase in SG&A expense relates primarily to sales and administrative costs to support the Company's overall growth, its international business expansion and its merger and acquisition activities. As a percentage of total revenues, SG&A expense increased to 11.6% for the nine months ended September 30, 2001, from 11.5% for the nine months ended September 30, 2000. Included in SG&A expense for the nine months ended September 30, 2001, is approximately $0.5 million in amortization expense on goodwill acquired prior to July 1, 2001. Beginning January 1, 2002, amortization of this goodwill will cease. Instead, the goodwill will be subject to the impairment testing requirements of SFAS 142. Depreciation Expense. Depreciation expense for the nine months ended September 30, 2001, increased 19.2% to $10.5 million, from $8.9 million for the nine months ended September 30, 2000. The increase in expense relates to capital expenditures made during 2000 and the first nine months of 2001 in support of the overall growth of the Company, consisting principally of (i) computer hardware and related equipment, (ii) statement processing equipment, and (iii) facilities and internal infrastructure expansion. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the other components of operating expenses. Operating Income. Operating income for the nine months ended September 30, 2001, was $136.3 million or 38.1% of total revenues, compared to $105.8 million or 36.6% of total revenues for the nine months ended September 30, 2000. The increase between periods relates to the factors discussed above. Interest Expense. Interest expense for the nine months ended September 30, 2001, decreased 42.5% to $2.6 million, from $4.5 million for the nine months ended September 30, 2000, with the decrease due primarily to scheduled principal payments on the Company's long-term debt and a decrease in interest rates. Interest and Investment Income, Net. Interest and investment income, net for the nine months ended September 30, 2001, decreased 27.2% to $3.1 million, from $4.3 million for the nine months ended September 30, 2000, with the decrease due primarily to the Company recording a charge of $0.7 million for an "other-than- temporary" decline in market value for a short-term investment and due to a decrease in returns on short-term investments. Income Tax Provision. For the nine months ended September 30, 2001, the Company recorded an income tax provision of $51.7 million, or an effective income tax rate of approximately 37.8%, which represents the Company's estimate of the effective book income tax rate for 2001. The Company's effective income tax rate for 2000 was approximately 37.7%. Financial Condition, Liquidity and Capital Resources - ---------------------------------------------------- As of September 30, 2001, the Company's principal sources of liquidity included cash, cash equivalents and short-term investments of $74.0 million. The Company also has a revolving credit facility in the amount of $40.0 million, of which there were no borrowings outstanding as of September 30, 2001. The Company's ability to borrow under the revolving credit facility is subject to maintenance of certain levels of eligible receivables. At September 30, 2001, all of the $40.0 million revolving credit facility was available to the Company. The revolving credit facility expires in September 2002. As of September 30, 2001 and December 31, 2000, respectively, the Company had $102.1 million and $128.9 million in net billed trade accounts receivable. The decrease between periods relates primarily to the collection (in January 2001) of a large receivable from a software transaction that was outstanding at yearend. The payment terms on this transaction were scheduled three weeks across yearend to assist a client in its capital planning. The Company's billed trade accounts receivable balance includes billings for several non-revenue items, such as postage, communication lines, travel and entertainment reimbursements, sales tax, and deferred 15 items. As a result, the Company evaluates its performance in collecting its accounts receivable through its calculation of days billings outstanding (DBO) rather than a typical days sales outstanding (DSO) calculation. DBO is calculated based on the billings for the period (including non-revenue items) divided by the average net billed trade accounts receivable balance for the period. The Company's DBO calculations for the quarters ended September 30, 2001 and 2000 were 53 days and 59 days, respectively. The Company's target range for DBOs is 55 to 60 days. As of September 30, 2001 and December 31, 2000, respectively, the Company had $14.5 million and $4.3 million of unbilled trade receivables. The increase in the unbilled trade receivables between periods relates primarily to the timing of billings on items for which revenue has been recognized as of September 30, 2001. Approximately $5.3 million of the September 30, 2001 unbilled trade receivables balance was billed and collected by mid-October 2001, approximately $5.3 million of the balance relates to a contract where the revenues will be billed in the fourth quarter of 2001 and the first quarter of 2002, and the majority of the remaining unbilled trade receivables balance relates to recurring unbilled amounts for postage due to monthly billing cutoffs. The Company's net cash flows from operating activities for the nine months ended September 30, 2001 and 2000 were $130.7 million and $63.2 million, respectively. The increase of $67.5 million between periods relates to (i) an increase in net cash flows from operations of $24.9 million and (ii) an increase in the net changes in operating assets and liabilities of $42.6 million. The increase in the net changes in operating assets and liabilities relates primarily to the large decrease in December 31, 2000 billed accounts receivable, for the reasons stated above. The Company's cash flows from operating activities would have been approximately $93.8 million for the nine months ended September 30, 2001 if the receivable for the large software transaction mentioned above would have been collected in the fourth quarter of 2000 rather than in the first quarter of 2001. The Company's net cash flows used in investing activities totaled $69.7 million for the nine months ended September 30, 2001, compared to $52.3 million for the nine months ended September 30, 2000, an increase of $17.4 million. The increase between periods relates primarily to the acquisition of a business for approximately $16.7 million in September 2001. The Company's net cash flows used in financing activities was $65.0 million for the nine months ended September 30, 2001, compared to $8.2 million for the nine months ended September 30, 2000, an increase of $56.8 million. The increase between periods relates to (i) an increase in stock repurchases of $81.5 million, as discussed below, and (ii) an increase in debt payments of $2.8 million. These increases are offset by an increase in proceeds between periods of $27.6 million from the exercise of stock options and warrants. Earnings before interest, taxes, depreciation and amortization (EBITDA) for the nine months ended September 30, 2001 was $152.0 million, or 42.4% of total revenues, compared to $119.6 million, or 41.2% of total revenues for the nine months ended September 30, 2000. EBITDA is presented here as a measure of the Company's debt service ability and is not intended to represent cash flows for the periods in accordance with generally accepted accounting principles. Interest rates for the Company's long-term debt and revolving credit facility are chosen at the option of the Company and are based on the LIBOR rate or the prime rate, plus an additional spread, with the spread dependent upon the Company's leverage ratio. As of September 30, 2001, the spread on the LIBOR rate and the prime rate was 0.50% and 0%, respectively. As of September 30, 2001, the entire amount of the debt was under a six-month LIBOR contract with an average interest rate of 4.76% (i.e., LIBOR at 4.26% plus spread of 0.50%). This compares to an overall weighted average interest rate of 7.14% at December 31, 2000. On February 28, 2001, AT&T exercised its rights under the Warrants to purchase 2.0 million shares of the Company's Common Stock at an exercise price of $12 per share, for a total exercise price of $24.0 million. 16 Immediately following the exercise of the Warrants, the Company repurchased the 2.0 million shares for $37.00 per share (approximately the closing price on February 28, 2001) for a total repurchase price of $74.0 million, pursuant to the Company's stock repurchase program. As a result, the net cash outlay paid to AT&T for this transaction was $50.0 million, which was paid by the Company with available corporate funds. After this transaction AT&T no longer has any warrants or other rights to purchase the Company's Common Stock. In August 1999, the Company's Board of Directors approved a stock repurchase program which authorized the Company at its discretion to purchase up to a total of 5.0 million shares of its Common Stock from time-to-time as market and business conditions warrant. In September 2001, the Board of Directors amended the program to authorize the Company to purchase up to a total of 10.0 million shares. During the three months ended March 31, 2001, the Company repurchased 2.28 million shares under the program for approximately $85.2 million (a weighted-average price of $37.37 per share), including the 2.0 million shares repurchased as part of the AT&T warrant exercise discussed above. During the three-month periods ended June 30, 2001 and September 30, 2001, the Company did not repurchase any shares under the program. Subsequent to September 30, 2001, through November 9, 2001, the Company purchased an additional 310,000 shares of its Common Stock on the open market for $10.4 million. As a result, the shares repurchased under the Company's stock repurchase program as of November 9, 2001 totaled 4.34 million shares at a total cost of $166.9 million (weighted-average price of $38.50 per share). The repurchased shares are held as treasury shares. The Company continues to make significant investments in client contracts, capital equipment, facilities, research and development, and at its discretion, may continue to make stock repurchases under its stock repurchase program. In addition, as part of its growth strategy, the Company is continually evaluating potential business and asset acquisitions and plans to expand its international business. The Company had no significant capital commitments as of September 30, 2001. The Company believes that cash generated from operations, together with its current cash, cash equivalents, and short-term investments, and the amount available under its current revolving credit facility, will be sufficient to meet its anticipated cash requirements for operations, income taxes, debt service, capital expenditures, investments in client contracts, and stock repurchases for both its short and long-term purposes. The Company also believes it has significant additional borrowing capacity and could obtain additional cash resources by amending its current credit facility and/or establishing a new credit facility. Dependence on AT&T - ------------------ AT&T completed its merger with Tele-Communications, Inc. (TCI) in 1999 and completed its merger with MediaOne Group, Inc. (MediaOne) in 2000. During the nine months ended September 30, 2001 and 2000, revenues from AT&T Broadband and affiliated companies (AT&T) represented approximately 58.6% and 47.4% of total Company revenues, respectively. The increase in the percentage between periods relates primarily to the timing and the amount of software and services purchased by AT&T. There are inherent risks whenever this large of a percentage of total revenues is concentrated with one client. One such risk is that, should AT&T's business generally decline, it would have a material impact on the Company's results of operations. 17 Contract Rights and Obligations (as amended) - -------------------------------------------- The AT&T Contract expires in 2012. The AT&T Contract has minimum financial commitments (based upon processing 13 million wireline video customers) over the term of the contract and includes exclusive rights to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high-speed data services, and print and mail services. During the fourth quarter of 2000, the Company relinquished its exclusive rights to process AT&T's wireline telephony customers, and expects these AT&T customers to be fully converted to another service provider by the end of 2001. The Company does not expect the loss of these customers to have a material impact on the Company's result of operations. Effective April 2001, the Company amended its agreement with AT&T giving the Company certain contractual rights to continue processing, for a minimum of one year, customers that AT&T may divest. These new rights are co-terminus with and are in addition to the existing minimum processing commitments the Company has with AT&T through 2012. Any such divestitures to a third party would not relieve AT&T of its minimum financial commitments over the term of the contract. It has been reported in the public press that AT&T Broadband may be acquired or merged with one or more third parties in a single transaction or a series of transactions. It is impossible and premature at this time to speculate what impact any particular transaction(s) would have on the Company's operations, if any. The Company believes the AT&T Contract would remain in effect in the event there is a change in control of AT&T Broadband. The AT&T Contract contains certain performance criteria and other obligations to be met by the Company. The Company is required to perform certain remedial efforts and is subject to certain penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. The Company expects to perform successfully under the AT&T Contract, and is hopeful that it can continue to sell products and services to AT&T that are in excess of the minimum financial commitments and exclusive rights included in the contract. Should the Company fail to meet its obligations under the AT&T Contract, and should AT&T be successful in any action to either terminate the AT&T Contract in whole or in part, or collect damages caused by an alleged breach, it would have a material adverse impact on the Company's results of operations. A copy of the AT&T Contract and all subsequent amendments are included in the Company's exhibits to its periodic public filings with the Securities and Exchange Commission. These documents are available on the Internet and the Company encourages readers to review those documents for further details. Forward-Looking Statements - -------------------------- In the Company's quarterly news release and related analyst call on October 29, 2001, the Company provided information that its future revenues and earnings growth rates are likely to be less than historical levels because of the effects of the downturn in the telecommunications industry and the slowing world economy. This report and the Company's other forms of public communications contain a number of forward-looking statements relative to future plans of the Company and its expectations concerning the customer care and billing industry, as well as the converging telecommunications industry it serves, and similar matters, including the Company's expectations of operating results for 2001 and 2002, and its growth expectations for revenues and earnings beyond 2002. Such forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are contained in Exhibit 99.01 of this report. Exhibit 99.01 constitutes an integral part of this report, and readers are strongly encouraged to read that section closely in conjunction with Management's Discussion and Analysis of Financial Condition and Results of Operations. Quantitative and Qualitative Disclosures About Market Risk - ---------------------------------------------------------- There have been no material changes to the Company's market risks during the nine months ended September 30, 2001. See the Company's 2000 10-K for additional discussion regarding the Company's market risks. 18 CSG SYSTEMS INTERNATIONAL, INC. PART II. OTHER INFORMATION Item 1-5. None. Item 6. Exhibits and Reports on Form 8-K. (a) Exhibits 2.19O* Fifty-Third, Fifty-Fourth and Fifty-Fifth Amendments to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and AT&T Broadband Management Corporation 10.49 Employment Agreement with William E. Fisher, dated September 18, 2001 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995- Certain Cautionary Statements and Risk Factors (b) Reports on Form 8-K 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: November 14, 2001 CSG SYSTEMS INTERNATIONAL, INC. /s/ Neal C. Hansen ------------------ Neal C. Hansen Chairman and Chief Executive Officer (Principal Executive Officer) /s/ Peter E. Kalan ------------------- Peter E. Kalan Vice President and Chief Financial Officer (Principal Financial Officer) /s/ Randy R. Wiese ------------------ Randy R. Wiese Vice President and Controller (Principal Accounting Officer) 20 CSG SYSTEMS INTERNATIONAL, INC. INDEX TO EXHIBITS Exhibit Number Description - ------ ----------- 2.19O* Fifty-Third, Fifty-Fourth and Fifty-Fifth Amendments to Restated and Amended CSG Master Subscriber Management System Agreement between CSG Systems, Inc. and AT&T Broadband Management Corporation 10.49 Employment Agreement with William E. Fisher, dated September 18, 2001 99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors __________________ * 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-2.190 3 dex2190.txt AMENDMENTS TO MANAGEMENT SYSTEM AGREEMENT EXHIBIT 2.19O ------------- 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 (***). FIFTY THIRD AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND AT&T BROADBAND MANAGEMENT CORPORATION This 53/rd/ Amendment (the "Amendment") is effective as of the 14/th/ day of September, 2001, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG"), and AT&T Broadband Management Corporation (f/k/a TCI Cable Management Corporation) ("Customer"). CSG and Customer are parties to a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. The parties hereto agree as follows: 1. Pursuant to the 49/th/ Amendment, CSG previously granted Customer an Expanded License to use ACSR and CSG Workforce Management. Customer would also like to use CSG's Web-Enabled ACSR and Web-Enabled Workforce Management Products. CSG hereby grants Customer, and Customer hereby accepts from CSG, a license to use Web-Enabled ACSR and Web-Enabled Workforce Management pursuant to the terms and conditions set forth in this Amendment and in the Agreement. As a result, the following changes are made to the Agreement: a. The definition of Expanded License Software is hereby amended to include not only ACSR, ACSR Telephony, ACSR module of High Speed Data, CSG Workforce Management, CSG TechNet, CSG Statement Express, CSG Screen Express, and CIT but also Web-Enabled ACSR and Web-Enabled Workforce Management as well. All of the terms and conditions that apply to the Expanded License Software shall apply to Web-Enabled ACSR and Web-Enabled Workforce Management. b. The Designated Environments for Web-Enabled ACSR and Web-Enabled Workforce Management are set forth in Exhibit 1 and Exhibit 2 attached hereto. c. The product descriptions for Web-Enabled ACSR and Web-Enabled Workforce Management are as follows: Web-Enabled ACSR will permit Customer to utilize the Citrix Independent Computing Architecture ("ICA") technology to migrate application software from the desktop to a "server-based" environment. The ICA technology enhances the functionality of ACSR and ACSR-related desktop call center applications (including ACSR module of High Speed Data, CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 1 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." CSG Statement Express, CSG Screen Express, and CIT) by allowing the Customer to utilize these applications via the web. The deployment and use of Web-Enabled ACSR, including all ACSR-related web-enabled desktop call center applications, will not result in any reduction in the features and functionality of ACSR that are provided by CSG to Customer as of the date of this Amendment. Future releases of enhanced versions of Web-Enabled ACSR will be made available to Customer's testing environment at the same time as enhanced versions of the non-Web-Enabled Product counterpart. Web-Enabled CSG Workforce Management will permit Customer to utilize the Citrix ICA technology to migrate application software from the desktop to a "server-based" environment. The ICA technology enhances the functionality of CSG Workforce Management by allowing the Customer to utilize the application via the web. The deployment and use of Web-Enabled Workforce Management will not result in any reduction in the features and functionality of CSG Workforce Management that are provided by CSG to Customer as of the date of this Amendment. Future releases of enhanced versions of Web- Enabled Workforce Management will be made available to Customer's testing environment at the same time as enhanced versions of the non- Web-Enabled Product counterpart. d. Customer is fully responsible for maintaining the operating environment for Web-Enabled ACSR and Web-Enabled Workforce Management, including but not limited to, hardware and operational requirements and resources. Upon Customer's request, CSG may provide facilities management services for Web-Enabled ACSR and Web-Enabled Workforce Management at CSG's then current rates. e. Upon Customer's request, and subject to a mutually executed Statement of Work, CSG will provide Customer with installation services for Web- Enabled ACSR and Web-Enabled Workforce Management at CSG's then current rates. 2. a. For the licenses granted in Paragraph 1 of this Amendment, Customer shall pay CSG a total of (************ *******) dollars ($***) which shall be due in the following three installments: . (**********) dollars ($***) due on October 15, 2001. . (*** *******) dollars ($***) due on January 15, 2002. . (***** *******) dollars ($***) due on April 15, 2002. b. The maintenance fees for Web-Enabled ACSR and Web-Enabled Workforce Management licenses granted herein this Amendment are included in the Expanded Software Annual Maintenance fee set forth in Exhibit B-1 of the 49th Amendment. As a result, the list of software components set forth on Exhibit B-1 is hereby amended to include Web-Enabled ACSR and Web-Enabled Workforce Management. CSG SYSTEMS, INC. ("CSG") AT&T BROADBAND MANAGEMENT CORPORATION ("CUSTOMER") By: /s/ Neal C. Hansen By: /s/ Michael P. Huseby -------------------------------- -------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 2 Name: Neal C. Hansen Name: Michael P. Huseby ------------------ --------------------- Title: Chairman & CEO Title: EVP & CFO ------------------ --------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 3 Exhibit 1 ================================================================================ Web Enabled ACSR Designated Environment* ================================================================================ Effective Date: 05/01 Page 1 of 2 ================================================================================ - -------------------------------------------------------------------------------- Web Enabled ACSR Client Workstation Hardware - -------------------------------------------------------------------------------- Processors - -------------------------------------------------------------------------------- Processor must be able to support a Netscape 4.0 or higher or Internet Explorer 4.0 or higher (browsers must be able to support plug ins, or active X controls) Tested platforms include: Compaq, IBM, Gateway E3200-350 and Dell Business Class computers with Intel Pentium, Pentium II, Pentium III and Celeron processors designated as Microsoft Windows NT certified and Year 2000 compliant. - -------------------------------------------------------------------------------- Random Access Memory (RAM) - -------------------------------------------------------------------------------- For Windows 95 and Windows 98: 16 MB minimum For Windows NT: 32 MB of RAM minimum - -------------------------------------------------------------------------------- Minimum Hard Drive Space - -------------------------------------------------------------------------------- Must be able to house a Netscape 4.0 or higher or Internet Explorer 4.0 or higher (browsers must be able to support plug ins, or active X controls) - -------------------------------------------------------------------------------- Speed - -------------------------------------------------------------------------------- Pentium processor or better - -------------------------------------------------------------------------------- Minimum Video Requirements - -------------------------------------------------------------------------------- 1024 x 768 x 256 colors, small font - -------------------------------------------------------------------------------- SVGA 15" Monitor - -------------------------------------------------------------------------------- SVGA 17" Monitor - -------------------------------------------------------------------------------- Printers (TBD) - -------------------------------------------------------------------------------- Other - -------------------------------------------------------------------------------- Microsoft mouse or 100% compatible mouse - --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------- Web Enabled ACSR Client Workstation Software - --------------------------------------------------------------------------------------------------- Windows Windows Windows Windows NT 95 98 2000 (Professional) - --------------------------------------------------------------------------------------------------- Operating Systems - --------------------------------------------------------------------------------------------------- Microsoft Windows NT v4.0 w/ Service Pack X 4.0 or higher and Year 2000 fixes; or Service Pack 5. - --------------------------------------------------------------------------------------------------- Microsoft Windows 95 with OSR 2.5, 4.03.1214 X (4.00.950C) with Y2K fixes, and WIN95Y2K.EXE applied and DCOM95.EXE v1.3, Internet Explorer 4.0 (or greater), and WINSOCK II or WIN95B with DCOM95.EXE v1.3, Internet Explorer 4.0 (or greater), and WINSOCK II. - --------------------------------------------------------------------------------------------------- Microsoft Windows 98 Second Edition version X 4.10.2222 Microsoft Windows 98 (non second edition version) Requires DCOM98.EXE, v1.3 be installed. - --------------------------------------------------------------------------------------------------- Microsoft Windows 2000 with Service Pack 1.0 X - ---------------------------------------------------------------------------------------------------
CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 4 ================================================================================ Web Enabled ACSR Designated Environment* ================================================================================ Effective Date: 05/01 Page 2 of 2 ================================================================================ - -------------------------------------------------------------------------------- Other Software (software required in addition to the ACSR Designated Environment) - -------------------------------------------------------------------------------- Internet Explorer 4.0 or higher is recommended. Netscape Navigator 4.0 or higher can also be used however, requires additional configuration (see the Citrix client installation instructions). Browsers must be able to support Plug-Ins or Active X controls. - -------------------------------------------------------------------------------- Microsoft Terminal Server Licenses (provided by client) . Windows 2000 Server License (one per server) . Windows 2000 Client Access License (one per user) . Windows 2000 Terminal Services Client Access License (one per user) - -------------------------------------------------------------------------------- Citrix ICA Web Client v6.0 or higher. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- Networking Requirements - -------------------------------------------------------------------------------- Internet connection via Internet Service Provider (ISP), direct connect or dial- up - -------------------------------------------------------------------------------- Customer will need to provide CSG a single IP address for connectivity. This address will be used for identification and security purposes. Only authorized addresses will be provided access to the customer's specific environment. - -------------------------------------------------------------------------------- * This is the designated environment for ACSR 5.0 running in CSG's Web Enabled environment only. Please refer to the ACSR designated environment for the standard ACSR product family. The Designated Environment information in this schedule applies only to the CSG Products actually licensed by the Customer and may be subject to change as the specific hardware configuration cannot be completely identified and certified until after the business requirements of the Customer are determined during the pre-installation visit. The Support Services do not include support of the products if used outside the Designated Environment (i.e., other hardware, software, or other modifications have been introduced by the Customer that are outside the Designated Environment). In such a case, CSG may agree to provide customized technical support for CSG's then-current fees for such services. CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 5 Exhibit 2 ================================================================================ Web Enabled Work Force Management Designated Environment ================================================================================ Effective 9/01 Page 1 of 3 ================================================================================ - -------------------------------------------------------------------------------- Workforce Management Client Hardware - -------------------------------------------------------------------------------- Processor Processor must be able to support Netscape 4.0 or higher, or Internet Explorer 4.0 or higher (browsers must be able to support plug-ins or active X controls) Tested Platforms Include: ------------------------- IBM, Compaq, or Dell Business Class computer with Intel Pentium II processor designated as Microsoft Windows NT certified and Year 2000 compliant. - -------------------------------------------------------------------------------- Operating system Windows based Operating System (95, 98, NT, 2000) supporting the necessary web browsers identified above Tested Platforms Include: ------------------------- Microsoft Windows NT v4.0 - Service Pack 4 or Service Pack 5, with Year 2000 fixes - -------------------------------------------------------------------------------- Video Card Matrox Millenium II graphics controller - 4 MB (part #270246-B21 is recommended) or the equivalent. Video card and monitor must support 1024 X 768 screen resolution and 65,536 colors - -------------------------------------------------------------------------------- Random Access Memory (RAM) For Windows 95 and Windows 98: 16 MB RAM minimum For Windows NT and Windows 2000: 32 MB RAM minimum) - -------------------------------------------------------------------------------- Network Connection Designated URL must be accessed through an accepted NAT provided to CSG - -------------------------------------------------------------------------------- Floppy Disk Drive Recommended 3.5" disk drive - -------------------------------------------------------------------------------- CD-ROM Drive Recommended - 4X - -------------------------------------------------------------------------------- Monitor Minimum - 17" viewable space recommended - -------------------------------------------------------------------------------- Virtual Memory Compliant with Microsoft Windows-NT Recommendations (Physical RAM + 12 MBytes). - -------------------------------------------------------------------------------- Peripherals Keyboard, mouse, and laser printer which can be shared with other Workforce Management workstations - -------------------------------------------------------------------------------- Included Software WorkForce Express 2.6 - -------------------------------------------------------------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 6 Web Enabled CSG WorkForce Management Designated Environment ================================================================================ Effective 9/01 Page 2 of 3 ================================================================================ - -------------------------------------------------------------------------------- TechNet(TM) - Device - -------------------------------------------------------------------------------- PocketNet Phones Mitsubishi MobileAccess(TM) 250 Nextel I550+ with Openwave Browser 3.1 Nextel I700+ with Openwave Browser 4.1 - -------------------------------------------------------------------------------- TechNet - Wireless Network - -------------------------------------------------------------------------------- Wireless Network AT&T PocketNet(R) Service Nextel Online Plus - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- TechNet(TM) CE - Windows CE Tablet Device: -- Fujitsu 130 - -------------------------------------------------------------------------------- User Interface: Pen Stylus Touch pad screen - -------------------------------------------------------------------------------- Display: Screen Resolution: 640 x 480 color - -------------------------------------------------------------------------------- Battery and Power: Battery, DC Adapter, AC Adapter - -------------------------------------------------------------------------------- CPU, Memory and Storage: Processor: MIPS 4000 Family (131 MHz NEC Vr121 RISC) System Memory: 16MB SDRAM (Expandable to 48MB) Video Controller: 16-bit Graphics Accelerator with 2MB SGRAM - -------------------------------------------------------------------------------- Connectivity: 2 Type-II PC Card 2.1 Expansion Slots: Slot 1: Sierra Wireless - AirCard_300 Modem Slot 2: Open RS-232 Serial Port Internal Speaker - -------------------------------------------------------------------------------- System Software: Operating System Version: 2.1 Pocket Explorer Version: 3.01 Pocket Outlook Version: 3.01 Build: 9018 - -------------------------------------------------------------------------------- Communications: Device Name: Handheld PC PC Connection: Allow connection with desktop computer when device is attached. Connect Using: Serial Port @ 115K - -------------------------------------------------------------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 7 Web Enabled CSG WorkForce Management Designated Environment ================================================================================ Effective 9/01 Page 3 of 3 ================================================================================ - -------------------------------------------------------------------------------- TechNet CE - Windows CE Tablet Device: -- Itronix Husky fex21 - -------------------------------------------------------------------------------- User Interface: Pen Stylus Touch pad screen - -------------------------------------------------------------------------------- Display: Screen Resolution: 640 x 4240 pixel LCD Color / Color Transflective - 256 Colors Monochrome - 16 gray scale - -------------------------------------------------------------------------------- Battery and Power: Battery, DC Adapter, AC Adapter - -------------------------------------------------------------------------------- CPU, Memory and Storage: Processor: MIPS 3000 Family (131 MHz NEC Vr121 RISC) System Memory: 32MB SDRAM (Expandable to 48MB) Video Controller: 16-bit Graphics Accelerator with 2MB SDRAM - -------------------------------------------------------------------------------- Connectivity: 2 Type-II PC Card 2.1 Expansion Slots: Slot 1: Spider Wireless IP Modem Slot 2: Open RS-232 Serial Port Internal Speaker - -------------------------------------------------------------------------------- System Software: Operating System Version: 2.11 Pocket Explorer Version: 3.01 Pocket Outlook Version: 3.01 Build: 9018 - -------------------------------------------------------------------------------- Communications: Device Name: Handheld PC PC Connection: Allow connection with desktop computer when device is attached. Connect Using: Serial Port @ 115K - -------------------------------------------------------------------------------- The Designated Environment information in this schedule applies only to the CSG Products actually licensed by the Customer and may be subject to change as the specific hardware configuration cannot be completely identified and certified until after the business requirements of the Customer are determined during the pre-installation visit. The Support Services do not include support of the products if used outside the Designated Environment (i.e., other hardware, software, or other modifications have been introduced by the Customer that are outside the Designated Environment). In such a case, CSG may agree to provide customized technical support for CSG's then-current fees for such services. CONFIDENTIAL AND PROPRIETARY INFORMATION. FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR WITHOUT THEIR RESPECTIVE COMPANIES. 8 EXHIBIT 2.19O ------------- 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 (***). FIFTY-FOURTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND AT&T BROADBAND MANAGEMENT CORPORATION This Fifty-fourth Amendment (the "Amendment") is executed this 21/st/ day of August, 2001, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG"), and AT&T Broadband Management Corporation (f/k/a TCI Cable Management Corporation) ("Customer"). CSG and Customer are parties to a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. The parties hereto agree as follows: 1. As of the date of execution of this Amendment, Customer receives CSG's CSG Ticket Express(TM) service pursuant to the Fourteenth Amendment to the Agreement dated March 31, 1999 (the "Fourteenth Amendment"). Customer no longer desires to receive CSG's CSG Ticket Express(TM) service. Therefore, effective the month following the month in which this Amendment is executed, the Fourteenth Amendment shall be terminated in its entirety and have no further force or effect, except for paragraph 5 of such Amendment. Notwithstanding the foregoing, Customer shall still be responsible for paying CSG all of the fees due in relation to the Fourteenth Amendment for all months prior to its termination. 2. Customer desires to receive the CSG Care Express(TM) service. Therefore, for the term of this Amendment 54 as set forth in Paragraph 4 below, the definition of "Services" in the Agreement shall be amended to include CSG Care Express(TM), and Schedule D of the Agreement shall be amended to ---------- include the fees for CSG Care Express(TM) that are set forth in Paragraph 5 of this Amendment. 3. Customer shall be entitled to receive the CSG Care Express(TM) service for a term commencing the month following the month in which this Amendment is executed and ending on December 31, 2003. Notwithstanding the foregoing, Customer shall, upon ninety (90) days written notice, have the right to terminate the CSG Care Express(TM) service, provided that Customer has paid to CSG at least $(***) in Registered User, Statement Storage, and Non- Registered User fees. Upon notice of termination of the CSG Care Express(TM) service, and during such 90 day period prior to termination, CSG will provide Customer, subject to the payment of any unpaid fees accrued in accordance with Paragraph 5 of this Amendment, a data file of Care Express data which will include statement data, e-mail id, login id and password, and any other data or information retained by the Care Express service. Furthermore, CSG will retain any data or information and make that data or information available to Customer for a period of 30 days after termination of this Amendment. Should Customer desire, CSG will also provide CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 1 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." Customer with a data file of customer data contained within CCS. Any services provided by CSG under this Paragraph 3 shall be performed in accordance with a mutually agreeable Statement of Work. In neither case shall these one-time data feeds be construed as an interface. Such data files will not be provided by CSG for any purpose other than to help Customer transition to a new web based application with similar functionality as CSG's Care Express. 4. Although the term, in relation to the CSG Care Express(TM) service, as set forth in paragraph 3 of this Amendment is different from the term set forth in Section 15 of the Agreement, the rest of the terms and conditions of the Agreement, including, but not limited to, Section 17(d), shall apply with respect to Customer's use of CSG Care Express(TM). 5. Schedule D of the Agreement shall be amended to include the following fees ---------- for the CSG Care Express(TM) service: (a) Installation Services (per request) . Electronic Bill Presentment (EBP) Quote . Self-Care Quote All installation services and the associated fees shall be set forth in a mutually agreed upon Statement of Work. Reimbursable Expenses are additional. (b) Monthly fees for EBP and Self-Care: . Registered User Fee (per registered user) $(***) . Statement Storage Fee (per statement stored) $(***) . Non-Registered User Fee (per non-registered user transaction) $(***) . Online Bill Payment (per transaction) CSG's credit card processing services are required for online bill payment. The accepted transaction fee for such services are set forth in Schedule D, ---------- Section 15 of the Agreement. (c) Monthly Fee Minimum Commencing the month following the month in which this Amendment is executed, Customer shall be responsible for paying CSG a monthly minimum fee in relation to the Registered User Fee, Statement Storage Fee, and Non- Registered User Fee set forth above. The monthly minimum fee shall be paid in accordance with the following schedule:
Time Period Monthly Minimum Total ---------------------------------------------------------------------------------------- September 2001 - March 2002 $(***) $(***) ---------------------------------------------------------------------------------------- April 2002 - June 2002 $(***) $(***) ---------------------------------------------------------------------------------------- July 2002 - December 2002 $(***) $(***) ---------------------------------------------------------------------------------------- January 2003 - June 2003 $(***) $(***) ---------------------------------------------------------------------------------------- July 2003 - November 2003 $(***) $(***) ---------------------------------------------------------------------------------------- December 2003 $(***) $(***) ---------------------------------------------------------------------------------------- Total payment as of December 2003 $(***) ----------------------------------------------------------------------------------------
Notwithstanding the foregoing, the monthly minimum fees shall only be due to CSG until Customer has paid to CSG at least $(***) in Registered User, Statement Storage, and Non-Registered User fees. Thereafter, the monthly minimum fee shall no longer be applicable. (d) Web Page Maintenance and Programming Services (per person, per hour) Quote The hourly rate used shall be Customer's then current rate for Technical Services (minimum of 1 hour) CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 2 "Confidential Treatment Requested and the Redacted Material has been separately filed with the Commission." (e) Custom Development Quote All custom development services and the associated fees shall be set forth in a mutually agreed upon Statement of Work. Reimbursable Expenses are additional. The hourly rate used shall be Customer's then current rate for Technical Services. Note: In the event that Customer desires or is required to produce a physical statement, then, in addition to the fees set forth above, Customer shall be responsible for paying the CCS Print and Mail Services Fees as set forth in Schedule D, Section 6. ---------- 6. During term set forth in Paragraph 3 of this Amendment, the Care Express application will be available (****** ****) percent (***%) of the time, on a monthly basis, excluding downtime for maintenance for up to (****) (***) hours per week to occur during CSG's published scheduled downtime for Care Express. In the event CSG's scheduled downtime for maintenance is expected to exceed (****) (***) hours in a particular week, CSG shall provide Customer with (*********) (***) days prior notice. However, in no event shall the monthly average of downtime exceed (****) (***) hours per week. For purposes of this Paragraph 6, downtime does not include network capabilities beyond the CSG point of demarcation including, but not limited to, telephone lines, individual terminals, controllers or modems not located on CSG's property. CSG shall use commercially reasonable efforts to provide Customer with a minimum of two (2) weeks advance notice to Customer for downtime for system maintenance. CSG shall provide written reports on a monthly basis indicating CSG's performance with regard to these standards. If CSG fails to meet the performance standards set forth above ("Failed Standard"), Customer shall provide CSG with written notice (the "Notice") within ten (10) days of the date of the monthly report that describes with specificity the nature of the Failed Standard. If the noticed Failed Standard persists for a second month, then Customer shall be entitled to the exclusive remedy for a Failed Standard prescribed below in this Paragraph 6, which the parties agree shall be construed to be liquidated damages and not a penalty. For clarification purposes, once a Failed Standard is cured by CSG, by meeting the (***%) availability requirement for the month immediately following the Failed Standard, any subsequent notice provided by Customer with respect to failure to meet the (***%) availability standard shall be considered a new and separate Failed Standard for purposes of calculating Customer's remedies below. (a) If CSG cures the noticed Failed Standard by achieving a (***%) availability for the month in which CSG receives the Notice, there shall not be any credit owed to the Customer. (b) If CSG fails to cure the Failed Standard for the month in which it receives the Notice, then Customer shall receive a credit equal to the Total Monthly Fees paid or payable by Customer to CSG for the previous month in which the Failed Standard occurred multiplied by the product of (i) (***%) minus the service level percentage for that month in which the Failed Standard occurred multiplied by (ii) the multiple (*****) (***). (c) For purposes of this Paragraph 6, the "Total Monthly Fees" shall include the greater of monthly fees paid by Customer to CSG in accordance with either Section B or Section C of Schedule D of the Agreement, as amended by paragraph 5 of this Amendment. (d) The remedy formula set forth in this Paragraph 6(b) above will continue to be applied for each consecutive month in which a Failed Standard occurs until the (***%) performance standard is again achieved in a subsequent month. (e) Notwithstanding the above, in no event shall a credit for a Failed Standard exceed the Total Monthly Fees paid by Customer to CSG for the previous month in which the Failed Standard occurred. CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 3 THIS AMENDMENT is executed on the day and year first shown above. CSG SYSTEMS, INC. ("CSG") AT&T BROADBAND MANAGEMENT CORPORATION ("CUSTOMER") By: /s/ Edward C. Nafus By: /s/ Joe W. Bagan -------------------------------- -------------------------------- Name: Edward C. Nafus Name: Joe W. Bagan ------------------------- ------------------------- Title: EVP Title: CIO & SVP ------------------------ ------------------------ Date: 8/22/01 Date: 8/21/01 ------------------------- ------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 4 EXHIBIT 2.19O ------------- 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 (***). FIFTY-FIFTH AMENDMENT TO RESTATED AND AMENDED CSG MASTER SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT BETWEEN CSG SYSTEMS, INC. AND AT&T BROADBAND MANAGEMENT CORPORATION This 55th Amendment (the "Amendment") is effective as of the 1st day of July, 2001, and is made by and between CSG Systems, Inc., a Delaware corporation ("CSG"), and AT&T Broadband Management Corporation (f/k/a TCI Cable Management Corporation) ("Customer"). CSG and Customer are parties to a certain Restated and Amended CSG Master Subscriber Management System Agreement dated August 10, 1997, which has subsequently been amended pursuant to separately executed amendments (collectively, the "Agreement"), and now desire to amend the Agreement in accordance with the terms and conditions set forth in this Amendment. If the terms and conditions set forth in this Amendment shall be in conflict with the Agreement, the terms and conditions of this Amendment shall control. Any terms in initial capital letters or all capital letters used as a defined term but not defined in this Amendment, shall have the meaning set forth in the Agreement. Upon execution of this Amendment by the parties, any subsequent reference to the Agreement between the parties shall mean the Agreement as amended by this Amendment. Except as amended by this Amendment, the terms and conditions set forth in the Agreement shall continue in full force and effect according to their terms. The parties hereto agree as follows: 1. All of the terms of this Amendment are effective July 1, 2001. CSG agrees to adjust the charges on any previous invoices issued to Customer since July 1, 2001 in accordance with the changes to fees set forth of this Amendment on the first invoice issued by CSG subsequent to the effective date of this Amendment. 2. The table set forth under the section entitled "On-Line Allowance And Overage Charges" in Section 1 of Schedule D (as amended by the Fourth Amendment) is hereby deleted and replaced with the following: On-Line Allowance And Overage Charges: ------------------------------------------------------------------------- ITEM MONTHLY ON-LINE MONTHLY PER ALLOWANCE PER SUBSCRIBER OVERAGE CHARGE ------------------------------------------------------------------------- A. Work Orders on file (***) $(***) ------------------------------------------------------------------------- B. Statements stored on-line (***) $(***) ------------------------------------------------------------------------- C. Details stored on-line (***) $(***) ------------------------------------------------------------------------- D. Memos stored on-line (***) $(***) ------------------------------------------------------------------------- E. Inactive subscribers on file (***) $(***) ------------------------------------------------------------------------- CSG SYSTEMS, INC. ("CSG") AT&T BROADBAND MANAGEMENT CORPORATION ("CUSTOMER") By: /s/ Neal C. Hansen By: /s/ Michael P. Huseby ------------------------- ------------------------------- Name: Neal C. Hansen Name: Michael P. Huseby ------------------------- ------------------------------- Title: Chairman & CEO Title: EVP & CFO ------------------------- ------------------------------- CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 1 DRAFT-FOR DISCUSSION PURPOSES ONLY CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE THEIR RESPECTIVE COMPANIES 2 EX-10.49 4 dex1049.txt EMPLOYMENT AGREEMENT Exhibit 10.49 EMPLOYMENT AGREEMENT -------------------- This Employment Agreement is made and entered into on the 18/th/ day of September, 2001, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and WILLIAM E. FISHER (the "Executive"). CSGS and Systems collectively are referred to in this Employment Agreement as the "Companies". * * * WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and WHEREAS, the Companies desire to employ the Executive as an Executive Vice President; and WHEREAS, the Executive desires to accept such employment upon the terms set forth in this agreement; NOW, THEREFORE, in consideration of the foregoing recitals and the respective covenants and agreements of the parties contained in this document, the Companies and the Executive agree as follows: 1. Employment and Duties. Each of the Companies hereby employs the --------------------- Executive as an Executive Vice President throughout the term of this agreement and agrees to cause the Executive from time to time to be elected or appointed to such corporate office or position. The duties and responsibilities of the Executive shall include the duties and responsibilities of the Executive's corporate office and position referred to in the preceding sentence which are set forth in the respective bylaws of the Companies from time to time and such other duties and responsibilities consistent with the Executive's corporate office and position referred to in the preceding sentence and this agreement which the Board of Directors of CSGS (the "Board") or the Chief Executive Officer of CSGS from time to time may assign to the Executive. If the Executive is elected or appointed as a director of CSGS or Systems or as an officer or director of any of the respective subsidiaries of the Companies during the term of this agreement, then he also shall serve in such capacity or capacities but without additional compensation. 2. Term. The term of this agreement shall begin on the date of this ---- agreement and shall continue thereafter through December 31, 2002, unless the Executive's employment under this agreement is sooner terminated in accordance with this agreement. On December 31 of each year during the term of this agreement, as extended from time to time pursuant to this sentence, beginning December 31, 2002, the term of this agreement automatically and without further action being required shall be extended by one (1) year unless, not later than one (1) year prior to a particular December 31, either CSGS notifies the Executive and Systems in writing or the Executive notifies the Companies in writing that such extension shall not occur on such December 31, in which latter case this agreement shall terminate upon the expiration of its then current term, unless the Executive's employment under this agreement is sooner terminated in accordance with this agreement. References in this agreement to the "current term" of this agreement shall include both the original term of this agreement and any automatic extensions of such term which actually have occurred pursuant to this Paragraph 2. 3. Place of Employment. Regardless of the location of the executive ------------------- offices of the Companies during the term of this agreement, the Companies shall maintain a suitably staffed office for the Executive in the Denver, Colorado, metropolitan area during the term of this agreement; and the Executive will not be required without his consent to relocate or transfer his executive office or principal residence from the immediate vicinity of the Denver, Colorado, metropolitan area. 4. Base Salary. For all services to be rendered by the Executive ----------- pursuant to this agreement, the Companies agree to pay the Executive during the term of this agreement a base salary (the "Base Salary") at an annual rate of $335,000; provided, that the Base Salary as then in effect shall be increased as of January 1 of each calendar year after 2002 during the term of this agreement by at least the same percentage that the United States Department of Labor Consumer Price Index (All Items) for All Urban Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such January 1 increased over the CPI-U for the November one year earlier. The Board shall review the Base Salary at least annually for the purpose of determining whether a Base Salary increase greater than such CPI-U increase should be granted to the Executive for a particular 12-month period. The Executive's annual incentive bonus provided for in Paragraph 5 and all other compensation and benefits to which the Executive is or may become entitled pursuant to this agreement or under any plans or programs of the Companies shall be in addition to the Base Salary. 5. Annual Incentive Bonus. In accordance with its regular practice, the ---------------------- Board shall establish an incentive bonus program for the Executive for 2002. Such incentive bonus program shall be reflected either in a written supplement to this agreement signed by the Companies and the Executive or in such other form as the Companies and the Executive may agree upon. The same procedure shall be followed for subsequent calendar years during the term of this agreement, so that an annual incentive bonus program for the Executive will be in effect throughout the term of this agreement, beginning January 1, 2002. The Executive and the Companies understand and acknowledge that, among other things, such incentive bonus program will involve achievement by the Companies of various financial objectives, which may include but are not limited to revenues and earnings, and also may include achievement by the Companies of various non- financial objectives. The Executive's incentive bonus program for each calendar year, beginning with 2002, shall provide the opportunity for the Executive to earn an incentive bonus of not less than fifty-five percent (55%) of his Base Salary for such calendar year if the agreed upon objectives are fully achieved. The Board from time to time also may establish incentive compensation programs for the Executive covering periods of more than one (1) year, and any such programs shall be in addition to the annual incentive bonus program required by this Paragraph 5. Any incentive bonus for the Executive for 2001 shall be entirely in the discretion of the Board. 6. Expenses. During the term of this agreement, the Executive shall be -------- entitled to prompt reimbursement by the Companies of all reasonable ordinary and necessary travel, entertainment, and other expenses incurred by the Executive (in accordance with the policies and procedures established by the Companies for their respective senior executive officers) in the performance of his duties and responsibilities under this agreement; provided, that the Executive 2 shall properly account for such expenses in accordance with the policies and procedures of the Companies, which may include but are not limited to itemized accountings. 7. Other Benefits. During the term of this agreement, the Companies -------------- shall provide to the Executive and his eligible dependents at the expense of the Companies individual or group medical, hospital, dental, and long-term disability insurance coverages and group life insurance coverage, in each case at least as favorable as those coverages which are provided to other vice presidents of the Companies. During the term of this agreement, the Executive also shall be entitled to participate in such other benefit plans or programs which the Companies from time to time may make available to their employees generally (except such programs, such as the 1996 Employee Stock Purchase Plan of CSGS, in which executive officers of CSGS are not eligible to participate because of securities law reasons). 8. Vacations and Holidays. During the term of this agreement, the ---------------------- Executive shall be entitled to paid vacations and holidays in accordance with the policies of the Companies in effect from time to time for their respective senior executive officers, but in no event shall the Executive be entitled to less than four (4) weeks of vacation during each calendar year, beginning with 2002. 9. Full-Time Efforts and Other Activities. During the term of this -------------------------------------- agreement, to the best of his ability and using all of his skills, the Executive shall devote substantially all of his working time and efforts during the normal business hours of the Companies to the business and affairs of the Companies and to the diligent and faithful performance of the duties and responsibilities assigned to him pursuant to this agreement, except for vacations, holidays, and sick days. However, the Executive may devote a reasonable amount of his time to civic, community, or charitable activities, to service on the governing bodies or committees of trade associations or similar organizations of which either or both of the Companies are members, and, with the prior approval of the Board or the Chief Executive Officer of CSGS, to service as a director of other corporations and to other types of activities not expressly mentioned in this paragraph, so long as the activities referred to in this sentence do not materially interfere with the proper performance of the Executive's duties and responsibilities under this agreement. The Executive also shall be free to manage and invest his assets in such manner as will not require any substantial services by the Executive in the conduct of the businesses or affairs of the entities or in the management of the properties in which such investments are made, so long as such activities do not materially interfere with the proper performance of the Executive's duties and responsibilities under this agreement. 10. Termination of Employment. ------------------------- (a) Termination Because of Death. The Executive's employment by the ---------------------------- Companies under this agreement shall terminate upon his death. If the Executive's employment under this agreement terminates because of his death, then the Executive's estate or his beneficiaries (as the case may be) shall be entitled to receive the following compensation and benefits from the Companies: (i) The Base Salary through the date of the Executive's death; 3 (ii) Beginning with 2002, a pro rata portion of the Executive's annual incentive bonus for the calendar year in which his death occurs (computed as if the Executive were employed by the Companies throughout such calendar year), based upon the number of days in such calendar year elapsed through the date of the Executive's death as a proportion of 365, to be paid at the same time that such incentive bonus would have been paid had the Executive's death not occurred; (iii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the date of the Executive's death; and (iv) Any other benefits payable by reason of the Executive's death, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the date of the Executive's death. (b) Termination Because of Disability. If the Executive becomes incapable --------------------------------- by reason of physical injury, disease, or mental illness of substantially performing his duties and responsibilities under this agreement for a continuous period of six (6) months or more or for more than one hundred eighty (180) days in the aggregate (whether or not consecutive) during any 12-month period, then at any time after the elapse of such six-month period or such 180 days, as the case may be, the Board may terminate the Executive's employment by the Companies under this agreement. If the Executive's employment under this agreement is terminated by the Board because of such disability on the part of the Executive, then the Executive shall be entitled to receive the following compensation and benefits from the Companies: (i) The Base Salary through the effective date of such termination; (ii) Beginning with 2002, a pro rata portion of the Executive's annual incentive bonus for the calendar year in which such termination occurs (computed as if the Executive were employed by the Companies throughout such calendar year), based upon the number of days in such calendar year elapsed through the effective date of such termination as a proportion of 365, to be paid at the same time that such incentive bonus would have been paid if such termination had not occurred; (iii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; (iv) Continued participation in the following benefit plans or programs of the Companies which may be in effect from time to time and in which the Executive was participating as of the effective date of such termination, to the extent that such 4 continued participation by the Executive is permitted under the terms and conditions of such plans (unless such continued participation is restricted or prohibited by applicable governmental regulations governing such plans), until the first to occur of the cessation of such disability, the Executive's death, the Executive's attainment of age sixty-five (65), or (separately with respect to the termination of each benefit) the provision of a substantially equivalent benefit to the Executive by another employer of the Executive: (1) Group medical and hospital insurance, (2) Group dental insurance, (3) Group life insurance, and (4) Group long-term disability insurance; and (v) Any other benefits payable by reason of the Executive's disability, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. For purposes of this subparagraph (b), decisions with respect to the Executive's disability shall be made by the Board, using its reasonable good faith judgment; and, in making any such decision, the Board shall be entitled to rely upon the opinion of a duly licensed and qualified physician selected by a majority of the members of the Board who are not employees of either of the Companies or any of their respective subsidiaries. (c) Termination for Cause. The Board may terminate the Executive's --------------------- employment by the Companies under this agreement for cause; however, for purposes of this agreement "cause" shall mean only (i) the Executive's confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification, (iii) material violation by the Executive of the provisions of Paragraph 11, (iv) habitual and material negligence by the Executive in the performance of his duties and responsibilities under or pursuant to this agreement and failure on the part of the Executive to cure such negligence within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such negligence, (v) material non-compliance by the Executive with his obligations under Paragraph 9 and failure to correct such non-compliance within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such non-compliance, (vi) material failure by the Executive to comply with a lawful directive of the Board or the Chief Executive Officer of CSGS and failure to cure such non- compliance within twenty (20) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in reasonable detail the particulars of such non-compliance, (vii) a material breach by the Executive of any of his fiduciary duties to the Companies and, if such breach is curable, the Executive's failure to cure such breach within ten (10) days after his receipt of a written notice from the Board or the Chief Executive Officer of CSGS setting forth in 5 reasonable detail the particulars of such breach, or (viii) willful misconduct or fraud on the part of the Executive in the performance of his duties under this agreement. In no event shall the results of operations of the Companies or any business judgment made in good faith by the Executive constitute an independent basis for termination for cause of the Executive's employment under this agreement. Any termination of the Executive's employment for cause must be authorized by a majority vote of the Board taken not later than nine (9) months after a majority of the members of the Board (other than the Executive) have actual knowledge of the occurrence of the event or conduct constituting the cause for such termination. If the Executive's employment under this agreement is terminated by the Board for cause, then the Executive shall be entitled to receive the following compensation and benefits from the Companies: (i) The Base Salary through the effective date of such termination; (ii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; and (iii) Any other benefits payable to the Executive upon his termination for cause, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. (d) Termination Without Cause Prior to a Change of Control. If, prior to ------------------------------------------------------ the occurrence of a Change of Control, the Companies terminate the Executive's employment under this agreement for any reason other than cause or the Executive's death or disability, then the Executive shall be entitled to receive the following compensation, benefits, and other payments from the Companies: (i) The Base Salary through that date which is one (1) year after the effective date of such termination (the "Ending Date"), to be paid at the same times that the Base Salary would have been paid if such termination had not occurred; provided, that if the Executive commences employment with another employer, whether as an employee or as a consultant, prior to the Ending Date (for purposes of this Paragraph 10, the "Other Employment"), then such payments of the Base Salary shall be reduced from time to time by the aggregate amount of salary, cash bonus, and consulting fees received or receivable by the Executive from the Other Employment for services performed by him during the period from the commencement of the Other Employment through the Ending Date; (ii) Beginning with 2002, the Executive's annual incentive bonus for the calendar year in which such termination occurs (computed as if the Executive were employed by the Companies throughout such calendar year), to be paid at the same time that such incentive bonus would have been paid if such termination had not occurred and to be no less than the Executive's annual 6 incentive bonus for the calendar year immediately preceding the calendar year in which such termination occurs; (iii) Beginning with 2002, an amount equal to fifty-five percent (55%) of the Base Salary in effect on the effective date of such termination, such amount to be paid, without interest, one year after the effective date of such termination. (iv) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such termination; (v) Continued participation in the following benefit plans or programs of the Companies which may be in effect from time to time and in which the Executive was participating as of the effective date of such termination, to the extent that such continued participation by the Executive is permitted under the terms and conditions of such plans (unless such continued participation is restricted or prohibited by applicable governmental regulations governing such plans), until the first to occur of the Ending Date or (separately with respect to the termination of each benefit) the provision of a substantially equivalent benefit to the Executive by another employer of the Executive: (1) Group medical and hospital insurance, (2) Group dental insurance, (3) Group life insurance, and (4) Group long-term disability insurance; and (vi) Any other benefits payable to the Executive upon his termination without cause, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such termination. (e) Termination Without Cause After a Change of Control. If, after the --------------------------------------------------- occurrence of a Change of Control, the Companies or any Permitted Assignee terminates the Executive's employment under this agreement for any reason other than cause or the Executive's death or disability, then the Executive shall be entitled to receive from the Companies and the Permitted Assignee, if any (all of whom shall be jointly and severally liable therefor), all of the compensation, benefits, and other payments from the Companies which are described and provided for in subparagraph (d) of this Paragraph 10 (as modified by this subparagraph (e)); provided, however, that (i) for purposes of this subparagraph (e) the Ending Date shall be two (2) years after the effective date of such termination, and the aggregate Base Salary payable under subparagraph (d)(i) (as modified by this subparagraph (e)) for all periods through the Ending Date shall be paid to the Executive in a lump sum without regard to Other Employment not later 7 than thirty (30) days after the effective date of such termination, (ii) the minimum annual incentive bonus payable under subparagraph (d)(ii) shall be paid to the Executive not later than thirty (30) days after the effective date of such termination (with any balance of such annual incentive bonus being payable as provided in such subparagraph (d)(ii)), and (iii) the amount payable under subparagraph (d)(iii) (as modified by this subparagraph (e)) shall be one hundred ten percent (110%) of the Base Salary in effect on the effective date of such termination and shall be paid to the Executive in a lump sum not later than thirty (30) days after the effective date of such termination. (f) Constructive Termination. If at any time during the term of this ------------------------ agreement the Board, the Chief Executive Officer of CSGS, or a Permitted Assignee materially alters the duties and responsibilities of the Executive provided for in Paragraph 1 or assigns to the Executive duties and responsibilities materially inappropriate to an executive vice president of the Companies without the Executive's written consent, then, at the election of the Executive (such election to be made by written notice from the Executive to the Board or the Permitted Assignee, as may be appropriate in the circumstances), (i) such action by the Board, the Chief Executive Officer of CSGS, or such Permitted Assignee shall constitute a constructive termination of the Executive's employment by the Companies for a reason other than cause (the "Constructive Termination"), (ii) the Executive thereupon may resign from his offices and positions with the Companies and shall not be obligated to perform any further services of any kind to or for the Companies, and (iii) the Executive shall be entitled to receive from the Companies (and the Permitted Assignee, if applicable) at the applicable times all of the compensation, benefits, and other payments described in subparagraph (d) or subparagraph (e) of this Paragraph 10 (whichever may be applicable), as if the effective date of the Executive's resignation were the effective date of his termination of employment for purposes of determining such compensation, benefits, and other payments. Notwithstanding the foregoing provisions of this subparagraph (f), before exercising any of his rights pursuant to the preceding sentence, the Executive shall give written notice to the Chief Executive Officer of CSGS setting forth the Executive's intent to exercise such rights and specifying the Constructive Termination which the Executive claims to be the basis for such intended exercise; and the Companies shall have twenty (20) days after the Chief Executive Officer has received such notice to take such actions, if any, as the Companies may deem appropriate to eliminate such claimed Constructive Termination (without thereby admitting that a Constructive Termination had occurred). If the Companies so act to eliminate such claimed Constructive Termination, then the Executive shall not have any rights under this subparagraph (f) with respect to such claimed Constructive Termination. (g) Voluntary Resignation. If the Executive voluntarily resigns as an --------------------- employee of the Companies and thereby voluntarily terminates his employment under this agreement and if none of subparagraphs (a) through (f) of this Paragraph 10 is applicable to such termination, then the Executive shall be entitled to receive only the following compensation, benefits, and other payments from the Companies: (i) The Base Salary through the effective date of such voluntary resignation; (ii) Any other amounts earned, accrued, or owed to the Executive under this agreement but not paid as of the effective date of such voluntary resignation; 8 (iii) If (and only if) the Executive's voluntary resignation is effective on December 31 of a particular calendar year, beginning with 2002, the Executive's annual incentive bonus (if any) for such calendar year, to be paid in accordance with the regular schedule for its payment; and (iv) Any other benefits payable to the Executive upon his voluntary resignation, or to which the Executive otherwise may be entitled, under any benefit plans or programs of the Companies in effect on the effective date of such voluntary resignation. The Executive understands and agrees that if this subparagraph (g) is applicable to the termination of the Executive's employment with the Companies, then, unless his voluntary resignation is effective on December 31 of a particular calendar year, the Executive will not be entitled to any annual incentive bonus for the calendar year in which his voluntary resignation becomes effective. (h) Liquidated Damages. The Executive agrees to accept the compensation, ------------------ benefits, and other payments provided for in subparagraph (d), subparagraph (e), or subparagraph (f) of this Paragraph 10, as the case may be, as full and complete liquidated damages for any breach of this agreement resulting from the actual or constructive termination of the Executive's employment under this agreement for a reason other than cause or the Executive's death or disability; and the Executive shall not have and hereby waives and relinquishes any other rights or claims in respect of such breach. (i) Notice of Other Employment and of Benefits. The Executive promptly ------------------------------------------ shall notify the Companies in writing of (i) his acceptance of the Other Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the effective date of such Other Employment, and (iii) the amount of salary, cash bonus, and consulting fees which the Executive receives or is entitled to receive from the Other Employment for services performed by him during the period from the commencement of the Other Employment through the Ending Date. Whenever relevant for purposes of this Paragraph 10, the Executive also promptly shall notify the Companies of his receipt from another employer of any benefits of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph 10. Such information shall be updated by the Executive whenever necessary to keep the Companies informed on a current basis. (j) Modification of Benefit Plans or Programs. Nothing contained in this ----------------------------------------- Paragraph 10 shall obligate the Companies to institute, maintain, or refrain from changing, amending, or discontinuing any benefit plan or program referred to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such actions are similarly applicable to senior executives of the Companies generally. (k) Rights of Estate. If the Executive dies prior to his receipt of all ---------------- of the cash payments to which he may be entitled pursuant to subparagraph (b), (c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes applicable, then the unpaid portion of such cash payments shall be paid by the Companies to the personal representative of the Executive's estate 9 at the same time or times that the payments would have been made to the Executive if he still were living. (l) Excess Parachute Payments. If any of the payments required to be made ------------------------- to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10 constitute "excess parachute payments" within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder, and the Executive becomes liable for any excise tax on such "excess parachute payments" and any interest or penalties thereon (such excise tax, interest, and penalties, collectively, the "Tax Penalties"), then the Companies (and the Permitted Assignee, if applicable) promptly shall make a cash payment (the "Additional Payment") to the Executive in an amount equal to the Tax Penalties. The Companies also promptly shall make an additional cash payment to the Executive in an amount rounded to the nearest $100.00 which is equal to any additional income, excise, and other taxes (using the individual tax rates applicable to the Executive for the year for which such Tax Penalties are owed) for which the Executive will be liable as a result of the Executive's receipt of the Additional Payment (the additional cash payment provided for in this sentence being referred to as a "Gross-Up Payment"). In addition, the Executive shall be entitled to promptly receive from the Companies (and the Permitted Assignee, if applicable) a further Gross-Up Payment in respect of each prior Gross-Up Payment until the amount of the last Gross-Up Payment is less than $100.00. 11. Nondisclosure. During the term of this agreement and thereafter, the ------------- Executive shall not, without the prior written consent of the Board or a person (other than the Executive) so authorized by the Board, disclose or use for any purpose (except in the course of his employment under this agreement and in furtherance of the business of the Companies or any of their respective subsidiaries) any confidential information, trade secrets, or proprietary data of the Companies or any of their respective subsidiaries (collectively, for purposes of this agreement, "Confidential Information"); provided, however, that Confidential Information shall not include any information then known generally to the public or ascertainable from public or published information (other than as a result of unauthorized disclosure by the Executive) or any information of a type not otherwise considered confidential by persons engaged in the same business or a business similar to that conducted by the Companies or their respective subsidiaries, as the case may be. 12. Successors and Assigns. This agreement and all rights under this ---------------------- agreement shall be binding upon, inure to the benefit of, and be enforceable by the parties hereto and their respective personal or legal representatives, executors, administrators, heirs, distributees, devisees, legatees, successors, and assigns. This agreement is personal in nature, and none of the parties to this agreement shall, without the written consent of the others, assign or transfer this agreement or any right or obligation under this agreement to any other person or entity, except as permitted by Paragraph 14. 13. Notices. For purposes of this agreement, notices and other ------- communications provided for in this agreement shall be deemed to be properly given if delivered personally or sent either by next-business-day prepaid express delivery by a recognized national express delivery service or by United States certified mail, return receipt requested, postage prepaid, in either case addressed as follows: 10 If to the Executive: William E. Fisher c/o CSG Systems, Inc. 7887 East Belleview Avenue, Suite 1000 Englewood, Colorado 80111 If to the Companies: CSG Systems International, Inc. and CSG Systems, Inc. 7887 East Belleview Avenue, Suite 1000 Englewood, Colorado 80111, or to such other address as either party may have furnished to the other party in writing in accordance with this paragraph. Such notices or other communications shall be effective only upon receipt. 14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger ------------------------------------- of Systems with another corporation (other than CSGS) in a transaction in which Systems is not the surviving corporation, (b) the consolidation of Systems into a new corporation resulting from such consolidation, (c) the sale or other disposition of all or substantially all of the assets of Systems, the Companies may assign this agreement and all of the rights and obligations of the Companies under this agreement to the surviving, resulting, or acquiring entity (for purposes of this agreement, a "Permitted Assignee"); provided, that such surviving, resulting, or acquiring entity shall in writing assume and agree to perform all of the obligations of the Companies under this agreement; and provided further, that the Companies shall remain jointly and severally liable for the performance of the obligations of the Companies under this agreement in the event of a failure of the Permitted Assignee to perform its obligations under this agreement. 15. Change of Control. For purposes of this agreement, a "Change of ----------------- Control" shall be deemed to have occurred upon the happening of any of the following events: (a) CSGS is merged or consolidated into another corporation, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of CSGS immediately prior to the effectiveness of such merger or consolidation do not own (directly or indirectly) a majority of the outstanding shares of voting capital stock of the surviving or resulting corporation in such merger or consolidation, (b) CSGS ceases to own (directly or indirectly) a majority of the outstanding shares of voting capital stock of Systems (unless such event results from the merger of Systems into CSGS, with no change in the ownership of the voting capital stock of CSGS, or from the dissolution of Systems and the continuation of its business by CSGS), (c) Systems is merged or consolidated into a corporation other than CSGS, and at any time after such merger or consolidation becomes effective CSGS does not own (directly or indirectly) a majority of the outstanding shares of voting capital stock of the surviving or resulting corporation in such merger or consolidation, 11 (d) the stockholders of Systems vote (or act by written consent) to dissolve Systems (unless the business of Systems will be continued by CSGS) or to sell or otherwise dispose of all or substantially all of the property and assets of Systems (other than to an entity or group of entities which is then under common ownership (directly or indirectly) with Systems), (e) any person, entity, or group of persons within the meaning of Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act") and the rules promulgated thereunder becomes the beneficial owner (within the meaning of Rule 13d-3 under the 1934 Act) of thirty percent (30%) or more of the outstanding voting capital stock of CSGS, or (f) during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of CSGS cease, for any reason, to constitute at least a majority of the Board of Directors of CSGS, unless the election or nomination for election of each new director of CSGS who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of CSGS still in office at the time of such election or nomination for election who were directors of CSGS at the beginning of such period. 16. Miscellaneous. No provision of this agreement may be modified, ------------- waived, or discharged unless such waiver, modification, or discharge is agreed to in writing and is signed by the Executive and an officer of CSGS (other than the Executive) so authorized by the Board. No waiver by any party to this agreement at any time of any breach by any other party of, or compliance by any other party with, any condition or provision of this agreement to be performed by such other party shall be deemed to be a waiver of similar or dissimilar provisions or conditions at the same or any prior or subsequent time. No agreements or representations, oral or otherwise, express or implied, with respect to the subject matter of this agreement have been made by any party that are not expressly set forth in this agreement. 17. Representations of Companies. The Companies severally represent and ---------------------------- warrant to the Executive that they have full legal power and authority to enter into this agreement, that the execution and delivery of this agreement by the Companies have been duly authorized by their respective boards of directors, and that the performance of their respective obligations under this agreement will not violate any agreement between the Companies, or either of them, and any other person, firm, or organization. 18. Non-Solicitation of Employees. For a period of one (1) year after ----------------------------- the effective date of the termination of the Executive's employment under this agreement for any reason, whether voluntarily or involuntarily and with or without cause, without the prior written consent of CSGS the Executive agrees (i) not to directly or indirectly employ, solicit for employment, assist any other person in employing or soliciting for employment, or advise or recommend to any other person that such other person employ or solicit for employment any person who then is an employee of the Companies (or either of them) or any of the respective subsidiaries of the Companies and (ii) not to recommend to any then employee of the Companies (or either of them) 12 or any of the respective subsidiaries of the Companies that such employee leave the employ of such employer. 19. Post-Termination Noncompetition. Because the Confidential ------------------------------- Information known to or developed by the Executive during his employment by the Companies encompasses at the highest level information concerning the plans, strategies, products, operations, and existing and prospective customers of the Companies and could not practically be disregarded by the Executive, the Executive acknowledges that his provision of executive services to a competitor of the Companies or either of them soon after the termination of the Executive's employment by the Companies would inevitably result in the use of the Confidential Information by the Executive in his performance of such executive services, even if the Executive were to use his best efforts to avoid such use of the Confidential Information. To prevent such use of the Confidential Information and the resulting unfair competition and wrongful appropriation of the goodwill and other valuable proprietary interests of the Companies, the Executive agrees that for a period of one (1) year after the termination of his employment by the Companies for any reason, whether voluntarily or involuntarily and with or without cause, the Executive will not, directly or indirectly: (a) engage, whether as an employee, agent, consultant, independent contractor, owner, partner, member, or otherwise, in a business activity which then competes in a material way with a business activity then being actively engaged in by the Companies or either of them; (b) solicit or recommend to any other person that such period solicit any then customer of the Companies or either of them, which customer also was a customer of the Companies or either of them at any time during the one (1) year period prior to the termination of the Executive's employment by the Companies, for the purpose of obtaining the business of such customer in competition with the Companies or either of them; or (c) induce or attempt to induce any then customer or prospective customer of the Companies or either of them to terminate or not commence a business relationship with the Companies or either of them. The Companies and the Executive acknowledge and agree that the restrictions contained in this Paragraph 19 are both reasonable and necessary in view of the Executive's positions with the Companies and that the Executive's compensation and benefits under this agreement are sufficient consideration for the Executive's acceptance of such restrictions. Nevertheless, if any of the restrictions contained in this Paragraph 19 are found by a court having jurisdiction to be unreasonable, or excessively broad as to geographic area or time, or otherwise unenforceable, then the parties intend that the restrictions contained in this Paragraph 19 be modified by such court so as to be reasonable and enforceable and, as so modified by the court, be fully enforced. Nothing contained in this paragraph shall be construed to preclude the investment by the Executive of any of his assets in any publicly owned entity so long as the Executive has no direct or indirect involvement in the business of such entity and owns less than 2% of the voting equity securities of such entity. Nothing contained in this paragraph shall be construed to preclude the Executive from becoming employed by or serving as a consultant to or having dealings with a publicly owned entity one of whose businesses is a competitor of the Companies or either of 13 them so long as such employment, consultation, or dealings do not directly or indirectly involve or relate to the business of such entity which is a competitor of the Companies or either of them. 20. Joint and Several Obligations. All of the obligations of the ----------------------------- Companies under this agreement are joint and several; and neither the bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization nor the cessation of business or corporate existence of one of the Companies shall affect, impair, or diminish the obligations under this agreement of the other of the Companies. The compensation and benefits to which the Executive is entitled under this agreement are aggregate compensation and benefits, and the payment of such compensation or the provision of such benefits by one of the Companies shall to the extent of such payment or provision satisfy the obligations of the other of the Companies. The Companies may agree between themselves as to which of them will be responsible for some or all of the Executive's compensation and benefits under this agreement, but any such agreement between the Companies shall not diminish to any extent the joint and several liability of the Companies to the Executive for all of such compensation and benefits. 21. Injunctive Relief. The Executive acknowledges that his violation of ----------------- the provisions and restrictions contained in Paragraphs 11, 18, and 19 could cause significant injury to the Companies for which the Companies would have no adequate remedy at law. Accordingly, the Executive agrees that the Companies will be entitled, in addition to any other rights and remedies that then may be available to the Companies, to seek and obtain injunctive relief to prevent any breach or potential breach of any of the provisions and restrictions contained in Paragraph 11, 18, or 19. 22. Dispute Resolution. Subject to the provisions of Paragraph 21, any ------------------ claim by the Executive or the Companies arising from or in connection with this agreement, whether based on contract, tort, common law, equity, statute, regulation, order, or otherwise (a "Dispute"), shall be resolved as follows: (a) Such Dispute shall be submitted to mandatory and binding arbitration at the election of either the Executive or the particular Company involved (the "Disputing Party"). Except as otherwise provided in this Paragraph 22, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the "AAA"). (b) To initiate the arbitration, the Disputing Party shall notify the other party in writing within 30 days after the occurrence of the event or events which give rise to the Dispute (the "Arbitration Demand"), which notice shall (i) describe in reasonable detail the nature of the Dispute, (ii) state the amount of any claim, (iii) specify the requested relief, and (iv) name an arbitrator who (A) has been licensed to practice law in the U.S. for at least ten years, (B) has no past or present relationship with either the Executive or the Companies, and (C) is experienced in representing clients in connection with employment related disputes (the "Basic Qualifications"). Within fifteen (15) days after the other party's receipt of the Arbitration Demand, such other party shall serve on the Disputing Party a written statement (i) answering the claims set forth in the Arbitration Demand and including any affirmative defenses of such party, (ii) asserting any counterclaim, which statement shall (A) describe in reasonable detail the nature of the Dispute relating to the 14 counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief, and (iii) naming a second arbitrator satisfying the Basic Qualifications. Promptly, but in any event within five (5) days thereafter, the two arbitrators so named shall select a third neutral arbitrator from a list provided by the AAA of potential arbitrators who satisfy the Basic Qualifications and who have no past or present relationship with the parties' counsel, except as otherwise disclosed in writing to and approved by the parties. The arbitration will be heard by a panel of the three arbitrators so chosen (the "Arbitration Panel"), with the third arbitrator so chosen serving as the chairperson of the Arbitration Panel. Decisions of a majority of the members of the Arbitration Panel shall be determinative. (c) The arbitration hearing shall be held in Denver, Colorado. The Arbitration Panel is specifically authorized to render partial or full summary judgment as provided for in the Federal Rules of Civil Procedure. The Arbitration Panel will have no power or authority, under the Commercial Arbitration Rules of the AAA or otherwise, to relieve the parties from their agreement hereunder to arbitrate or otherwise to amend or disregard any provision of this agreement, including, without limitation, the provisions of this Paragraph 22. (d) If an arbitrator refuses or is unable to proceed with arbitration proceedings as called for by this Paragraph 22, such arbitrator shall be replaced by the party who selected such arbitrator or, if such arbitrator was selected by the two party-appointed arbitrators, by such two party-appointed arbitrators' selecting a new third arbitrator in accordance with Paragraph 22(b), in either case within five (5) days after such declining or withdrawing arbitrator's giving notice of refusal or inability to proceed. Each such replacement arbitrator shall satisfy the Basic Qualifications. If an arbitrator is replaced pursuant to this Paragraph 22(d) after the arbitration hearing has commenced, then a rehearing shall take place in accordance with the provisions of this Paragraph 22(d) and the Commercial Arbitration Rules of the AAA. (e) Within ten (10) days after the closing of the arbitration hearing, the Arbitration Panel shall prepare and distribute to the parties a writing setting forth the Arbitration Panel's finding of facts and conclusions of law relating to the Dispute, including the reason for the giving or denial of any award. The findings and conclusions and the award, if any, shall be deemed to be confidential information. (f) The Arbitration Panel is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiative and control to effect an efficient and expeditious resolution of the Dispute. The Arbitration Panel is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding. 15 (g) Any award rendered by the Arbitration Panel will be final, conclusive, and binding upon the parties, and any judgment on such award may be entered and enforced in any court of competent jurisdiction. (h) Each party will bear a pro rata share of all fees, costs, and expenses of the arbitrators; and, notwithstanding any law to the contrary, each party will bear all of the fees, costs, and expenses of his or its own attorneys, experts, and witnesses. However, in connection with any judicial proceeding to compel arbitration pursuant to this agreement or to enforce any award rendered by the Arbitration Panel, the prevailing party in such a proceeding will be entitled to recover reasonable attorneys' fees and expenses incurred in connection with such proceedings, in addition to any other relief to which such party may be entitled. (i) Nothing contained in the preceding provisions of this Paragraph 22 shall be construed to prevent either party from seeking from a court a temporary restraining order or other injunctive relief pending final resolution of a Dispute pursuant to this Paragraph 22. 23. No Duty to Seek Employment. The Executive shall not be under any -------------------------- duty or obligation to seek or accept other employment following the termination of his employment by the Companies; and, except as expressly provided in subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment, or benefit due the Executive under this agreement shall be reduced, suspended, or discontinued if the Executive accepts such other employment. 24. Withholding of Taxes. The Companies may withhold from any amounts -------------------- payable to the Executive under this agreement all federal, state, and local taxes which are required to be so withheld by any applicable law or governmental regulation or ruling. 25. Validity. The invalidity or unenforceability of any provision or -------- provisions of this agreement shall not affect the validity or enforceability of any other provision of this agreement, which other provision shall remain in full force and effect; nor shall the invalidity or unenforceability of a portion of any provision of this agreement affect the validity or enforceability of the balance of such provision. 26. Counterparts. This document may be executed in one or more ------------ counterparts, each of which shall be deemed to be an original and all of which together shall constitute a single agreement. 27. Headings. The headings of the paragraphs contained in this document -------- are for reference purposes only and shall not in any way affect the meaning or interpretation of any provision of this agreement. 28. Applicable Law. This agreement shall be governed by and construed in -------------- accordance with the internal substantive laws, and not the choice of law rules, of the State of Colorado. 16 IN WITNESS WHEREOF, the Companies and the Executive have executed this agreement on the day and year first above written. CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation By: /s/ Jack Pogge ------------------------------------- Jack Pogge, President and Chief Operating Officer CSG SYSTEMS, INC., a Delaware corporation By: /s/ Jack Pogge ------------------------------------- Jack Pogge, President and Chief Operating Officer /s/ William E. Fisher ----------------------------------------- William E. Fisher 17 EX-99.01 5 dex9901.txt SAFE HARBOR FOR FORWARD LOOKING STMT Exhibit 99.01 SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995 CERTAIN CAUTIONARY STATEMENTS AND RISK FACTORS CSG Systems International, Inc. and its subsidiaries (collectively, the Company) or their representatives from time-to-time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in the Management's Discussion and Analysis of Financial Condition and Results of Operations contained in its various SEC filings or orally in conferences or teleconferences. The Company wishes to ensure that such statements are accompanied by meaningful cautionary statements, so as to ensure to the fullest extent possible the protections of the safe harbor established in the Private Securities Litigation Reform Act of 1995. ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS. This list of factors is likely not exhaustive. The Company operates in a rapidly changing and evolving business involving the converging communications markets, and new risk factors will likely emerge. Management cannot predict all of the important risk factors, nor can it assess the impact, if any, of such risk factors on the Company's business or the extent to which any factor, or combination of factors, may cause actual results to differ materially from those in any forward-looking statements. ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND THAT SUCH DIFFERENCES MAY BE MATERIAL. RELIANCE ON CCS - --------------- The Company derived approximately 75.8% and 78.3% of its total revenues from its primary product, Communications Control System, and related products and services (collectively, CCS) in the years ended December 31, 2000 and 1999, respectively. CCS is expected to provide the substantial majority of the Company's total revenues in the foreseeable future. The Company continues to develop new products and services to address the evolving needs of its new and existing clients as they roll out new product offerings and enter new markets. A substantial portion of the Company's new products and services require enhancements to the core functionality of CCS. There is an inherent risk of technical problems in maintaining and operating CCS as its complexity is increased. The Company's results will depend upon continued market acceptance of CCS, as well as the Company's ability to continue to adapt, modify, maintain, and operate CCS to meet the changing needs of its clients without sacrificing the reliability or quality of service. Any reduction in demand for CCS would have a material adverse effect on the financial condition and results of operations of the Company. 22 AT&T RELATIONSHIP - ----------------- Contract Rights and Obligations (as amended) - -------------------------------------------- The AT&T Contract has an original term of 15 years and expires in 2012. The AT&T Contract includes minimum financial commitments by AT&T over the life of the contract, and as amended, includes exclusive rights for the Company to provide customer care and billing products and services for AT&T's offerings of wireline video, all Internet/high speed data services, and print and mail services. During the fourth quarter of 2000, the Company relinquished its exclusive rights to process AT&T's wireline telephony customers, and expects these AT&T customers to be fully converted to another service provider by the end of 2001. The Company does not expect the loss of these customers to have a material impact on the Company's result of operations. Effective April 2001, the Company amended its agreement with AT&T giving the Company certain contractual rights to continue processing, for a minimum of one year, customers that AT&T may divest. These new rights are co-terminus with and are in addition to the existing minimum processing commitments the Company has with AT&T through 2012. Any such divestitures to a third party would not relieve AT&T of its minimum financial commitments over the term of the contract. It has been reported in the public press that AT&T Broadband may be acquired or merged with one or more third parties in a single transaction or a series of transactions. It is impossible and premature at this time to speculate what impact any particular transaction(s) would have on the Company's operations, if any. The Company believes the AT&T Contract would remain in effect in the event there is a change in control of AT&T Broadband; however, it is impossible to predict how any successor entity(s) to AT&T Broadband would interpret their obligations under the AT&T Contract. It is also impossible to predict what impact any dispute would have on the Company's results of operations or market for its securities. The AT&T Contract contains certain performance criteria and other obligations to be met by the Company. The Company is subject to various remedies and penalties if it fails to meet the performance criteria or other obligations. The Company is also subject to an annual technical audit to determine whether the Company's products and services include innovations in features and functions that have become standard in the wireline video industry. If an audit determines the Company is not providing such an innovation and it fails to do so in the manner and time period dictated by the contract, then AT&T would be released from its exclusivity obligation to the extent necessary to obtain the innovation from a third party. To fulfill the AT&T Contract and to remain competitive, the Company believes it will be required to develop additional features to existing products and services, and possibly in certain circumstances, new products and services, all of which will require substantial research and development, as well as implementation and operational aptitude. AT&T has the right to terminate the AT&T Contract in the event of certain defaults by the Company. To date, the Company believes it has complied with the terms of the contract. Should the Company fail to meet its obligations under the AT&T Contract, and should AT&T be successful in any action to either terminate the AT&T Contract in whole or in part, or collect damages caused by an alleged breach, it would have a material adverse impact on the Company's results of operations. Indeed, in the Company's third quarter ended September 30, 2000, AT&T filed a Demand for Arbitration relating to the AT&T Contract, causing a significant drop in the trading price of the Company's Common Stock. A copy of the AT&T Contract and all subsequent amendments (including the amendment executed as part of the agreement to withdraw the Demand for Arbitration) are included in the Company's exhibits to its periodic public filings with the Securities and Exchange Commission. These documents are available on the Internet and the Company encourages readers to review those documents for further details. See the Company's 2000 10-K for additional discussion of the arbitration claim and the Company's business relationship with AT&T. 23 Business Activities and Dependence On AT&T - ------------------------------------------ AT&T completed its merger with Tele-Communications, Inc. (TCI) in March 1999 and completed its merger with MediaOne Group, Inc. (MediaOne) in 2000. During the nine months ended September 30, 2001 and 2000, revenues from AT&T and affiliated companies represented approximately 58.6% and 47.4% of total revenues, respectively. The increase in the percentage between periods relates primarily to the timing and the amount of software purchases by AT&T. The Company expects to continue to generate a significant portion of its total revenues from AT&T and affiliated companies in the future. There are inherent risks whenever this large of a percentage of total revenues is concentrated with one customer. One such risk is that, should AT&T's business generally decline, it would have a material impact on the Company's results of operations. If the Company were to fail to continue to perform successfully under the AT&T Contract, that would have a material adverse effect on the financial condition and results of operations of the Company. Likewise, if AT&T were to breach its material obligations to the Company, that would have a material adverse effect on the financial condition and results of operations of the Company. Historically, a substantial portion of the Company's revenue growth has resulted from the sale of products and services to AT&T, both of which are in excess of the minimum financial commitments included in the contract. There can be no assurance that the Company will continue to sell products and services to AT&T in excess of the minimum financial commitments included in the contract. RENEWAL OF AOL TIME WARNER CONTRACTS - ------------------------------------ America Online, Inc. (AOL) and Time Warner completed their merger in 2000, and now operate under the name AOL Time Warner, Inc. (AOL Time Warner). During the years ended December 31, 2000 and 1999, revenues from AOL Time Warner represented approximately 8.3% and 10.2% of total revenues, respectively. The Company provides services to AOL Time Warner under multiple, separate contracts with various AOL Time Warner affiliates. These contracts are scheduled to expire on various dates. The failure of AOL Time Warner to renew contracts representing a significant part of its business with the Company would have a material adverse impact on the financial condition and results of operations of the Company. It would be premature to predict the impact, if any, the result the AOL Time Warner merger will have on the financial condition or results of operations of the Company. CONVERSION TO THE COMPANY'S SYSTEMS - ----------------------------------- The Company's ability to convert new client sites to its customer care and billing systems on a timely and accurate basis is necessary to meet the Company's contractual commitments and to achieve its business objectives. Converting multiple sites under the schedules required by contracts or business requirements is a difficult and complex process. One of the difficulties in the conversion process is that competition for the necessary qualified personnel is intense and the Company may not be successful in attracting and retaining the personnel necessary to complete conversions on a timely and accurate basis. The inability of the Company to perform the conversion process timely and accurately would have a material adverse impact on the results of operations of the Company. As of September 30, 2001, the Company had scheduled approximately 2.3 million customers to be converted onto its processing system during the next twelve months. INDUSTRY CONSOLIDATION AND DEPENDENCE ON VIDEO INDUSTRY - CABLE TELEVISION AND - ------------------------------------------------------------------------------ DBS - --- The Company's business is concentrated in the cable television and Direct Broadcast Satellite (DBS) industries, making the Company susceptible to a downturn in those industries. During the years ended 24 December 31, 2000 and 1999, the Company derived 77.7% and 75.8%, and 16.0% and 15.5% of its total revenues from companies in the U.S. cable television and U.S. and Canadian DBS industries, respectively. A decrease in the number of customers served by the Company's clients, loss of business due to non-renewal of client contracts, industry consolidation, and/or changing consumer demand for services would adversely effect the results of operations of the Company. There can be no assurance that new entrants into the video market will become clients of the Company. Also, there can be no assurance that video providers will be successful in expanding into other segments of the converging communications markets. Even if major forays into new markets are successful, the Company may be unable to meet the special billing and customer care needs of that market. The cable television industry both domestically and internationally is undergoing significant ownership changes at an accelerated pace. One facet of these changes is that cable television providers are consolidating, decreasing the potential number of buyers for the Company's products and services. Seven providers account for over 85% of the U.S. cable television market and two providers account for almost the entire U.S. DBS market. The Company processes and/or provides statement printing for at least a portion of the customers (i) for five of the seven cable television providers, and (ii) for one of the DBS providers. For the nine months ended September 30, 2001, approximately 87% of the Company's total revenues were generated from companies under the control of these six providers. Consolidation in the industry may put at risk the Company's ability to leverage its existing relationships. Should this consolidation result in a concentration of cable television customer accounts being owned by companies with whom the Company does not have a relationship, or with whom competitors are entrenched, it could negatively effect the Company's ability to maintain or expand its market share, thereby adversely effecting the results of operations. NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE - ------------------------------------------- The market for customer care and billing systems is characterized by rapid changes in technology and is highly competitive with respect to the need for timely product innovations and new product introductions. The Company believes that its future success in sustaining and growing the annual processing revenue per customer account and the software and professional services revenues depends upon continued market acceptance of its current products, including CCS, and its ability to enhance its current products and develop new products that address the increasingly complex and evolving needs of its clients. Substantial research and development will be required to maintain the competitiveness of the Company's products and services in the market. Development projects can be lengthy and costly, and are subject to changing requirements, programming difficulties, a shortage of qualified personnel, and unforeseen factors which can result in delays. In addition, the Company is typically responsible for the implementation of new products, and depending upon the specific product, may also be responsible for operations of the product. There is an inherent risk in the successful implementation and operations of these products as the technological complexity increases. There can be no assurance (i) of continued market acceptance of the Company's current products, (ii) that the Company will be successful in the timely development of product enhancements or new products that respond to technological advances or changing client needs, or (iii) that the Company will be successful in supporting the implementation and/or operations of product enhancements or new products. CONVERGING COMMUNICATIONS MARKETS - --------------------------------- The Company's growth strategy is based in part on the continuing convergence and growth of the worldwide cable television, DBS, telecommunications, and on-line services markets. If these markets fail to converge, grow more slowly than anticipated, or if providers in the converging markets do not accept the Company's solution for combining multiple communications services for a customer, there could be a material adverse effect on the Company's growth. 25 COMPETITION - ----------- The market for the Company's products and services is highly competitive. The Company directly competes with both independent providers of products and services and in-house systems developed by existing and potential clients. In addition, some independent providers are entering into strategic alliances with other independent providers, resulting in either a new competitor, or a competitor(s) with greater resources. Many of the Company's current and potential competitors have significantly greater financial, marketing, technical, and other competitive resources than the Company, and many already have significant international operations. There can be no assurance that the Company will be able to compete successfully with its existing competitors or with new competitors. ATTRACTION AND RETENTION OF PERSONNEL - ------------------------------------- The Company's future success depends in large part on the continued service of its key management, sales, product development, and operational personnel. The Company is particularly dependent on its executive officers. The Company believes that its future success also depends on its ability to attract and retain highly skilled technical, managerial, operational, and marketing personnel, including, in particular, additional personnel in the areas of research and development and technical support. Competition for qualified personnel is intense, particularly in the areas of research and development, conversions and technical support. The Company may not be successful in attracting and retaining the personnel it requires, which would adversely effect the Company's ability to meet its commitments and new product delivery objectives. VARIABILITY OF QUARTERLY RESULTS - -------------------------------- The Company's quarterly revenues and results, particularly relating to software and professional services, may fluctuate depending on various factors, including the timing of executed contracts and the delivery of contracted services or products, the cancellation of the Company's services and products by existing or new clients, the hiring of additional staff, new product development and other expenses, and changes in sales commission policies. No assurance can be given that results will not vary due to these factors. As the Company's overall revenue grows, so too does the risk associated with meeting financial expectations for revenue derived from its software and services offerings. As a result, there is a proportionately increased likelihood that the Company may fail to meet revenue and earnings expectations of the analyst community. With the current volatility of the stock market, should the Company fail to meet analyst expectations by even a relatively small amount it would most likely have a disproportionately negative impact upon the market price for the Company's Common Stock. DEPENDENCE ON PROPRIETARY TECHNOLOGY - ------------------------------------ The Company relies on a combination of trade secret and copyright laws, nondisclosure agreements, and other contractual and technical measures to protect its proprietary rights in its products. The Company also holds a limited number of patents on some of its newer products, and does not rely upon patents as a primary means of protecting its rights in its intellectual property. There can be no assurance that these provisions will be adequate to protect its proprietary rights. Although the Company believes that its intellectual property rights do not infringe upon the proprietary rights of third parties, there can be no assurance that third parties will not assert infringement claims against the Company or the Company's clients. 26 INTERNATIONAL OPERATIONS - ------------------------ The Company's growth strategy includes a commitment to the marketing of its products and services internationally, and the Company has acquired and established operations outside of the U.S. The Company is subject to certain inherent risks associated with operating internationally. Risks include product development to meet local requirements such as the conversion to the local currency, difficulties in staffing and management, reliance on independent distributors or strategic alliance partners, fluctuations in foreign currency exchange rates, compliance with foreign regulatory requirements, variability of foreign economic conditions, changing restrictions imposed by U.S. export laws, an adverse impact to the Company's overall effective tax rate resulting from (i) operations in foreign countries with higher tax rates than the United States, (ii) inefficient use of foreign tax credits, and (iii) the inability to utilize some or all of losses generated in one or more foreign countries, and competition from U.S.-based companies which have firmly established significant international operations. There can be no assurance that the Company will be able to manage successfully the risks related to selling its products and services in international markets. INTEGRATION OF ACQUISITIONS - --------------------------- As part of its growth strategy, the Company seeks to acquire assets, technology, and businesses which would provide the technology and technical personnel to expedite the Company's product development efforts, provide complementary products or services or provide access to new markets and clients. Acquisitions involve a number of risks and difficulties, including expansion into new geographic markets and business areas, the requirement to understand local business practices, the diversion of management's attention to the assimilation of acquired operations and personnel, potential adverse short-term effects on the Company's operating results, and the amortization of acquired intangible assets. SYSTEM SECURITY - ---------------- The end users of the Company's systems are continuously connected to the Company's products through a variety of public and private telecommunications networks. The Company plans to expand its use of the Internet with its product offerings thereby permitting, for example, our clients' customer to use the Internet to review account balances, order services or execute similar account management functions. The Company also operates an extensive internal network of computers and systems used to manage internal communications, financial information, development data and the like. The Company's product and internal communications networks and systems carry an inherent risk of failure as a result of human error, acts of nature and intentional, unauthorized attacks from computer "hackers." Opening up these networks and systems to permit access via the Internet increases their vulnerability to unauthorized access and corruption, as well as increasing the dependency of the systems' reliability on the availability and performance of the Internet's infrastructure. Certain system security and other controls for CCS are reviewed annually by an independent party. The Company periodically undergoes a security review of its internal systems by an independent party, and has implemented a plan intended to limit the risk of an unauthorized access to the networks and systems, including network firewalls, intrusion detection systems and antivirus applications. The method, manner, cause and timing of an extended interruption or outage in the Company's networks or systems is impossible to predict. As a result, there can be no assurances that the Company's networks and systems will not fail, nor that the Company's business recovery plans will adequately mitigate any damages incurred as a consequence. In addition, should the Company's networks or systems be significantly compromised, it would most likely have a material adverse effect on the operations of the Company, including its ability to meet product delivery obligations or client expectations. Likewise, should the Company's networks or systems experience an extended interruption or outage, have their security compromised or data lost or corrupted, it would most likely result in an immediate loss of revenue, as well as 27 damaging the reputation of the Company. Any of these events could have both an immediate, negative impact upon the Company's short term revenue and profit expectations, as well as its long term ability to attract and retain new clients. PRODUCT OPERATIONS AND SYSTEM AVAILABILITY - ------------------------------------------ The Company's product operations are run in both mainframe and distributed system computing environments, as follows: Mainframe Environment --------------------- CCS operates in a mainframe data processing center managed by FDC (the FDC Data Center), with end users dispersed throughout the United States and Canada. These services are provided under an agreement with FDC, which is scheduled to expire June 30, 2005. The Company believes it could obtain mainframe data processing services from alternative sources, if necessary. The Company has a business recovery plan as part of its agreement with FDC should the FDC Data Center suffer an extended business interruption or outage. This plan is tested on an annual basis. Distributed Systems Environment ------------------------------- Several of the Company's new product applications operate in a distributed systems environment (also known as "open systems"), running on multiple servers for the benefit of certain clients. The Company recently completed the migration of these distributed systems servers from its own internal data center to the FDC Data Center. Under an agreement with FDC that runs through June 30, 2005, FDC provides the operations monitoring and facilities management services, while the Company provides hardware, operating systems and application support. Typically, these distributed product applications interface to and operate in conjunction with CCS via telecommunication networks. The Company is currently implementing its business recovery plan for these applications. The Company and FDC have extensive experience in running applications within the mainframe computing platform, and only within the last few years began running applications within a distributed systems environment. In addition, the mainframe computing environment and related technology is mature and has proven to be a highly reliable and scaleable computing platform. The distributed systems computing platform is not at the same level of maturity as the mainframe computing platform. In addition, security attacks on distributed systems throughout the industry are more prevalent than on mainframe environments due to the open nature of those systems. The end users of the Company systems are continuously connected to the Company's products through a variety of public and private telecommunications networks, and are highly dependent upon the continued availability of the Company's systems to conduct their business operations. Should the FDC Data Center, or any particular product application or internal system which is operated within the FDC Data Center or the Company's facilities, as well as the connecting telecommunications networks, experience an extended business interruption or outage, it could have an immediate impact to the business operations of the Company's clients, which could have a material adverse impact on the financial condition and results of operations of the Company, as well as negatively affect the Company's ability to attract and retain new clients. 28 -----END PRIVACY-ENHANCED MESSAGE-----