Form 10Q Dated 09/30/2003

-----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, BMYM3STOSrqvumuZejmbS7PW0VackuYINX7mm/NAx7U+gPgTKm/DjuxEvnnGsxrO U0aUDHyIub1/9GD5m7AYOw== 0001193125-03-081914.txt : 20031114 0001193125-03-081914.hdr.sgml : 20031114 20031114154200 ACCESSION NUMBER: 0001193125-03-081914 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 20030930 FILED AS OF DATE: 20031114 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: 860704792 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: 031004290 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.htm FORM 10Q DATED 09/30/2003 Form 10Q Dated 09/30/2003

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(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, 2003

¨	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

of incorporation or organization)

(I.R.S. Employer

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 ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES x NO ¨

Shares of common stock outstanding at November 10, 2003: 52,340,557.

CSG SYSTEMS INTERNATIONAL, INC.

FORM 10-Q For the Quarter Ended September 30, 2003

INDEX

		Page No.
Part I -	FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002 (Unaudited)	3

	Condensed Consolidated Statements of Operations for the Three and Nine Months Ended September 30, 2003 and 2002 (Unaudited)	4

	Condensed Consolidated Statements of Cash Flows for the Nine Months Ended September 30, 2003 and 2002 (Unaudited)	5

	Notes to Condensed Consolidated Financial Statements (Unaudited)	6

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	19

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	50

Item 4.	Controls and Procedures	51

Part II -	OTHER INFORMATION

Item 1.	Legal Proceedings	52

Item 6.	Exhibits and Reports on Form 8-K	52

	Signatures	53

	Index to Exhibits	54

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share amounts)

	September 30, 2003			December 31, 2002
	(unaudited)
ASSETS
Current assets:
Cash and cash equivalents	$	135,663		$	94,424
Short-term investments		8,795			1,013

Total cash, cash equivalents and short-term investments		144,458			95,437
Trade accounts receivable-
Billed, net of allowance of $13,728 and $12,079		149,082			160,417
Unbilled and other		25,498			28,856
Purchased Kenan Business accounts receivable		—			603
Deferred income taxes		8,780			8,355
Income taxes receivable		40,634			—
Other current assets		9,475			10,568

Total current assets		377,927			304,236
Property and equipment, net of depreciation of $86,619 and $74,023		39,798			46,442
Software, net of amortization of $59,499 and $48,582		40,501			50,478
Goodwill		218,656			220,065
Client contracts, net of amortization of $49,040 and $42,954		59,077			63,805
Deferred income taxes		36,141			37,163
Other assets		8,002			9,128

Total assets	$	780,102		$	731,317

LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Current maturities of long-term debt	$	8,515		$	16,370
Client deposits		17,321			16,350
Trade accounts payable		17,180			24,810
Accrued employee compensation		24,060			26,707
Deferred revenue		55,590			45,411
Income taxes payable		26,413			30,469
Arbitration charge payable		119,601			—
Other current liabilities		25,074			24,337

Total current liabilities		293,754			184,454

Non-current liabilities:
Long-term debt, net of current maturities		220,410			253,630
Deferred revenue		1,967			2,090
Other non-current liabilities		7,298			9,038

Total non-current liabilities		229,675			264,758

Stockholders’ equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized; zero shares issued and outstanding		—			—
Common stock, par value $.01 per share; 100,000,000 shares authorized; 52,325,052 shares and 51,726,528 shares outstanding		578			577
Additional paid-in capital		256,569			255,452
Deferred employee compensation		(7,024	)		(3,904	)
Accumulated other comprehensive income (loss):
Unrealized gain (loss) on short-term investments, net of tax		1			(6	)
Cumulative translation adjustments		3,955			1,060
Treasury stock, at cost, 5,499,796 shares and 5,979,796 shares		(171,111	)		(186,045	)
Accumulated earnings		173,705			214,971

Total stockholders’ equity		256,673			282,105

Total liabilities and stockholders’ equity	$	780,102		$	731,317

The accompanying notes are an integral part of these condensed consolidated financial statements.

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share amounts)

	Three months ended						Nine months ended
	September 30, 2003			September 30, 2002			September 30, 2003			September 30, 2002
	(unaudited)						(unaudited)
Revenues:
Processing and related services (inclusive in 2003 of $13,472 charge for arbitration ruling attributable to the third quarter of 2003)	$	79,369		$	93,587		$	261,586		$	276,104
Software		10,600			11,633			32,912			56,011
Maintenance (inclusive in 2003 of $450 charge for arbitration ruling attributable to the third quarter of 2003)		23,676			25,649			68,907			61,614
Professional services		17,544			24,745			52,077			61,998

Subtotal		131,189			155,614			415,482			455,727

Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		—			(105,679	)		—

Total revenues, net		25,510			155,614			309,803			455,727

Cost of revenues:
Cost of processing and related services		36,503			35,364			106,163			105,464
Cost of software and maintenance		18,540			17,477			54,240			39,212
Cost of professional services		16,770			17,748			49,991			46,108

Total cost of revenues		71,813			70,589			210,394			190,784

Gross margin (loss) (exclusive of depreciation)		(46,303	)		85,025			99,409			264,943

Operating expenses:
Research and development		14,309			19,217			46,715			58,150
Selling, general and administrative		25,200			29,429			86,913			83,641
Depreciation		4,529			5,007			13,462			13,910
Restructuring charges		3,451			12,027			7,603			12,027
Kenan Business acquisition-related expenses		—			2,104			—			29,458

Total operating expenses		47,489			67,784			154,693			197,186

Operating income (loss)		(93,792	)		17,241			(55,284	)		67,757

Other income (expense):
Interest expense		(3,291	)		(4,076	)		(10,647	)		(10,358	)
Interest and investment income, net		381			221			1,112			1,624
Other		753			(546	)		3,582			(1,656	)

Total other		(2,157	)		(4,401	)		(5,953	)		(10,390	)

Income (loss) before income taxes		(95,949	)		12,840			(61,237	)		57,367
Income tax (provision) benefit		42,377			(6,990	)		28,353			(29,806	)

Net income (loss)	$	(53,572	)	$	5,850		$	(32,884	)	$	27,561

Basic net income (loss) per common share:
Net income (loss) available to common stockholders	$	(1.04	)	$	0.11		$	(0.64	)	$	0.53

Weighted average common shares		51,456			51,836			51,372			52,403

Diluted net income (loss) per common share:
Net income (loss) available to common stockholders	$	(1.04	)	$	0.11		$	(0.64	)	$	0.52

Weighted average common shares		51,456			52,005			51,372			52,847

The accompanying notes are an integral part of these condensed consolidated financial statements.

CSG SYSTEMS INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

	Nine months ended
	September 30, 2003			September 30, 2002
	(unaudited)
Cash flows from operating activities:
Net income (loss)	$	(32,884	)	$	27,561
Adjustments to reconcile net income (loss) to net cash provided by operating activities-
Depreciation		13,462			13,910
Amortization		18,684			15,690
Charge for in-process purchased research and development		—			19,300
Restructuring charge for abandonment of facilities		3,234			6,797
Gain on short-term investments		—			(49	)
Deferred income taxes		632			(10,116	)
Tax benefit of stock options exercised		15			491
Stock-based employee compensation		3,432			322
Impairment of intangible assets		—			1,906
Changes in operating assets and liabilities:
Trade accounts and other receivables, net		18,048			(26,046	)
Other current and noncurrent assets		829			(3,344	)
Arbitration charge payable		119,601			—
Income taxes payable/receivable		(44,774	)		12,404
Accounts payable and accrued liabilities		(12,284	)		6,535
Deferred revenues		10,814			(24,748	)

Net cash provided by operating activities		98,809			40,613

Cash flows from investing activities:
Purchases of property and equipment		(6,706	)		(10,143	)
Purchases of short-term investments		(7,782	)		(3,401	)
Proceeds from sale of short-term investments		—			53,380
Acquisition of businesses and assets, net of cash acquired		(2,380	)		(266,720	)
Acquisition of and investments in client contracts		(1,584	)		(3,387	)

Net cash used in investing activities		(18,452	)		(230,271	)

Cash flows from financing activities:
Proceeds from issuance of common stock		1,310			2,369
Repurchase of common stock		(207	)		(18,919	)
Proceeds from long-term debt		—			300,000
Payments on long-term debt		(41,075	)		(61,500	)
Proceeds from revolving credit facility		—			5,000
Payments on revolving credit facility		—			(5,000	)
Payments of deferred financing costs		(87	)		(8,365	)

Net cash provided by (used in) financing activities		(40,059	)		213,585

Effect of exchange rate fluctuations on cash		941			(2,649	)

Net increase in cash and cash equivalents		41,239			21,278

Cash and cash equivalents, beginning of period		94,424			30,165

Cash and cash equivalents, end of period	$	135,663		$	51,443

Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest	$	8,321		$	8,711
Income taxes	$	12,177		$	25,468

The accompanying notes are an integral part of these condensed consolidated financial statements.

CSG SYSTEMS INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

1. GENERAL

The accompanying unaudited condensed consolidated financial statements at September 30, 2003 and December 31, 2002, and for the three and nine months ended September 30, 2003 and 2002, have been prepared by the Company in accordance with accounting principles generally accepted in the United States of America for interim financial information, and pursuant to the instructions to Form 10-Q and the rules and regulations of the Securities and Exchange Commission (the “SEC”). Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) considered necessary for a fair presentation of the financial position and operating results have been included. 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, 2002, filed with the SEC (the “Company’s 2002 10-K”). The results of operations for the three and nine months ended September 30, 2003, are not necessarily indicative of the expected results for the entire year ending December 31, 2003.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Postage. The Company passes through to its clients the cost of postage that is incurred on behalf of those clients, and typically requires an advance payment on expected postage costs. These advance payments are included in “client deposits” in the accompanying Condensed Consolidated Balance Sheets and are classified as current liabilities regardless of the contract period. The Company nets the cost of postage against the postage reimbursements, and includes the net amount in processing and related services revenues. The Company has concluded that net treatment of these revenues is appropriate as the Company: (i) generally has limited credit risk with regard to postage, as the Company requires postage deposits from its clients based on contractual arrangements prior to the mailing of customer statements; (ii) has no discretion over the supplier of postal delivery services; and (iii) is not the primary obligor in the postal delivery service. The total cost of postage incurred on behalf of clients that has been netted against processing and related services revenues for the three months ended September 30, 2003 and 2002 was $40.1 million and $36.9 million, respectively, and for the nine months ended September 30, 2003 and 2002 was $116.6 million and $102.1 million, respectively.

Stock-Based Compensation. The Company currently accounts for its stock-based compensation plans using the intrinsic value method in accordance with Accounting Principles Board (“APB”) Opinion No. 25, “Accounting for Stock Issued to Employees”, and related interpretations, and follows the disclosure provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123, “Accounting for Stock-Based Compensation” (“SFAS 123”) and SFAS No. 148, “Accounting for Stock-Based Compensation – Transition and Disclosure” (“SFAS 148”). At September 30, 2003, the Company had five stock-based compensation plans. For the three months ended September 30, 2003 and 2002, the Company recorded compensation expense of $1.1 million, and $0.3 million, respectively, under the intrinsic value method. For the nine months ended September 30, 2003 and 2002, the Company recorded compensation expense of $3.4 million, and $0.3 million, respectively, under the intrinsic value method. This compensation expense relates to the restricted stock granted in 2002 and 2003 (see Note 3).

Had compensation expense for all awards under the Company’s five stock-based compensation plans since the effective date of SFAS No. 123 been based on the fair value at the grant dates for awards under those plans, consistent with the methodology of SFAS 123, the Company’s net income (loss) and net income (loss) per share available to common stockholders for the three and nine months ended September 30, 2003 and 2002, would approximate the pro forma amounts as follows (in thousands, except per share amounts):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net income (loss), as reported	$	(53,572	)	$	5,850		$	(32,884	)	$	27,561
Deduct incremental stock-based employee compensation expense determined under the fair value based method, net of related tax effects:
Compensation expense for stock options		(4,425	)		(5,003	)		(13,711	)		(14,517	)
Compensation expense for the employee stock purchase plan		(40	)		(45	)		(118	)		(135	)

Pro forma net income (loss)	$	(58,037	)	$	802		$	(46,713	)	$	12,909

Earnings (loss) per share:
Basic – as reported	$	(1.04	)	$	0.11		$	(0.64	)	$	0.53
Basic – pro forma		(1.13	)		0.02			(0.91	)		0.25
Diluted – as reported		(1.04	)		0.11			(0.64	)		0.52
Diluted – pro forma		(1.13	)		0.02			(0.91	)		0.25

The fair value of each option grant was estimated on the date of grant using the Black-Scholes option-pricing model, with the following weighted average assumptions:

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
Risk free rate of interest	3.3%	3.5%	2.8%	3.7%
Expected option life	5.0 years	5.2 years	5.4 years	5.7 years
Dividend yield	0%	0%	0%	0%
Volatility	60.0%	60.0%	60.0%	60.0%

3. STOCKHOLDERS’ EQUITY

Restricted Stock. In January 2003, the Company granted 480,000 shares of restricted stock at no cost to a key member of management, with 270,833 shares related to the stock options cancelled in August 2002 (see Note 11 to the Company’s Consolidated Financial Statements in the 2002 Form 10-K for additional details). The remaining 270,833 shares vest in equal installments on January 2, 2005, 2006, and 2007. The 209,167 shares vest 25% annually over the four years from the date of the grant. The entire 480,000 shares become fully vested upon a change in control of the Company, and have other acceleration of vesting provisions related to the death, retirement or termination of the employee. The restricted stock grants were issued under the 1996 Plan.

The Company accounted for the restricted stock grant as a fixed award, and recorded deferred employee compensation (a component of stockholders’ equity) of approximately $5.9 million as of the grant date. The amount of deferred employee compensation is net of $0.6 million of compensation expense, which was recognized in 2002 when the 270,833 shares were accounted for as a variable stock award. The $5.9 million of deferred employee compensation is being amortized to compensation expense on a straight-line basis over the vesting period of the restricted stock.

The Company issued 480,000 shares of treasury stock to fulfill the restricted stock grants, as opposed to issuing new shares. The difference between the carrying value of the shares of treasury stock issued of approximately $14.9 million (weighted-average price per share of $31.11) and the amount of deferred and accrued employee compensation recorded of approximately $6.5 million (weighted-average price of $13.65 per share), or approximately $8.4 million, was recorded as a reduction to accumulated earnings (a component of stockholders’ equity).

Stock Option Grants. During the nine months ended September 30, 2003, the Company granted 415,000, 96,250 and 100,100 options under the 1996 Plan, the 2001 Plan and Director Plan, respectively, at prices that ranged from $9.11 to $16.78 per share. The 1996 Plan and 2001 Plan options vest over four years, and of the Director Plan options, 23% vest in one year, 35% vest in two years and 42% vest in three years. The 1996 Plan options were granted to key members of management.

4. EARNINGS PER COMMON SHARE

Earnings per common share (“EPS”) has been computed in accordance with SFAS No. 128, “Earnings Per Share”. Basic EPS is computed by dividing income available (loss attributable) to common stockholders (the numerator) by the weighted average number of common shares outstanding during the period (the denominator). Diluted EPS is consistent with the calculation of basic EPS while considering the effect of potentially dilutive common shares outstanding during the period. Basic and diluted EPS are presented on the face of the Company’s Condensed Consolidated Statements of Operations. The dilutive effect of the unvested restricted stock grants is included with the dilutive effect of common stock options.

No reconciliation of the basic and diluted EPS numerators is necessary for the three and nine months ended September 30, 2003 and 2002 as net income (loss) is used as the numerator for each period. The reconciliation of the EPS denominators is included in the following table (in thousands). Because the Company was in a net loss position for the three and nine months ended September, 2003, potentially dilutive common shares of 620,000 and 385,000, respectively, related to stock options are excluded in calculating diluted EPS, as their effect is antidilutive.

	Three Months Ended September 30,		Nine Months Ended September 30,
	2003	2002	2003	2002
Basic common shares outstanding	51,456	51,836	51,372	52,403
Dilutive effect of common stock options	—	169	—	444

Diluted common shares outstanding	51,456	52,005	51,372	52,847

Common stock options for approximately 5,330,000 shares and 5,949,000 shares for the three months ended September 30, 2003 and 2002, and approximately 5,853,000 shares and 4,598,000 shares for the nine months ended September 30, 2003 and 2002 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 and the effect of their inclusion would be anti-dilutive.

5. COMPREHENSIVE INCOME (LOSS)

The Company’s components of comprehensive income (loss) were as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Net income (loss)	$	(53,572	)	$	5,850		$	(32,884	)	$	27,561
Other comprehensive income (loss), net of tax, if any:
Foreign currency translation adjustments		(8	)		(1,733	)		2,895			583
Reclassification adjustment for gain included in net income		—			—			—			(49	)
Unrealized gain (loss) on short-term investments		—			(1	)		7			(91	)

Comprehensive income (loss)	$	(53,580	)	$	4,116		$	(29,982	)	$	28,004

6. ACQUISITION OF BUSINESS

On February 28, 2002, the Company closed on its agreement to acquire the Kenan Business. During 2002 and through February 28, 2003, the Company gathered the information it needed to identify and measure the fair value of the assets acquired and the liabilities assumed, including valuations of the acquired intangible assets and an assessment of the fair value of the purchased Kenan Business accounts receivable. During the second quarter of 2002, the valuation reports were finalized and the assessment of the fair value of the Kenan Business accounts receivable was completed. As of December 31, 2002, the Company believed it had obtained the necessary information to substantially complete its purchase accounting for the Kenan Business acquisition. As of February 28, 2003, the Company considered the purchase accounting for the Kenan Business to be complete.

The following table summarizes the final estimated fair values of the assets acquired and liabilities assumed at the closing of the acquisition on February 28, 2002 (in thousands).

Current assets	$	63,000
Fixed assets		9,000
In-process purchased research and development		19,300
Acquired client contracts		6,000
Acquired software		46,600
Goodwill		193,000

Total assets acquired		336,900

Current liabilities		(72,900	)
Non-current liabilities		(8,000	)

Total liabilities assumed		(80,900	)

Net assets acquired	$	256,000

Included in the Kenan Business assumed liabilities was a liability related to costs (on a present value basis) of abandoning certain assumed facility leases. The $9.1 million balance of the facility abandonment liability as of December 31, 2002, with the finalization of the Kenan Business purchase accounting, has been included in the abandonment of facilities component of the Company’s business restructuring reserves (see Note 12).

7. ARBITRATION RULING

Arbitration Ruling. The Company has been involved in various legal proceedings with its largest client, Comcast (formerly AT&T Broadband) since 2002, consisting principally of arbitration proceedings related to the Master Subscriber Agreement. On October 7, 2003, and October 27, 2003, the Company received rulings in the arbitration between the Company and Comcast. The initial ruling was issued on October 7, 2003 and the Company subsequently requested the arbitrator to make certain corrections to his ruling (see below). The arbitrator then ruled on the Company’s request on October 27, 2003. Both of these rulings are referred to herein as the “award” or “ruling”. A summary of the arbitration ruling (as previously communicated in a press release and Form 8-K dated October 8, 2003) is as follows:

•

Comcast does not have the right to terminate the Master Subscriber Agreement between the two companies under the termination provisions of the contract;

•

The Company maintains the exclusive rights to process the AT&T Broadband video and high-speed data customers acquired by Comcast;

•

The Company did not obtain the right to process the additional Comcast customers;

•

Comcast is not entitled, pursuant to an amendment to the Master Subscriber Agreement, to deconvert customers from the Company’s system;

•

Comcast is entitled to relief under the Most Favored Nations (“MFN”) clause of the Master Subscriber Agreement and, going forward, Comcast is entitled to receive charges and fees based on the Company’s agreements with other clients;

•

Comcast also was awarded MFN damages for the periods through September 30, 2003 of $119.6 million;

•

If Comcast unilaterally terminates the Master Subscriber Agreement, it shall be liable to the Company under a contractual provision relating to consequential damages, for contract damages in the amount of $44 million. In the event of such termination, the Company would be required to provide Comcast with termination assistance for seven months.

Arbitration Award. As stated above, the arbitration ruling included an award of $119.6 million to be paid by the Company to Comcast. The award was based on the arbitrator’s determination that the Company had violated the MFN clause of the Master Subscriber Agreement between the Company and Comcast. The Company recorded the impact from the arbitration ruling in the quarter ended September 30, 2003 as a charge to the Broadband Division’s revenue. As specified in the arbitration ruling, the $119.6 million was segregated such that $105.7 million was attributable to periods prior to July 1, 2003, and $13.9 million was attributable to the third quarter of 2003. Although the arbitration ruling did not segregate the award by revenue type, the Company estimates that $13.5 million of the $13.9 million attributable to the third quarter of 2003 can be attributed to processing revenues, and the remaining $0.4 million can be attributed to software maintenance fees. These amounts have been netted against the respective third quarter 2003 gross revenues (i.e., revenues prior to the arbitration award) in the Company’s presentation in the accompanying Consolidated Statements of Operations and the Company’s segment results in Note 8.

Upon receipt of the arbitration ruling on October 7, 2003, the Company sought a modification to the award, believing the arbitrator had miscalculated the total amount of MFN damages. On October 21, 2003, the Company paid approximately $65 million of the arbitration award to Comcast, using available corporate funds. The $65 million payment represented the portion of the arbitration award that the Company did not contest. On October 27, 2003, the arbitrator ruled that he did not miscalculate the MFN damages and that the Company must pay the remaining arbitration award of approximately $55 million to Comcast. On November 12, 2003, the parties amended the Master Subscriber Agreement, which included payment terms for this amount. As a result of this amendment, the Company expects to pay $30 million in November 2003, and the remaining $25 million no later than January 2004. The unpaid amount of the award accrues interest at eight (8) percent per annum from October 7, 2003 until paid. See Note 13 for additional discussions of the impact of the arbitration ruling on the Company’s credit agreement, and on the Company’s liquidity and capital resources.

The Company’s insurance policies do not provide any relief towards the arbitration award. The Company expects to receive an income tax benefit of approximately $44 million (based on an estimated income tax rate of approximately 37%) for the $119.6 million arbitration award paid to Comcast through a reduction of 2003 income taxes otherwise payable and through the Company’s ability to carry back net operating losses to previous years.

Impact of MFN Adjustment on Current and Future Periods. As stated above, the arbitrator ruled that Comcast is entitled to be invoiced for lower fees under the MFN clause of the Master Subscriber Agreement beginning October 2003. As a result, future quarterly revenues from Comcast will decrease by approximately $14 million. Gross revenues (i.e., revenues prior to the arbitration award) generated under the Master Subscriber Agreement for the third quarter of 2003 were approximately 25% of the Company’s total gross revenues, which is a percentage comparable to those in the Company’s most recent quarters. Considering the impact of the $13.9 million arbitration award attributed to the third quarter of 2003, revenues generated under the Master Subscriber Agreement for this period were approximately 17% of the Company’s total net revenues.

As stated above, the arbitrator ruled that the Company maintains the exclusive rights to process the AT&T Broadband video and high-speed data customers acquired by Comcast. Prior to the arbitration ruling, the annual minimum financial commitments due from Comcast under the Master Subscriber Agreement were approximately $120 million. On

October 27, 2003, the arbitrator ruled that the minimum payment provision in the agreement between the parties is subject to the MFN clause. The effect of this ruling is that, while the Company maintains its exclusive right to process the Comcast customers previously owned by AT&T, the minimum financial obligation under the agreement is reduced to reflect the charges and fees under a contract with another client. However, as stated above, the arbitrator also ruled that Comcast can unilaterally terminate the Master Subscriber Agreement, and be liable to the Company under a contractual provision relating to consequential damages, for contract damages in the amount of $44 million. In the event of such termination, the Company would be required to provide Comcast with termination assistance for seven months. In accordance with the arbitrator’s ruling, the November 12, 2003 amendment mentioned above specifies the fees and procedures associated with the seven months of termination assistance the Company will provide should either party terminate the contract, and also sets forth the manner in which Comcast would be entitled to obtain its customer data in a deconversion format.

The Company expects to generate a significant percentage of its future revenues under the Master Subscriber Agreement. There are inherent risks whenever a large percentage of total revenues is concentrated with one client. One such risk is that, should Comcast terminate the Master Subscriber Agreement in whole or in part for any of the reasons stated above, or significantly reduce the revenues expected to be generated under the Master Subscriber Agreement, it could have a material adverse effect on the Company’s financial condition and results of operations (including possible impairment of the intangible assets related to the Master Subscriber Agreement mentioned above).

8. SEGMENT INFORMATION

The Company serves its clients through its two operating segments: the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”). The Company’s operating segment information and corporate overhead costs are presented in the following table (in thousands).

As discussed in Note 7, the Broadband’s Division’s processing and maintenance revenues for the three months ended September 30, 2003 have been reduced (i.e., are shown net of such amounts) by $13.5 million and $0.4 million, respectively, for the $13.9 million charge for the portion of the arbitration award which was specifically attributed to the third quarter of 2003 by the arbitrator. Prior to the impact of the arbitration charge, the Broadband Division’s processing and maintenance revenues were $92.2 million and $5.1 million, respectively, for the three months ended September 30, 2003, and $273.1 million and $15.2 million, respectively, for the nine months ended September 30, 2003.

	Three Months Ended September 30, 2003 (1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues (Broadband Division net of $13,472 for the arbitration charge)	$	78,731		$	638		$	—		$	79,369
Software revenues		1,897			8,703			—			10,600
Maintenance revenues (Broadband Division net of $450 for the arbitration charge)		4,649			19,027			—			23,676
Professional services revenues		310			17,234			—			17,544

Subtotal		85,587			45,602			—			131,189

Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		—			—			(105,679	)

Total revenues, net		(20,092	)		45,602			—			25,510
Segment operating expenses		54,531			46,456			14,864			115,851

Contribution loss	$	(74,623	)	$	(854	)	$	(14,864	)	$	(90,341	)

Contribution loss percentage		(371.4	)%		(1.9	)%		N/A			(354.1	)%

	Three Months Ended September 30, 2002 (1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	93,432		$	155		$	—		$	93,587
Software revenues		615			11,018			—			11,633
Maintenance revenues		5,351			20,298			—			25,649
Professional services revenues		95			24,650			—			24,745

Total revenues		99,493			56,121			—			155,614
Segment operating expenses		53,291			58,390			12,561			124,242

Contribution margin (loss)	$	46,202		$	(2,269	)	$	(12,561	)	$	31,372

Contribution margin (loss) percentage		46.4	%		(4.0	)%		N/A			20.2	%

	Nine Months Ended September 30, 2003 (1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues (Broadband Division net of $13,472 for the arbitration charge)	$	259,613		$	1,973		$	—		$	261,586
Software revenues		4,032			28,880			—			32,912
Maintenance revenues (Broadband Division net of $450 for the arbitration charge)		14,757			54,150			—			68,907
Professional services revenues		892			51,185			—			52,077

Subtotal		279,294			136,188			—			415,482

Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		—			—			(105,679	)

Total revenues, net		173,615			136,188			—			309,803
Segment operating expenses		159,538			146,008			51,938			357,484

Contribution margin (loss)	$	14,077		$	(9,820	)	$	(51,938	)	$	(47,681	)

Contribution margin (loss) percentage		8.1	%		(7.2	)%		N/A			(15.4	)%

	Nine Months Ended September 30, 2002 (1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	275,690		$	414		$	—		$	276,104
Software revenues		23,294			32,717			—			56,011
Maintenance revenues		15,196			46,418			—			61,614
Professional services revenues		1,895			60,103			—			61,998

Total revenues		316,075			139,652			—			455,727
Segment operating expenses		160,263			151,392			34,830			346,485

Contribution margin (loss)	$	155,812		$	(11,740	)	$	(34,830	)	$	109,242

Contribution margin (loss) percentage		49.3	%		(8.4	)%		N/A			24.0	%

(1)

Segment operating expenses and contribution margin (loss), determined in accordance with generally accepted accounting principles (“GAAP”), exclude: (i) restructuring charges of: $3.5 million and $7.6 million, respectively, for the three and nine months ended September 30, 2003; and $12.0 million for the three and nine months ended September 30, 2002; and (ii) Kenan Business acquisition-related expenses of $2.1 million and $29.5 million, respectively, for the three and nine months ended September 30, 2002.

Reconciling information between reportable segments contribution margin (loss) and the Company’s consolidated totals is as follows (in thousands):

	Three Months Ended September 30,						Nine Months Ended September 30,
	2003			2002			2003			2002
Segment contribution margin (loss)	$	(90,341	)	$	31,372		$	(47,681	)	$	109,242
Restructuring charges		(3,451	)		(12,027	)		(7,603	)		(12,027	)
Kenan Business acquisition-related Expenses		—			(2,104	)		—			(29,458	)

Operating income (loss)		(93,792	)		17,241			(55,284	)		67,757
Interest expense		(3,291	)		(4,076	)		(10,647	)		(10,358	)
Interest income and other		1,134			(325	)		4,694			(32	)

Income (loss) before income taxes	$	(95,949	)	$	12,840		$	(61,237	)	$	57,367

9. GOODWILL AND OTHER INTANGIBLE ASSETS

General. The Company follows the provisions of SFAS No. 142, “Goodwill and Other Intangible Assets” (“SFAS 142”) in accounting for acquired goodwill and other intangible assets. Under the provisions of SFAS 142, the Company ceased amortizing goodwill as of December 31, 2001, and never amortized goodwill that was acquired in business combinations for which the acquisition date was after June 30, 2001. Instead, goodwill and other intangible assets with indefinite lives are reviewed annually for impairment. Separate intangible assets that do not have indefinite lives continue to be amortized over their estimated useful lives. In addition to the requirement to perform an annual goodwill impairment test, goodwill and other long-lived intangible assets are required to be evaluated for possible impairment on a periodic basis (e.g., quarterly) if events occur or circumstances change that could indicate that a possible impairment of these assets may have occurred.

Goodwill. The changes in the carrying amount of goodwill for the nine months ended September 30, 2003 are as follows (in thousands):

	Broadband Division		GSS Division			Consolidated
Balance as of December 31, 2002	$	623	$	219,442		$	220,065
Adjustment to Kenan Business acquired assets and assumed liabilities		—		(2,493	)		(2,493	)
Effects of changes in foreign currency exchange rates and other		—		1,084			1,084

Balance as of September 30, 2003	$	623	$	218,033		$	218,656

The Company performed its annual goodwill impairment test in the third quarter of 2003, and concluded that, as of July 31, 2003, no impairment of goodwill had occurred.

Carrying Value of Other Intangible Assets. Intangible assets subject to amortization as of September 30, 2003 and December 31, 2002 were as follows (in thousands):

	September 30, 2003							December 31, 2002
	Gross Carrying Amount		Accumulated Amortization			Net Amount		Gross Carrying Amount		Accumulated Amortization			Net Amount
Client contracts	$	108,117	$	(49,040	)	$	59,077	$	106,759	$	(42,954	)	$	63,805
Software		100,000		(59,499	)		40,501		99,060		(48,582	)		50,478

Total	$	208,117	$	(108,539	)	$	99,578	$	205,819	$	(91,536	)	$	114,283

The aggregate amortization related to intangible assets for the three months ended September 30, 2003 and 2002, was $5.7 million and $5.6 million, respectively, and for the nine months ended September 30, 2003 and 2002 was $16.8 million and $14.1 million, respectively. Based on the September 30, 2003 net carrying value of these intangible assets, the estimated aggregate amortization for each of the five succeeding fiscal years ending December 31 are: 2003 – $21.8 million; 2004 – $20.4 million; 2005 – $19.5 million; 2006 – $16.2 million; and 2007 – $8.6 million. The Company does not have any intangible assets with indefinite lives other than goodwill.

GSS Division’s Intangible Assets. During 2002 and 2001, the Company acquired several businesses which operate within the GSS Division (principally the Kenan Business). The key drivers of the value of these acquired businesses are the global telecommunications industry customer base and the software assets acquired. As of September 30,

2003, the Company has recorded approximately $218 million of goodwill (approximately $198 million relates to the Kenan Business) which has been assigned to the GSS Division. In addition, as of September 30, 2003, the Company has other long-lived intangible assets (acquired software) attributable to the GSS Division with a net carrying value of approximately $41 million (approximately $32 million relates to the Kenan Business).

Due to the continued poor economic conditions in the global telecommunications industry and the impacts this situation has had on the GSS Division’s business, to include declining revenues, continued segment contribution losses, and the initiation of various cost reduction and restructuring programs since the acquisition of the Kenan Business, the Company performed certain financial analyses during the second quarter of 2003 and concluded that based on such work, there had been no impairment of the GSS Division’s goodwill or other long-lived intangible assets.

As stated above, the Company performed its annual goodwill impairment test in the third quarter of 2003, and concluded that no impairment of the GSS Division’s goodwill had occurred. The Company also concluded that no events or changes in circumstances had occurred during the third quarter of 2003 to warrant an impairment assessment of GSS Division’s other long-lived intangible assets. The Company will continue to monitor the carrying value of these assets during the economic downturn in this industry sector. If the current economic conditions worsen and/or take longer to recover than anticipated, it is reasonably possible that a review for impairment of the goodwill and/or related long-lived intangible assets in the future may indicate that these assets are impaired, and the amount of impairment could be substantial.

Broadband Division’s Intangible Assets. As of September 30, 2003, the Broadband Division has intangible assets related to client contracts with a net carrying value of approximately $59.1 million. Of this amount, approximately $56.5 million relates to the Company’s Master Subscriber Agreement with Comcast. Due to the Comcast arbitration ruling (see Note 7), the Company has evaluated for impairment the intangible assets attributable to the Comcast Master Subscriber Agreement and has concluded that, based upon such analysis, there has been no impairment of those long-lived assets as of September 30, 2003. The Company will continue to monitor the carrying value of these assets as it discusses with Comcast possible modifications to the Master Subscriber Agreement as a result of the arbitration ruling. Further, should Comcast terminate the Master Subscriber Agreement, the amortization of these intangible assets would be accelerated.

10. RECENT ACCOUNTING PRONOUNCEMENT

EITF Issues No. 00-21 and 03-05. In October 2002, the Financial Accounting Standards Board’s Emerging Issues Task Force (“EITF”) published its consensus decision on EITF Issue No. 00-21, “Revenue Arrangements with Multiple Deliverables” (“EITF 00-21”). This consensus was subject to clarifications of certain scope provisions. In May 2003, the EITF finalized the scope of those provisions and, in conjunction, issued EITF 03-05, “Applicability of AICPA Statement of Position 97-2 Software Revenue Recognition, to Non-Software Deliverables in an Arrangement Containing More-Than-Incidental Software”. EITF 00-21 provides guidance as to what constitutes “separate units of accounting” in multiple element revenue arrangements. EITF 00-21 only addresses the determination of the separate units of accounting, not the specific revenue accounting for each of the units once they are identified. EITF 03-05 addresses whether non-software deliverables included in an arrangement that contains software that is more than incidental to the products or services as a whole are included within the scope of SOP 97-2. The guidelines of EITF 00-21 are effective for revenue transactions entered into after June 30, 2003. During the third quarter of 2003, EITF 00-21 and EITF 03-05 did not impact the Company’s revenue recognition as all revenue transactions entered into during the quarter were within the scope of higher-level authoritative literature as defined in EITF 00-21. For certain types of future revenue arrangements, the provisions of and the ongoing interpretations of EITF 00-21 could result in changes in the manner in which the Company has historically accounted for such arrangements.

11. COMMITMENTS, GUARANTEES AND CONTINGENCIES

Service Agreements. The Company’s Broadband Division outsources to First Data Corporation (“FDC”) the data processing and related computer services required for the operation of its CSG CCS/BP processing services and certain related products. In August 2003, the Company extended its contract with FDC for these services through June 30, 2008. The contract was previously scheduled to expire in June 2005. Under the agreement, the Company is charged a fixed fee plus a variable fee based on usage and/or actual costs.

Product Warranties. The Company generally warrants that its products and services will conform to published specifications, or to specifications provided in an individual client arrangement, as applicable. The typical warranty period is 90 days from delivery of the product or service. The typical remedy for breach of warranty is to correct or replace any defective deliverable, and if not possible or practical, the Company will accept the return of the defective deliverable and refund the amount paid to the Company under the client arrangement that is allocable to the defective deliverable. Historically, the Company has incurred minimal warranty costs, and as a result, does not maintain a warranty reserve.

Product Indemnifications. The Company’s software arrangements generally include a product indemnification provision that will indemnify and defend a client in actions brought against the client that claim the Company’s products infringe upon a copyright, trade secret, or valid patent. Historically, the Company has not incurred any significant costs related to product indemnification claims, and as a result, does not maintain a reserve for such exposure.

Contingent Consideration. Contingent consideration represents an arrangement to provide additional consideration to the seller in a business combination if contractually specified conditions related to the acquired entity are achieved. In the Davinci Business Acquisition which closed on December 20, 2002, the stock purchase agreement included contingent consideration related to: (i) the successful integration of Davinci’s m-Care^™ solution with CSG Kenan FX (formerly CSG Kenan/BP) during 2003; and (ii) the amount of Company revenue associated with Davinci’s m-Care^™ solution in 2004, 2005 and 2006. As of September 30, 2003, the Company has accrued the contingent consideration related to the successful integration of Davinci’s m-Care^™ solution with CSG Kenan FX, totaling approximately $0.5 million. Since the events that would trigger the payment of the second type of contingent consideration have not occurred as of September 30, 2003, no additional contingent consideration was accrued as of that date.

Claims for Company Non-performance. The Company’s arrangements with its clients typically cap the Company’s liability for breach to a specified amount of the direct damages incurred by the client resulting from the breach. From time-to-time, the Company’s arrangements may also include provisions for possible liquidated damages or other financial remedies for non-performance by the Company. As of September 30, 2003, the Company believes it had adequate reserves to cover any reasonably anticipated exposure as a result of the Company’s nonperformance for any past or current arrangements with its clients.

Legal Proceedings. On October 7, 2003 and October 27, 2003, the Company received a ruling in the arbitration between the Company and AT&T Broadband, now Comcast. Refer to Note 7 for further discussions of the arbitration ruling.

From time-to-time, the Company is involved in litigation relating to claims arising out of its operations in the normal course of business. In the opinion of the Company’s management, the Company is not presently a party to any other material pending or threatened legal proceedings.

12. RESTRUCTURING CHARGES

Cost Reduction Initiatives. Due to the economic decline in the global telecommunications industry, and the uncertainty in the timing and the extent of any economic turnaround within the industry, the Company has implemented the following cost reduction initiatives:

•

reductions in costs in several discretionary spending areas, such as travel and entertainment. Substantially all of these involuntary employee terminations were completed during the third quarter of 2002, with the remainder completed during the fourth quarter of 2002. As a result of this cost reduction initiative, the Company recorded restructuring charges of $12.7 million during the year ended December 31, 2002.

•

During the first quarter of 2003, the cost reduction initiative consisted of involuntary employee terminations of approximately 70 people (approximately 2% of the Company’s then current workforce). All of these involuntary employee terminations were completed by the end of the first quarter of 2003, and consisted principally of individuals within the GSS Division.

•

During the second quarter of 2003, the cost reduction initiative consisted principally of involuntary employee terminations. As of June 30, 2003, approximately 40 people (approximately 1% of the Company’s then current workforce) were terminated. During the third quarter of 2003, approximately 20 additional people were terminated. As of September 30, 2003, the involuntary employee terminations that began in the second quarter of 2003 were completed, and consisted principally of individuals within the GSS Division.

•

On October 28, 2003, in response to the expected reduction in revenues from Comcast as a result of the arbitration ruling (see Note 7), the Company announced it would begin implementation of a cost reduction initiative during the fourth quarter of 2003. The cost reduction initiative will consist principally of involuntary employee terminations from all areas of the Company, an adjustment to certain employee compensation and related benefits, and a reduction of costs in several discretionary spending areas.

During the third quarter of 2003, the Company incurred additional restructuring charges related to: (i) the abandonment and consolidation of a training facility; and (ii) revised estimates on the facilities abandonment reserves required for facilities the Company had previously abandoned.

The 2003 restructuring charges were accounted for in accordance with SFAS No. 146, “Accounting for Costs Associated with Exit or Disposal Activities”, which the Company adopted effective January 1, 2003, and have been reflected as a separate line item on the accompanying Condensed Consolidated Statements of Operations. The components of the 2002 and 2003 restructuring charges are as follows (in thousands):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
Involuntary employee terminations	$	853		$	5,222	$	4,324	$	5,222
Facilities abandonment		2,599			6,797		3,253		6,797
All other		(1	)		8		26		8

Total restructuring charges	$	3,451		$	12,027	$	7,603	$	12,027

The involuntary employee terminations component of the restructuring charges relates primarily to severance payments and job placement assistance for those terminated employees. The facilities abandonment component of the restructuring charges relates to office facilities that are under long-term lease agreements that the Company has abandoned. The facilities abandonment charge is equal to the present value of the future costs associated with those abandoned facilities, net of the estimated proceeds from any future sublease agreements. The Company has used

estimates to arrive at both the future costs of the abandoned facilities and the proceeds from any future sublease agreements. The majority of the activity in the three and nine months ended September 30, 2003 relates to revisions in the underlying estimates used in establishing the original restructuring charges in 2002. The Company will continue to evaluate its estimates in recording the facilities abandonment charge. As a result, there may be additional charges or reversals in the future.

The Company believes that the operational impact from the above mentioned cost reduction initiatives will not negatively impact its ability to service its current or future clients.

Restructuring Reserves. The activity in the business restructuring reserves during the nine months ended September 30, 2003, to include the December 31, 2002 balance of the liability the Company assumed in the Kenan Business acquisition related to the abandonment of certain assumed facility leases of $9.1 million (see Note 6), is as follows (in thousands). Of the $14.2 million business restructuring reserve as of September 30, 2003, $7.2 million was included in current liabilities and $7.0 million was included in non-current liabilities.

	Termination Benefits			Abandonment of Facilities			Other			Total
December 31, 2002, balance	$	240		$	15,573		$	—		$	15,813
Charged to expense during period		4,325			3,253			25			7,603
Cash payments		(4,170	)		—			(25	)		(4,195	)
Amortization of liability for abandonment of facilities		—			(5,160	)		—			(5,160	)
Other		—			140			—			140

September 30, 2003, balance	$	395		$	13,806			—		$	14,201

13. DEBT

As of September 30, 2003 the Company evaluated the impact of the arbitration ruling (see Note 7) on its credit agreement and believes that it is in compliance with the required financial ratios and covenants, and does not believe that the ruling has resulted in a default of the credit agreement. However, the arbitration award payments to Comcast in the fourth quarter of 2003 are expected to negatively impact the Company’s calculation of EBITDA (as defined in the credit agreement) in the fourth quarter of 2003 such that the Company will not meet certain financial ratios and covenants as of December 31, 2003. The Company has begun discussions with its lenders in an effort to receive the necessary waiver and/or amendment to the credit agreement during the fourth quarter of 2003 to remain in compliance with the financial ratios and covenants, and the Company believes that it will receive such waiver and/or amendment by the end of 2003. However, there can be no assurance that the Company will be able to obtain the necessary waiver and/or amendment. Should the Company be in default of its credit agreement at the end of 2003, and be unable to obtain the necessary waiver and/or amendment, then its lenders would have the right to demand payment of the entire outstanding loan balance of approximately $229 million. Based on the Company’s expectations of its levels of capital resources and liquidity at that time, the Company would be unable to repay the entire balance if this were to occur. As a result, the Company would be required to obtain alternative sources of capital resources to repay the debt, and to possibly fund ongoing operations. The Company believes it could obtain alternative sources of capital resources if necessary, however, the cost for the alternative sources of capital resources would likely be higher than the current costs.

CSG SYSTEMS INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF

FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Company Overview

CSG Systems International, Inc. (the “Company” or “CSG”) serves more than 265 telecommunications service providers in more than 40 countries. The Company is a leader in next-generation billing and customer care solutions for the cable television, satellite, advanced IP services, next-generation mobile, and fixed wireline markets. The Company’s combination of proven and future-ready solutions, delivered in both outsourced and licensed formats, enables its clients to deliver high quality customer service, improve operational efficiencies and rapidly bring new revenue-generating products to market. The Company is a S&P MidCap 400 company. The Company serves its clients through its two operating segments: the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”).

The information contained in this Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) should be read in conjunction with the Condensed Consolidated Financial Statements (the “Financial Statements”) and Notes thereto included in this Form 10-Q and the audited financial statements and notes thereto in the Company’s Annual Report on Form 10-K for the year ended December 31, 2002 (the “Company’s 2002 10-K”).

Forward-Looking Statements and Risk Factors

This report contains a number of forward-looking statements relative to future plans of the Company and its expectations concerning the customer care and billing industry, as well as the converging telecommunications industry it serves, and similar matters. Such forward-looking statements are based on assumptions about a number of important factors, and involve risks and uncertainties that could cause actual results to differ materially from estimates contained in the forward-looking statements. Some of the risks that are foreseen by management are contained in Exhibit 99.01 “Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995—Certain Cautionary Statements and Risk Factors” of this report. Exhibit 99.01 constitutes an integral part of this report, and readers are strongly encouraged to read this exhibit closely in conjunction with the Financial Statements and Notes thereto, and MD&A.

Comcast and AT&T Broadband Business Relationship

Background. In 1997, the Company entered into a 15-year exclusive contract (the “Master Subscriber Agreement”) with Tele-Communications, Inc. (“TCI”) to consolidate all TCI customers onto the Company’s customer care and billing system. In 1999 and 2000, respectively, AT&T completed its mergers with TCI and MediaOne Group, Inc. (“MediaOne”), and consolidated the merged operations into AT&T Broadband (“AT&T”), and the Company continued to service the merged operations under the terms of the Master Subscriber Agreement. On November 18, 2002, Comcast Corporation (“Comcast”) completed its merger with AT&T, and now under Comcast’s ownership, the Company continues to service the former AT&T operations under the terms of the Master Subscriber Agreement, as modified by the arbitration ruling described below. Unless specifically identified differently, references to Comcast hereafter in this document include AT&T and its predecessor companies referenced above.

Arbitration Ruling. The Company and Comcast have been involved in various legal proceedings since 2002, consisting principally of arbitration proceedings related to the Master Subscriber Agreement. See the Company’s second quarter 2003 Form 10-Q dated August 14, 2003 for a full description of these matters. On October 7, 2003, and October 27, 2003, the Company received rulings in the arbitration between the Company and Comcast. The initial ruling was issued on October 7, 2003 and the Company subsequently requested the arbitrator to make certain corrections to his ruling (see below). The arbitrator then ruled on the Company’s request on October 27, 2003. Both

of these rulings are referred to herein as the “award” or “ruling”. A summary of the award (as previously communicated in a press release and Form 8-K dated October 8, 2003) is as follows:

•

Comcast does not have the right to terminate the Master Subscriber Agreement between the two companies under the termination provisions of the contract;

•

The Company maintains the exclusive rights to process the AT&T video and high-speed data customers acquired by Comcast;

•

The Company did not obtain the right to process the additional Comcast customers;

•

Comcast is not entitled, pursuant to an amendment to the Master Subscriber Agreement, to deconvert customers from the Company’s system;

•

Comcast also was awarded MFN damages for the periods through September 30, 2003 of $119.6 million;

•

Upon receipt of the arbitration ruling on October 7, 2003, the Company sought a modification to the award, believing the arbitrator had miscalculated the total amount of MFN damages. On October 21, 2003, the Company paid approximately $65 million of the arbitration award to Comcast, using available corporate funds. The $65 million payment represented the portion of the arbitration award that the Company did not contest. On October 27, 2003, the arbitrator ruled that he did not miscalculate the MFN damages and that the Company must pay the remaining arbitration award of approximately $55 million to Comcast. On November 12, 2003, the parties amended the Master Subscriber Agreement, which included payment terms for this amount. As a result of this amendment, the Company expects to pay $30 million in November 2003, and the remaining $25 million no later than January 2004. The unpaid amount of the award accrues interest at eight (8) percent per annum from October 7, 2003 until paid. See “MD&A-Financial Condition, Liquidity, and Capital Resources” for additional discussions of the impact of the arbitration ruling on the Company’s credit agreement, and on the Company’s liquidity and capital resources.

comparable to those in the Company’s most recent quarters. Considering the impact of the $13.9 million arbitration award attributed to the third quarter of 2003, revenues generated under the Master Subscriber Agreement for this period were approximately 17% of the Company’s total net revenues. The Company expects that the percentage of its total revenues for the fourth quarter of 2003 from Comcast will represent a percentage comparable to that of the third quarter of 2003 (i.e. approximately 17%). In the near-term, quarterly gross margin and operating income are expected to decline by a similar amount as the revenues per quarter. However, as discussed in greater detail under “Restructuring Charges” below, the Company expects to begin implementation of a cost reduction program in the fourth quarter of 2003 that will lower the Company’s operating expenses in 2004 by approximately $30 million.

The Company has various long-lived intangible assets (client contracts) related to the Master Subscriber Agreement which have a net carrying value as of September 30, 2003 of approximately $56.5 million. The Company has evaluated the carrying value of these assets in light of the arbitration ruling, and has concluded that there has been no impairment to these assets as of September 30, 2003. The Company will continue to monitor the carrying value of these assets as it discusses with Comcast possible modifications to the Master Subscriber Agreement as a result of the arbitration ruling, as discussed in greater detail below. See Note 9 to the Financial Statements for additional discussion of the Company’s intangible assets.

Contract Rights and Obligations. The Master Subscriber Agreement has an original term of 15 years and expires in 2012, and contains certain performance criteria and other obligations to be met by the Company. Comcast has the right to terminate the Master Subscriber Agreement in the event of certain defaults by the Company. As stated above, the arbitrator ruled that Comcast currently does not have the right to terminate the Master Subscriber Agreement under the termination provisions of the contract. A copy of the Master Subscriber Agreement and all subsequent amendments are included in the Company’s exhibits to its periodic public filings with the SEC. These documents are available on the Internet and the Company encourages readers to review these documents for further details.

As stated above, the arbitrator ruled that the Company maintains the exclusive rights to process the AT&T video and high-speed data customers acquired by Comcast. Prior to the arbitration ruling, the annual minimum financial commitments due from Comcast under the Master Subscriber Agreement were approximately $120 million. On October 27, 2003, the arbitrator ruled that the minimum payment provision in the agreement between the parties is subject to the MFN clause. The effect of this ruling is that, while the Company maintains its exclusive right to process the Comcast customers previously owned by AT&T, the minimum financial obligation under the agreement is reduced to reflect the charges and fees under a contract with another client. However, as stated above, the arbitrator also ruled that Comcast can unilaterally terminate the Master Subscriber Agreement, and be liable to the Company under a contractual provision relating to consequential damages, for contract damages in the amount of $44 million. In the event of such termination, the Company would be required to provide Comcast with termination assistance for seven months. In accordance with the arbitrator’s ruling, the November 12, 2003 amendment mentioned above specifies the fees and procedures associated with the seven months of termination assistance the Company will provide should either party terminate the contract, and also sets forth the manner in which Comcast would be entitled to obtain its customer data in a deconversion format.

Current Discussions with Comcast. The Company and Comcast are currently discussing possible modifications to the Master Subscriber Agreement as a result of the arbitration ruling. At this time, there can be no assurance that the Company and Comcast will modify the Master Subscriber Agreement or restructure their relationship under a new contract, and even if so, there can be no assurance that the modified or new terms of the contract will provide the same or similar financial performance or other important terms to those contained in the existing Master Subscriber Agreement.

While the substance of any discussions between the Company and Comcast are not being made public at this time, readers are strongly encouraged to review frequently the Company’s filings with the SEC as well as all public announcements from the Company related to matter. This is of particular importance as it is impossible to predict accurately at this time when any further information on this matter will be available.

Restructuring Charges

Cost Reduction Initiatives Implemented and Expected Impact on Results of Operations. Due to the conditions within the global telecommunications industry (See “Current Economic State of the Global Telecommunications Industry” in Exhibit 99.01 for further discussion of this matter), and the uncertainty in the timing and the extent of any economic turnaround within the industry, the Company has implemented several cost reduction initiatives beginning in the third quarter of 2002 which have resulted in restructuring charges.

•

During the third quarter of 2002, the cost reduction initiative consisted of: (i) involuntary employee terminations from all areas of the Company of approximately 300 people (approximately 10% of the Company’s then current workforce); (ii) limited hiring of new employees; (iii) a reduction of the Company’s facilities and infrastructure support costs, including facilities consolidations and abandonments; and (iv) reductions in costs in several discretionary spending areas, such as travel and entertainment. Substantially all of these involuntary employee terminations were completed during the third quarter of 2002, with the remainder completed during the fourth quarter of 2002. As a result of this cost reduction initiative, the Company recorded restructuring charges of $12.7 million during the year ended December 31, 2002. Once fully implemented, the annual cost savings from this cost reduction initiative are expected to be approximately $45 million, when compared to the Company’s operating results for the second quarter of 2002.

•

The components of the restructuring charges included in total operating expenses, and the impact (net of related income taxes) these restructuring charges had on net income and diluted earnings per share, for the three and nine months ended September 30, 2003 and 2002 are as follows (in thousands, except diluted earnings per share):

	Three Months Ended September 30,					Nine Months Ended September 30,
	2003			2002		2003		2002
Involuntary employee terminations	$	853		$	5,222	$	4,324	$	5,222
Facilities abandonment		2,599			6,797		3,253		6,797
All other		(1	)		8		26		8

Total restructuring charges	$	3,451		$	12,027	$	7,603	$	12,027

Impact of restructuring charges on results of operations (i.e., have reduced operating results):
Net income	$	1,933		$	7,336	$	4,106	$	7,336

Diluted earnings per share	$	0.04		$	0.14	$	0.08	$	0.14

See Note 12 to the Financial Statements for a more detailed discussion of the Company’s cost reduction initiatives and related restructuring charges, including the current activity in the accrued liabilities related to the restructuring charges.

Future Cost Reduction Initiative. On October 28, 2003, in response to the expected reduction in revenues from Comcast as a result of the arbitration ruling, the Company announced it would begin implementation of a cost reduction initiative during the fourth quarter of 2003. This initiative is expected to include:

•

involuntary employee terminations. The total number of employees to be involuntarily terminated has not yet been finalized, but is expected to consist of employees from all areas of the Company. The involuntary terminations are expected to be substantially completed by the end of 2003;

•

a reduction of costs related to certain of the Company’s employee compensation and fringe benefit programs, to include a freeze in wages for 2004;

•

limited hiring of new employees;

•

movement of certain product support and/or software research and development functions to lower cost locales; and

•

a reduction in costs in several discretionary spending areas.

The Company does not expect the cost savings from this cost reduction initiative to be significant in the fourth quarter of 2003. The Company expects this initiative will lower the Company’s operating expenses by approximately $30 million in 2004. The Company believes that the operational impact from this initiative will not negatively impact its ability to service its current or future clients.

In connection with this cost reduction initiative, the Company expects to record a restructuring charge during the fourth quarter of 2004, related primarily to involuntary termination benefits. At this time, the Company is not able to estimate the amount of the restructuring charge. These involuntary termination benefits are expected to be substantially paid by the end of first quarter of 2004.

Business Acquisitions

Kenan Business. The Company completed its acquisition of the Kenan Business from Lucent Technologies on February 28, 2002. When comparing operating results between years, the first nine months of 2002 results of operations include only seven months of results from this acquisition, while the first nine months of 2003 reflects a full nine months of results.

In conjunction with the Kenan Business acquisition, the Company incurred certain direct and incremental acquisition-related expenses during 2002. The Company completed its integration of the Kenan Business in 2002, and therefore, there were no similar expenses in the three and nine months ended September 30, 2003. The acquisition-related expenses included in total operating expenses, and the impact (net of related income taxes) these acquisition-related expenses had on net income and diluted earnings per share for the three and nine months ended September 30, 2002 are presented below (in thousands, except diluted earnings per share).

	Three Months Ended September 30, 2002		Nine Months Ended September 30, 2002
In-process research and development (“IPRD”)	$	—	$	19,300
Impairment of an existing intangible asset displaced by software products acquired		—		1,906
Employee-related costs (primarily existing CSG employee redundancy costs)		1,057		3,403
Integration costs (e.g., legal, accounting, etc.)		946		4,342
All other		101		507

Total Kenan Business acquisition-related charges	$	2,104	$	29,458

Impact of Kenan Business acquisition-related expenses on results of operations (i.e., have reduced operating results):
Net income	$	2,619	$	23,030

Diluted earnings per share	$	0.05	$	0.44

IPRD represents research and development of various software products which had not reached technological feasibility as of the acquisition date, and had no other alternative future use. IPRD was charged to operations in the first quarter of 2002. As of December 31, 2002, substantially all of the IPRD projects had been completed, with the remaining projects scheduled to be completed in 2003. The remaining costs to complete these projects are not material.

Other Acquisitions. The Company completed its acquisition of Davinci Technologies Inc. (“Davinci”) in December 2002, and its acquisition of the ICMS business from IBM in August 2002. The results of operations for Davinci and ICMS are included in the Company’s Financial Statements for the periods subsequent to the acquisition dates.

See the Company’s 2002 10-K for a detailed discussion of the Company’s 2002 business acquisitions.

Adelphia Communications Corporation

Certain of the Company’s clients have filed for bankruptcy protection. Companies involved in bankruptcy proceedings pose certain financial risks to the Company, consisting principally of possible claims of preferential payments for certain amounts paid to the Company prior to the bankruptcy filing date, as well increased collectibility risk for accounts receivable, in particular, those accounts receivable that relate to periods prior to the bankruptcy filing date. The Company considers such risks in assessing its revenue recognition and the collectibility of accounts receivable related to its clients that have filed for bankruptcy protection.

The Company provides processing services for approximately three million of Adelphia Communications Corporation’s (“Adelphia”) video customers. Adelphia filed for bankruptcy protection under Chapter 11 on June 25, 2002. The Company deferred the recognition of Adelphia’s June 2002 processing revenues due to the collectibility risk resulting from the bankruptcy filing and increased its allowance for doubtful accounts in the second quarter of 2002 for outstanding accounts receivable from Adelphia dated prior to June 2002. The Company believes it is adequately reserved against its exposure for pre-bankruptcy receipts of cash and accounts receivable from Adelphia as of September 30, 2003. The Company continues to provide processing services for Adelphia post-bankruptcy. As of the date of this filing, Adelphia is current on substantially all invoices related to services provided post-bankruptcy, and the Company believes that all amounts invoiced for future services will be fully collected under the current contractual payment terms.

Implementation Projects in Progress

General. The Company’s GSS Division provides a variety of implementation services in conjunction with its software arrangements. See Exhibit 99.01 under “Implementation Project Complexities and Risks” included in this report for a detailed discussion of the factors impacting the length and complexity of the Company’s implementation projects, as well as the related risks resulting from the Company’s inability to timely and successfully complete a project and meet client expectations.

Update on the European Implementation Project. As discussed in greater detail in the Company’s 2002 10-K and quarterly reports on Form 10-Q dated August 14, 2003 and May 15, 2003, the Company is currently engaged in a lengthy and complex implementation project with a client located in Europe in which the Company has responsibility for the implementation of certain of its software products, and also has responsibilities for certain aspects of the overall project management. This contract was acquired by the Company from Lucent as part of the Kenan Business acquisition. This project is significantly longer and more complex than the Company’s typical implementation projects. The Company is using the percentage-of-completion (“POC”) method of accounting for this arrangement.

The project began in 2001 and was originally expected to be completed in early 2003. However, as the Company progressed through this project, the Company experienced various work complexities and delays in working towards completion of the project, and as a result, the Company has on several occasions increased its estimates of the required costs and efforts necessary to complete the project. In particular, as a result of certain project difficulties and other factors experienced in the first quarter of 2003, the Company significantly increased the estimated costs and efforts necessary to complete the project during the first quarter of 2003. As a result of these revised estimates, the Company’s recognized revenue of $1 million from this arrangement for the first quarter of 2003 was approximately $2 million less than originally anticipated at the beginning of the quarter, and it was determined that as of March 31, 2003, the overall project was expected to have an estimated loss (i.e., a loss contract) of approximately $3 million. The Company accrued expense of approximately $1 million (included in cost of professional services) in the first quarter of 2003 in order to reflect the entire expected loss of $3 million for the project as of March 31, 2003.

During the second quarter of 2003, the Company executed an amendment to this contractual arrangement, with the key terms of the amendment summarized as follows:

•

the scope and timing of the Company’s work obligations were modified. The Company’s total estimated professional services revenue of approximately $24 million to be generated under this arrangement was relatively unchanged by the amendment. However, the amendment had the effect of shifting certain implementation-type tasks from the Company to the client. In conjunction with this change, the Company now expects to perform certain post implementation-type tasks. Primarily as a result of these changes, the Company’s revenue from this arrangement for the second quarter of 2003 was approximately $1 million less than originally anticipated at the beginning of the quarter; and

•

the performance penalties of $2.1 million were eliminated from the arrangement in their entirety, and the client’s right for standard contractual damage claims for events through June 30, 2003 was eliminated, and the right to any such future claims was significantly reduced and contractually capped.

During the third quarter of 2003, the Company continued to make progress towards completion of the project. The software system is expected to “go live” in the fourth quarter of 2003, at which time, substantially all of the Company’s implementation-type obligations will be completed. For the third quarter of 2003, the Company recognized revenue under this arrangement of approximately $1.6 million, and has recognized revenue to date on this arrangement of approximately $20.9 million (approximately 87% complete as of September 30, 2003). As of September 30, 2003, the overall estimated loss on the contract remained relatively unchanged from June 30, 2003 at approximately $3 million. The Company reduced the loss contract accrual by approximately $475,000 (included in cost of professional services) during the third quarter of 2003 in order to properly reflect the loss contract status of $3 million as of September 30, 2003.

The Company had accounts receivable of approximately $8 million (approximately $5 million billed and $3 million unbilled) recorded as of September 30, 2003 related to this project. The Company collected approximately $3 million of these accounts receivable subsequent to September 30, 2003 through the date of this filing. The Company has approximately $6 million of fees yet to be invoiced under the arrangement. The Company believes its revised obligations under the amended arrangement are attainable, and that the client will pay the fees included in the September 30, 2003 accounts receivable, and the future fees yet to be invoiced under the arrangement. However, because of the various complexities of this project, there can be no assurances that the Company will complete the project under the revised schedule and at its current cost estimates, and avoid any future contractual damage claims. Any future difficulties or delays in the project will directly impact the timing of future revenue recognition, the overall profitability on the project, and will likely delay the collection of the fees due under the arrangement.

Critical Accounting Policies

The preparation of the Company’s financial statements in conformity with accounting principles generally accepted in the U.S. requires the Company to select appropriate accounting policies, and to make judgements and estimates affecting the application of those accounting policies. In applying the Company’s accounting policies, different business conditions or the use of different assumptions may result in materially different amounts reported in the Company’s Consolidated Financial Statements.

The Company has identified the most critical accounting principles upon which the Company’s financial status depends. The critical accounting principles were determined by considering accounting policies that involve the most complex or subjective decisions or assessments. The most critical accounting principles identified relate to: (i) revenue recognition; (ii) allowance for doubtful accounts receivable; (iii) business restructuring; (iv) capitalization of internal software development costs; (v) intangible assets; (vi) business combinations; and (vii) income taxes. These critical accounting policies and the Company’s other significant accounting policies are discussed in the Company’s 2002 10-K.

RESULTS OF OPERATIONS

CSG SYSTEMS INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended September 30,										Nine Months Ended September 30,
	2003					2002					2003					2002
	Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue
GAAP Results:
Revenues:
Processing and related services (inclusive in 2003 of $13,472 charge for arbitration ruling attributable to the third quarter of 2003)	$	79,369		311.1	%	$	93,587		60.1	%	$	261,586		84.4	%	$	276,104		60.6	%
Software		10,600		41.6			11,633		7.5			32,912		10.6			56,011		12.3
Maintenance (inclusive of $450 charge for arbitration ruling attributable to the third quarter of 2003)		23,676		92.8			25,649		16.5			68,907		22.3			61,614		13.5
Professional services		17,544		68.8			24,745		15.9			52,077		16.8			61,998		13.6

Subtotal		131,189		514.3			155,614		100.0			415,482		134.1			455,727		100.0
Charge for arbitration ruling attributable to periods prior to July 1, 2003)		(105,679	)	(414.3	)		—		—			(105,679	)	(34.1	)		—		—

Total revenues, net		25,510		100.0			155,614		100.0			309,803		100.0			455,727		100.0

Cost of revenues:
Cost of processing and related services		36,503		143.1			35,364		22.8			106,163		34.3			105,464		23.2
Cost of software and maintenance		18,540		72.7			17,477		11.2			54,240		17.5			39,212		8.6
Cost of professional services		16,770		65.7			17,748		11.4			49,991		16.1			46,108		10.1

Total cost of revenues		71,813		281.5			70,589		45.4			210,394		67.9			190,784		41.9

Gross margin (loss) (exclusive of depreciation):
Processing and related services		42,866		168.0			58,223		37.3			155,423		50.1			170,640		37.4
Software and maintenance		15,736		61.7			19,805		12.8			47,579		15.4			78,413		17.2
Professional services		774		3.1			6,997		4.5			2,086		0.7			15,890		3.5
Charge for arbitration ruling attributable to periods prior to July 1, 2003)		(105,679	)	(414.3	)		—		—			(105,679	)	(34.1	)		—		—

Total gross margin (loss) (exclusive of depreciation)		(46,303	)	(181.5	)		85,025		54.6			99,409		32.1			264,943		58.1

Operating expenses:
Research and development		14,309		56.1			19,217		12.3			46,715		15.1			58,150		12.8
Selling, general and administrative		25,200		98.8			29,429		18.9			86,913		28.1			83,641		18.3
Depreciation		4,529		17.8			5,007		3.2			13,462		4.3			13,910		3.0
Restructuring charges		3,451		13.5			12,027		7.7			7,603		2.5			12,027		2.6
Kenan Business acquistion-related charges		—		—			2,104		1.4			—		—			29,458		6.5

Total operating expenses		47,489		186.2			67,784		43.5			154,693		50.0			197,186		43.2

Operating income (loss)		(93,792	)	(367.7	)		17,241		11.1			(55,284	)	(17.9	)		67,757		14.9

Other income (expense):
Interest expense		(3,291	)	(12.9	)		(4,076	)	(2.6	)		(10,647	)	(3.5	)		(10,358	)	(2.3	)
Interest and investment income, net		381		1.5			221		0.1			1,112		0.4			1,624		0.4
Other		753		3.0			(546	)	(0.3	)		3,582		1.2			(1,656	)	(0.4	)

Total other		(2,157	)	(8.4	)		(4,401	)	(2.8	)		(5,953	)	(1.9	)		(10,390	)	(2.3	)

Income (loss) before income taxes		(95,949	)	(376.1	)		12,840		8.3			(61,237	)	(19.8	)		57,367		12.6
Income tax (provision) benefit		42,377		166.1			(6,990	)	(4.5	)		28,353		9.2			(29,806	)	(6.6	)

Net income (loss)	$	(53,572	)	(210.0	)%	$	5,850		3.8	%	$	(32,884	)	(10.6	)%	$	27,561		6.0	%

Weighted average diluted shares		51,456					52,005					51,372					52,847

Net income (loss) per diluted share	$	(1.04	)			$	0.11				$	(0.64	)			$	0.52

CSG SYSTEMS INTERNATIONAL, INC.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL

CONDITION AND RESULTS OF OPERATIONS

(in thousands, except per share amounts)

	Three Months Ended September 30,										Nine Months Ended September 30,
	2003					2002					2003					2002
	Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue		Amount			% of Revenue
Adjusted Results:
Revenues:
Processing and related services	$	92,841		64.0	%	$	93,587		60.1	%	$	275,058		64.1	%	$	276,104		60.6	%
Software		10,600		7.3			11,633		7.5			32,912		7.7			56,011		12.3
Maintenance		24,126		16.6			25,649		16.5			69,357		16.1			61,614		13.5
Professional services		17,544		12.1			24,745		15.9			52,077		12.1			61,998		13.6

Total revenues		145,111		100.0			155,614		100.0			429,404		100.0			455,727		100.0

Cost of revenues:
Cost of processing and related services		36,503		25.1			35,364		22.8			106,163		24.7			105,464		23.2
Cost of software and maintenance		18,540		12.8			17,477		11.2			54,240		12.6			39,212		8.6
Cost of professional services		16,770		11.6			17,748		11.4			49,991		11.7			46,108		10.1

Total cost of revenues		71,813		49.5			70,589		45.4			210,394		49.0			190,784		41.9

Gross margin (exclusive of depreciation):
Processing and related services		56,338		38.9			58,223		37.3			168,895		39.4			170,640		37.4
Software and maintenance		16,186		11.1			19,805		12.8			48,029		11.2			78,413		17.2
Professional services		774		0.5			6,997		4.5			2,086		0.4			15,890		3.5

Total gross margin (exclusive of depreciation)		73,298		50.5			85,025		54.6			219,010		51.0			264,943		58.1

Operating expenses:
Research and development		14,309		9.9			19,217		12.3			46,715		10.9			58,150		12.8
Selling, general and administrative		25,200		17.4			29,429		18.9			86,913		20.2			83,641		18.3
Depreciation		4,529		3.1			5,007		3.2			13,462		3.1			13,910		3.0
Restructuring charges		3,451		2.3			12,027		7.7			7,603		1.8			12,027		2.6
Kenan Business acquistion-related charges		—		—			2,104		1.4			—		—			29,458		6.5

Total operating expenses		47,489		32.7			67,784		43.5			154,693		36.0			197,186		43.2

Operating income		25,809		17.8			17,241		11.1			64,317		15.0			67,757		14.9

Other income (expense):
Interest expense		(3,291	)	(2.3	)		(4,076	)	(2.6	)		(10,647	)	(2.5	)		(10,358	)	(2.3	)
Interest and investment income, net		381		0.3			221		0.1			1,112		0.3			1,624		0.4
Other		753		0.5			(546	)	(0.3	)		3,582		0.8			(1,656	)	(0.4	)

Total other		(2,157	)	(1.5	)		(4,401	)	(2.8	)		(5,953	)	(1.4	)		(10,390	)	(2.3	)

Income before income taxes		23,652		16.3			12,840		8.3			58,364		13.6			57,367		12.6
Income tax provision		(8,988	)	(6.2	)		(6,990	)	(4.5	)		(22,178	)	(5.2	)		(29,806	)	(6.6	)

Net income	$	14,664		10.1	%	$	5,850		3.8	%	$	36,186		8.4	%	$	27,561		6.0	%

Weighted average diluted shares		52,076					52,005					51,757					52,847

Net income (loss) per diluted share	$	0.28				$	0.11				$	0.70				$	0.52

Adjusted Results of Operations

The Company reports its financial results of operations in accordance with generally accepted accounting principles (“GAAP”). As discussed above, the Company recorded a charge for the $119.6 million arbitration award during the current quarter. As specified in the arbitration ruling, $105.7 million is attributable to periods prior to July 1, 2003, and $13.9 million is attributable to the third quarter of 2003 (which has been netted against third quarter 2003 revenues). The Company believes the arbitration ruling is a material event which is infrequent in occurrence, and unique in nature. As a result, in order to provide for additional comparison of the Company’s current results of operations with prior periods, and with its previously communicated third quarter 2003 financial guidance, the Company has adjusted out the impact of the arbitration charge (“Adjusted” results). In addition, the Company believes that disclosures using Adjusted results enhance the understanding of the Company’s operating performance. Management reviews both GAAP and Adjusted financial measures in evaluating the Company’s performance, and the achievement of certain of the Company’s internal financial management targets are measured against Adjusted results.

Adjusted results are non-GAAP financial measures and should be viewed in addition to, and not in lieu of, the Company’s GAAP results. The Adjusted results financial measures are not intended to imply the arbitration charge is a non-cash charge. The arbitration ruling will result in a $119.6 million cash payment to Comcast. Also, as discussed in greater detail under the “Comcast and AT&T Broadband Business Relationship” section above, and in the discussions to follow, as a result of the Comcast arbitration ruling, the Company’s future processing and related services revenues, as well as total revenues, will be more comparable to the third quarter 2003 GAAP results (excluding the impact of the $105.7 million arbitration charge attributed to periods prior to July 1, 2003) shown above, instead of the corresponding Adjusted results shown above.

Revenue, gross margins, operating income, net income, and segment results disclosed on an Adjusted basis have been computed by excluding the impact of the arbitration charge and using the Company’s estimated normalized overall income tax rate of 38%. Reconciliations of the Company’s GAAP results to Adjusted results for revenues, gross margins, operating income, and net income are shown in the table below (in thousands, except per share amounts). The GAAP segment results, and the reconciliation of these amounts to the Adjusted segment results, for the three and nine months ended September 30, 2003 are shown in the respective “Results of Operations - Operating Segments” sections below.

	For the Three Months Ended September 30, 2003								For the Nine Months Ended September 30, 2003
	GAAP Results			Impact of Arbitration Charge		Adjusted Results			GAAP Results			Impact of Arbitration Charge		Adjusted Results
Revenues:
Processing and related services	$	79,369		$	13,472	$	92,841		$	261,586		$	13,472	$	275,058
Software		10,600			—		10,600			32,912			—		32,912
Maintenance		23,676			450		24,126			68,907			450		69,357
Professional services		17,544			—		17,544			52,077			—		52,077

Subtotal		131,189			13,922		145,111			415,482			13,922		429,404
Charge for arbitration ruling attributable to periods prior to July 1, 2003)		(105,679	)		105,679		—			(105,679	)		105,679		—

Total revenues, net		25,510			119,601		145,111			309,803			119,601		429,404

Cost of revenues:
Cost of processing and related services		36,503			—		36,503			106,163			—		106,163
Cost of software and maintenance		18,540			—		18,540			54,240			—		54,240
Cost of professional services		16,770			—		16,770			49,991			—		49,991

Total cost of revenues		71,813			—		71,813			210,394			—		210,394

Gross margin (loss) (exclusive of depreciation):
Processing and related services		42,866			13,472		56,338			155,423			13,472		168,895
Software and maintenance		15,736			450		16,186			47,579			450		48,029
Professional services		774			—		774			2,086			—		2,086
Charge for arbitration ruling attributable to periods prior to July 1, 2003)		(105,679	)		105,679		—			(105,679	)		105,679		—

Total gross margin (loss) (exclusive of depreciation)		(46,303	)		119,601		73,298			99,409			119,601		219,010

Operating expenses:
Research and development		14,309			—		14,309			46,715			—		46,715
Selling, general and administrative		25,200			—		25,200			86,913			—		86,913
Depreciation		4,529			—		4,529			13,462			—		13,462
Restructuring charges		3,451			—		3,451			7,603			—		7,603
Kenan Business acquistion-related charges		—			—		—			—			—		—

Total operating expenses		47,489			—		47,489			154,693			—		154,693

Operating income (loss)		(93,792	)	$	119,601		25,809			(55,284	)	$	119,601		64,317

Other income (expense):
Interest expense		(3,291	)				(3,291	)		(10,647	)				(10,647	)
Interest and investment income, net		381					381			1,112					1,112
Other		753					753			3,582					3,582

Total other		(2,157	)				(2,157	)		(5,953	)				(5,953	)

Income (loss) before income taxes		(95,949	)				23,652			(61,237	)				58,364
Income tax (provision) benefit		42,377					(8,988	)		28,353					(22,178	)

Net income (loss)	$	(53,572	)			$	14,664		$	(32,884	)			$	36,186

Weighted average diluted shares (1)		51,456					52,076			51,372					51,757

Net income (loss) per diluted share	$	(1.04	)			$	0.28		$	(0.64	)			$	0.70

(1)

Weighted average shares are different for GAAP results and Adjusted results. For GAAP results, because the Company recorded a net loss in the three and nine months ended September 30, 2003, potentially dilutive common shares (i.e., stock-based compensation awards) are excluded in calculating the net loss per diluted share, as their effect is antidilutive. For Adjusted results, because the Company reflects net income, these potentially dilutive common shares (620,000 and 385,000 for the three and nine months ended September 30, 2003, respectively) are included in calculating net income per diluted share, as their effect is dilutive for this purpose.

Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002

Results of Operations – Consolidated Basis

As discussed above under “Adjusted Results of Operations”, the Company reports its financial results of operations in accordance with GAAP. To provide for additional comparison of the Company’s current results of operations with prior periods, and with its previously communicated third quarter financial guidance, the Company has adjusted out the impact of the Comcast arbitration charge (i.e., “Adjusted” results). The following discussions address both GAAP and Adjusted results. The GAAP and Adjusted results, and the reconciliation of the two measures, are presented in tabular form above.

See the “Comcast and AT&T Broadband Business Relationship” section above for additional discussion of the expected impact to the Company’s future results of operations as a result of the arbitration ruling.

Total Revenues. Total GAAP revenues for the three months ended September 30, 2003 decreased 83.6% to $25.5 million, from $155.6 million for the three months ended September 30, 2002. The decrease between periods is

primarily due to the $119.6 million charge for arbitration ruling discussed above ($105.7 attributable to periods prior to July 1, 2003 and $13.9 million attributable to the third quarter of 2003). Adjusted revenues were $145.1 million, a decrease of 6.7% over the third quarter of 2002. This decrease is made up of an 0.8% decrease in processing and related services revenues, an 8.9% decrease in software revenues, a 5.9% decrease in maintenance revenues, and a 29.1% decrease in professional services revenues. The decreases in software revenues, maintenance revenues, and professional services revenues are primarily due to decreases in revenues within the GSS Division.

The Company uses the location of the client as the basis of attributing revenues to individual countries. GAAP and Adjusted revenues by geographic region for the three months ended September 30 are as follows (in thousands):

	September 30, 2003
	GAAP Results			Impact of Arbitration Charge		Adjusted Results		September 30, 2002
North America (principally the United States)	$	96,827		$	13,922	$	110,749	$	110,408
Europe, Middle East and Africa (principally Europe)		23,313			—		23,313		18,151
Asia Pacific		6,833			—		6,833		14,504
Central and South America		4,216			—		4,216		12,551

Subtotal		131,189			13,922		145,111		155,614
Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		105,679		—		—

Total revenues, net	$	25,510		$	119,601	$	145,111	$	155,614

See the “Results of Operations - Operating Segments” section below for a detailed discussion of revenues and related changes between periods on a segment basis.

Cost of Revenues. See the Company’s 2002 10-K for a description of the types of costs that are included in the individual line items for cost of revenues.

Cost of Processing and Related Services. The cost of processing and related services for the three months ended September 30, 2003 increased 3.2% to $36.5 million, from $35.4 million for the three months ended September 30, 2002. Total processing costs increased between periods primarily as a result of an increase in the number of customers of the Company’s clients, which are serviced by the Company. Processing costs as a percentage of Adjusted processing revenues were 39.3% (Adjusted gross margin of 60.7%) for the three months ended September 30, 2003 compared to 37.8% (gross margin of 62.2%) for the three months ended September 30, 2002. The decrease in gross margin is attributed to a decrease in revenue per customer, due to less ancillary services being purchased by the Company’s clients, and an increase in processing costs, as explained above.

Cost of Software and Maintenance. The combined cost of software and maintenance for the three months ended September 30, 2003 increased 6.1% to $18.5 million, from $17.5 million for the three months ended September 30, 2002. The cost of software and maintenance as a percentage of related Adjusted revenues was 53.4% (Adjusted gross margin of 46.6%) for the three months ended September 30, 2003 as compared to 46.9% (gross margin of 53.1%) for the three months ended September 30, 2002. The decrease in gross margin is attributed primarily to a decrease in GSS software and maintenance revenues between periods.

While the quarterly cost of software and maintenance revenues were relatively comparable for the last four quarters, the Adjusted gross margin percentages for this same period have ranged from 44% to 53%. As discussed below, fluctuations in the quarterly gross margin for software and maintenance revenues are an inherent characteristic of software companies, which can be impacted by, among others things, the timing of executed contracts in any one quarter.

Cost of Professional Services. The cost of professional services for the three months ended September 30, 2003 decreased 5.5% to $16.8 million, from $17.7 million for the three months ended September 30, 2002, primarily due to a reduction in personnel costs, to include the impact of the cost reduction initiatives discussed above. The cost of professional services as a percentage of related revenues was 95.6% (gross margin of 4.4%) for the three months ended September 30, 2003, as compared to 71.7% (gross margin of 28.3%) for the three months ended September 30, 2002. The decrease in the gross margin percentage between periods relates primarily to a decrease in the GSS Division’s professional services revenues between periods, which is discussed in greater detail below under the “Results of Operations - Operating Segments”.

The gross margin percentages for the fourth quarter of 2002 and the first three quarters of 2003 for this revenue source were approximately 1%, negative 2%, 10% and 4% respectively. The gross margin percentages for the fourth quarter of 2002 and first three quarters of 2003 are reflective of the recent difficulties the Company has experienced on the large European implementation project discussed above, as well as decreasing to flat revenue growth during this period. As discussed below, fluctuations in the gross margin for professional services revenues are an inherent characteristic of professional services companies, which can be impacted by, among others things, the amount of work performed on, and the overall status of implementation projects.

Gross Margin. As a result of the Kenan Business acquisition, the Company’s revenues from software licenses, maintenance services and professional services have increased and become a larger percentage of total revenues. Variability in quarterly revenues and operating results are inherent characteristics of companies that sell software licenses, maintenance services, and perform professional services. The Company’s quarterly revenues for software licenses, maintenance services and professional services revenues may fluctuate, depending on various factors, including the timing of executed contracts and the delivery of contracted services or products. See Exhibit 99.01, “Variability of Quarterly Results”, for additional discussion of factors that may cause fluctuations in quarterly revenues and operating results. However, the costs associated with software and maintenance revenues, and professional services revenues are not subject to the same degree of variability (i.e., these costs are generally fixed in nature within a relatively short period of time), and thus, fluctuations in the cost of software and maintenance as a percentage of related revenues, and the cost of professional services as a percentage of related revenues, will likely occur between periods.

The overall GAAP gross margin, for the three months ended September 30, 2003 decreased 154.5% to negative $46.3 million from $85.0 million for the three months ended September 30, 2002, primarily due to the $119.6 million charge from the Comcast arbitration ruling. The GAAP gross margin percentage decreased to negative 181.5% for the three months ended September 30 2003, from 54.6% for the three months ended September 30, 2002.

The overall Adjusted gross margin decreased 13.8% to $73.3 million and the overall Adjusted gross margin percentage decreased to 50.5% for the three months ended September 30, 2003. The decrease in the overall Adjusted gross margin and overall Adjusted gross margin percentage relate primarily to the decreases in the Adjusted gross margins between periods for software and maintenance revenues and professional services, as discussed above.

In the near-term, the Company’s quarterly gross margin for processing and related services, and for total revenues, are expected to decline by a similar amount as the revenues per quarter as a result of the Comcast arbitration ruling. However, as discussed in greater detail under “Restructuring Charges” above, the Company expects to begin implementation of a cost reduction program in the fourth quarter of 2003. The expected impact of this cost reduction initiative on future gross margins is not known at this time.

Research and Development (“R&D”) Expense. R&D expense for the three months ended September 30, 2003, decreased 25.5% to $14.3 million from $19.2 million for the three months ended September 30, 2002. As a percentage of Adjusted revenues, R&D expense decreased to 9.9% for the three months ended September 30, 2003, from 12.3% for the three months ended September 30, 2002. The Company did not capitalize any internal software development costs during the three months ended September 30, 2003 and 2002.

The decrease in the R&D expenditures between periods is primarily due to the Company discontinuing the development of its CSG NextGen software product during the third quarter of 2002, a reduction of R&D costs in other areas since the second quarter of 2002, to include a reduction of R&D personnel as a result of the cost reduction initiatives discussed above, and the completion of the development cycle for certain projects. Prior to the Kenan Business acquisition, the primary focus of the GSS Division was on the development efforts of the Company’s CSG NextGen software product. Following the Kenan Business acquisition, the Company discontinued the development of CSG NextGen as a stand-alone customer care and billing system.

During the third quarter of 2003, the Company focused its development and enhancement efforts on:

•

various R&D projects for the GSS Division, including the Kenan FX business framework, which was introduced in late September, which includes enhancements to the existing versions of the Kenan Business product suite, as well as new modules; and

•

enhancements to CSG CCS/BP and related Broadband Division software products to increase the functionalities and features of the products.

At this time, the Company expects its investment in R&D over time will approximate the Company’s historical investment rate of 10-12% of total revenues. At this time, this investment is expected to be focused on the CSG CCS/BP, ICMS, and Kenan Business product suites.

Selling, General and Administrative (“SG&A”) Expense. SG&A expense for the three months ended September 30, 2003, decreased 14.4% to $25.2 million, from $29.4 million for the three months ended September 30, 2002. As a percentage of Adjusted revenues, SG&A expense decreased to 17.4% for the three months ended September 30, 2003, from 18.9% for the three months ended September 30, 2002. The decrease in the amount of SG&A expense is consistent with the Company’s focus on cost reductions in this area.

Depreciation Expense. Depreciation expense for the three months ended September 30, 2003 decreased 9.5% to $4.5 million, from $5.0 million for the three months ended September 30, 2002. The decrease in depreciation expense relates primarily to a reduction in capital expenditures made during the twelve months ended September 30, 2003 as compared to the twelve months ended September 30, 2002, primarily as a result of the Company’s focus on controlling its investments in capital expenditures at this time. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the cost of revenues or the other components of operating expenses.

Kenan Business Acquisition-Related Expenses. See the “Business Acquisitions” section above for discussions of these expenses, and the impact of those expenses on the results of operations for 2002.

Restructuring Charges. See the “Restructuring Charges” section above and Note 12 to the Financial Statements for discussions of the Company’s cost reduction initiatives and related restructuring charges, and the impact of those charges on the results of operations for 2003 and 2002.

Operating Income (Loss). GAAP operating loss (which reflects the impact of the $119.6 million Comcast arbitration charge) for the three months ended September 30, 2003 was $93.8 million. Adjusted operating income was $25.8 million or 17.8% of Adjusted revenues, compared to $17.2 million or 11.1% of total revenues for the three months ended September 30, 2002. The changes in these measures between years relate to the factors discussed above.

In the near-term, the Company’s quarterly operating margin is expected to decline by a similar amount as the revenues per quarter as a result of the Comcast arbitration ruling. However, as discussed in greater detail under “Restructuring Charges” above, the Company expects to begin implementation of a cost reduction program in the fourth quarter of 2003 that will lower the Company’s operating expenses for 2004 by approximately $30 million.

Interest Expense. Interest expense for the three months ended September 30, 2003, decreased 19.3% to $3.3 million, from $4.1 million for the three months ended September 30, 2002, with the decrease due to the reduction in the long-term debt balance and lower interest rates. The weighted-average balance of the Company’s long-term debt for the three months ended September 30, 2003 was approximately $240.1 million, compared to approximately $270.0 million for the three months ended September 30, 2002. The weighted-average interest rate on the Company’s debt borrowings for the three months ended September 30, 2003, including the amortization of deferred financing costs and commitment fees on the Company’s revolving credit facility, was approximately 5.3%, compared to 6.2% for the three months ended September 30, 2002. On August 21, 2003, the Company made a voluntary principal payment on its long-term debt of $20.0 million, reducing its long-term debt balance to approximately $228.9 million as of September 30, 2003.

See the “Financial Condition, Liquidity and Capital Resources” section below for discussions regarding the Company’s credit agreement.

Interest and Investment Income. Interest and investment income for the three months ended September 30, 2003, increased 72.4% to $0.4 million, from $0.2 million for the three months ended September 30, 2002, with the increase attributable primarily to an increase in operating funds available for investment.

Other income/expense. Other income for the three months ended September 30, 2003, was $0.8 million compared to other expense of $0.5 million for the three months ended September 30, 2002. The change is primarily due to foreign currency transaction gains during the three months ended September 30, 2003.

Income Tax Provision/Benefit. For the three months ended September 30, 2003, the Company recorded an income tax benefit of $42.4 million, or an effective income tax rate of approximately 44%, compared to an income tax provision of $7.0 million, or an effective income tax rate of 54% for the three months ended September 30, 2002.

The effective income tax rate for 2002 was negatively impacted by certain items recorded in conjunction with the Kenan Business acquisition. As a result of the Comcast arbitration charge, the Company was in a net operating loss (“NOL”) position for the third quarter of 2003, and consequently, the Company recorded a tax benefit for this period using a 44% effective income tax rate. The effective income tax rate for the third quarter of 2003 is the rate necessary to achieve the Company’s 2003 estimated annualized effective income tax rate of approximately 46%. The estimated rate for 2003 is based on various assumptions, with the two primary assumptions related to the Company’s estimate of total pretax income or loss, and the amounts and sources of foreign pretax income or loss. The actual effective income tax rate for 2003 could deviate from the 46% estimate based on the Company’s actual 2003 experience with these items, as well as other items.

The 2003 estimated income tax rate of 46% is impacted by the expected NOL position for 2003, resulting from the $119.6 million Comcast arbitration charge discussed above, and as a result of the resolution during 2003 of certain tax positions taken by the Company. The Company is in the process of evaluating its long-term international income tax strategy. At this time, the Company expects an effective income tax rate of approximately 38% beginning in 2004.

As a result of the Company’s NOL position for the nine months ended September 30, 2003, the Company recorded an income tax receivable as of September 30, 2003. The Company expects its income tax receivable as of December 31, 2003 to be approximately $35 million to $37 million, with approximately $6 million to be received in the first quarter of 2004 (through a refund of 2003 income taxes already paid), with the remaining amount expected in the second quarter of 2004 (through a NOL carry back to previous years).

As of September 30, 2003, the Company’s net deferred tax assets of $44.9 million were related primarily to its domestic operations, and represented approximately 6% of total assets. The Company continues to believe that sufficient taxable income will be generated to realize the benefit of these deferred tax assets. The Company’s assumptions of future profitable domestic operations are supported by its strong operating performances by the Broadband Division over the last several years, and the Company’s future expectations of profitability, to include considerations for the expected impacts from the Comcast arbitration ruling, and the Company’s planned 2004 cost reduction initiative.

Results of Operations - Operating Segments

The Company serves its clients through its two operating segments: the Broadband Division and the GSS Division. See the Company’s 2002 Form 10-K for further discussion of the operations of each operating segment and the related product and service offerings, and the components of segment operating results. The Company excludes its restructuring charges and Kenan Business acquisition-related expenses in the determination of its GAAP segment results.

The GAAP segment results, and the reconciliation of these amounts to the Adjusted segment results, for the divisions are as follows (in thousands, except percentages):

	Three Months Ended September 30, 2003 (1)
	Broadband Division			GSS Division			Corporate			Total
GAAP Segment Results:
Processing revenues (Broadband Division net of $13,472 for the arbitration charge)	$	78,731		$	638		$	—		$	79,369
Software revenues		1,897			8,703			—			10,600
Maintenance revenues (Broadband Division net of $450 for the arbitration charge)		4,649			19,027			—			23,676
Professional services revenues		310			17,234			—			17,544

Subtotal		85,587			45,602			—			131,189

Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		—			—			(105,679	)

Total revenues, net		(20,092	)		45,602			—			25,510
Segment operating expenses		54,531			46,456			14,864			115,851

Contribution loss	$	(74,623	)	$	(854	)	$	(14,864	)	$	(90,341	)

Contribution loss percentage		(371.4	)%		(1.9	)%		N/A			(354.1	)%

Adjusted Segment Results: (2)
Total net revenues, per above	$	(20,092	)	$	45,602		$	—		$	25,510
Impact of arbitration ruling		119,601			—			—			119,601

Adjusted total revenues		99,509			45,602			—			145,111
Segment operating expenses		54,531			46,456			14,864			115,851

Adjusted contribution margin (loss)	$	44,978		$	(854	)	$	(14,864	)	$	29,260

Adjusted contribution margin (loss) Percentage		45.2	%		(1.9	)%		N/A			20.1	%

The Broadband Division’s GAAP revenues, and the reconciliation of these amounts to the Adjusted Broadband Division’s revenues for the three months ended September 30, 2003 are as follows (in thousands):

	Three Months Ended September 30, 2003
	GAAP Results			Impact of Charge for Arbitration Ruling (2)		Adjusted Results
Processing revenues	$	78,731		$	13,472	$	92,203
Software revenues		1,897			—		1,897
Maintenance revenues		4,649			450		5,099
Professional services revenues		310			—		310

Subtotal		85,587			13,922		99,509

Charge for arbitration ruling		(105,679	)		105,679		—

Total revenues, net	$	(20,092	)	$	119,601	$	99,509

	Three Months Ended September 30, 2002 (1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	93,432		$	155		$	—		$	93,587
Software revenues		615			11,018			—			11,633
Maintenance revenues		5,351			20,298			—			25,649
Professional services revenues		95			24,650			—			24,745

Total revenues		99,493			56,121			—			155,614
Segment operating expenses		53,291			58,390			12,561			124,242

Contribution margin (loss)	$	46,202		$	(2,269	)	$	(12,561	)	$	31,372

Contribution margin (loss) percentage		46.4	%		(4.0	)%		N/A			20.2	%

(1)

Segment operating expenses and contribution margin (loss), determined in accordance with GAAP, exclude: (i) restructuring charges of $3.4 million and $12.0 million, respectively, for the three months ended September 30, 2003 and 2002; and (ii) Kenan Business acquisition-related expenses of $2.1 million for the three months ended September 30, 2002. Of the $3.4 million restructuring charge recorded in the third quarter of 2003, $0.2 million of the charge relate to the Broadband Division and $3.2 million relate to the GSS Division. See Note 8 to the Condensed Consolidated Financial Statements for reconciling information between reportable segments contribution margin (loss) and the Company’s consolidated totals.

(2)	Adjusted segment results and Adjusted Broadband Division revenues exclude the impact of the $119.6 million arbitration award, as more fully discussed under the “Adjusted Results of Operations” section above.

Broadband Division

Total Revenues. Total Broadband Division GAAP revenues for the three months ended September 30, 2003 decreased 120.2% to negative $20.1 million, from $99.5 million for the three months ended September 30, 2002, due to the $119.6 million charge for the Comcast arbitration award recorded in 2003. Adjusted revenues for the three months ended September 30, 2003 were $99.5 million, consistent with the three months ended September 30, 2002.

Processing revenues. GAAP processing revenues for the three months ended September 30, 2003 decreased 15.7% to $78.7 million, compared to $93.4 million for the three months ended September 30, 2002, primarily due to the $13.5 million arbitration charge attributed to the third quarter of 2003. Adjusted processing revenues for the three months ended September 30, 2003 were $92.9 million, and were basically flat when compared the same period of 2002, and the second quarter of 2003. After considering the impact of the arbitration ruling, the Company expects total consolidated processing revenues to range between $79 million and $80 million for the fourth quarter of 2003.

As a result of the arbitration ruling discussed above, Comcast customer accounts will be measured differently beginning in October 2003 for the Company’s invoicing purposes. This change is primarily the result of combining the video and Internet accounts for the same customer (i.e., a subscriber) into a single customer account, as opposed to two separate customer accounts as was the case prior to the arbitration ruling, and to a lesser degree, the Company will no longer charge for certain inactive customers. As a result, the historical breakout of video, high-speed data and telephony accounts will not be comparable. The following table illustrates this change in measurement of total customer accounts (in thousands):

	September 30, 2003
	Prior to Impact of Arbitration Ruling	Impact of Arbitration Ruling		After Impact of Arbitration Ruling	June 30, 2003
Video	43,120	(905	)	42,215	42,417
Internet	4,248	(2,659	)	1,589	3,943
Telephony	75	—		75	76

Total	47,443	(3,564	)	43,879	46,436

Software Revenue. Software revenue for the three months ended September 30, 2003 increased by 208.5% to $1.9 million, from $0.6 million for the three months ended September 30, 2002. The increase in software revenue was primarily due to a large software sale in the third quarter of 2003, with no similar transaction in the third quarter of 2002.

Maintenance Revenue. GAAP maintenance revenue for the three months ended September 30, 2003 decreased 13.1% to $4.6 million, from $5.4 million for the three months ended September 30, 2002, primarily due to the $0.4 million arbitration charge attributed to the third quarter of 2003. Adjusted maintenance revenue decreased 4.7% to $5.1 million, however remained relatively unchanged from the previous two sequential quarters. Maintenance revenue for the three months ended June 30, 2003 and March 31, 2003 was $5.1 million and $5.0 million, respectively.

Segment Operating Expenses and Contribution Margin. Broadband Division operating expenses for the three months ended September 30, 2003 increased by 2.3% to $54.5 million, from $53.3 million for the three months ended September 30, 2002. Broadband Division GAAP contribution margin decreased 261.5% to negative $74.6 million (contribution margin percentage of negative 371.4%), from $46.2 million (contribution margin percentage of 46.4%) for the three months ended September 30, 2003, primarily due to the $119.6 million Comcast arbitration charge. Broadband Division Adjusted contribution margin for the three months ended September 30, 2003 was $45.0 million (Adjusted contribution margin percentage of 45.2%), a decrease of 2.6% from the three months ended September 30, 2002. The Broadband Division Adjusted contribution margin and Adjusted contribution margin percentage decreased between periods primarily as a result of an increase in operating expenses.

GSS Division

Total Revenues. Total GSS Division revenues for the three months ended September 30, 2003 were $45.6 million, as compared to $56.1 million for the three months ended September 30, 2002, with the decrease primarily due to reduced professional services revenues, and to a lesser degree, reduced software sales.

Software Revenue. Software revenue for the three months ended September 30, 2003 decreased by 21.0% to $8.7 million, from $11.0 million for the three months ended September 30, 2002. Software revenues for the first and second quarters of 2003 were approximately $8.5 million and $11.7 million, respectively. As explained above, variability in revenues from software sales is an inherent characteristic of software companies and is expected to continue in future periods. The Company expects total consolidated software revenues to range between $7 million and $9 million for the fourth quarter of 2003.

Maintenance Revenue. Maintenance revenue for the three months ended September 30, 2003 decreased by 6.3% to $19.0 million, from $20.3 million for the three months ended September 30, 2002. This decrease in maintenance revenue was primarily due to certain maintenance agreements not being renewed and certain maintenance agreements being renewed at lower rates. The GSS Division’s maintenance services are typically contracted for on an annual basis, with the majority of the renewal dates occurring in the first and fourth fiscal quarters of the year. For the fourth quarter of 2003, the Company expects the GSS Division’s maintenance revenue to be comparable to that of the third quarter of 2003.

Professional Services Revenue. Professional services revenue for the three months ended September 30, 2003 decreased by 30.1% to $17.2 million, from $24.7 million for the three months ended September 30, 2002, with the decrease primarily due to several large projects in progress during 2002 which were substantially completed in 2002 and early 2003 (including the large European implementation project discussed above).

Professional services revenue for the first and second quarters of 2003 were $17.8 million and $16.1 million, respectively. For the fourth quarter of 2003, the Company expects the GSS Division’s professional services revenue to be comparable to that of the third quarter of 2003.

Segment Operating Expenses and Contribution Loss. GSS Division operating expenses for the three months ended September 30, 2003 decreased by 20.4% to $46.5 million, from $58.4 million for the three months ended September 30, 2002. The decrease in operating expenses between periods is primarily due to the cost reduction initiatives that began in the third quarter of 2002 principally, a reduction in personnel costs primarily as a result of involuntary employee terminations, and to a lesser degree, a reduction in costs as the result of the Company abandoning certain office facilities.

The GSS Division contribution loss decreased by 62.4% to $0.9 million (a negative contribution margin percentage of 1.9%) for the three months ended September 30, 2003, from $2.3 million (a negative contribution margin percentage of 4.0%) for the three months ended September 30, 2002, due to the factors discussed above.

The GSS Division contribution loss for the second quarter of 2003 was $2.0 million. The improvement in the contribution loss between the second and third quarter of 2003 (i.e., a decrease in the contribution loss) is primarily due to a decrease in segment expenses of $1.7 million between periods. The Company is expecting the GSS Division will achieve a contribution margin breakeven position by the first quarter of 2004.

Corporate

Corporate Operating Expenses. Corporate overhead expenses for the three months ended September 30, 2003, increased 18.3% to $14.9 million, from $12.6 million for the three months ended September 30, 2002. The increase in operating expenses relates primarily to stock-based compensation expense. The Company incurred approximately $1.1 million of stock-based compensation in the third quarter of 2003, as compared to $0.3 million in the third quarter of 2002.

Nine Months Ended September 30, 2003 Compared to Nine Months Ended September 30, 2002

Results of Operations – Consolidated Basis

Total Revenues. Total GAAP revenues for the nine months ended September 30, 2003 decreased 32.0% to $309.8 million, from $455.7 million for the nine months ended September 30, 2002. The decrease between periods is primarily due to the $119.6 million charge for arbitration ruling discussed above. Adjusted revenues were $429.4 million, a decrease of 5.8%. This decrease is made up of a 0.4% decrease in processing and related services, a 41.2% decrease in software revenues, a 12.6% increase in maintenance revenues, and a 16.0% decrease in professional services revenues. The decrease in software revenues is primarily due to a decrease in software sales within the Broadband Division. This increase in maintenance revenues relates primarily to 2003 having a full nine months of operating results from the Kenan Business (acquired as of February 28, 2002), as compared to only seven months of operations during 2002. The decrease in professional services revenues relates to a decrease in services provided by the GSS Division.

The Company uses the location of the client as the basis of attributing revenues to individual countries. GAAP and Adjusted revenues by geographic region for the nine months ended September 30 are as follows (in thousands):

	September 30, 2003
	GAAP Results			Impact of Arbitration Charge		Adjusted Results		September 30, 2002
North America (principally the United States)		310,704		$	13,922	$	324,626	$	343,774
Europe, Middle East and Africa (principally Europe)		66,857			—		66,857		60,627
Asia Pacific		20,147			—		20,147		30,635
Central and South America		17,774			—		17,774		20,691

Subtotal		415,482			13,922		429,404		455,727
Charge for arbitration ruling attributable to period prior to July 1, 2003		(105,679	)		105,679		—		—

Total revenues, net	$	309,803		$	119,601	$	429,404	$	455,727

See the “Results of Operations - Operating Segments” section below for a detailed discussion of revenues and related changes between periods on a segment basis.

Cost of Processing and Related Services. The cost of processing and related services for the nine months ended September 30, 2003 increased 0.7% to $106.2 million, from $105.5 million for the nine months ended September 30, 2002. Processing costs as a percentage of related Adjusted processing revenues were 38.6% (Adjusted gross margin of 61.4%) for the nine months ended September 30, 2003 compared to 38.2% (gross margin of 61.8%) for the nine months ended September 30, 2002. Total processing costs and processing costs as a percentage of related Adjusted revenue were relatively unchanged between periods.

Cost of Software and Maintenance. The combined cost of software and maintenance for the nine months ended September 30, 2003 increased 38.3% to $54.2 million, from $39.2 million for the nine months ended September 30, 2002. The increase relates primarily to 2003 having a full nine months of Kenan Business operations, as compared to only seven months of Kenan Business operations in 2002. The cost of software and maintenance as a percentage of related Adjusted revenues was 53.0% (Adjusted gross margin of 47.0%) for the nine months ended September 30, 2003 as compared to 33.3% (gross margin of 66.7%) for the nine months ended September 30, 2002. The decrease in the Adjusted gross margin percentage between periods relates primarily to a decrease in software revenues and the inclusion of nine months of Kenan Business operations in 2003, as compared to only seven months of Kenan Business operations in 2002.

Cost of Professional Services. The cost of professional services for the nine months ended September 30, 2003 increased 8.4% to $50.0 million, from $46.1 million for the nine months ended September 30, 2002. The increase relates primarily to 2003 having a full nine months of Kenan Business operations, as compared to only seven months of Kenan Business operations in 2002, partially offset by a reduction in personnel costs as a result of the recent cost reduction initiatives discussed above. The cost of professional services as a percentage of related revenues was 96.0% (gross margin of 4.0%) for the nine months ended September 30, 2003, as compared to 74.4% (gross margin of 25.6%) for the nine months ended September 30, 2002. The decrease in the gross margin percentage between periods relates primarily to the impact of the changes in the GSS Division’s professional services revenues and related costs between periods, which is discussed in greater detail below under the “Results of Operations - Operating Segments”.

Gross Margin. The overall GAAP gross margin for the nine months ended September 30, 2003 decreased 62.5% to $99.4 million from $264.9 million for the nine months ended September 30, 2002, primarily due to the $119.6 million charge for the Comcast arbitration ruling. The GAAP gross margin percentage decreased to 32.1% for the nine months ended September 30, 2003, from 58.1% for the nine months ended September 30, 2002.

The overall Adjusted gross margin decreased 17.3% to $219.0 million and the overall Adjusted gross margin percentage decreased to 51.0% for the nine months ended September 30, 2003. The decrease in the overall Adjusted gross margin and overall Adjusted gross margin percentage relate primarily to the decrease in Adjusted gross margins between periods for software and maintenance revenues, and for professional services, as discussed above.

Research and Development Expense. R&D expense for the nine months ended September 30, 2003, decreased 19.7% to $46.7 million from $58.2 million for the nine months ended September 30, 2002. As a percentage of Adjusted revenues, R&D expense decreased to 10.9% for the nine months ended September 30, 2003, from 12.8% for the nine months ended September 30, 2002. The Company did not capitalize any internal software development costs during the nine months ended September 30, 2003 and 2002.

The decrease in the R&D expenditures between periods is primarily due to the Company discontinuing the development of its CSG NextGen software product during the third quarter of 2002 and a reduction of R&D costs in other areas since the second quarter of 2002, to include a reduction of R&D personnel as a result of the cost reduction initiatives discussed above, and the completion of the development cycle for certain projects. Prior to the Kenan acquisition, the primarily focus of the GSS Division was on the development efforts of the Company’s CSG NextGen software product. Following the Kenan Business acquisition, the Company discontinued the development of CSG NextGen as a stand-alone customer care and billing system.

During the first nine months of 2003, the Company focused its development and enhancement efforts on:

•

enhancements to CSG CCS/BP and related Broadband Division software products to increase the functionalities and features of the products.

Selling, General and Administrative Expense. SG&A expense for the nine months ended September 30, 2003, increased 3.9% to $86.9 million, from $83.6 million for the nine months ended September 30, 2002. As a percentage of Adjusted revenues, SG&A expense increased to 20.2% for the nine months ended September 30, 2003, from 18.4% for the nine months ended September 30, 2002. The increase in SG&A expense relates primarily to: (i) an increase in legal fees related to the Comcast litigation; and (ii) stock-based compensation expense. The Company incurred approximately $12 million of legal fees related to the Comcast arbitration and $3.5 million of stock-based compensation in the nine months ended September 30, 2003, as compared to $2.3 million and $0.3 million, respectively, for 2002. These increases were partially offset by a decrease in bad debt expense between periods.

Depreciation Expense. Depreciation expense for the nine months ended September 30, 2003 and 2002 decreased 3.2% to $13.5 million, from $13.9 million for the nine months ended September 30, 2002. The capital expenditures during the last three months of 2002 and first nine months of 2003 consisted principally of: (i) computer hardware and related equipment; and (ii) statement production equipment. Depreciation expense for all property and equipment is reflected separately in the aggregate and is not included in the cost of revenues or the other components of operating expenses.

Operating Income (Loss). GAAP operating loss (which reflects the impact of the $119.6 million Comcast arbitration charge) for the nine months ended September 30, 2003, was $55.3 million. Adjusted operating income was $64.3 million or 15.0% of Adjusted revenues, compared to $67.8 million or 14.9% of total revenues for the nine months ended September 30, 2002. The changes in these measures between years relate to the factors discussed above.

Interest Expense. Interest expense for the nine months ended September 30, 2003, increased 2.8% to $10.6 million, from $10.4 million for the nine months ended September 30, 2002, with the increase primarily due to the Company borrowings to finance the Kenan Business acquisition. The weighted-average balance of the Company’s long-term debt for the nine months ended September 30, 2003 was approximately $255.7 million, compared to approximately $212.1 million for the nine months ended September 30, 2002. The weighted-average interest rate on the Company’s debt borrowings for the nine months ended September 30, 2003, including the amortization of deferred financing costs and commitment fees on the Company’s revolving credit facility, was approximately 5.3%, compared to 6.2% for the nine months ended September 30, 2002.

Interest and Investment Income. Interest and investment income for the nine months ended September 30, 2003, decreased 31.5% to $1.1 million, from $1.6 million for the nine months ended September 30, 2002. The decrease was primarily due to lower funds available for investment throughout the period, and to a lesser degree, the reduction in the returns on invested funds.

Other income/expense. Other income for the nine months ended September 30, 2003, was $3.6 million compared to other expense of $1.7 million for the nine months ended September 30, 2002. The change is due primarily to foreign currency transaction gains during the nine months ended September 30, 2003.

Income Tax Provision/Benefit. For the nine months ended September 30, 2003, the Company recorded an income tax benefit of $28.4 million, or an effective income tax rate of approximately 46%, compared to an income tax provision of $29.8 million, or an effective income tax rate of 52% for the nine months ended September 30, 2002. The effective income tax rate for 2002 was negatively impacted by certain items recorded in conjunction with the Kenan Business acquisition. The effective income tax rate for the first three quarters of 2003 represents the Company’s estimate of the annual effective income tax rate for 2003. See the “Three Months Ended September 30, 2003 Compared to Three Months Ended September 30, 2002 - Income Tax Provision/Benefit.” section above for additional discussion of income tax related matters for 2003.

Results of Operations - Operating Segments

The GAAP segment results, and the reconciliation of these amounts to the Adjusted segment results, for the divisions are as follows (in thousands, except percentages):

	Nine Months Ended September 30, 2003 (1)
	Broadband Division			GSS Division			Corporate			Total
GAAP Segment Results:
Processing revenues (Broadband Division net of $13,472 for the arbitration charge)	$	259,613		$	1,973		$	—		$	261,586
Software revenues		4,032			28,880			—			32,912
Maintenance revenues (Broadband Division net of $450 for the arbitration charge)		14,757			54,150			—			68,907
Professional services revenues		892			51,185			—			52,077

Subtotal		279,294			136,188			—			415,482

Charge for arbitration ruling attributable to periods prior to July 1, 2003		(105,679	)		—			—			(105,679	)

Total revenues, net		173,615			136,188			—			309,803
Segment operating expenses		159,538			146,008			51,938			357,484

Contribution margin (loss)	$	14,077		$	(9,820	)	$	(51,938	)	$	(47,681	)

Contribution margin (loss) percentage		8.1	%		(7.2	)%		N/A			(15.4	)%

Adjusted Segment Results: (2)
Total net revenues, per above	$	173,615		$	136,188		$	—		$	309,803
Impact of arbitration ruling		119,601			—			—			119,601

Adjusted revenues		293,216			136,188			—			429,404
Segment operating expenses		159,538			146,008			51,938			357,484

Adjusted contribution margin (loss)	$	133,678		$	(9,820	)	$	(51,938	)	$	71,920

Adjusted contribution margin (loss) percentage		45.6	%		(7.2	)%		N/A			16.7	%

The Broadband Division’s GAAP revenues, and the reconciliation of these amounts to the Adjusted Broadband Division’s revenues for the nine months ended September 30, 2003 are as follows (in thousands):

	Nine Months Ended September 30, 2003
	GAAP Results			Impact of Charge for Arbitration Ruling (2)		Adjusted Earnings
Processing revenues	$	259,613		$	13,472	$	273,085
Software revenues		4,032			—		4,032
Maintenance revenues		14,757			450		15,207
Professional services revenues		892			—		892

Subtotal		279,294			13,922		293,216

Charge for arbitration ruling		(105,679	)		105,679		—

Total revenues, net	$	173,615		$	119,601	$	293,216

	Nine Months Ended September 30, 2002(1)
	Broadband Division			GSS Division			Corporate			Total
Processing revenues	$	275,690		$	414		$	—		$	276,104
Software revenues		23,294			32,717			—			56,011
Maintenance revenues		15,196			46,418			—			61,614
Professional services revenues		1,895			60,103			—			61,998

Total revenues		316,075			139,652			—			455,727
Segment operating expenses		160,263			151,392			34,830			346,485

Contribution margin (loss)	$	155,812		$	(11,740	)	$	(34,830	)	$	109,242

Contribution margin (loss) percentage		49.3	%		(8.4	)%		N/A			24.0	%

(1)

Segment operating expenses and contribution margin (loss), determined in accordance with GAAP, exclude: (i) restructuring charges of: $7.6 million and $12.0 million, respectively, for the nine months ended September 30, 2003 and 2002; and (ii) Kenan Business acquisition-related expenses of $29.5 million, respectively, for the nine months ended September 30, 2002. Of the $7.6 million restructuring charges recorded in 2003, approximately $0.3 million relate to the Broadband Division and $7.3 million relate to the GSS Division. See Note 8 to the Condensed Consolidated Financial Statements for reconciling information between reportable segments contribution margin (loss) and the Company’s consolidated totals.

(2)	Adjusted segment results and Adjusted Broadband Division revenues exclude the impact of the $119.6 million arbitration award, as more fully discussed under the “Adjusted Results of Operations” section above.

Broadband Division

Total Revenues. Total Broadband Division GAAP revenues for the nine months ended September 30, 2003 decreased 45.1% to $173.6 million, from $316.1 million for the three months ended September 30, 2002, primarily as a result of the $119.6 million charge for the Comcast arbitration award recorded in 2003. Adjusted revenues for the nine months ended September 30, 2003 decreased 7.2% to $293.2 million. The decrease in Adjusted revenues is primarily as a result of lower software sales in 2003 when compared to the same period in 2002.

Processing revenues. GAAP processing revenues for the three months ended September 30, 2003 decreased 5.8% to $259.6 million, compared to $275.7 million for the nine months ended September 30, 2002, primarily due to the $13.5 million arbitration charge attributed to the third quarter of 2003. Adjusted processing revenues for the nine months ended September 30, 2003 were $273.1 million, and were basically flat when compared the same period of 2002.

Software Revenue. Software revenue for the nine months ended September 30, 2003 decreased by 82.7% to $4.0 million, from $23.3 million for the nine months ended September 30, 2002. The decrease in software revenue was primarily due to several large software sales made during the first two quarters of 2002, with no similar transactions in 2003.

Maintenance Revenue. GAAP maintenance revenue for the nine months ended September 30, 2003 decreased 2.9% to $14.8 million, from $15.2 million for the nine months ended September 30, 2003, primarily due to the $0.4 million arbitration charge attributed to the third quarter of 2003. Adjusted maintenance revenue was relatively unchanged between periods at $15.2 million.

Segment Operating Expenses and Contribution Margin. Broadband Division operating expenses for the nine months ended September 30, 2003 decreased by 0.5% to $159.5 million, from $160.3 million for the nine months ended September 30, 2002. Broadband Division GAAP contribution margin decreased by 91.0% to $14.1 million (contribution margin percentage of 8.1%) for the nine months ended September 30, 2003, from $155.8 million (contribution margin percentage of 49.3%) for the nine months ended September 30, 2002 primarily due to the $119.6 million Comcast arbitration charge. Broadband Division Adjusted contribution margin for the nine months ended September 30, 2003 was $133.7 million (Adjusted contribution margin percentage of 45.6%), a decrease of 14.2% from the nine months ended September 30, 2002. The Broadband Division Adjusted contribution margin and Adjusted contribution margin percentage decreased between periods primarily as a result of a decrease in software revenues during the nine months ended September 30, 2003. As discussed above, the costs associated with software and maintenance revenues, and professional services generally are fixed in nature within a relatively short period of time, and thus, decreases in these revenues generally do not result in a corresponding decrease in operating expenses.

GSS Division

Total Revenues. Total GSS Division revenues for the nine months ended September 30, 2003 decreased by 2.4% to $136.2 million, as compared to $139.7 million for the nine months ended September 30, 2002. The decrease is primarily due to a decrease in software revenues and professional services revenues discussed below.

Software Revenue. Software revenue for the nine months ended September 30, 2003 decreased by 11.7% to $28.9 million, from $32.7 million for the nine months ended September 30, 2002. The decrease in software revenue was primarily due to a large software transaction that occurred in the first quarter of 2002, with no similar transaction in 2003.

Maintenance Revenue. Maintenance revenue for the nine months ended September 30, 2003 increased by 16.7% to $54.2 million, from $46.4 million for the nine months ended September 30, 2002. This increase in maintenance revenue was primarily due to the Company having nine months of Kenan Business maintenance revenue in 2003, as compared to seven months of maintenance revenue in 2002, partially offset by certain maintenance agreements not being renewed and certain maintenance agreements being renewed at lower rates in 2003.

Professional Services Revenue. Professional services revenue for the nine months ended September 30, 2003 decreased by 14.8% to $51.2 million, from $60.1 million for the nine months ended September 30, 2002, with the decrease primarily due to several large projects in progress during 2002 which were substantially completed in 2002 and early 2003 (including the impact of the large European implementation project discussed above).

Segment Operating Expenses and Contribution Loss. GSS Division operating expenses for the nine months ended September 30, 2003 decreased by 3.6% to $146.0 million, from $151.4 million for the nine months ended September

30, 2002. The decrease in operating expenses between periods relates primarily to the cost reduction initiatives that began in the third quarter of 2002, principally a reduction in personnel costs as a result of involuntary employee terminations, and to a lesser degree, a reduction in costs as the result of the Company abandoning certain office facilities, partially offset by the inclusion of nine months of operating expenses for the Kenan Business in 2003, as compared to seven months in 2002.

The GSS Division contribution loss decreased by 16.4% to $9.8 million (a negative contribution margin percentage of 7.2%) for the nine months ended September 30, 2003, from $11.7 million (a negative contribution margin percentage of 8.4%) for the nine months ended September 30, 2002, due to the factors discussed above.

Corporate

Corporate Operating Expenses. Corporate overhead expenses for the nine months ended September 30, 2003, increased 49.1% to $51.9 million, from $34.8 million for the nine months ended September 30, 2002. The increase in operating expenses relates primarily to: (i) an increase in legal fees related to the Comcast litigation; and (iii) stock-based compensation expense. The Company incurred approximately $12 million of legal fees in defense of the Comcast litigation and $3.4 million of stock-based compensation in the nine months ended September 30, 2003, as compared to $2.3 million and $0.3, respectively, for 2002.

Financial Condition, Liquidity and Capital Resources

Sources of Liquidity. The Company’s principal sources of liquidity include cash, cash equivalents, and short-term investments, and as of September 30, 2003, the total for these items were $144.4 million, compared to $128.4 million as of June 30, 2003, and $95.4 million as of December 31, 2002.

The Company generally has ready access to substantially all of its cash and short-term investment balances, but does face limitations on moving cash out of certain foreign jurisdictions. As of September 30, 2003, the cash and short-term investments subject to such limitations were not significant. In addition, the Company’s credit facility places certain restrictions on the amount of cash that can be freely transferred between certain operating subsidiaries. These restrictions are not expected to cause any liquidity issues at the individual subsidiary level in the foreseeable future.

The Company also has a $100 million revolving credit facility, under which there were no borrowings outstanding as of September 30, 2003. The Company’s ability to borrow under the revolving credit facility is subject to a limitation of total indebtedness based upon the results of a leverage ratio calculation, as determined in the Company’s credit agreement. Based on this calculation as of September 30, 2003, approximately $50 million of the revolving credit facility was considered available to the Company. However, in light of the Comcast arbitration ruling mentioned above, the Company is currently discussing the availability of its revolving credit facility with its lenders.

Billed Accounts Receivable. The Company’s billed trade accounts receivable and related allowance for doubtful accounts (“Allowance”) as of the end of the indicated periods, and the Company’s calculation of days billings outstanding (“DBO”), as defined below, for the quarters then ended, are as follows (in thousands, except DBOs):

Quarter Ended	Gross		Allowance			Net billed		DBOs
September 30, 2003	$	162,810	$	(13,728	)	$	149,082	78
June 30, 2003		183,189		(14,093	)		169,096	79
March 31, 2003		182,573		(12,609	)		169,964	68
December 31, 2002		172,496		(12,079	)		160,417	73

The increase in the gross balance between December 31, 2002 and March 31, 2003 relates primarily to: (i) weaker cash collections during the first quarter of 2003 within the GSS Division than anticipated; and (ii) several large professional services invoices within the GSS Division being issued at the end of the first quarter of 2003 as a result of the Company reaching various billing milestones as of that date. During the second quarter of 2003, the Company did not collect certain accounts receivable as had been expected, including accounts receivable related to certain clients located in India, as discussed in greater detail below. As a result, the gross balance at June 30, 2003 remained

relatively consistent with that of March 31, 2003. During the third quarter of 2003, the Company successfully collected a substantial amount of its aged accounts receivable within the GSS Division, including accounts receivable related to certain clients located in India, as discussed in greater detail below. As a result, the gross balance at September 30, 2003 decreased by approximately $20.4 million when compared to June 30, 2003.

The increase in the Allowance balance between March 31, 2003 and June 30, 2003 is primarily a result of an increase in the aging of certain accounts receivable within the GSS Division during the second quarter, to include considerations for certain accounts receivable related to certain clients located in India, as discussed in greater detail below. As of September 30, 2003, the Company believes it has adequately reserved for its collectibility exposure on its accounts receivable.

The Company’s billed trade accounts receivable balance includes billings for several non-revenue items (primarily postage, sales tax, and deferred revenue items). As a result, the Company evaluates its performance in collecting its accounts receivable through its calculation of DBO rather than a typical days sales outstanding (“DSO”) calculation. DBO is calculated based on the billing for the period (including non-revenue items) divided by the average monthly net trade accounts receivable balance for the period. The increased aging of certain accounts receivable within the GSS Division was one of the primary causes of the increase in the DBO between March 31, 2003 and June 30, 2003. DBO as of September 30, 2003 was 78 days, in excess of the Company’s targeted range of 65-75 days. The Company remains focused on improving its cash collections and reducing the overall aging of its accounts receivable.

The Broadband Division’s credit risk for its accounts receivable is concentrated among large, established cable television and satellite companies located in the U.S. The GSS Division’s credit risk for its accounts receivable is spread among a wide range of telecommunications service providers located throughout the world. The Company’s billed trade accounts receivable balances by geographic region (based on the location of the client) as of the end of the indicated periods are as follows (in thousands):

	September 30, 2003			June 30, 2003			March 31, 2003			December 31, 2002
North America (principally the U.S.)	$	110,516		$	105,504		$	111,470		$	119,765
Europe, Middle East and Africa (principally Europe )		29,288			35,354			29,985			27,058
Asia Pacific (principally India)		13,039			28,612			27,278			15,959
Central and South America		9,967			13,719			13,840			9,714

Total billed accounts receivable		162,810			183,189			182,573			172,496
Less allowance for doubtful accounts		(13,728	)		(14,093	)		(12,609	)		(12,079	)

Total billed accounts receivable, net of allowance	$	149,082		$	169,096		$	169,964		$	160,417

As expected, the greater diversity in the geographic composition of the Company’s client base has increased the Company’s accounts receivable balance and adversely impacted DBO (when compared to the Company’s historical experience prior to the Kenan Business acquisition) as longer billing cycles (i.e., billing terms and cash collection cycles) are an inherent characteristic of international software and professional services transactions. For example, the Company’s ability to bill (i.e., send an invoice) and collect arrangement fees may be dependent upon, among other things: (i) the completion of various client administrative matters, local country billing protocols and processes (including local cultural differences), and/or non-client administrative matters; (ii) the Company meeting certain contractual invoicing milestones; or (iii) the overall project status in certain situations in which the Company acts as a subcontractor to another vendor on a project.

In particular, the Company has two large implementation projects in progress in the Asia/Pacific region where the Company is executing on the implementation projects generally as expected, but for which the Company had the following gross accounts receivable balances outstanding as of the end of the indicated periods (in thousands):

Quarter Ended	Billed		Unbilled		Total
September 30, 2003	$	8,715	$	749	$	9,464
June 30, 2003		18,952		—		18,952
March 31, 2003		21,224		1,590		22,814
December 31, 2002		7,785		4,303		12,088

The Company had originally expected to bill and collect a substantial percentage of the December 31, 2002 amounts by the end of the first quarter of 2003, but due to various complications in the billing and cash collection cycle related to these arrangements, the Company was not successful in such collections as of March 31, 2003 and June 30, 2003. The Company received payments of approximately $9.7 million of the June 30, 2003 accounts receivable during the third quarter of 2003, and has collected an additional $2 million subsequent to September 30, 2003 through the date of this filing. The Company expects to collect substantially all of the remaining September 30, 2003 accounts receivable by the end of 2003. Although the Company believes the amounts due under these arrangements are collectible, because of the various difficulties experienced with these arrangements to date, there can be no assurances that the Company will collect these amounts within the expected time frames. In addition, these clients are located within India, resulting in approximately 6% of the Company’s net billed accounts receivable being concentrated in this foreign country as of September 30, 2003 compared to 11% and 13% as of June 30, 2003 and March 31, 2003, respectively. There is an inherent risk whenever such a large percentage of total accounts receivable is concentrated within one foreign country. One such risk is that, should a foreign country’s political or economic conditions adversely change, it could become difficult to receive payments from clients within that foreign country. The Company does not expect such conditions to occur in India in the foreseeable future, and as a result, the Company does not believe the concentration of accounts receivable in India subjects the Company to higher collection risks.

Unbilled Accounts Receivable. Revenue earned and recognized prior to the scheduled billing date of an item is reflected as unbilled accounts receivable. The Company’s unbilled accounts receivable and other receivables as of the end of the indicated periods are as follows (in thousands):

Quarter Ended
September 30, 2003	$	25,498
June 30, 2003		27,093
March 31, 2003		25,555
December 31, 2002		28,856

Unbilled accounts receivable are an inherent characteristic of certain software and professional services transactions and may fluctuate between quarters, as these types of transactions typically have scheduled invoicing terms over several quarters, as well as certain milestone billing events. The September 30, 2003 unbilled accounts receivable balance consists primarily of several large transactions with various milestone and contractual billing dates which have not yet been reached. A substantial percentage of the September 30, 2003 unbilled accounts receivable are scheduled to be billed and collected by the end of the first quarter of 2004. However, there can be no assurances that the fees will be billed and collected within the expected time frames.

Income Tax Receivable. The Company expects to be in a net operating loss (“NOL”) position for 2003, primarily as a result of the Comcast $119.6 million arbitration charge discussed above under “Comcast and AT&T Broadband Business Relationship”. The Company expects its income tax receivable as of December 31, 2003 to be approximately $35 million to $37 million, with approximately $6 million to be received in the first quarter of 2004 (through a refund of 2003 income taxes already paid), with the remaining amount expected in the second quarter of 2004 (through a NOL carry back to previous years).

Deferred Revenues. Client payments and billed amounts due from clients in excess of revenue recognized are recorded as deferred revenue. Deferred revenue broken out by source of revenue as of the end of the indicated periods was as follows (in thousands):

	September 30, 2003		June 30, 2003		March 31, 2003		December 31, 2002
Processing and related services	$	6,029	$	6,509	$	3,726	$	3,887
Software		6,406		6,471		5,035		2,854
Maintenance services		32,701		38,985		38,140		30,994
Professional services		12,421		14,994		15,035		9,766

Total	$	57,557	$	66,959	$	61,936	$	47,501

The increase in deferred revenues related to maintenance and professional services between September 30, 2003 and December 31, 2002 relates to the timing of invoices for such services. The majority of the Company’s maintenance agreements provide for invoicing of annual maintenance fees in the first and fourth fiscal quarters of the year.

Arbitration Charge Payable. The arbitration charge payable relates to the Comcast arbitration ruling that was received on October 7, 2003. See “Comcast and AT&T Broadband Business Relationship” above for discussion of this item, including the payments made to date on this payable, and the expected timing for the remaining amounts due to Comcast.

Long Term Debt. During the third quarter of 2003, the Company made a $20 million voluntary principal payment, reducing the Company’s long-term debt balance from $248.9 million as of June 30, 2003 to $228.9 million as of September 30, 2003. As a result of this debt prepayment, the Company’s scheduled principal payments within the next 12 months are $8.5 million, with the first payment due on June 30, 2004 in the amount of $1.9 million.

As of September 30, 2003, the Company evaluated the impact of the arbitration ruling on its credit agreement and believes that it is in compliance with the required financial ratios and covenants, and does not believe that the ruling has resulted in a default of the credit agreement. However, the arbitration award payments to Comcast in the fourth quarter of 2003 are expected to negatively impact the Company’s calculation of EBITDA (as defined in the credit agreement) in the fourth quarter of 2003 such that the Company will not meet certain financial ratios and covenants as of December 31, 2003. The Company has begun discussions with its lenders in an effort to receive the necessary waiver and/or amendment to the credit agreement during the fourth quarter of 2003 to remain in compliance with the financial ratios and covenants, and the Company believes that it will receive such waiver and/or amendment by the end of 2003. However, there can be no assurance that the Company will be able to obtain the necessary waiver and/or amendment. Should the Company be in default of its credit agreement at the end of 2003, and be unable to obtain the necessary waiver and/or amendment, then its lenders would have the right to demand payment of the entire outstanding loan balance of approximately $229 million. Based on the Company’s expectations of its levels of capital resources and liquidity at that time, the Company would be unable to repay the entire balance if this were to occur. As a result, the Company would be required to obtain alternative sources of capital resources to repay the debt, and to possibly fund ongoing operations. The Company believes it could obtain alternative sources of capital resources if necessary, however, the cost for the alternative sources of capital resources would likely be higher than the current costs.

Deferred Employee Compensation. As of September 30, 2003 and December 31, 2002, the Company had deferred employee compensation of $7.0 million and $3.9 million, respectively, with the increase related to restricted stock grants made in 2003, as discussed in Note 3 to the Condensed Consolidated Financial Statements.

Cash Flows- Operating Activities. The Company’s net cash flows from operating activities for the indicated periods are as follows (in thousands, except percentages):

	Three Months Then Ended					Percent Change		Year-to-Date Periods Then Ended				Percent Change
September 30, 2003 and 2002	$	39,446	$	(5,508	)	816	%	$	98,809	$	40,613	143	%
June 30, 2003 and 2002		37,141		19,968		86	%		59,363		46,121	29	%
March 31, 2003 and 2002		22,222		26,153		(15	)%		22,222		26,153	(15	)%
December 31, 2002 and 2001		47,511		49,375		(4	)%		88,124		180,091	(51	)%

The increase in cash flows from operations for both the three and nine months ended September 30, 2003, when compared to the same periods of 2002, relates primarily to a change in operating assets and liabilities, primarily due to the Company’s improvement in cash collections on its accounts receivable over the last two quarters. The sequential increase in quarterly cash flows during 2003 also reflects the Company improved collections in accounts receivable over the last two quarters.

Cash Flows- Investing Activities. The Company’s net cash flows used in investing activities totaled $18.5 million for the nine months ended September 30, 2003, compared to $230.3 million for the nine months ended September 30, 2002, an decrease of $211.8 million. The decrease between periods relates primarily to the decrease in acquisitions of $264.3 million between years (principally the Kenan Business), partially offset by a decrease in proceeds from the sale of short-term investments of $53.4 million.

Cash Flows- Financing Activities. The Company’s net cash flows used in financing activities totaled $40.1 million for nine months ended September 30, 2003, compared to cash flows provided by of $213.6 million for the nine months ended September 30, 2002, a change of $253.7 million. The decrease between periods can be attributed to the Company borrowing $300.0 million to finance the Kenan Business acquisition and retire its previous bank debt partially offset by a decrease in debt payments of $28.7 million (including deferred financing costs).

Stock Repurchase Program. The Company’s Board of Directors has authorized the Company, at its discretion, to purchase up to a total of 10.0 million shares of its Common Stock from time-to-time as market and business conditions warrant. The Company did not purchase any of its shares under the stock repurchase program during the current quarter. A summary of the Company’s activity to date for this repurchase program as of September 30, 2003 is as follows (in thousands, except per share amounts):

	2003	2002		2001		2000		1999		Total
Shares repurchased	—		1,573		3,020		1,090		656		6,339
Total amount paid	—	$	18,920	$	109,460	$	51,088	$	20,242	$	199,710
Weighted-average price per share	—	$	12.02	$	36.25	$	46.87	$	30.88	$	31.51

At September 30, 2003, the total remaining number of shares available for repurchase under the program totaled approximately 3.7 million shares. The Company’s credit facility restricts the amount of Common Stock the Company can repurchase under its stock repurchase program to $50 million, subject to certain limitations as specified in the credit facility.

Capital Resources. The Company continues to make investments in client contracts, capital equipment, facilities, research and development, and at its discretion, may continue to make voluntary principal payments on its long-term debt and stock repurchases under its stock repurchase program. The Company’s scheduled principal payments on its long-term debt within the next 12 months are $8.5 million, with the first payment due on June 30, 2004 in the amount of $1.9 million. In addition, as part of its growth strategy, the Company is expanding its international business and is continually evaluating potential business and asset acquisitions. The Company had no significant capital commitments as of September 30, 2003.

As of November 12, 2003, the Company had approximately $110 million of cash and short-term investments available for operations, this is after the Company paid $65 million of the $119.6 million arbitration award to Comcast in October 2003. On November 12, 2003, the parties amended the Master Subscriber Agreement, which included payment terms for the remaining $55 million due to Comcast for the arbitration award. As a result of this amendment, the Company expects to pay $30 million in November 2003, and the remaining $25 million no later than January 2004. The unpaid amount of the award accrues interest at eight (8) percent per annum from October 7, 2003 until paid.

The Company believes that its current cash and short-term investments, together with cash expected to be generated from future operating activities, will be sufficient to meet its anticipated cash requirements (including the remaining payments due to Comcast) through at least 2004. Consequently, the Company has recently informed its lenders that the Company does not intend to borrow on its revolving credit facility in the near future. As discussed above, the Company believes it can obtain alternative sources of capital resources if necessary, however, the cost for the alternative capital resources would likely be higher than the current costs. The Company’s belief that it can obtain alternative sources of capital resources if necessary is based primarily on the Company’s future expectations of operating profitability and future cash flows to be generated from operations, to include considerations for the expected impacts from the Comcast arbitration ruling, and the Company’s planned 2004 cost reduction initiative.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

As discussed in the Company’s 2002 Form 10-K, the Company is exposed to various market risks, including changes in interest rates and foreign currency exchange rates. Market risk is the potential loss arising from adverse changes in market rates and prices. The Company does not enter into derivatives or other financial instruments for trading or speculative purposes.

Interest Rate Risk. As of September 30, 2003, the Company had long-term debt of $228.9 million, consisting of a Tranche A Term Loan (“Tranche A”) with an outstanding balance of $83.1 million, a Tranche B Term Loan (“Tranche B”) with an outstanding balance of $145.8 million, and a revolving credit facility (the “Revolver”), with an outstanding balance of zero.

On May 6, 2003 and August 21, 2003, the Company made voluntary prepayments on its long-term debt of $20.0 million, for total voluntary prepayments of $40.0 million. As a result of the voluntary prepayments, the Company did not have to make a scheduled principal payment on its long-term debt during the second or third quarters of 2003. Subsequent to the August 2003 voluntary prepayment, the scheduled principal payments for the Tranche A Loan and the Tranche B Loan are as follows (in thousands):

	2003		2004		2005		2006		2007		2008		Total
Tranche A Loan	$	—	$	14,392	$	29,688	$	31,250	$	7,812	$	—	$	83,142
Tranche B Loan		—		746		1,491		1,491		106,634		35,421		145,783

Total Payments	$	—	$	15,138	$	31,179	$	32,741	$	114,446	$	35,421	$	228,925

The interest rate features of the Company’s long-term debt are discussed in detail in the Company’s 2002 Form 10-K. As of September 30, 2003, the Company had six-month LIBOR contracts that lock in the interest rates on $4.3 million of its long-term debt until December 31, 2003, and had six-month LIBOR contracts that lock in the interest rates on $224.6 million of its long-term debt until March 31, 2004. The interest rates on the LIBOR contracts which mature on December 31, 2003, are based upon a contracted LIBOR rate of 1.10% (for a combined interest rate of 3.60% for the Tranche A Loan and 3.85% for the Tranche B Loan). The interest rates on the LIBOR contracts which mature on March 31, 2004, are based upon a contracted LIBOR rate of 1.18% (for a combined interest rate of 3.68% for the Tranche A Loan and 3.93% for the Tranche B Loan).

The Company continually evaluates whether it should enter into derivative financial instruments as an additional means to manage its interest rate risk but, as of the date of this filing, has not entered into such instruments. The Company believes the carrying amount of the Company’s long-term debt approximates its fair value due to the long-term debt’s interest rate features.

Foreign Exchange Rate Risk. The Company’s percentage of total revenues generated outside the U.S. for the years ended December 31, 2002 and 2001 was 25% and 2%, respectively. The increase between years in revenues generated outside the U.S. is attributable primarily to the Kenan Business acquisition in February 2002. The Company’s percentage of total revenues generated outside the U.S. for the nine months ended September 30, 2003 and 2002 was 34% and 25%, respectively. The increase between periods in revenues generated outside the U.S. is attributable to the reduction in revenue in the third quarter of 2003 as the result of the Comcast arbitration ruling (see the Comcast and AT&T Broadband Business Relationship section above). Factoring out the effect of the Comcast arbitration ruling, the percentage of the Company’s total revenues generated outside the U.S. would have been approximately 25%. The Company expects that in the foreseeable future, the percentage of its total revenues to be generated outside the U.S. will be slightly greater than 25%. Refer to the Company’s 2002 Form 10-K for further discussion of the Company’s foreign exchange rate risk.

The Company continues to evaluate whether it should enter into derivative financial instruments for the purposes of managing its foreign currency exchange rate risk, but, as of the date of this filing, has not entered into such instruments to manage its long-term foreign currency exchange rate risk. A hypothetical adverse change of 10% in the September 30, 2003 exchange rates would not have a material impact upon the Company’s results of operations.

Market Risk Related to Short-term Investments. There have been no material changes to the Company’s market risks related to short-term investments during the nine months ended September 30, 2003.

Item 4.

(a) Disclosure Controls and Procedures

As required by Rule 13a-15(b), the Company’s management, including the Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), conducted an evaluation as of the end of the period covered by this report of the effectiveness of the Company’s disclosure controls and procedures as defined in Rule 13a-15(e). Based on that evaluation, the CEO and CFO concluded that the Company’s disclosure controls and procedures were effective as of the end of the period covered by this report.

(b) Internal Control Over Financial Reporting

As required by Rule 13a-15(d), the Company’s management, including the CEO and CFO, also conducted an evaluation of the Company’s internal control over financial reporting, as defined by Rule 13a-15(f), to determine whether any changes occurred during the quarter covered by this report that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting. Based on that evaluation, there has been no such change during the quarter covered by this report.

CSG SYSTEMS INTERNATIONAL, INC.

PART II. OTHER INFORMATION

Item 1. Legal Proceedings

The Company received a ruling in its arbitration with its largest client, Comcast. Discussions of this matter can be found in “MD&A-Comcast and AT&T Broadband Business Relationship” included in this document and is incorporated herein by reference.

Item 2-3. None

Item 4. None

Item 5. None

Item 6. Exhibits and Reports on Form 8-K

(a)

Exhibits –

10.40

Third Amended and Restated Services Agreement between First Data Technologies, Inc. and CSG Systems, Inc. dated August 1, 2003

10.51

Stock Option Cancellation Agreement with Neal C. Hansen, dated August 30, 2002

10.56

Restricted Stock Award Agreement with Neal C. Hansen, dated August 30, 2002

31.01

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02

Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01

Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

99.01

Safe Harbor for Forward-Looking Statements Under the Private Securities Litigation Reform Act of 1995-Certain Cautionary Statements and Risk Factors

(b)

Reports on Form 8-K

•

Form 8-K dated October 8, 2003, under Item 5, Other Events and Regulation FD Disclosure, was filed with the Securities and Exchange Commission which included a press release dated October 8, 2003. The press release announced that the Company had received a decision in the arbitration matter between the Company and AT&T Broadband, now Comcast.

•

Form 8-K dated October 28, 2003, under Item 12, Results of Operations and Financial Condition, was filed with the Securities and Exchange Commission which included a press release dated October 28, 2003. The press release announced the Company’s third quarter earnings release.

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, 2003

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

Senior Vice President and Chief Financial Officer

(Principal Financial Officer)

/s/ Randy R. Wiese

Randy R. Wiese

Vice President and Chief Accounting Officer

(Principal Accounting Officer)

CSG SYSTEMS INTERNATIONAL, INC.

INDEX TO EXHIBITS

Exhibit Number		Description

10.40*		Third Amended and Restated Services Agreement between First Data Technologies, Inc. and CSG Systems, Inc. dated August 1, 2003

10.51		Stock Option Cancellation Agreement with Neal C. Hansen, dated August 30, 2002

10.56		Restricted Stock Award Agreement with Neal C. Hansen, dated August 30, 2002

31.01		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

31.02		Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

32.01		Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

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.

EX-10.40 3 dex1040.htm THIRD AMENDED AND RESTATED SERVICES AGREEMENT Third Amended and Restated Services Agreement

Exhibit 10.40

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 (***).

THIRD AMENDED AND RESTATED

SERVICES AGREEMENT

between

FIRST DATA TECHNOLOGIES, INC.

and

CSG SYSTEMS, INC.,

formerly known as

CABLE SERVICES GROUP, INC.

TABLE OF CONTENTS

			Page

Section 1	Definitions		1

Section 2	Provision of the FDT Services		5

Section 3	Payments for FDT Services		12

Section 4	Relationship between the Parties		13

Section 5	Intellectual Property		13

Section 6	Liability and Indemnification		15

Section 7	Limitation of Liability		17

Section 8	Standard of Care and Exclusion of Warranties		18

Section 9	Exclusion of Damages		19

Section 10	Confidentiality		19

Section 11	Termination		21

Section 12	Miscellaneous		24

Schedules

	Schedule 1.9	CSG Client Development Software

	Schedule 1.17	Development Software

	Schedule 1.21	Existing CSG Proprietary Software

	Schedule 1.25	FDT Services and FDT Current Service Charges

	Schedule 1.43	Platform Description

	Schedule 1.49	Systems Software

	Schedule 2.3	CSG – Vendor Software

	Schedule 2.3A	Form of CSG – Vendor Software Letter

	Schedule 2.9	Operations Procedures

	Schedule 2.10	CSG Batch Job Targets

	Schedule 2.11	Disaster Recovery Plan

	Schedule 2.13	Performance Criteria

	Schedule 2.14	Confidentiality Agreement

	Schedule 2.16.1	Additional CSG Obligations

	Schedule 6.5	Dispute Resolution

THIS THIRD AMENDED AND RESTATED SERVICES AGREEMENT (the “Services Agreement”) is entered into as of August 1, 2003, by and between First Data Technologies, Inc., a Delaware corporation, and CSG Systems, Inc. (formerly known as Cable Services Group, Inc.), a Delaware corporation.

RECITALS

A. FDT is presently engaged in the business of providing data processing services;

B. CSG and FDT previously entered into a services agreement dated as of October 26, 1994, as amended by that certain First Amendment to Services Agreement between FDT and CSG executed December 8, 1995, and as further amended by that certain Second Amendment to Services Agreement between FDT and CSG executed January 30, 1996, and as further amended by that Third Amendment to Services Agreement between FDT and CSG executed November 25, 1996 (collectively, the “Original Agreement”);

C. CSG and FDT previously entered into an Amended and Restated Services Agreement dated December 31, 1996, as amended by that certain First Amendment to Amended and Restated Services Agreement between CSG and FDT executed July 1998 (as amended, the “Restated Agreement”);

D. CSG and FDT previously entered into those certain license agreements with FDT as licensor and CSG as licensee dated December 31, 1996 (as amended and restated as of the date hereof), April 23, 1999 and July 30, 1999;

E. CSG and FDT further amended and restated their obligations in the Second Amended and Restated Services Agreement dated April 1, 2000, as amended by that certain First Amendment to Second Amended and Restated Services Agreement between FDT and CSG executed May 28, 2002; and

F. CSG and FDT desire to further amend and restate their obligations relating to the terms and conditions governing the data processing services which FDT will continue to provide to CSG.

NOW, THEREFORE, in consideration of the premises and the mutual covenants, representations, warranties, conditions and agreements hereinafter expressed, the Parties hereto agree as follows:

Section 1

Definitions

In this Services Agreement, the following terms have the meanings specified or referred to in this Section 1 and shall be equally applicable to both the singular and plural forms. In this Agreement, the words “including”, “include” and “includes” shall each be deemed to be followed by the term “without limitation”. Any agreement or exhibit referred to herein shall mean such agreement or exhibit as amended, supplemented and modified from time to time to the extent permitted by the applicable provisions thereof and by this Services Agreement. References to any statute or regulation means such statute or regulation as amended at the time and includes any successor statute or regulation. Unless otherwise stated, references to recitals, articles, sections, paragraphs, schedules and exhibits shall be references to recitals, articles, sections, paragraphs, schedules and exhibits of this Services Agreement.

1.1 “Additional Services” has the meaning stated in Section 2.15.

1.2 “Affiliate” means an Entity which, directly or indirectly, owns or controls, is owned or is controlled by or is under common ownership or control with another Entity. As used herein, “control” means the power to direct the management or affairs of an Entity, and “ownership” means the beneficial ownership of 50% or more of the voting equity securities or other equivalent voting interests of the Entity.

1.3 “Applications Software” means the CSG-Vendor Software and the CSG Proprietary Software.

1.4 “Claim” has the meaning specified in Section 6.3.1.

1.5 “Confidential Information” has the meaning stated in Section 10.1.

1.6 “CSG” means CSG Systems, Inc. (formerly known as Cable Services Group, Inc.), a Delaware corporation, and its permitted successors and permitted assigns.

1.7 “CSG Batch Job Targets” means the time periods identified on Schedule 2.10 relating to CSG’s batch cycles.

1.8 “CSG Client” shall mean any current or future Entity for which CSG provides data processing services through FDT in accordance with the terms and conditions of the Services Agreement.

1.9 “CSG Client Development Software” means that portion of the Development Software set forth on Schedule 1.9 that CSG Clients may execute and use at the CSG Clients’ Locations solely to permit a CSG Client to receive the benefit of the FDT Services in accordance with the terms and conditions of this Services Agreement.

1.10 “CSG’s Clients’ Locations” means each of CSG’s Clients’ business locations which are connected to the Platform to permit a CSG Client to receive the benefit of the FDT Services in accordance with the terms and conditions of this Services Agreement.

1.11 “CSG Data” has the meaning specified in Section 5.1.

1.12 “CSG Proprietary Software” means New CSG Proprietary Software and Existing CSG Proprietary Software.

1.13 “CSG-Vendor Software” means the Software licensed to CSG by third party vendors (excluding FDT and its Affiliates) and to be used by FDT to provide the FDT Services, together with all developments, improvements, modifications, additions, expansions, new versions, new releases, rewrites, enhancements, upgrades or other changes of any kind thereto. The CSG-Vendor Software is set forth in Schedule 2.3, as it may be amended from time-to-time.

1.14 “Damaged Party” has the meaning stated in Section 12.5.

1.15 “Data Processing Materials” has the meaning stated in Section 5.5.

1.16 “Declared Disaster” has the meaning stated in Schedule 2.11.

1.17 “Development Software” means that portion of the Systems Software as set forth in Schedule 1.17 that CSG may execute and use for development of CSG Proprietary Software. Such schedule may be amended from time to time in accordance with the procedures set forth in Section 2.5.3, if applicable.

1.18 “Dispute” means any and all disputes, controversies and claims between the Parties arising from or in connection with this Services Agreement or the relationship of the Parties under this Services Agreement whether based on contract, tort, common law, equity, statute, regulation, order or otherwise.

1.19 “Effective Date” shall mean April 1, 2000.

1.19a “Third Amended and Restated Effect Date” shall mean August 1, 2003.

1.20 “Entity” means an individual, corporation, limited liability company, partnership, sole proprietorship, joint venture, or other form of organization or governmental agency or authority.

1.21 “Existing CSG Proprietary Software” means the applications, job control language and system and other Software owned by CSG and to be used by FDT to provide the FDT Services, that is identified in Schedule 1.21.

1.22 “Failed Criteria” shall have the meaning stated in Section 11.2.

1.23 “FDT” means First Data Technologies, Inc., a Delaware corporation, and its permitted successors and permitted assigns.

1.24 “FDT Data Center” means the data center maintained by or on behalf of FDT in Englewood, Colorado or any other data or information processing centers maintained by or on behalf of FDT or any of its Affiliates and used to provide the FDT Services.

1.25 “FDT Service Charges” means the fees charged by FDT for the FDT Services as set forth in Schedule 1.25.

1.26 “FDT Services” means the data processing services and systems currently provided by FDT to CSG which are set forth on Schedule 1.25 and those Additional Services that FDT agrees to provide.

1.27 “FDT Software” means that certain FDT proprietary Software licensed by FDT to CSG pursuant to the License Agreements.

1.28 “Indemnified Party” means a Party or Parties seeking or entitled to indemnification pursuant to the provisions of Section 6.

1.29 “Indemnifying Party” means the Party or Parties hereto responsible for indemnifying an Indemnified Party pursuant to Section 6.

1.30 “Infringement Claims” has the meaning stated in Section 6.2.1.

1.31 “Infringement Payment” has the meaning stated in Section 11.4.

1.32 “License Agreements” means those certain license agreements executed by FDT and CSG with FDT as licensor and CSG as licensee dated December 31, 1996 (as subsequently amended and restated as of the date hereof), April 23, 1999 and July 30, 1999.

1.33 “Losses and Expenses” has the meaning stated in Section 7.1.

1.34 “New CSG Proprietary Software” means all developments, improvements, modifications, additions, expansions, new versions, new releases, rewrites, enhancements, upgrades or other changes of any kind to Existing CSG Proprietary Software, or any new Software owned or developed by CSG following the Effective Date and provided to FDT for use in connection with the provision of the FDT Services that is not identified in Schedule 1.21.

1.35 “Operations Procedures” has the meaning stated in Section 2.9.

1.36 “Original Agreement” has the meaning specified in the second recital to this Services Agreement.

1.37 “Original CSG Proprietary Software” means that portion of the Existing CSG Proprietary Software that existed as of the effective date of the Original Agreement.

1.38 “Original Term” means the period of time commencing on the Effective Date and ending June 30, 2008.

1.39 “Other Party” has the meaning stated in Section 12.5.

1.40 “Party” means a party to this Services Agreement and its permitted successors and permitted assigns.

1.41 “Performance Criteria” has the meaning stated in Section 2.13.

1.42 “Plan” has the meaning stated in Schedule 2.11.

1.43 “Platform” means the hardware owned or operated by FDT and the network provided by FDT for data telecommunications and data processing and retrieval established between the FDT Data Center, CSG, and CSG’s Clients’ Locations, it being understood that such Platform is provided by FDT on a non-exclusive basis. The Platform is further described in Schedule 1.43.

1.44 “Principal Performance Criteria” means Performance Criteria categories 1, 2, 3 and 4, and Performance Criteria category 5 solely as it relates to the front end processors.

1.45 “Restated Agreement” has the meaning specified in the third recital to this Agreement.

1.46 “Services Agreement” means this Second Amended and Restated Services Agreement between CSG and FDT as it may be amended from time to time.

1.47 “Software” means (i) computer programs, including application programs, operating programs, file programs and utility programs, and (ii) tangible media upon which such programs and documentation are recorded, including hard copy, tapes and disks.

1.48 “Stock Purchase Agreement” means that agreement entered into as of October 26, 1994 between CSG Holdings, Inc. and First Data Resources Inc.

1.49 “Systems Software” means the Software licensed by FDT to be used to provide FDT Services, but shall not include the FDT Software or the Applications Software. The current set of Systems Software is set forth in Schedule 1.49. Such schedule may be amended from time to time in accordance with the procedures set forth in Section 2.5.3.

1.50 “Term” means the Original Term and any mutually agreed extension thereto.

1.51 “Termination Assistance” has the meaning stated in Section 11.5.

1.52 “Third Party Provider” has the meaning stated in Section 2.12.

Section 2

Provision of the FDT Services

2.1 FDT Services. FDT shall make available to and perform for CSG and CSG shall use the FDT Services during the Term. Notwithstanding the foregoing, if CSG delivers notification to FDT pursuant to Sections 11.1 or 11.2 that CSG is terminating this Services Agreement, then after such notification CSG may arrange for CSG or a third party to provide the FDT Services for CSG after the termination date and CSG may take all actions in preparation therefor as may be reasonably necessary to enable CSG or such third party to provide such FDT Services immediately after the termination date; provided however, the foregoing shall not be construed to prevent CSG from initiating preliminary discussions with any such third party prior to giving written notice to FDT.

2.2 Platform; FDT Data Center Raised Floor.

2.2.1 Platform. FDT will provide the Platform and shall have all rights in connection therewith including the right to change the configuration of the Platform during the Term of this Services Agreement. FDT shall provide CSG with at least thirty (30) days advance written notice of any change in the Platform. Such changes shall not materially adversely affect the operations of CSG or CSG Clients. Except for those components (if any) identified on Schedule 1.43 as being owned by CSG, the Platform shall remain solely the property of FDT, its lessors or providers, if any, and CSG shall have no ownership interests or other rights therein. CSG may request changes to the Platform, and all such requests shall be deemed a request for Additional Services and be subject to Section 2.15. FDT shall provide upgraded DASD and tape subsystems relating to the Platform in accordance with the DASD and tape subsystems upgrade practices used by FDT from time to time.

2.2.2 FDT Data Center Raised Floor. CSG shall have the right, subject to security, space, environmental and other limitations, to collocate computer, telecommunications and other equipment at the FDT Data Center and to interconnect such equipment to the FDT Platform; provided that CSG will at no time during the Term (except as set forth in Section 2.2.3), require more than 1,200 non-contiguous square feet of raised floor space in the FDT Data Center for those purposes. FDT shall provide for utilities, HVAC, back-up power generators, and security with respect to such collocated equipment. CSG and third party support personnel retained by CSG or the CSG Client shall have reasonable access to the FDT Data Center on a 24 hour per day, 7 day a week basis to maintain and service such collocated equipment.

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

2.2.3 Additional FDT Data Center Raised Floor. After the Effective Date, and upon sixty (60) days prior written notice to FDT, CSG shall also have the right, subject to security, space, environmental and other limitations, to collocate additional computer, telecommunications and other equipment at the FDT Data Center and to interconnect such equipment to the FDT Platform; provided that CSG will at no time during the Term of this Services Agreement require more than an additional 1,200 non-contiguous square feet of raised floor space (for a total of 2,400 square feet) in the FDT Data Center for those purposes, it being understood that such additional non-contiguous space will be provided by FDT to CSG for $*** (annually) per square foot. FDT shall provide for utilities, HVAC, back-up power generators, and security with respect to such collocated equipment. CSG and third party support personnel retained by CSG or the CSG Client shall have reasonable access to the FDT Data Center on a 24 hour per day, 7 day a week basis to maintain and service such collocated equipment. In addition, CSG may locate one of its employees at the FDT Data Center on a continuous basis, provided that such employee: (i) provides FDT evidence of his or her C2 security clearance and maintains such clearance during the Term; and (ii) executes a separate confidentiality agreement with FDT reasonably acceptable to CSG.

2.3 CSG-Vendor Software. CSG will secure for FDT, at CSG’s expense, the rights to access, operate (at or from any location where FDT will provide the FDT Services), and modify the Vertex Software included within CSG-Vendor Software to the extent required for FDT’s provision of the FDT Services under this Services Agreement. To the extent necessary, CSG will secure for FDT, at CSG’s expense, a license for the other Software included within the CSG-Vendor Software. Such license shall provide for the rights set forth in the first sentence of this Section 2.3, including upgrades to such Software and maintenance therefor. Notwithstanding anything to the contrary set forth in this Services Agreement, FDT shall be under no obligation to install any CSG-Vendor Software until CSG provides FDT with evidence reasonably satisfactory to FDT of FDT’s right to access, operate (at or from any location where FDT will provide the FDT Services), and modify the CSG-Vendor Software to provide the FDT Services pursuant to this Services Agreement. Contemporaneously with the execution of this Services Agreement, CSG shall deliver to FDT a letter executed by CSG substantially in the form set forth in Schedule 2.3A.

2.4 Maintenance of Current Vendor Supported Software Releases. As of the Effective Date, all CSG-Vendor Software is the most current release (or one generation behind the most current release). During the Term, CSG shall cause all CSG-Vendor Software to be the most current release (or one generation behind the most current release) within one (1) year of the commercial release of the next version of any CSG-Vendor Software. As of the Effective Date, all Systems Software is the most current release (or one generation behind the most current release). During the Term, FDT shall cause all Systems Software to be the most current release (or one generation behind the most current release) within one (1) year following the commercial release of the next version of any Systems Software. CSG shall, at its sole cost and expense, upon the reasonable request of FDT, cooperate with FDT in testing the implementation of all CSG-Vendor Software and Systems Software. The Parties agree to use commercially reasonable efforts to coordinate the timing and installation of new releases of CSG-Vendor Software and Systems Software so as to not unreasonably disrupt or materially adversely affect the provision of FDT Services.

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

2.5 Use of Other Software.

2.5.1 FDT Affiliate Software. The Parties shall investigate from time to time the possibility of using Software developed by FDT Affiliates (such as that Software commonly known as “Tape Access Method”), to augment the CSG-Vendor Software. If such investigation results in the Parties determining that the use of such Software is desirable, the Parties shall negotiate the terms and conditions (including costs) associated with such use.

2.5.2 Third Party Software. If CSG requires FDT to acquire additional Software for use by FDT in the provision of FDT Services, FDT shall use commercially reasonable efforts to identify other FDT clients with whom CSG can share the costs associated with such Software, it being understood that if no other FDT clients use such Software, the costs associated with such Software shall be the sole responsibility of CSG.

2.5.3 Systems Software.

(i) FDT may substitute some or all of the Systems Software with other Software, provided that: (a) FDT provides CSG with reasonable notice of such substitution, and CSG consents to such substitution, which consent shall not be unreasonably withheld or delayed; (b) such Software is substantially similar in functionality with the Systems Software that it is replacing; and (c) FDT obtains CSG rights to use such Software in accordance with Section 5.3, if applicable. Notwithstanding the foregoing, FDT shall not be required to obtain CSG’s consent for substitutions made in accordance with Section 2.4.

(ii) If FDT substitutes some or all of the Systems Software with other Software, FDT shall reimburse CSG for each applicable component of the Systems Software the reasonable out-of-pocket costs CSG incurs in modifying any CSG Proprietary Software and CSG-Vendor Software as a result of such substitution, together with associated training costs relating to the substituted Systems Software that exceed **** ******** dollars ($***), it being understood that in no event shall FDT be responsible for costs incurred by CSG that: (a) exceed personnel costs greater than ******* dollars ($***) per hour; or (b) are incurred as a result of FDT complying with its obligations set forth in Section 2.4. CSG shall provide FDT with a detailed itemization of its costs within twenty (20) days after completion of FDT’s substitution of the applicable Systems Software.

2.6 Information and Reports. In accordance with the Performance Criteria, FDT will provide to CSG the output information or such other reports as the Parties may mutually agree, provided, however, that FDT’s obligations for output or reports are specifically conditioned upon receipt of timely input received from CSG and CSG’s Clients.

2.7 Backup. Pursuant to written instructions from CSG, FDT will back-up and maintain copies of the CSG Data, the Applications Software and FDT Software on magnetic or other media in accordance with FDT’s standard procedures. In connection with such backup, FDT, in accordance with the fees set forth in Schedule 1.25, will arrange for off-site storage for CSG Data, as well as periodic pick-up and delivery to the off-site storage site. CSG will be solely responsible for CSG Data that CSG recalls from the off-site storage site to the FDT Data Center before it is scheduled to be returned from the off-site storage site.

2.8 Security. Subject to the provisions of this Section 2.8, FDT will implement and maintain reasonable security procedures relating to CSG’s access to the Development Software, and access to CSG Data, including administering the procedures relating to the assignment and administration of all log-on identifications, and CSG shall be responsible for taking appropriate security measures relating to such log-on identifications, passwords and access. Anything to the contrary notwithstanding, CSG agrees that CSG shall have sole responsibility for establishment and administration of reasonable security procedures for access to the Development Software and CSG Data by anyone accessing the Development Software and CSG Data by or through CSG, its systems and networks. A summary description of security procedures currently used by FDT is set forth in the Operations Procedures. From time to time, CSG will notify FDT which CSG employees are to be granted access to the Development Software and CSG Data and the authorized level of such access, all in accordance with FDT’s standard procedures.

2.9 Operations Procedures. CSG and FDT shall each use commercially reasonable efforts to comply with the Operations Procedures set forth on Schedule 2.9 (the “Operations Procedures”) in order for FDT to provide the FDT Services; provided, however, that if CSG is unable to give any notice specified on Schedule 2.9 within the required time frame, FDT will use commercially reasonable efforts to accommodate the time frame requested by CSG (provided FDT shall be under no obligation to incur additional costs to accommodate such time frame or be responsible for the adverse impact on the Performance Criteria). The Operations Procedures may from time to time be changed by FDT so long as the changes do not materially (a) increase the duties of CSG or its obligations hereunder, or (b) adversely affect the business operations of CSG or CSG Clients. To the extent practicable, FDT agrees to give CSG reasonable advance written notice of such changes, except for changes which are implemented in short time frames for which no such notice can be given, such as changes necessary to correct situations in the FDT Data Center requiring immediate attention. FDT further agrees to use commercially reasonable efforts to minimize changes that will materially adversely affect CSG or CSG Clients, all of which requires CSG’s prior written consent, which consent shall not be unreasonably withheld or delayed. THE OPERATING PROCEDURES ARE DEMARCATIONS OF RESPONSIBILITIES AND PROCEDURES THAT CSG AND FDT WILL EACH USE COMMERCIALLY REASONABLE EFFORTS TO ACHIEVE AND PERFORM, IT BEING UNDERSTOOD THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS SERVICES AGREEMENT: (i) THE OPERATING PROCEDURES MAY NOT BE ACHIEVED OR PERFORMED; AND (ii) THE FAILURE BY FDT OR CSG TO ACHIEVE OR PERFORM ANY OPERATIONS PROCEDURE SHALL NOT BE DEEMED TO BE A BREACH OF THIS SERVICES AGREEMENT.

2.10 CSG Batch Job Targets. The CSG Batch Job Targets set forth in Schedule 2.10 are targets that CSG and FDT will each use commercially reasonable efforts to achieve, IT BEING UNDERSTOOD THAT NOTWITHSTANDING ANYTHING TO THE CONTRARY SET FORTH IN THIS SERVICES AGREEMENT: (a) THE CSG BATCH JOB TARGETS MAY NOT BE ACHIEVED; AND (b) THE FAILURE BY FDT OR CSG TO ACHIEVE THE CSG BATCH JOB TARGETS SHALL NOT BE DEEMED TO BE A BREACH OF THIS SERVICES AGREEMENT.

2.11 Disaster Recovery. In the event of a Declared Disaster affecting the CSG Data, FDT will use commercially reasonable efforts to recover the critical components of the Systems Software and the FDT managed networks in accordance with the Plan. As compensation for any services provided by FDT in maintaining and implementing the Plan, CSG agrees to pay FDT the associated fees and charges for such FDT Services set forth in Schedule 1.25 and Schedule 2.11, as applicable. FDT shall be solely responsible for restoring the Applications Software and the FDT Software. CSG shall be solely responsible for recovering the Applications Software and the FDT Software, and for directing FDT in regard to the CSG Data in accordance with Section 2.7.

2.12 Systems Software; Data Telecommunications. FDT may procure from one or more qualified subcontractors or third party vendors (the “Third Party Providers”) the data telecommunications services and Systems Software used to provide FDT Services, except to the extent that CSG has previously contracted for such services directly. FDT also will be responsible for obtaining from any such Third Party Providers the appropriate maintenance for data telecommunications and hardware equipment. CSG agrees to pay FDT the applicable FDT Service Charge. Annually during the Term, the Parties will review the quality of service and pricing offered by the Third Party Providers. Following the annual review, FDT will take such action that the Parties mutually determine appropriate, which may include renegotiation with current Third Party Providers or termination of existing service or license agreements and negotiation with new Third Party Providers. FDT shall keep CSG apprised of negotiations with Third Party Providers. The Parties acknowledge that each of the Parties share certain connections to a network commonly known as the Advantis network. Notwithstanding anything to the contrary set forth in this Services Agreement, each Party shall pay their respective usage fees however designated for their respective use of the Advantis network.

2.13 Performance Criteria.

2.13.1 Performance Criteria. FDT shall use commercially reasonable efforts to provide and to perform the FDT Services in all material respects in accordance with each of the performance criteria set forth in Schedule 2.13 (the “Performance Criteria”). Without limiting the foregoing, any request by CSG for a new or additional Performance Criteria shall be deemed a request for Additional Services in accordance with Section 2.15.

2.13.2 Exclusions. There shall be excluded from the measurement of compliance with any Performance Criteria and the application of Section 7.2, any failure to meet such Performance Criteria if, during, and to the extent that such failure is related to (i) any matter constituting force majeure, as provided in Section 12.4; (ii) any material failure by CSG to perform its obligations under this Services Agreement (including those set forth in the Operations Procedures), or where CSG’s approval, acceptance, consent or similar action is required under this Services Agreement, any unreasonable delay or any withholding of action; (iii) the performance, nonperformance or continuing provision by CSG of any Applications Software or FDT Software (as listed in Schedule 1.49); (iv) the performance or nonperformance of any CSG vendor; (v) ad hoc reporting jobs, special production jobs, testing procedures or other services that are given priority at the request of CSG; (vi) any significant change in the manner in which CSG conducts its business or operations adversely affecting FDT’s ability to meet any Performance Criteria; (vii) any failure of CSG or CSG Clients to provide CSG Data in the time deemed reasonably necessary by FDT to meet an output delivery schedule; (viii) any failure of CSG to provide the evidence reasonably requested by FDT in accordance with Section 2.3; or (ix) the operation of Section 5.7.

2.14 Audit Rights.

2.14.1 CSG Audits. Upon the request and reasonable advance written notice of CSG, FDT will provide to CSG, its auditors and regulators, if any, and to CSG Clients in accordance with their agreements with CSG (as directed by CSG and subject to the need

for confidentiality obligations from them as set forth below) access during regular business hours to the appropriate management personnel of FDT, and to CSG Data and records of CSG directly relating to the FDT Services. Such access shall be limited to performing audits of FDT and its business, to verify the accuracy of the fees and charges for the FDT Services, and FDT’s compliance with the Performance Criteria. Such requests for access shall not be made more frequently than once a year, with the exception of requests to provide access to CSG’s regulators. FDT will provide to such auditors and regulators any assistance of a routine nature that they reasonably require. To the extent that FDT’s assistance in such audits exceeds more than sixty (60) man hours of FDT time in any calendar year, CSG shall reimburse FDT for such assistance in excess of sixty (60) hours at FDT’s then-current commercial rates. CSG and the third party auditors and regulators must comply with all reasonable security and confidentiality procedures (including the execution of nondisclosure agreements), established by FDT at any facility to which access is granted, and audits shall not unreasonably interfere with FDT’s normal business operations. CSG shall use commercially reasonable efforts to cause non-CSG third party auditors and regulators to provide FDT in advance with a draft copy of each written report or other output containing comments concerning FDT or the FDT Services and an opportunity to reply to comments that will be made in the final report.

2.14.2 FDT Audits. One time per calendar year for each year during the Term, FDT will allow a third party, selected by FDT, to perform an audit of the electronic data processing environment maintained by FDT to provide the FDT Services contemplated under this Services Agreement. FDT shall provide CSG with a copy of the results of the audit within a reasonable time after completion of the audit. CSG may provide a copy of the audit to its clients who have specifically agreed to hold the audit confidential in conformance with an agreement in the form of or conforming to Schedule 2.14. In addition to such annual audit, from time to time during the Term CSG may request additional audits of FDT’s electronic data processing environment maintained by FDT to provide the FDT Services contemplated under this Services Agreement. Any such additional audit shall occur no more than once per quarter during the Term and shall be at CSG’s sole expense. FDT shall provide a copy of the results of the audit to CSG subject to the confidentiality provisions set forth herein.

2.14.3 Systems Software Vendor Audits. From time to time during the Term, CSG shall cooperate with FDT and its Systems Software vendors in connection with such vendors audit of CSG’s use of the Development Software and CSG Clients’ use of the CSG Client Development Software pursuant to this Services Agreement, provided that such vendors agree in writing to maintain the confidentiality of all CSG Confidential Information.

2.15 Additional Services. If CSG requests FDT to provide any services that are different from, or in addition to, the FDT Services (“Additional Services”), the Parties will cooperate with each other in good faith in discussing the scope and nature of the request, the Additional Services so requested, the related performance criteria, the impact (if any) on existing Performance Criteria, the time period in which FDT would provide such Additional Services and the basis upon which FDT would be compensated and reimbursed therefor, it being understood that such compensation and reimbursement for Additional Services shall be consistent with the pricing methodology used for the FDT Service Charges, but only include costs associated with the FDT Data Center (as opposed to indirect costs of FDT). If the Parties agree upon the scope and nature of the Additional Services and FDT’s compensation therefor, the Parties shall amend this Services Agreement accordingly and such Additional Services shall become a part of the FDT Services.

2.16 CSG Obligations and Responsibilities.

2.16.1 CSG Obligations. CSG shall have and perform the obligations including, those identified in Schedule 2.16.1.

2.16.2 Data Responsibility. CSG shall have responsibility for the supervision, management and control of its use of the CSG Data, reports and the like, including implementing sufficient procedures to satisfy its internal security and accuracy requirements for information FDT furnishes.

2.17 Relocation.

2.17.1 Movement of FDT Data Center. If FDT relocates the FDT Data Center, FDT shall reimburse CSG for (a) any conversion cost incurred, directly or indirectly, by CSG as a result of such relocation and (b) any increase in the ongoing expenses of CSG as a result of such relocation during the Original Term.

2.17.2 Movement of CSG. If CSG relocates its principal place of business from Omaha, Nebraska, CSG shall reimburse FDT for (a) any conversion costs incurred, directly or indirectly, by FDT as a result of such relocation and (b) any increase in the ongoing expenses of FDT as a result of such relocation during the Original Term.

2.18 Access to FDT Data Center. During the Term, FDT will permit CSG and CSG Clients, on reasonable written notice and subject to FDT’s standard security procedures, to have access to the FDT Data Center during normal business hours for the purpose of giving tours of such FDT Data Center to CSG Clients and prospective clients of CSG. Such tours shall be conducted by an employee or representative of FDT and the extent of such tours shall be determined by FDT in its sole discretion, provided that such tours provide such CSG Clients and prospective clients of CSG with a reasonable understanding of the FDT Data Center standard practices and procedures. Employees and representatives of FDT conducting such tours shall do so in a professional manner.

2.19 Cooperation and Good Faith. Each Party shall cooperate with the other to establish priorities for the FDT Services and any Additional Services to be provided to CSG. Each Party will also cooperate with the other by, among other things, making available and not withholding or delaying, as reasonably requested by the other, such management decisions and approvals as may be necessary to fulfill each Party’s respective obligations to the other under this Services Agreement in a timely and efficient manner. All negotiations, including, negotiations for Additional Services, between the Parties shall be conducted in good faith in accordance with reasonable commercial business practices. FDT will provide reasonable assistance to CSG in CSG’s efforts to develop new business, data conversion and deconversion activities. Each Party shall designate a person to represent the Party and coordinate its activities in connection with this Services Agreement.

2.20 Rights of Contemporaneous Negotiation. Contemporaneously with soliciting (or responding to an offer by) a third party to perform any other data processing or data telecommunications services similar to any of the FDT Services or a replacement for any of the FDT Services, CSG shall offer FDT the opportunity to provide such services on mutually

acceptable terms. The Parties each agree that they will act in good faith and without undue delay as they participate in discussions on the terms pursuant to which FDT will provide such services to CSG; provided however, nothing in this Services Agreement shall obligate either Party necessarily to reach an agreement with the other with respect to such services. It is expressly agreed that (notwithstanding this Services Agreement, or any past or future discussions or other communications between them) neither Party will have any liability or obligation whatsoever to the other with respect to the provision of such services unless and until negotiations between them are completed and they have in fact entered into comprehensive, mutually-binding written agreement which covers all matters agreed to and which is signed by each Party’s authorized officers. It is agreed that either Party may terminate such discussions on written notice to the other Party, without incurring any liability therefor.

2.21 ********** ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** *** ********** ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** ************* ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ****** ** **************** ******** ********** *** **** ***** ******* **** *** *** ******** *** ********** ** *** *******.

Section 3

Payments for FDT Services

3.1 Fees and Charges. The FDT Service Charges as of the Effective Date are set forth in Schedule 1.25. FDT’s obligations and CSG’s rights under this Services Agreement are conditional upon CSG’s payment of the fees and charges in accordance with the terms and conditions of this Services Agreement.

3.2 Taxes. CSG shall be responsible for any sales, use, excise, value-added and other taxes and duties payable by FDT or CSG on the FDT Services as a whole or on a particular good or service received by CSG from FDT in connection with the FDT Services where the tax is imposed on CSG’s acquisition or use of such FDT Services or such other goods or services from FDT, and not by FDT’s cost in acquiring the FDT Services or such other goods or services. FDT shall be solely responsible for payment of the taxes, if any, on FDT’s income from the FDT Services, and FDT corporate occupation taxes, if any. The Parties will use commercially reasonable efforts to cooperate with each other to enable each other to determine accurately each

Party’s tax liability and to minimize such liability to the extent legally permissible. Each Party shall provide and make available to the other any resale certificates, information regarding out-of-state or out-of-country sales or use of equipment, materials or services, and other exemption certificates or information reasonably requested by either Party.

3.3 Invoice and Time of Payment. FDT will invoice CSG on or before the fifth (5th) business day of each month for any amount owed to FDT pursuant to this Services Agreement for the immediately preceding month. Each such invoice will be due and payable within thirty (30) days after receipt of the invoice. Notwithstanding the foregoing, if CSG should dispute the accuracy of all or any portion of an amount indicated on any invoice, CSG shall timely pay the undisputed portion of such invoice and notify FDT’s accounts receivable department in writing of the nature of the disputed amount at the time of payment. The Parties shall attempt in good faith to mutually resolve such dispute; provided however, if the dispute is not resolved within forty-five (45) days from FDT’s receipt of such written notice, either Party shall have the right to have such dispute resolved pursuant to the terms of Section 6.5.

3.4 Interest. If FDT does not receive, or is unable to obtain, payment of any amount due or payable to FDT under this Services Agreement at the time provided for payment under this Services Agreement, such unpaid amount shall bear interest at a rate equal to one percent (1%) over the prime rate as published in the Wall Street Journal, from the date on which payment was due until the date on which FDT receives such payment.

Section 4

Relationship between the Parties

Nothing contained in this Services Agreement shall be deemed to constitute a partnership or joint venture between the Parties. Neither Party shall hold itself out as having any authority to enter into any contract or create any obligation or liability on behalf of, in the name of, or binding upon the other Party, nor shall anything contained in this Services Agreement be deemed to create or imply a fiduciary relationship between the Parties.

Section 5

Intellectual Property

5.1 CSG Data. Any data regarding the operations of CSG or any data regarding CSG’s Clients provided by CSG to FDT pursuant to this Services Agreement shall remain the property of CSG or CSG Clients (collectively, “CSG Data”). CSG authorizes FDT to access and make use of the CSG Data for FDT’s performance of its obligations under this Services Agreement. Upon the termination or expiration of this Services Agreement for any reason, FDT shall promptly return CSG Data in the form such data is maintained by FDT in connection with the performance of the FDT Services or, if CSG so elects in writing, destroy it. FDT shall not use the CSG Data for any purpose except as contemplated by this Services Agreement, nor shall any part of such data be disclosed or sold by FDT to third parties or commercially exploited by FDT other than CSG Data that is required to be disclosed: (i) in order to perform the FDT Services; (ii) to complete any permitted third-party audits; or (iii) pursuant to Section 10.1.2(vi) or Section 10.1.2(vii). Notwithstanding the foregoing, FDT shall have the right without CSG’s approval, to compile and distribute aggregate and statistical analyses and reports using CSG Data, information, and other sources, provided that such analyses and reports do not identify CSG, CSG Clients or CSG’s industry, and provided further that such analyses and reports are not sold to third parties.

5.2 CSG Proprietary Software. CSG hereby grants FDT a non-exclusive, royalty-free license for the Term to execute the CSG Proprietary Software in connection with the performance of the FDT Services and to access, modify and review the CSG Proprietary Software for problem resolution and performance recommendations. Except as may be necessary for the accomplishment of the activities authorized in the immediately preceding sentence, FDT shall not modify, reverse engineer, decompile, disassemble, create derivative works or otherwise discover any process or technique inherent in the CSG Proprietary Software or any portion thereof. As between the Parties, the CSG Proprietary Software will remain CSG’s property. FDT will have no ownership interests or other rights in the CSG Proprietary Software.

5.3 Development Software. FDT has obtained or will obtain for CSG for the Term the right to execute and use the Development Software at CSG’s principal place of business for the sole purpose of developing, modifying, and enhancing the CSG Proprietary Software. CSG shall comply with the terms of the licenses and use restrictions for the Development Software. In addition to the foregoing, CSG shall not modify, reverse engineer, reverse assemble or decompile the Development Software, nor shall CSG permit any other Entity to do so.

5.4 CSG Client Development Software. FDT has obtained or will obtain for CSG Clients for the Term the right to execute and use the CSG Client Development Software at CSG Clients’ Locations solely to permit a CSG Client to receive the benefit of the FDT Services in accordance with the terms and conditions of this Services Agreement. CSG shall ensure that the CSG Clients comply with the terms of the licenses and use restrictions for the CSG Client Development Software. In addition to the foregoing, CSG shall not permit any CSG Client to modify, reverse engineer, reverse assemble or decompile the CSG Client Development Software, nor shall any CSG Client permit any other Entity to do so.

5.5 Ownership of Information. All Software, Operating Procedures, manuals, and other documentation and similar data processing materials and derivative works based thereon (“Data Processing Materials”) developed or owned by a Party are and, unless specifically transferred to the other, shall remain the property of such Party and shall be Confidential Information. Any Operating Procedures, manuals, or other documentation included within Confidential Information that is required for CSG Clients to use the services of CSG may be provided to CSG Clients, provided appropriate confidentiality agreements are executed to protect such Confidential Information.

5.6 FDT Software. Prior to or contemporaneously with the execution of this Services Agreement, the Parties shall enter into an amended and restated agreement relating to that certain software commonly known as “Team 35.” The Parties acknowledge and agree that CSG has the sole obligation to maintain, update, modify and enhance the FDT Software.

5.7 Injunctions. In the event any injunction is issued as to any portion of a product, service or any Software which is used to provide the FDT Services, the unavailability of which would materially adversely affect the business or operations of CSG, due to the infringement, misappropriation or violation of a third party’s patent, copyright, trade secret or other proprietary right, FDT will use commercially reasonable effort to modify or replace the product or service if the infringement, misappropriation or violation arises out of or relates to the Platform, the Systems Software or any portion thereof, and CSG will use commercially reasonable efforts to modify or replace the Applications Software or FDT Software or any portion thereof if the infringement, misappropriation or violation arises out of or relates to the Applications Software or FDT Software, in either event in order to avoid the infringement, misappropriation or violation, and if FDT or CSG, as applicable, is unable to do so with commercially reasonable efforts and/or at commercially reasonable prices, FDT shall no longer be responsible for providing the affected portion of the FDT Services.

Section 6

Liability and Indemnification

6.1 FDT’s Indemnification. FDT shall hold harmless and indemnify CSG, its Affiliates and their respective directors, officers, employees and agents from and against any and all claims, liabilities, losses or damages (including reasonable attorneys fees, expert witness fees, expenses and costs of settlement) resulting from or arising out of:

6.1.1 the death or bodily injury of any agent, employee, customer, client, business invitee or business visitor of FDT except to the extent, if any, that such death or bodily injury shall have been caused by the gross negligence or reckless or intentional conduct of CSG; provided, however, that for purposes of this Section 6.1.1, the agents, employees, customers, CSG Clients, business invitees and business visitors of CSG shall not, when on the premises of FDT, be deemed FDT’s business invitee or business visitor;

6.1.2 any payment obligations of FDT to a third party relating to the Systems Software or Platform; and

6.1.3 any misappropriation or misuse by FDT or its employees or agents of Confidential Information of CSG or a CSG Client.

6.2 CSG’s Indemnification. CSG shall hold harmless and indemnify FDT, its Affiliates and their respective directors, officers, employees and agents from and against any and all claims, liabilities, losses or damages (including reasonable attorney fees, expert witness fees, expenses and costs of settlement) resulting from or arising out of:

6.2.1 any infringement, misappropriation or violation of any patent, copyright, trade secret or other intellectual property rights (collectively, “Infringement Claims”) asserted by any third party against FDT and/or any of its Affiliates in connection with any Application Software;

6.2.2 the death or bodily injury of any agent, employee, customer, client, business invitee or business visitor of CSG except to the extent, if any, that such death or bodily injury shall have been caused by the gross negligence or reckless or intentional conduct of FDT; provided, however, that for purposes of this Section 6.2.2, the agents, employees, customers, clients, business invitees and business visitors of FDT shall not, when on the premises of CSG, be deemed CSG’s business invitee or business visitor;

6.2.3 any payment obligations of CSG to a third party relating to the CSG Proprietary Software;

6.2.4 any Infringement Claim or other claim asserted by any third party against FDT in connection with CSG Data or records provided by CSG or CSG Clients to FDT in connection with the FDT Services;

6.2.5 any claims by third parties, including pursuant to any actions brought derivatively on behalf of CSG or actions by CSG Clients, suppliers or creditors of CSG, unless such claims arise from the sole gross negligence or willful misconduct of FDT; and

6.2.6 any misappropriation or misuse by CSG or its employees or agents of Confidential Information of FDT.

6.3 Indemnification Procedures.

6.3.1 If any civil, criminal, administrative or investigative action or proceeding (any of the foregoing, a “Claim”) is threatened or commenced against any person or Party that a Party is obligated to defend or indemnify under Section 6.1 or 6.2 (such person and such Party, collectively, an “Indemnified Party”), then written notice thereof shall be given to the Party that is obligated to provide indemnification under such Sections (the “Indemnifying Party”) as promptly as practicable; provided, however, that any delay by the Indemnified Party in giving such written notice shall not constitute a breach of this Services Agreement and shall not excuse the Indemnifying Party’s obligation under this Section 6 except to the extent, if any, that the Indemnifying Party is prejudiced by such delay. After such notice, the Indemnifying Party shall be entitled, if it so elects in writing within ten (10) days after receipt of such notice, to take control of the defense and investigation of such claim and to employ and engage attorneys of its choice reasonably acceptable to the Indemnified Party to handle and defend the same, at the Indemnifying Party’s sole cost and expense. The Indemnified Party shall cooperate in all reasonable respects with the Indemnifying Party and its attorneys in the investigation, trial and defense of such claim and any appeal arising therefrom; provided however, that the Indemnified Party may, at its own cost and expense, participate through its attorneys or otherwise, in such investigation, trial and defense of such claim and any appeal arising therefrom. No settlement of a claim that involves a remedy other than the payment of money by the Indemnifying Party shall be entered into by the Indemnifying Party without the prior consent of the Indemnified Party, which consent will not be unreasonably withheld or delayed.

6.3.2 After written notice by the Indemnifying Party to the Indemnified Party of its election to assume full control of the defense of any such claim pursuant to Section 6.3.1, the Indemnifying Party shall not be liable to the Indemnified Party for any legal expenses incurred thereafter by such Indemnified Party in connection with the defense of that claim and any appeal arising therefrom. If the Indemnifying Party does not assume full control over the defense of a claim pursuant to Section 6.3.1, then the Indemnifying Party may participate in such defense, at its sole cost and expense, and the Indemnified Party shall have the right to defend the claim in such manner as it may deem appropriate, at the cost and expense of the Indemnifying Party.

6.3.3 The remedy of indemnification described in this Section 6 shall be the sole and exclusive remedy of the Indemnified Party for the Infringement Claims and other claims described in Section 6.1 and Section 6.2, except as otherwise provided herein for injunctive relief, the recovery of consequential damages relating to the breach of confidentiality obligations or misappropriation of Confidential Information and the recovery of an Infringement Payment.

6.4 Additional Matters concerning Application Software. If the Application Software or any portion thereof is the subject of an Infringement Claim asserted by any third party against FDT and/or any of its Affiliates, in addition to CSG’s indemnity obligations set

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

forth in Section 6.2.1, CSG may, at its sole cost and expense, obtain a license for FDT to continue to use the same to provide the FDT Services, or modify or replace the same in a commercially reasonable manner and/or at a commercially reasonable price so that such software is no longer the subject of an Infringement Claim.

6.5 Dispute Resolution. Subject to Section 6.6, any and all Disputes shall be resolved as provided in Schedule 6.5.

6.6 Litigation.

6.6.1 Notwithstanding anything to the contrary set forth herein, neither Party shall be required to submit any dispute or disagreement regarding the interpretation of any provision of this Services Agreement, the performance by either Party of such Party’s obligations under this Services Agreement or a default hereunder to the mechanisms set forth in Section 6.5, if such submission would be seeking equitable relief from irreparable harm.

6.6.2 THE PARTIES CONSENT TO THE NON-EXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR THE STATE OF NEBRASKA AND OF ANY NEBRASKA STATE COURT SITTING IN OMAHA, NEBRASKA FOR ALL LITIGATION WHICH MAY BE BROUGHT WITH RESPECT TO THE TERMS OF, AND THE TRANSACTIONS AND RELATIONSHIPS CONTEMPLATED BY, THIS SERVICES AGREEMENT. THE PARTIES FURTHER CONSENT TO THE JURISDICTION OF ANY STATE COURT LOCATED WITHIN A DISTRICT WHICH ENCOMPASSES ASSETS OF A PARTY AGAINST WHICH A JUDGMENT HAS BEEN RENDERED, EITHER THROUGH ARBITRATION OR THROUGH LITIGATION, FOR THE ENFORCEMENT OF SUCH JUDGMENT AGAINST THE ASSETS OF SUCH PARTY.

Section 7

Limitation of Liability

7.1 Limitation on Amount of Damages. It is understood and agreed that a Party’s liability to the other Party or any other person for damages, injuries, losses, costs or expenses of any kind, however caused, based on or arising from or in connection with this Services Agreement, any termination hereof, the subject matter hereof, the performance (or non-performance) of any of the FDT Services or other service or obligation hereunder, whether arising in contract or tort (including as a result of negligence or strict liability), and whether or not such Party shall have been informed, or might have anticipated the possibility of any such damage, loss, cost or expense (collectively, “Losses and Expenses”), shall be limited with respect to each consecutive twelve (12) month period during the Term commencing with the Effective Date, to the direct damages actually incurred by such Party or person, or consequential damages incurred by either Party as a result of the misappropriation or misuse of Confidential Information, and shall be recoverable if, and only to the extent such Losses and Expenses exceed *** ******* ***** ******** dollars ($***); and provided further, that the aggregate amount required to be paid by a Party to the Party or any other person for all such Losses and Expenses shall not exceed ***** ******** ***** **** ******** ********* *** *** ****** **** ***** ****** *********** ********* *** **** ** *** ***** ****** **** ** *** *****. The foregoing limitations shall not apply to amounts for fees and charges, including the fees and charges in Schedule 1.25, and the fees and charges otherwise due and payable under this Services Agreement.

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

7.2 Unique Damages Payable by FDT to CSG. Notwithstanding Section 7.1, and subject to Section 2.13.2, if in any calendar year during the Term CSG pays penalties or issues credits to CSG Clients that exceed ************ ******** dollars ($***), and such penalties or credits are a direct and proximate result of FDT’s failure to meet the Principal Performance Criteria, then FDT shall issue CSG a credit for ***** percent (***%) of such payments made or credits issued by CSG (provided that CSG provides FDT with documentation reasonably acceptable to FDT relating to the payment of such penalties or issuance of such credits), such credits not to exceed **** ******* ******** dollars ($***) in the first calendar year following the Effective Date, and for every year thereafter through calendar year 2008, the maximum liability for unique damages recoverable pursuant to this Section 7.2 shall increase by a percentage equal to the percentage increase in the amount of revenues received by FDT under this Services Agreement during the prior year; provided that the total amount of unique damages recoverable under this Section 7.2 during any calendar year shall not exceed *** ******* ******** dollars ($***). For avoidance of doubt, the maximum liability for unique damages recoverable pursuant to this Section 7.2 during any calendar year shall never be less than **** ******* ******** dollars ($***). The Parties acknowledge and agree that any credits issued by FDT to CSG pursuant to this Section 7.2 shall not be applied to the *** ******* ***** ******** dollar ($***) figure described in Section 7.1, but shall be included in the liability limitations set forth in Section 7.1.

7.3 Provision of FDT Services. CSG acknowledges that the FDT Services provided by FDT are to assist CSG in its business activities and are not intended to replace its professional skill and judgment. CSG shall be solely responsible for: (i) its own actions or omissions, and the actions or omissions of its agents, employees and clients with respect to CSG Data used as input for the FDT Services, and (ii) any use of any FDT Services and any use made by CSG, its agents, employees and clients of CSG Data, reports or other products produced through any of the FDT Services.

7.4 Mitigation. Each Party shall use commercially reasonable efforts to mitigate damages for which the other Party is responsible.

7.5 Limitation of Assertions. Neither Party may assert any cause of action against the other Party under this Services Agreement that accrued more than one (1) year prior to: (i) the filing of a suit; or (ii) the commencement of arbitration proceedings alleging such cause of action.

7.6 Express Allocation of Risks. The Parties expressly acknowledge that the limitations contained in this Section 7 and Section 6, Section 8 and Section 9 represent the express agreement of the Parties with respect to the allocation of risks between the Parties, including the level of risk to be associated with the provision of the FDT Services as related to the FDT Service Charges, and each Party fully understands and irrevocably accepts such limitations. The Parties acknowledge that but for the limitations contained in this Section 7 and Section 6, Section 8 and Section 9, the Parties would not have entered into this Services Agreement.

Section 8

Standard of Care and Exclusion of Warranties

FDT will use reasonable commercial efforts to meet the Performance Criteria, and FDT will use reasonable care in providing the FDT Services pursuant to this Services Agreement. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED IN THIS SERVICES AGREEMENT, FDT MAKES NO REPRESENTATIONS OR WARRANTIES, EXPRESS OR IMPLIED, TO

CSG OR TO ANY OTHER PERSON, INCLUDING ANY WARRANTIES REGARDING THE MERCHANTABILITY, SUITABILITY, ORIGINALITY, FITNESS FOR A PARTICULAR PURPOSE OR OTHERWISE (IRRESPECTIVE OF ANY PREVIOUS COURSE OF DEALINGS BETWEEN THE PARTIES OR CUSTOM OR USAGE OF TRADE), OR RESULTS TO BE DERIVED FROM THE USE OF ANY SOFTWARE, FOR SERVICES, HARDWARE OR OTHER SERVICES, PRODUCTS OR MATERIALS PROVIDED UNDER THIS SERVICES AGREEMENT.

Section 9

Exclusion of Damages

NOTWITHSTANDING ANY OTHER PROVISION TO THE CONTRARY SET FORTH IN THIS SERVICES AGREEMENT, IN NO EVENT SHALL EITHER PARTY, ANY OF THEIR AFFILIATES OR ANY OF THEIR DIRECTORS, OFFICERS, EMPLOYEES, AGENTS OR SUBCONTRACTORS BE LIABLE UNDER ANY THEORY OF TORT, CONTRACT, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY FOR ANY LOST PROFITS, LOSS OF DATA, EXEMPLARY, PUNITIVE, SPECIAL, INCIDENTAL, INDIRECT OR CONSEQUENTIAL DAMAGES, EACH OF WHICH IS HEREBY EXCLUDED BY AGREEMENT OF THE PARTIES REGARDLESS OF WHETHER OR NOT EITHER PARTY OR ANY OTHER SUCH ENTITY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED THE FOREGOING EXCLUSION SHALL NOT APPLY TO CONSEQUENTIAL DAMAGES INCURRED BY EITHER PARTY AS A RESULT OF THE MISAPPROPRIATION OR MISUSE OF CONFIDENTIAL INFORMATION.

Section 10

Confidentiality

10.1 Confidential Information. Information exchanged between the Parties or otherwise made available by one Party for the other in connection with this Services Agreement before or after the date hereof shall be considered a trade secret or confidential or proprietary information (“Confidential Information”) if it has been designated as such in this Services Agreement or on the information itself when delivered or made available, or if delivered orally, if a written notification of the confidential nature of the information is sent within a reasonable time after the information is transmitted. Among other things, Confidential Information shall include confidential or proprietary information of third parties in the possession of one of the Parties to this Services Agreement and needed to perform obligations hereunder. This Services Agreement, the Systems Software and CSG Proprietary Software shall in any event be considered Confidential Information of the Parties or their licensors, respectively. Confidential Information not requiring a marking shall include this Agreement, the Systems Software, CSG Proprietary Software, all specifications and documentation therefor, financial information of either Party, all CSG Data processed in the FDT Data Center, or other confidential business plans of either Party.

10.1.1 Except as expressly authorized by prior written consent of the disclosing Party, the receiving Party shall:

(i) limit access to any Confidential Information received by it to its employees, agents, representatives, and consultants who have a need-to-know in connection with this Services Agreement and the obligations of the Parties hereunder;

(ii) advise its employees, agents and consultants having access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Services Agreement;

(iii) safeguard all Confidential Information received by it using a reasonable degree of care, but not less than that degree of care used by the receiving Party in safeguarding its own similar information or material;

(iv) not disclose any Confidential Information received by it to third parties;

(v) use the Confidential Information of the other Party only for the purposes and in connection with the performance of such Party’s obligations under this Services Agreement; and

(vi) upon the disclosing Party’s request after expiration or termination of this Services Agreement, return promptly to the disclosing Party all Confidential Information of the disclosing Party in the receiving Party’s possession, and certify in writing to the disclosing Party its compliance with this subsection (vi).

10.1.2 Exceptions to Confidentiality. Notwithstanding the foregoing Section 10.1.1, the Parties’ obligations respecting confidentiality under Section 10.1.1 shall not apply to any particular information of a Party that the other Party can demonstrate: (i) was, at the time of disclosure to it, in the public domain; (ii) after disclosure to it, is published or otherwise becomes part of the public domain through no fault of the receiving Party; (iii) was in the possession of the receiving Party at the time of disclosure to it without being subject to another confidentiality agreement; (iv) was received after disclosure to it from a third party who had a lawful right to disclose such information to it; (v) was independently developed by the receiving Party without reference to Confidential Information of the furnishing Party; (vi) was required to be disclosed to any regulatory body having jurisdiction over FDT or CSG or any of their respective clients; or (vii) that disclosure is necessary by reason of legal, accounting or regulatory requirements beyond the reasonable control of the receiving Party. In the case of any disclosure pursuant to clauses (vi) and (vii) above, to the extent practical, the disclosing Party shall give prior written notice to the other Party of the required disclosure and shall use commercially reasonable efforts to obtain a protective order covering such disclosure. If such a protective order is obtained, such information shall continue to be deemed to be Confidential Information.

10.1.3 Additional Limited Exception to Confidentiality. Notwithstanding the foregoing Section 10.1.1, FDT may disclose those portions of this Services Agreement addressing CSG’s limited use rights relating to the Development Software and CSG’s obligations to maintain the confidentiality of the Development Software to vendors of the same.

10.2 No License or Other Rights. Except as specifically granted herein or in the Stock Purchase Agreement, this Services Agreement does not confer any right, license, interest or title in, to or under the Confidential Information to the receiving Party and no license is hereby granted to the receiving Party, by estoppel or otherwise under any patent, trademark, copyright, trade secret or other proprietary right of the disclosing Party. Title to the Confidential Information shall remain solely in the disclosing Party.

10.3 Publicity and Use of Certain Information. Neither Party will, without the other Party’s prior written consent, use the name, service marks or trademarks of the other Party or any of its Affiliates; provided, however, that FDT may use CSG as a reference and may indicate to others that CSG purchases the FDT Services under this Services Agreement. Either Party may disclose to other persons and Entities the existence and general nature of the Services Agreement but not the terms and conditions hereof.

10.4 Equitable Remedies. Each Party acknowledges that if it breaches (or attempts to breach) its obligations under this Section 10, the other Party will suffer immediate and irreparable harm, it being acknowledged that legal remedies are inadequate. Accordingly, if a court of competent jurisdiction should find that a Party has breached (or attempted to breach) any such obligations, such Party will not oppose the entry of an appropriate order compelling performance by such Party and restraining it from any further breaches (or attempted breaches).

10.5 Privileged Data. CSG accepts full responsibility for complying with federal, state and local laws, rules and regulations concerning use of privileged or confidential third party information derived from input into or output from the FDT Services provided by FDT under this Services Agreement.

Section 11

Termination

11.1 Termination for Cause. Except as provided in Section 11.2, if either Party breaches any of its material obligations under this Services Agreement, which breach is not substantially cured within forty-five (45) days (ten (10) days for payment defaults) after written notice specifying the breach is given by the non-breaching Party to the breaching Party, then the other Party may, by giving notice to the defaulting Party terminate this Services Agreement (or any service provided by or received by the non-defaulting Party hereunder) for cause as of a future date specified in the notice of termination; provided however, such termination notice shall not: (i) if delivered by CSG to FDT, specify a future termination date more than twelve (12) months from the date of the notice; (ii) if delivered by FDT to CSG, specify a future termination date less than nine (9) months from the date of the notice; and (iii) in any case, otherwise extend the Term of this Services Agreement beyond the date for termination specified in any previous termination notice delivered by either Party pursuant to the terms of this Services Agreement. Notwithstanding anything herein to the contrary, in no event shall the operation of this Section 11.1 extend the Term.

11.2 Termination for Failure to Meet Performance Criteria. FDT’s performance during any month shall be evaluated against the Performance Criteria set forth in Schedule 2.13. If FDT fails to perform a specified Performance Criteria in accordance with Section 2.13 and Schedule 2.13 during any two (2) consecutive months, CSG may notify FDT in writing of its desire to have FDT correct such failure (hereinafter referred to as “Failed Criteria”). During the next thirty (30) days after receipt of such notice or such shorter period if FDT shall request less than thirty (30) days (hereinafter referred to as “First Cure Period”), FDT shall correct such Failed Criteria and immediately notify CSG of its correction. If FDT fails to correct such Failed Criteria within the First Cure Period, CSG shall have a right to terminate this Services Agreement; provided, that this termination option is exercised within thirty (30) days after the end of the First Cure Period. Such termination shall become effective on a date specified by

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CSG, which date shall be not later than twelve (12) months after CSG’s delivery to FDT of a written notice of its intention to so terminate. If FDT cures the Failed Criteria within the First Cure Period, but thereafter within the next sixty (60) days again fails to satisfy such Failed Criteria, CSG, at its election, may terminate this Services Agreement; provided, that this termination option is exercised within thirty (30) days after CSG receives notice of FDT’s repeated failure to perform (as set forth above), and provided that such termination shall become effective on a date specified by CSG, which date shall be not later than twelve (12) months after CSG’s delivery to FDT of a written notice of its intention to so terminate this Services Agreement. Notwithstanding anything herein to the contrary, in no event shall the operation of this Section 11.2 extend the Term.

11.3 Termination Due to Change of Control or Assignment. CSG shall notify FDT within ten (10) business days after any public announcement relating to: (a) the sale in one transaction or a series of related transactions of a majority of the voting equity securities of CSG other than pursuant to an underwritten public offering; or (b) any other matter specified in Section 12.3. If such transaction or matter referred to in subsections (a) or (b) in the preceding sentence is with or to competitor of FDT in the business of outsourcing of data center services, then FDT may, within thirty (30) days of receipt of any such notice, notify CSG of its intent to terminate this Services Agreement, effective no earlier than twelve (12) months from the date of CSG’s notice to FDT. FDT shall provide CSG or its designee with Termination Assistance as requested by CSG commencing upon CSG’s receipt of FDT’s notice pursuant to the limitations and procedures set forth in Section 11.5.

11.4 Termination Due to Certain Infringement Matters. If CSG is unable to license, modify or license the Applications Software or any portion thereof in a commercially reasonable manner and/or at a commercially reasonable price due to an Infringement Claim asserted against FDT and/or any of its Affiliates and/or CSG and/or its Affiliates (the unavailability of which would materially adversely affect the business or operations of CSG, CSG may terminate this Services Agreement effective no later than nine (9) months from the date CSG notifies FDT of its intent to terminate this Services Agreement pursuant to this Section 11.4. In addition to any payments otherwise due FDT pursuant to this Agreement and CSG indemnification obligations, CSG shall pay to FDT no later than sixty (60) days prior to the termination of this Services Agreement the greater of: (i) ****** **** percent (***%) of the net present value of the remaining payments that would be due FDT pursuant to this Services Agreement based on the then-current forecast set forth in Schedule 1.25; or (ii) ******* ******* dollars ($***) (the “Infringement Payment”), provided that if CSG shall notify FDT of its intent to terminate this Agreement in accordance with this Section 11.4 during the final twelve (12) months period during the Term, CSG shall pay to FDT an Infringement Payment equal to ***** percent (***%) of the net present value of the remaining payments that would be due FDT pursuant to this Services Agreement based on the then-current forecast set forth in Schedule 1.25. Notwithstanding anything herein to the contrary: (a) in no event shall the operation of this Section 11.4 extend the Term; and (b) in no event shall the payment by CSG to FDT of any Infringement Payment hereunder be deemed to be Losses and Expenses for purposes of Section 7.1.

11.5 Termination Assistance. Commencing upon the giving of notice of any termination of this Services Agreement by either Party pursuant to Section 11, and ending upon the earlier of: (a) the effective date of any such termination identified in any such notice, or (b) the expiration of the Term, FDT will provide to CSG reasonable termination assistance requested by CSG to facilitate the orderly transfer of the systems management operations from FDT to CSG or its designee (the “Termination Assistance”). All CSG Data or data of CSG Clients shall be

supplied on electronic media in a format selected by FDT. In addition, FDT shall: (i) provide to CSG appropriate file structure information; (ii) identify the parameters selected for the Systems Software; (iii) identify applicable procedures and processes relating to job streams; and (iv) use reasonable commercial efforts to obtain for CSG licenses to the Software of Third Party Providers that is used by FDT exclusively to provide FDT Services hereunder, it being understood that FDT may be unable to obtain such licenses. To the extent that any Termination Assistance is provided hereunder, CSG shall pay FDT for such Termination Assistance on a time and materials basis at FDT’s then current rates in effect under this Services Agreement, unless CSG shall terminate the Services Agreement under Section 11.1 or Section 11.2, which in each such case, CSG shall not be liable for the payment of Termination Assistance, but CSG shall continue to pay all other fees and charges due under this Services Agreement. If this Services Agreement is terminated by FDT pursuant to Section 11.1, then CSG shall prepay FDT, on the first day of each month in which Termination Assistance will be provided and as a condition to FDT’s obligation to provide Termination Assistance to CSG or its designee, an amount equal to FDT’s reasonable estimate of the total amount payable to FDT for such Termination Assistance for such month. In addition, unless this Services Agreement shall expire or CSG shall terminate this Services Agreement under Section 11.1 or Section 11.2, CSG shall pay, or reimburse FDT for, all lease, license or other contract termination, transfer, assignment, access, upgrade, maintenance or related fees and expenses associated with the provision of the Termination Assistance to CSG or its designee. Prior to providing any of such Termination Assistance to a CSG designee, FDT shall be entitled to receive from such designee, in form and substance, reasonably satisfactory to FDT, written assurances that (A) such designee shall maintain at all times the confidentiality of any FDT Confidential Information, Software or materials disclosed or provided to, or learned by, such designee in connection therewith, and (B) such designee shall use such Confidential Information, Software or materials exclusively for purposes for which CSG is authorized to use such items pursuant to this Services Agreement. FDT shall have no obligation to provide any Software to CSG as part of the Termination Assistance other than the return of the Application Software as required by this Services Agreement.

11.6 Expiration Assistance. FDT shall provide CSG or its designee with Termination Assistance as requested by CSG commencing no earlier than twelve (12) months prior to the expiration of this Services Agreement pursuant to the limitations and procedures set forth in Section 11.5.

11.7 Access upon Expiration or Termination. Upon the effective date of any expiration or termination of this Services Agreement, FDT shall have no further obligation to provide CSG with access to or use of the Platform, FDT telecommunications networks or any Systems Software.

11.8 Rights Upon Expiration or Termination. Upon expiration or termination of this Services Agreement for any reason, CSG shall pay FDT for all amounts payable to FDT pursuant to the terms of this Services Agreement including all reimbursable expenses incurred by FDT through the effective date of such expiration or termination. The provisions of Section 3, Section 4, Section 5, Section 6, Section 7, Section 8, Section 9, Section 10, and Sections 11.5, 11.8, 12.1, 12.5, 12.8, 12.12, 12.13, 12.14, 12.15 and 12.16 shall survive the expiration or termination of this Services Agreement for any reason. In addition, the expiration or termination of this Services Agreement shall not affect the validity of the License Agreements, which shall continue in full force and effect in accordance with their terms.

Section 12

Miscellaneous

12.1 Notice. All notices, requests, demands and other communications required or permitted under this Services Agreement shall be deemed to have been duly given and made if in writing upon being served either by personal delivery or by telecopier to the Party for whom it is intended or two (2) business days after being deposited, postage prepaid, certified or registered mail, return receipt requested (or such form of mail as may be substituted therefor by postal authorities), in the United States mail, bearing the address shown in this Section 12.1 for, or such other address as may be designated in writing hereafter by such Party:


If to CSG:		CSG Systems, Inc. 2525 N. 117^th Avenue Omaha, Nebraska 68164 Attention: Associate General Counsel Telecopy: 402-431-7218

With a copy to:		CSG Systems, Inc. 7887 E. Bellview Avenue Englewood, Colorado 80111 Attention: President Telecopy: 303-796-2881

		and

		CSG Systems, Inc. 7887 E. Bellview Avenue Englewood, Colorado 80111 Attention: General Counsel Telecopy: 303-796-4012

If to FDT:		First Data Technologies, Inc. 6200 South Quebec Street, Ste. 335 Englewood, Colorado 80111 Attn: Charles T. Fote, President Telecopy: 303-488-8292

With a copy to:		First Data Corporation 10825 Old Mill Road Omaha, Nebraska 68154 Attention: General Counsel Telecopy: 402-222-5256

12.2 Entire Agreement. This Services Agreement and the Schedules hereto embody the entire agreement and understanding of the Parties hereto with respect to the subject matter hereof, and supersede all prior and contemporaneous agreements and understandings relative to said subject matter.

12.3 Assignment: Transfer; Binding Agreement. Either Party may assign this Services Agreement to any Affiliate of such Party upon notice to the other Party. Either Party may: (i) transfer this Services Agreement in connection with any merger or consolidation of such

Party with another corporation, provided that such Party furnishes the other Party with notice of such transfer within ten (10) business days of the public announcement of the same; or (ii) in connection with the sale of substantially all of the Party’s assets (including the rights of a Party under this Services Agreement), provided that (a) the assignee thereof shall assume all of such Party’s obligations hereunder, and (b) the Party furnishes the other Party with notice of the public announcement of such assignment and assumption within ten (10) business days of the same. Subject to the foregoing, all provisions contained in this Services Agreement shall extend to and be binding upon the Parties hereto and their respective permitted successors and permitted assigns.

12.4 Force Majeure. No Party shall be liable for any default or delay in the performance of its obligations (other than payment obligations) under this Services Agreement if and to the extent such default or delay is caused, directly or indirectly, by (i) fire, flood, elements of nature or other acts of God; (ii) any outbreak or escalation of hostilities, war, riots or civil disorders in any country; (iii) any act, failure to act or omission of the other Party or any governmental authority; (iv) any labor disputes (whether or not the employees’ demands are reasonable or within the Party’s power to satisfy); or (v) nonperformance by a third party (including third party vendors) or any other similar cause beyond the reasonable control of such Party, including failures or fluctuations in electrical or telecommunications equipment or lines or other equipment. In any such event, the non-performing Party will be excused from any further performance or observance of the obligation so affected only for as long as such circumstances prevail and such Party continues to use commercially reasonable efforts to recommence performance or observance as soon as practicable.

12.5 Risk of Loss. Except as otherwise provided in this Section 12.5, each party shall be responsible for risk of loss of, and damage to, any equipment, software or other materials in its possession or under its control, subject to Section 12.4. Notwithstanding anything in this Services Agreement to the contrary, each Party to this Services Agreement (the “Damaged Party”) hereby waives any and all rights of recovery, claims, actions or causes of action, against the other Party (the “Other Party”), its Affiliates, and any of its or their directors, officers, employees, agents and subcontractors for any loss or damage that may occur to the Damaged Party’s facilities, any improvements thereto, or any building or project of which the Damaged Party’s facilities are a part, or any improvements thereon, or any personal property of any Entity therein, by reason of fire, the elements or any other cause that could be insured against under the terms of standard fire and extended coverage insurance policies, regardless of cause or origin, including negligence of the Other Party, its Affiliates, or such Other Party’s or its Affiliates’ directors, officers, employees, agents or subcontractors, and both the Parties covenant that no insurer of one Party will hold any right of subrogation against the other. For purposes of this Section 12.5, the FDT Data Center shall be deemed to be under the control of FDT at all times.

12.6 No Third-Party Beneficiaries. Except as set forth in Section 6 with respect to the indemnification of certain directors, officers, employees, agents and Affiliates of the Parties, nothing contained in this Services Agreement is intended to confer upon any Entity (other than the Parties hereto) any rights, benefits or remedies of any kind or character whatsoever, and no Entity shall be deemed a third-party beneficiary under or by reason of this Services Agreement.

12.7 Severability. If any provision of this Services Agreement or the application of any such provision to any Entity, or circumstance, shall be declared judicially or by the Arbitration Panel (as defined in Schedule 6.5) to be invalid, unenforceable or void, such decision shall not have the effect of invalidating or voiding the remainder of this Services Agreement, it being the intent and agreement of the Parties that this Services Agreement shall be deemed

amended by modifying such provision to the extent necessary to render it valid, legal and enforceable while preserving its intent or, if such modification is not possible, by substituting therefor another provision that is valid, legal and enforceable so as to materially effectuate the Parties’ intent.

12.8 Certain Construction Rules. The description of any FDT Services contained in the Schedules is qualified in its entirety by reference to the information set forth in the provisions of this Services Agreement. To the extent that the provisions of this Services Agreement and of the Schedules are in any respect inconsistent, the provisions of this Services Agreement shall govern and control. In the event of any conflict between the terms of use relating to the Software that is the subject matter of the License Agreements and the terms of this Services Agreement, the terms of the License Agreements shall prevail.

12.9 Compliance With Laws. CSG and its employees and agents and FDT and its employees and agents shall comply, except where noncompliance would not have a material adverse effect on the Parties hereto, with all applicable laws, ordinances, regulations and codes relating to this Services Agreement, other than those relating solely to performance of the FDT Services, which shall be the responsibility of FDT.

12.10 Counterparts. This Services Agreement may be executed simultaneously in multiple counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument.

12.11 Headings. The article and section headings and the table of contents contained in this Services Agreement are inserted for convenience only and shall not affect in any way the meaning or interpretation of the Services Agreement. The recitals set forth on the first page of this Services Agreement are incorporated into the body of the Services Agreement.

12.12 No Interpretation Against Drafter. Both Parties have participated substantially in the negotiation and drafting of this Services Agreement and each Party hereby disclaims any defense or assertion in any litigation or arbitration that any ambiguity herein should be construed against the draftsman.

12.13 Waiver. Except as expressly provided herein, this Services Agreement may not be changed, amended, terminated, augmented, rescinded or discharged (other than in accordance with its terms), in whole or in part, except by a writing executed by the Parties hereto. No waiver of any of the provisions or conditions of this Services Agreement or any of the rights of a Party hereto shall be effective or binding unless such waiver shall be in writing and signed by the Party claimed to have given or consented thereto. Except to the extent that a Party hereto may have otherwise agreed in writing, no waiver by that Party of any term, condition or other provision of this Services Agreement, or any breath thereof by any other Party shall be deemed to be a waiver of any other term, condition or provision or any breach thereof, or any subsequent breach of the same term, condition or provision by the other Party, nor shall any forbearance by the first Party or Parties to seek a remedy for any noncompliance or breach by the other Party be deemed to be a waiver by the first party of its, his, her or their rights and remedies with respect to such noncompliance or breach.

12.14 Consent. If either Party requires the consent or approval of the other Party for the taking of, or omitting to take, any action under this Services Agreement, such consent or approval shall not be unreasonably withheld or delayed.

12.15 Governing Law. This Services Agreement shall in all respects be construed in accordance with and governed by the laws of the State of New York, without regard to its conflict of law provisions.

12.16 Limitation of Representations and Warranties; Indemnification. Notwithstanding anything to the contrary contained herein: (i) no representation or warranty is made in this Services Agreement as to any matter which is the subject of a representation or warranty in the Stock Purchase Agreement; (ii) no provision of this Services Agreement shall otherwise expand or limit either Party’s indemnity obligations set forth in the Stock Purchase Agreement; and (iii) no provision of this Services Agreement shall otherwise expand or limit either Party’s rights or obligations set forth in the License Agreements.

[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK]

IN WITNESS WHEREOF, each of the Parties hereto has caused this Services Agreement to be executed as of the Effective Date.

CSG SYSTEMS, INC., formerly known as CABLE SERVICES GROUP, INC. (“CSG”)

Signed By:

/s/ Edward C. Nafus

Print Name:

Edward C. Nafus

Title:

President Broadband Services

FIRST DATA TECHNOLOGIES, INC. (“FDT”)

Signed By:

/s/ Guy Battista

Print Name:

Guy Battista

Title:

EVP

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

SCHEDULE 1.9

CSG CLIENT DEVELOPMENT SOFTWARE

Vendor Name		Product Name
****** ****** * **		********
****** ****** * **		*********
****** ****** * **		**************

Schedule 1.9 – Page 1

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

Schedule 1.17

Development Software

Vendor Name		Product Name
** *** ******		******
* **** **		** *****************
* **** **		************
**** *** *********		****** * **
**** *********		************* *
**** *********		****** * *
***** **		*******
*********** **		* ******
******		* *
****** ****** * *		****
****** ****** * *		** *****
****** ****** * *		************
****** ****** * *		****
****** ****** * *		********
****** ****** * *		************
****** ****** * *		*********** **
****** ****** * *		*********** *****
****** ****** * *		***********
****** ****** * *		**********************
****** ****** * *		************
****** ****** * *		***********
****** ****** * *		************
****** ****** * *		********
****** ****** * *		*******
****** ****** * *		******
****** ****** * *		*********
****** ****** * *		********
****** ****** * *		**********
****** ****** * *		**** *
****** ****** * *		*********
****** ****** * *		******* *********
****** ****** * *		*********
****** ****** * *		********
****** ****** * *		**********
****** ****** * *		*****************
****** ****** * *		********** ****** ****
****** ****** * *		* *****
****** ****** * *		* *****
****** ****** * *		*
****** ****** * *		*******
******* *********		******* *

Schedule 1.17 – Page 1

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

******* *********		** *** * *******
******* *********		******* ** ******
******* *********		************
******* *********		***** ****** ****
******* *********		******
******* *********		************
****		***** ***************
***** * ********		**** **
***** * ********		**** ******
***** * ********		**********
***		******
***		****
***		** *
***		**********
***		*******
***		*******
***		****
***		****
***		* ******
***		*** * *********
***		****** * * ***
***		***
***		*** * ******
***		***
***		****** *********
***		***
***		***
***		****
***		****
***		****
***		****** * ***
***		*******
***		******** *
***		********* **
***		****
***		** * ************
***		*********
***		******
***		******* ***
***		********* ********
******** ********		* ****
******** ********		*******
**** **		*********
*** **** ******** ******		**** ****
***** *********		***
******* **		**** ***** ******
******		*** ***
******		*** * *********

Schedule 1.17 – Page 2

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

**** ** ***		*****
******* **** **		***** ****
* ****** **		** *
**** **** ***********		************
****** ***** **		**************
****** ***** **		***************
****** ******		* *
***** *		******
***** *		****
***** *		****
***** *		***
***** *		*******
***** *		****
******* **		********
*********		*** ****
*** *** **** **		*** ******
******		*************
*** * *		* **** *****

Schedule 1.17 – Page 3

SCHEDULE 1.21

EXISTING CSG PROPRIETARY SOFTWARE

AFLINFRM	BUCHKREO	BUPRDISC	BUVEDSPL	CCIDXXFR
AFUPLOW0	BUCHKRFD	BUPREDIT	BUVEDTBL	CCIPINTR
ALSQSH	BUCHRGBK	BUPROMO	BUVENROL	CCMEMMST
ALTRN008	BUCNTRY	BUPROSMD	BUVENTER	CCMONHST
AMIMENU	BUCPM004	BUPROSMM	BUVIPTPP	CCNONMON
AMIMPA	BUCRDRPT	BUPROSMW	BUVLETTR	CCREFUND
AMIMTCH	BUCRTAMT	BUPRSMRT	BUVMONBH	CCREVDTL
AMLOOKC	BUCSRPUL	BUPTRANS	BUVMONDS	CCREVTOT
AMMTCHB	BUCSTMTR	BUPULMON	BUVMONIO	CCRPTLST
AMMTCHC	BUCSTMT3	BUQTYRPT	BUVMONPY	CCSUBILL
AMMTCHT	BUCSTMT8	BUREFRPT	BUVMONTL	CCSUBLDG
AMSTP	BUCYCRPT	BUREJPUL	BUVNAMES	CCSUBMRG
BCWILBER	BUDATER	BUROYRPT	BUVNOMON	CCSUBMST
BDVCINIT	BUDONBLD	BUROYSUB	BUVPRMDS	CCSWSSW
3BDVCTLFN	BUEDSPLT	BURPTCPY	BUVPSRCH	CCTRBLCL
BDVQPROC	BUEDTRPT	BURPTSND	BUVRCMSG	CCTRNCM
BDVQROUT	BUEFTMTH	BURPT1	BUVSBSCM	CCTRNESU
BDVQXFER	BUEFTTRN	BURPT11A	BUVSCHIT	CCTRNHSE
BINREFSW	BUEPMAST	BURPT11B	BUVSPTAB	CCTRNMEM
BSGETDAT	BUEXPPUL	BURPT13	BUVSPZDS	CCTRNRTN
BUACCRPD	BUFINRPT	BURPT2	BUVSTMT	CCTRNTAC
BUACCRPW	BUFUTDCN	BURPT8	BUVTPREO	CCTRNWO
BUACTDMP	BUGENVES	BUSCREPT	BUZIPEXT	CCTRN001
BUACTNO1	BUGLUPDT	BUSEQNUM	BUZIPSYN	CCTRN003
BUACTSTA	BUGNLDBD	BUSTMT4A	B1KIBPSO	CCTRN005
BUACTUPD	BUHDRED2	BUSVCMST	CABLTEST	CCTRN006
BUADITAP	BUHLDFLG	BUSVCPUL	CAB99SO	CCTRN007
BUADJFMT	BUHLDRPT	BUTBLPRO	CAM7465	CCTRN008
BUADJRES	BUHSTUPD	BUTELEDT	CCACTUPD	CCTRN009
BUADKEY	BUINSTAT	BUTPFMTR	CCATXRFO	CCTRN010
BUADMDIS	BUINTFCE	BUTRINPL	CCAUGXFR	CCTRN011
BUALMRGE	BUINTLAD	BUTSTDTR	CCBANNRB	CCTRN012
BUALMTCH	BUIPTPOP	BUTTXINP	CCBBMST	CCTRN013
BUAMREPT	BULEDGIO	BUUDFBLD	CCCHGOFF	CCTRN014
BUASACTV	BUMATCH	BUUDFEDT	CCCHNMST	CCTRN015
BUATHFMT	BUMEMUPD	BUUPDATE	CCCIRLOG	CCTRN016
BUATHUSA	BUMMBRED	BUUSATRN	CCCIRMST	CCTRN017
BUATRANS	BUMMBRUP	BUUSGRPT	CCCOLBAT	CCTRN018
BUBACUP	BUMRGSVC	BUUSXREF	CCDCON22	CCTRN019
BUBILDAT	BUNOMO	BUVAJEDT	CCFLAGER	CCTRN020
BUBILRPT	BUOFFTRN	BUVAJENT	CCHSEACT	CCTRN021
BUBSPUL1	BUOLSRPT	BUVALPHA	CCHSECNT	CCTRN022
BUCANRPT	BUOQLKTP	BUVCHDCP	CCHSEKEY	CCTRN023
BUCCDRFD	BUOQSBTP	BUVCSRCH	CCHSEMRG	CCTRN024
BUCCRPTS	BUORDFMT	BUVCTLF0	CCHSESEQ	CCTRN025
BUCHDM9	BUORDTRK	BUVEDREO	CCIDXMRG	CCTRN026

Schedule 1.21 – Page 1

CCTRN027	CCWOLOGX	CC849419	CMPWAX1	CPCGEOHS
CCTRN028	CCWOMERG	CC849428	CMPWCM1	CPCNVCMB
CCTRN029	CCWOMLOG	CC849460	CMPWCM2	CPCNVDRV
CCTRN030	CCWOMRG	CC851517	CMPWCM3	CPCNVRPT
CCTRN031	CCWOMST	CC866010	CMPWCM4	CPCNVSEL
CCTRN033	CCWOPULL	CC8720A	CMPWCM5	CPCNVSPT
CCTRN034	CCZIPACM	CC8721A	CMPWCM6	CPCSQMTC
CCTRN035	CC8107TJ	CC8722A	CMPWCM7	CPGEO100
CCTRN036	CC811860	CC8725A	CMPWCS1	CPHSEDRV
CCTRN038	CC82051B	CC879054	CMPWCS6	CPHSERPT
CCTRN039	CC820510	CC879056	CMPWCS7	CPMONRPT
CCTRN040	CC821011	CC879062	CMPWDO1	CPNMNPAS
CCTRN044	CC821015	CC879163	CMPWDO2	CPRPTSV
CCTRN045	CC821110	CC890710	CMPWDO3	CPSUBDRV
CCTRN046	CC821149	CC8970	CMPWDO4	CPSVEDIT
CCTRN047	CC822318	CC8970B	CMPWDO7	CPTRNMRG
CCTRN048	CC825502	CC8970C	CMPWDS1	CPUPREAD
CCTRN049	CC825560	CC8970D	CMPWDS2	CPVERGEO
CCTRN050	CC825590	CENTCAPS	CMPWIUB	CPWDMSBR
CCTRN051	CC831010	CITYSTAT	CMPWIUC	CPWODRV
CCTRN052	CC834531	CMMDACCT	CMPWIUD	CPWORPT
CCTRN053	CC837012	CMMDEDIT	CMPWIUE	CPWOSSRT
CCTRN054	CC837510	CMMDFT0	CMPWIUF	CPZIPBIL
CCTRN055	CC837513	CMONSUBY	CMPWIU1	CPZIPCAL
CCTRN056	CC837542	CMPCKR	CMPWIU2	CPZIPCNT
CCTRN057	CC837557	CMPCKRL	CMPWIU3	CPZIPFRM
CCTRN058	CC837564	CMPCLTM	CMPWIU4	CPZIPHSE
CCTRN059	CC838104	CMPDQV	CMPWIU5	CPZIPMCH
CCTRN060	CC838148	CMPFBA	CMPWIU6	CPZIPRPT
CCTRN061	CC838182	CMPFBS	CMPWOC1	CPZIPSUB
CCTRN062	CC838191	CMPFDS	CMPWOC6	CQUEHDLR
CCTRN063	CC838365	CMPFMI	CMPWRQ1	CSBINS01
CCTRN064	CC8402ZZ	CMPLGR	CMPWRQ2	CSGACLOP
CCTRN065	CC84021A	CMPLIN1	CMPWRQ3	CSGENDIT
CCTRN13A	CC840217	CMPSBY1	CMPWRQ4	CSGSCUPD
CCTRN14A	CC840218	CMPSFS	CMPWRS1	CS010
CCTRN16A	CC84062B	CMPSVCA	CMPWRS6	CTACCTRP
CCTRN20A	CC840624	CMPSVC1	CMPWTC1	CTACMHSE
CCTRN21A	CC840641	CMPSVC2	CMPWTC2	CTACSRAL
CCTRN21B	CC84401B	CMPSVC3	CMPWTC3	CTACSRCP
CCTRN27A	CC84401C	CMPSVC4	CMRCS0A0	CTACSRCT
CCTRN36A	CC84411B	CMPSVC5	CMTYCONT	CTACSREV
CCTRN40A	CC844110	CMPSVC6	CMZRALPH	CTACSREX
CCTRN44A	CC844711	CMPSVC7	CM99SO	CTACSRIO
CCTRN59A	CC845055	CMPSVC8	COBVLSR	CTACSRMG
CCTRN99S	CC849323	CMPSVC9	CPBCKBIL	CTACSRPT

Schedule 1.21 – Page 2

CTACSRSC	CTCAPCNV	CTCDGRPT	CTCFORCE	CTCLARSP
CTACSRSE	CTCAREXP	CTCDGUPD	CTCFRMNR	CTCLASCI
CTACTDMP	CTCARXPR	CTCDLCTL	CTCGEOEX	CTCLAULD
CTACTRPT	CTCATHBD	CTCDLUPD	CTCGNJCL	CTCLDGIO
CTACTUPD	CTCATHEX	CTCDMLBX	CTCHCONV	CTCLGEXT
CTADDBRK	CTCATHLD	CTCDMRPT	CTCHDM2	CTCLGLOD
CTADDMSP	CTCBCAAD	CTCDMUPD	CTCHDM4	CTCLOBRP
CTADDSRT	CTCBINTR	CTCDQRPT	CTCHDM9	CTCLOYTY
CTADJBCK	CTCBLCCU	CTCDSNAL	CTCHGRPT	CTCMCCRE
CTADJEXT	CTCBLCRP	CTCDTBEX	CTCHKREG	CTCMCCRP
CTADJRES	CTCBLCUP	CTCDWNFM	CTCHKREO	CTCMELFT
CTADJSTR	CTCBLDCU	CTCEBCRP	CTCHOUSE	CTCMIDDT
CTAFPREP	CTCBLDPR	CTCEESIN	CTCHOUST	CTCMPOAK
CTALMRGE	CTCBLDRP	CTCEESMG	CTCHRNRC	CTCMSPUL
CTAMRPTS	CTCBLDUP	CTCEESND	CTCHRNRT	CTCMSSRT
CTANIPUL	CTCBLDXR	CTCEESOT	CTCHSEDA	CTCMTDRP
CTAPKMNT	CTCCAFPM	CTCEESPT	CTCHSEDB	CTCMXSEQ
CTAPSPLT	CTCCARPT	CTCEESRT	CTCIBUPD	CTCNLCUP
CTASRCH1	CTCCCRPT	CTCENSTM	CTCICVCM	CTCNLUPD
CTASRCH2	CTCCDBIL	CTCEPDST	CTCICVRP	CTCNMGEN
CTAS2BLD	CTCCDCLN	CTCESBLD	CTCICVSP	CTCNQMAS
CTAS2RPT	CTCCDROM	CTCESCTL	CTCINCRP	CTCNQTAP
CTATCRPT	CTCCDRPT	CTCESEDT	CTCINSRT	CTCNRESP
CTATCSRT	CTCCFMTR	CTCESERP	CTCIRKB	CTCNTFRP
CTATC306	CTCCMCUP	CTCESNTC	CTCIRKLD	CTCNTFY
CTBACKER	CTCCMERG	CTCESNXG	CTCIRKT	CTCNTT2K
CTBANNRB	CTCCMISP	CTCESPRE	CTCIRKUP	CTCNTVTS
CTBANNRS	CTCCMRPT	CTCESPRT	CTCIRK1	CTCNVCID
CTBBLOAD	CTCCMTCH	CTCESRRP	CTCIRK10	CTCNVEFT
CTBCKRSP	CTCCMUPD	CTCESSGA	CTCIRK11	CTCNVEXT
CTBEIQIO	CTCCNXFL	CTCESTAC	CTCIRK12	CTCNVTCC
CTBHSEIO	CTCCOLIN	CTCESTAD	CTCIRK3	CTCNVTR2
CTBILLIO	CTCCOLSP	CTCESUPD	CTCIRK4	CTCOCCUP
CTBILLUP	CTCCOLTO	CTCETRPT	CTCIRK5	CTCOCRPT
CTBLGORD	CTCCPGRP	CTCETXRF	CTCIRK6	CTCOCUPD
CTBLKSRT	CTCCPMT	CTCEVSRP	CTCIRK7	CTCOLPUT
CTBNKCMP	CTCCPSND	CTCEVSUP	CTCIRK8	CTCOLRFS
CTBNKPUL	CTCCRPTS	CTCEVTAD	CTCIRK9	CTCOLRPT
CTBRDRPT	CTCCTFN	CTCEVTCK	CTCIRREJ	CTCOLUPD
CTBRDUPD	CTCCTFNA	CTCEVTLD	CTCITMEM	CTCOMSLT
CTBSPUL1	CTCCVRPT	CTCEXRPT	CTCIXLOD	CTCONREJ
CTBTPRPT	CTCCYCAL	CTCEXTBB	CTCKFTCH	CTCONVPL
CTBULKBL	CTCCYCCD	CTCEXTMC	CTCKRDEC	CTCOPCUP
CTCADJXF	CTCCYCPR	CTCEXTRS	CTCKRSEL	CTCOPRPT
CTCALFLD	CTCCYCWS	CTCEXWAM	CTCLABEL	CTCOPUPD
CTCALLZP	CTCDEDIT	CTCFINIO	CTCLAGNT	CTCOQARI

Schedule 1.21 – Page 3

CTCOQBIL	CTCRPTSP	CTCSUBHW	CTCUMADJ	CTDLCUP
CTCOQMAS	CTCRSRPT	CTCSUBIF	CTCUSBLD	CTDLEVNT
CTCOQTAP	CTCRTPRM	CTCSUBRS	CTCUSCUP	CTDLYACM
CTCORDFB	CTCRYTOT	CTCSVCBL	CTCUSGIN	CTDLYACT
CTCORDRS	CTCSCHEX	CTCSVCDS	CTCUSLOD	CTDLYRPT
CTCOTCUP	CTCSDCUP	CTCSVCFB	CTCUSNUP	CTDLYSEC
CTCOTGRP	CTCSDFMT	CTCSVCIO	CTCUSUPD	CTDLYSUM
CTCPACAD	CTCSDUPD	CTCSXUPD	CTCVBHSE	CTDMLCUP
CTCPCMUP	CTCSELTR	CTCTAXES	CTCVBMRG	CTDOCMNT
CTCPFNXT	CTCSFSPT	CTCTAXEX	CTCVPPD1	CTDPLSLS
CTCPIFUP	CTCSIRSP	CTCTCIDC	CTCVSCIO	CTDSABLD
CTCPK096	CTCSIRX1	CTCTCISC	CTCVSCUP	CTDSAEXT
CTCPLEVT	CTCSIRX2	CTCTDMCP	CTCVSLOD	CTDSCACT
CTCPMREX	CTCSIRX3	CTCTDPUL	CTCVSRPT	CTDSPBLD
CTCPM004	CTCSIRX4	CTCTDQRP	CTCVSUPD	CTDSPCUP
CTCPM006	CTCSIRX5	CTCTDSRT	CTCVTCON	CTDSPEXT
CTCPM008	CTCSPCC	CTCTEDRP	CTCVTEXT	CTDSPULL
CTCPM070	CTCSPDTE	CTCTELEX	CTCVTRCP	CTDTETME
CTCPPVAC	CTCSPEDT	CTCTELLG	CTCVTXSP	CTDWACCM
CTCPPVBL	CTCSPIRP	CTCTELSB	CTCVXREF	CTDWETEL
CTCPPVEX	CTCSPLIT	CTCTEMRP	CTCWIUPD	CTDWRPTS
CTCPPVFM	CTCSPMEL	CTCTFRMG	CTCWOMKT	CTDWUPDT
CTCPPVTP	CTCSPMRG	CTCTFRPT	CTCWOMRG	CTDYNALC
CTCPRATE	CTCSPRNT	CTCTFRUP	CTCWOPFM	CTEDTCON
CTCPROPR	CTCSPUHS	CTCTFRXR	CTCWOWSL	CTEECCUP
CTCPROTO	CTCSRLBX	CTCTIDID	CTCXRKUP	CTEECUPD
CTCPROWS	CTCSRPTA	CTCTKEXP	CTCYCAPR	CTEFTFMT
CTCPSTSP	CTCSRPTC	CTCTLCRD	CTCYCAWS	CTEFTRET
CTCPURCV	CTCSRPUL	CTCTLSPL	CTCYCCHG	CTEFTRPT
CTCPYADJ	CTCSRRPT	CTCTOLSP	CTCYCCNT	CTEFTSPT
CTCPYCRD	CTCSSCTL	CTCTPDSC	CTCYCID	CTEFTUPD
CTCPYFNL	CTCSSNAP	CTCTPFMT	CTCYCMRG	CTEPIEDT
CTCPYMST	CTCSSNFT	CTCTTMRP	CTCZIPCD	CTEPIRPT
CTCPYSTX	CTCSTBRP	CTCTTRRP	CTCZIPFX	CTEPIUPD
CTCQUENP	CTCSTMP4	CTCTTTRP	CTCZIPRP	CTESPOVR
CTCRCARD	CTCSTMTC	CTCTUGIN	CTCZIPRT	CTESPRPT
CTCRDNLD	CTCSTMTR	CTCTWCEX	CTCZIPUP	CTEVERRP
CTCRDRPT	CTCSTMT2	CTCTWHEX	CTCZPRPT	CTEVSRPT
CTCRDSEL	CTCSTMT3	CTCTWMEX	CTCZSCRP	CTEVSTAT
CTCRFDRV	CTCSTMT4	CTCTWOEX	CTC097SP	CTEVTCUP
CTCRMSCB	CTCSTMT5	CTCTWPEX	CTDALPHA	CTEVTEXT
CTCRMSDF	CTCSTMT6	CTCTXIFL	CTDATER	CTEVTIFQ
CTCRMSRP	CTCSTMT8	CTCTXIRP	CTDCCRPT	CTEVTORD
CTCRMSSX	CTCSTMT9	CTCTXRPT	CTDELCHK	CTEVTSHO
CTCRMSXT	CTCSTRPT	CTCT44RP	CTDELRPT	CTEVTUPD
CTCRPRNT	CTCSUBEX	CTCT45RP	CTDEPRPT	CTEVTZUL

Schedule 1.21 – Page 4

CTEXADST	CTGWPPV	CTLOGXFR	CTMRGEVT	CTOSTM4B
CTEXSTM5	CTHACCUP	CTLTREDT	CTMRGHST	CTOSVCBL
CTEXTOVR	CTHOTADR	CTLTRMEM	CTMRGLAU	CTOSVCDS
CTEXTRPT	CTHSECPY	CTLTRMRG	CTMRGRCV	CTOTAXES
CTFBCCNM	CTHSECUP	CTLTRPUL	CTMRGSEL	CTOWOPRT
CTFBCCRT	CTHSEPUL	CTLTRSPL	CTMRGSTM	CTOWPRT2
CTFBCCTN	CTHSESNK	CTLTRUPD	CTMSPJCL	CTPADJLD
CTFBCCUP	CTHSESPL	CTLUSER	CTMSPMRG	CTPARMRG
CTFCHAP1	CTHSEUPD	CTMAGBID	CTMS00	CTPARTOT
CTFCHKEY	CTHSRPTS	CTMAGDVR	CTMWR010	CTPASSWD
CTFCHLST	CTHSTBLD	CTMAGEXT	CTMW308	CTPAYXFR
CTFCHMCR	CTHSWOLG	CTMAGTAP	CTNA00	CTPCBLST
CTFDFBLD	CTHSWORJ	CTMAILOW	CTNBTRT	CTPCBSRT
CTFFLRPT	CTHWACCT	CTMALPHA	CTNKRPTS	CTPCCNTL
CTFICHAP	CTHWAUDT	CTMASADJ	CTNMSPLT	CTPCSPLT
CTFICHBL	CTHWOANL	CTMASBIL	CTNOMO	CTPC0010
CTFICHLB	CTHWOPUL	CTMATREV	CTOCMERR	CTPC0020
CTFILCOD	CTHWORPT	CTMATSUB	CTOCMPFB	CTPC0030
CTFILLOD	CTHWOSKY	CTMCADST	CTOCYCCD	CTPC0040
CTFILPUL	CTINSTAL	CTMCHGOF	CTODQVSP	CTPC0050
CTFINDTL	CTINVRPT	CTMCRZAP	CTOFBASP	CTPC0060
CTFINFTP	CTINV040	CTMC2RPT	CTOFBSSP	CTPC0070
CTFINRPT	CTINV050	CTMEMDLY	CTOFDSSP	CTPC0080
CTFINSIN	CTINV060	CTMEMMNY	CTOFMISP	CTPC0090
CTFINSUM	CTIRTMGT	CTMEMTWE	CTOLGINQ	CTPC0100
CTFINTAP	CTIRTPUL	CTMEMWKY	CTOLGRIO	CTPC0300
CTFIXADR	CTIRTRPT	CTMIDCON	CTONDMD1	CTPDINTR
CTFORMCH	CTIRUPDT	CTMIRRPT	CTONDMD2	CTPHNUM
CTFORMS	CTJERDIN	CTMNSPLT	CTONWOPL	CTPHOPTN
CTFRMMRG	CTJRDIIN	CTMONBLD	CTOPMTSP	CTPHOPUL
CTFRMSPT	CTKDELET	CTMONCHG	CTOPPRT	CTPHORPT
CTFTPJOB	CTKEXIT	CTMONEXT	CTOPRATE	CTPHPVPP
CTF0044B	CTKIBPSQ	CTMONLOD	CTOPSTAT	CTPHWRPT
CTF0048B	CTKIOTSQ	CTMONLTR	CTORCFMT	CTPHW050
CTF0062B	CTKPPURC	CTMONMRG	CTORCPRT	CTPHXREF
CTF0110B	CTKRESET	CTMONMTA	CTORDCUP	CTPINTR
CTF0162B	CTKSECUR	CTMONPUL	CTORDEXT	CTPIONIN
CTF0240B	CTKSOALF	CTMONRPT	CTORDHDR	CTPKGBDB
CTF6028B	CTLABFMT	CTMONXFR	CTORDTCI	CTPKZIPA
CTGENSTM	CTLABRMT	CTMRGACT	CTORDUPD	CTPMEDIA
CTGENST3	CTLBLOG	CTMRGASR	CTORWKND	CTPMTMGR
CTGETCYC	CTLBSPLT	CTMRGAS2	CTOSAPEX	CTPMTMRG
CTGLDSIN	CTLGSPLT	CTMRGCHK	CTOSAPPU	CTPMTRPT
CTGLUPDT	CTLINTR	CTMRGCTL	CTOSAPTS	CTPMTSPR
CTGNLDBD	CTLOADPC	CTMRGDQV	CTOSECTL	CTPMTSPT
CTGWCONV	CTLOADVS	CTMRGESU	CTOSTM4A	CTPMTSWS

Schedule 1.21 – Page 5

CTPNDADJ	CTRDFBLD	CTSADTIN	CTSPLESU	CTTAXSWS
CTPNDPST	CTRDFRPT	CTSAMMRG	CTSPLREP	CTTAX120
CTPNDUPD	CTREFCHK	CTSAOPIN	CTSPLSCN	CTTBLMIR
CTPRECAP	CTREFRMT	CTSATLIN	CTSPLTDT	CTTCAUDL
CTPRECSF	CTREFRPT	CTSATRPT	CTSPLTRC	CTTCIEXT
CTPRECVB	CTREFUND	CTSBCTVD	CTSRECAP	CTTCIREF
CTPREMRG	CTREVPUL	CTSBCVTD	CTSRPROG	CTTCIRPT
CTPRETEL	CTROLCHK	CTSBCVTM	CTSRVRDN	CTTCISUM
CTPRNTFL	CTROLDAT	CTSBCVTR	CTSRVRFM	CTTCRESL
CTPROMED	CTROYACT	CTSBCVTW	CTSTATR1	CTTC055
CTPROME1	CTROYADD	CTSBCVUM	CTSTATR4	CTTC060
CTPROME2	CTROYBLK	CTSBSCUP	CTSTCPRI	CTTC065
CTPRSTMA	CTROYCUM	CTSBSLOD	CTSTMAPL	CTTC070
CTPRSTMB	CTROYDSK	CTSCHPRT	CTSTMARP	CTTELPFX
CTPSAUD1	CTROYERP	CTSCHRPT	CTSTMAUD	CTTELSPT
CTPSAUD2	CTROYEXT	CTSCHUPD	CTSTMCMR	CTTELSRT
CTPSAUD3	CTROYFIN	CTSCKLOD	CTSTMINT	CTTELUSG
CTPS00	CTROYMON	CTSDLYAC	CTSTMP4A	CTTESPLT
CTPTNCUP	CTROYPUL	CTSELBIL	CTSTMP4B	CTTFRMCH
CTPTNUPD	CTROYRPT	CTSELBLD	CTSTMSPL	CTTHEFT1
CTPTPRNT	CTROYSRT	CTSELCIN	CTSTMT3S	CTTOTRPT
CTPTPROC	CTROYSUB	CTSELCRZ	CTSTMT4C	CTTWCNVP
CTPTRANS	CTRPFCHK	CTSELCR1	CTSTMUPD	CTTWCRPT
CTPULCON	CTRPSTMT	CTSELCR2	CTST00	CTTWHSEP
CTPULHSE	CTRPSUMS	CTSELCR3	CTSUBCAL	CTTWMONP
CTPULLST	CTRPTCCD	CTSELECT	CTSUBCHG	CTUCTEDT
CTPULLTC	CTRPTCPY	CTSELEVT	CTSUBCNT	CTUCTINP
CTPULLWO	CTRPTFMC	CTSELEXT	CTSUBCOM	CTUCTOUT
CTPULMON	CTRPTFRM	CTSELHWO	CTSUBCVT	CTUCTPRT
CTPULPLY	CTRPTPGM	CTSELLAB	CTSUBDRV	CTUCTSUB
CTPULREF	CTRPTRIP	CTSELNMN	CTSUBPMT	CTUCTTAX
CTPULSCX	CTRPTRPT	CTSELORD	CTSUBPUL	CTUDFAUD
CTPULSEL	CTRPTSPT	CTSELRPT	CTSUBRDW	CTUDFBLD
CTPULSLS	CTRPT1	CTSELSPC	CTSUBTAP	CTUDFEDT
CTPULSVC	CTRPT1A	CTSELSPT	CTSVBLPR	CTUDFMIR
CTPULWRK	CTRPT11A	CTSELSRT	CTSVBLWS	CTUDFONL
CTPUL302	CTRPT11B	CTSELTAP	CTSVCREC	CTUDFRPT
CTPURBLD	CTRPT13	CTSEQCUP	CTSVCRPT	CTUDFSRT
CTPURCON	CTRPT2	CTSEQUPD	CTSVCSRT	CTUDFSVC
CTPURPUL	CTRPT8	CTSEQXRF	CTSVCXCP	CTUDXFMT
CTPUSPLT	CTRP00	CTSETTLE	CTSVDRPT	CTUD1000
CTPXRBLD	CTRP3060	CTSETTL1	CTSVDSPR	CTUD1005
CTRCPPDM	CTRSBRPT	CTSLSFMT	CTSVDSWS	CTUD1010
CTRCPRNT	CTRYMEDA	CTSLSRPT	CTSW306	CTUD1020
CTRCPWSM	CTSACCUP	CTSNTRT	CTSYSUPD	CTUD1040
CTRCVLOD	CTSACUPD	CTSPDRPT	CTTAXSPR	CTUD1050

Schedule 1.21 – Page 6

CTUD1060	CTVARWAC	CTVCKDGT	CTVCSDMT	CTVDLUPD
CTUD2000	CTVASCCD	CTVCKFMT	CTVCSMX	CTVDLWRT
CTUD2500	CTVASCQI	CTVCLARK	CTVCSRCH	CTVDMLCK
CTUD2700	CTVASCRT	CTVCMFIO	CTVCSXIO	CTVDMLCP
CTUD3000	CTVASCSR	CTVCMLOG	CTVCSXRX	CTVDMLIO
CTUD4000	CTVASEBC	CTVCMPRS	CTVCS030	CTVDMLSC
CTUNEVTM	CTVASGEN	CTVCMUPD	CTVCTBLD	CTVDMUSC
CTUNORDM	CTVASPCT	CTVCNBLD	CTVCTLFN	CTVDSCED
CTUPCABL	CTVASRCH	CTVCNLED	CTVCTYSP	CTVDSCHG
CTUPDATE	CTVASUPD	CTVCNLIO	CTVCTYST	CTVDSPIO
CTUPDEND	CTVAS2IO	CTVCNVED	CTVCUSED	CTVDSPSU
CTUPRPTS	CTVAS2PR	CTVCNVIO	CTVCUSIO	CTVDSPTA
CTUPSUBR	CTVATHIO	CTVCODGN	CTVCUSNO	CTVDSPTT
CTVAASDS	CTVATOAT	CTVCOLNT	CTVCUSSC	CTVDSPWO
CTVAICA	CTVATPKG	CTVCOMIO	CTVCVCIA	CTVDTBLD
CTVAISCR	CTVAUTHI	CTVCPBUF	CTVCVCLD	CTVDTDSC
CTVAJDSP	CTVAUTHO	CTVCPCNV	CTVCVEDT	CTVDTMIO
CTVAJEDT	CTVBIO	CTVCPCUS	CTVCVEDT	CTVDTTMC
CTVAJENT	CTVBITCK	CTVCPCVE	CTVCVEIO	CTVDUDET
CTVAJSMP	CTVBLCED	CTVCPCVI	CTVCVEMI	CTVDUDS
CTVAJSRC	CTVBLCIO	CTVCPDSP	CTVCVEMO	CTVDYSEC
CTVAJSRR	CTVBLCIU	CTVCPDST	CTVCVEPR	CTVEDSEM
CTVAJUPD	CTVBLCRD	CTVCPHSE	CTVCVESC	CTVEDSPL
CTVALLOC	CTVBLDED	CTVCPMPR	CTVCVIMI	CTVEDTBL
CTVALPHA	CTVBLDIO	CTVCPORD	CTVCVIMO	CTVEDVAL
CTVANCTL	CTVBLDIU	CTVCPPVS	CTVCVIPV	CTVEECCP
CTVAND	CTVBLDRD	CTVCPPV2	CTVCVISC	CTVEECIO
CTVANEMI	CTVBLKDS	CTVCPQUE	CTVCVQUE	CTVEECSC
CTVANSDE	CTVBLKED	CTVCPSAC	CTVCVREJ	CTVEEFIO
CTVANSDM	CTVBLKIO	CTVCPSAM	CTVCVTR1	CTVEIQIO
CTVANSEM	CTVBRDIO	CTVCPSCD	CTVCVTR2	CTVENTER
CTVANTBL	CTVBREAK	CTVCPSCU	CTVCXSRC	CTVEPVIO
CTVANVEW	CTVBRNTR	CTVCPSDC	CTVDATE	CTVEQLOP
CTVAPMRG	CTVBSRCH	CTVCPSED	CTVDATEU	CTVEQTOT
CTVARDSU	CTVCAPCC	CTVCPSEQ	CTVDDUMP	CTVESLOD
CTVARFRM	CTVCCAIO	CTVCPSI2	CTVDGLIO	CTVESMIO
CTVARMPT	CTVCCIDS	CTVCPTBL	CTVDGLOG	CTVESPUL
CTVARMSG	CTVCDSPT	CTVCPUID	CTVDGLS1	CTVESPUR
CTVARSBS	CTVCDTBL	CTVCPUPL	CTVDGLS2	CTVEVCEA
CTVARSCH	CTVCHDCP	CTVCPXPA	CTVDGLS3	CTVEVENT
CTVARSCR	CTVCHECK	CTVCPXPL	CTVDGLS4	CTVEVERR
CTVARSEM	CTVCHKIO	CTVCPYBT	CTVDGTRL	CTVEVLFL
CTVARUCC	CTVCHNLD	CTVCPYIT	CTVDILFM	CTVEVREJ
CTVARUFB	CTVCHNLM	CTVCREEL	CTVDISP	CTVEVSDN
CTVARUOC	CTVCHOP	CTVCRYPT	CTVDLBLD	CTVEVSED
CTVARUPD	CTVCINIT	CTVCSDIO	CTVDLDFL	CTVEVSIO

Schedule 1.21 – Page 7

CTVEVSIU	CTVINCP	CTVLTRTO	CTVODCNV	CTVOUTJR
CTVEVSQU	CTVINDC	CTVLUAIO	CTVODCOL	CTVOUTJ0
CTVEVSUP	CTVINES	CTVL6CNV	CTVODCUS	CTVOUTJ1
CTVEVTED	CTVINFL	CTVMBLD	CTVODDTS	CTVOUTKP
CTVEVTIO	CTVINGC	CTVMCCQU	CTVODEDT	CTVOUTKS
CTVEVXIO	CTVINJD	CTVMCR	CTVODGET	CTVOUTLR
CTVEXRIQ	CTVINJR	CTVMEDIT	CTVODHSE	CTVOUTNV
CTVEXTRA	CTVINJ0	CTVMEMIO	CTVODKEY	CTVOUTOA
CTVFCTBL	CTVINJ1	CTVMEMO	CTVODMAR	CTVOUTPN
CTVFDTBL	CTVINKP	CTVMENU	CTVODMBR	CTVOUTPU
CTVFDTRD	CTVINLR	CTVMNAME	CTVODMEM	CTVOUTSA
CTVFIEDT	CTVINNV	CTVMONBH	CTVODMPY	CTVOUTSD
CTVFIFLD	CTVINOA	CTVMONCC	CTVODPRS	CTVOUTSL
CTVFIIO	CTVINPN	CTVMONDU	CTVODPXR	CTVOUTTD
CTVFILER	CTVINPU	CTVMONIO	CTVODREQ	CTVOUTTN
CTVFILLD	CTVINSA	CTVMONPL	CTVODRPC	CTVOUTTO
CTVFLDCM	CTVINSD	CTVMONPY	CTVODRPT	CTVOUTTR
CTVFLDFM	CTVINSL	CTVMONTL	CTVODSAC	CTVOUTTS
CTVFLESP	CTVINTD	CTVMONWO	CTVODSCU	CTVOUTVD
CTVFLOAT	CTVINTN	CTVMPRSC	CTVODSDC	CTVOUTZN
CTVFLOTP	CTVINTO	CTVMRDYT	CTVODSEL	CTVOUTZP
CTVFLQUE	CTVINTR	CTVMROTB	CTVODSEQ	CTVOUT2P
CTVFMSVC	CTVINVD	CTVMROTB	CTVODSUB	CTVPARSE
CTVFONKY	CTVINZN	CTVMSEND	CTVODTIO	CTVPCBDF
CTVGDSN	CTVINZP	CTVMSGIO	CTVODUPD	CTVPCFM
CTVGETCC	CTVIN2P	CTVMSGXF	CTVODVAL	CTVPCINP
CTVGETNO	CTVIPTPP	CTVNAMCD	CTVODWRK	CTVPCMED
CTVGJCL	CTVJOB	CTVNAMCM	CTVOKEDT	CTVPCMIO
CTVHBPGM	CTVJOBNO	CTVNAMES	CTVOPEDT	CTVPCMIU
CTVHRSCH	CTVJRCKD	CTVNAMLN	CTVOPEIO	CTVPCMQU
CTVHSCVT	CTVJSRCH	CTVNAMSC	CTVOPEIU	CTVPCMSG
CTVHSEDT	CTVKPCKD	CTVNAMSW	CTVOPUPD	CTVPCOUT
CTVHSEIO	CTVLABFM	CTVNMFM	CTVOQFMT	CTVPCUPL
CTVHSESC	CTVLDCTL	CTVNMNIO	CTVOQRAS	CTVPCXMT
CTVHSHBB	CTVLGPUL	CTVNQFMT	CTVOR	CTVPDDCP
CTVHSHMU	CTVLIPED	CTVNQRAS	CTVORAMT	CTVPDDSC
CTVHSHSL	CTVLLBB4	CTVNTRY	CTVORDER	CTVPHENC
CTVHSHSU	CTVLMTIO	CTVOACED	CTVORSEM	CTVPIFKY
CTVHSHZL	CTVLOBPR	CTVOCEDT	CTVOTCIO	CTVPINHD
CTVHSNUM	CTVLRPUR	CTVOCIO	CTVOUTCP	CTVPMINQ
CTVHSQUE	CTVLSTRT	CTVOCKYT	CTVOUTDC	CTVPML
CTVHSTAG	CTVLTRDK	CTVOCLRS	CTVOUTDN	CTVPMTIO
CTVHSTIO	CTVLTRFM	CTVOCMTR	CTVOUTES	CTVPNCKD
CTVHSUPD	CTVLTRNM	CTVOCOIU	CTVOUTFL	CTVPNMSG
CTVHXCHR	CTVLTRPR	CTVOCRD	CTVOUTGC	CTVPNPUR
CTVIMGCK	CTVLTRTI	CTVODBLD	CTVOUTJD	CTVPNSFT

Schedule 1.21 – Page 8

CTVPNUPL	CTVRCVSP	CTVSELDS	CTVSSMIU	CTVTIMER
CTVPOINQ	CTVRECFM	CTVSELED	CTVSSMI2	CTVTNUPL
CTVPOLCP	CTVREGON	CTVSELFL	CTVSTAT7	CTVTRACK
CTVPPVAL	CTVRGNCK	CTVSELFM	CTVSTMBR	CTVTRMBR
CTVPPVMV	CTVRGNPK	CTVSELIO	CTVSTMCC	CTVTRNFR
CTVPROSP	CTVRGNTB	CTVSELIQ	CTVSTMCS	CTVTRUPL
CTVPSMIU	CTVRPTFM	CTVSELIT	CTVSTMCU	CTVTSRCH
CTVPSRCH	CTVRTPIO	CTVSELLB	CTVSTMDM	CTVTTFLX
CTVPTEXT	CTVSACED	CTVSELMH	CTVSTMDQ	CTVTTLGX
CTVPTWRT	CTVSACIN	CTVSELNM	CTVSTMDS	CTVTXIIO
CTVPULOG	CTVSACIO	CTVSELPC	CTVSTMED	CTVTXIPR
CTVPXRIO	CTVSACKD	CTVSELRP	CTVSTMIO	CTVTZCON
CTVPXRPL	CTVSACQU	CTVSELRQ	CTVSTMMC	CTVUDCFM
CTVPXRRX	CTVSACSC	CTVSELSC	CTVSTMML	CTVUDCP
CTVQASVC	CTVSAMIO	CTVSELTA	CTVSTMMM	CTVUDFIO
CTVQBKLG	CTVSAMSC	CTVSELTP	CTVSTMPA	CTVUDLT
CTVQCONV	CTVSATIO	CTVSELWO	CTVSTMSS	CTVUPSEL
CTVQCRDT	CTVSATSC	CTVSELXX	CTVSTMT	CTVUSGFM
CTVQDLSB	CTVSAXRF	CTVSEQCO	CTVSTMTR	CTVVDCKD
CTVQDLSP	CTVSBEDT	CTVSEQED	CTVSTM1	CTVVRBIO
CTVQEVDL	CTVSBED2	CTVSEQIO	CTVSTOTA	CTVVSMLD
CTVQEVNT	CTVSBQUE	CTVSEQQU	CTVSTOTR	CTVVSPUT
CTVQFBCC	CTVSBSBB	CTVSEQSC	CTVSUBBY	CTVWASPC
CTVQFBYR	CTVSBSCM	CTVSERVC	CTVSUBEQ	CTVWCADJ
CTVQINPT	CTVSBSVC	CTVSESCH	CTVSUBIO	CTVWMSPC
CTVQIUSP	CTVSBYTL	CTVSESSN	CTVSUBMT	CTVWOBLK
CTVQMCIC	CTVSCATG	CTVSFSSC	CTVSUBNO	CTVWOBRO
CTVQMEMO	CTVSCDSC	CTVSGNON	CTVSUBRQ	CTVWOCVT
CTVQNPAY	CTVSCEDT	CTVSHDLR	CTVSUBRX	CTVWODSP
CTVQNTRK	CTVSCHED	CTVSHFTL	CTVSUBSR	CTVWOEDT
CTVQPADJ	CTVSCHIO	CTVSHFTR	CTVSUBZ	CTVWOED2
CTVQPASS	CTVSCHIT	CTVSI2SC	CTVSUBZC	CTVWOED3
CTVQPMON	CTVSCICS	CTVSLCHR	CTVSVCDL	CTVWOHIS
CTVQPRNT	CTVSCIDX	CTVSLINT	CTVSVCED	CTVWOINP
CTVQPROC	CTVSCKED	CTVSLPRS	CTVSVCGT	CTVWOIO
CTVQPYMT	CTVSCKIO	CTVSLSRT	CTVSVCMT	CTVWOPFM
CTVQROUT	CTVSCKSC	CTVSLSVC	CTVSVSPL	CTVWOPRC
CTVQSIO	CTVSCNIO	CTVSMPIO	CTVTABLR	CTVWOPRR
CTVQSVCC	CTVSCRN	CTVSMPKY	CTVTABS	CTVWOQUE
CTVQTAPD	CTVSCSCU	CTVSOSMD	CTVTABS	CTVWOREJ
CTVQUEIO	CTVSCSSP	CTVSPADF	CTVTAPFM	CTVWOSCH
CTVQUESP	CTVSCUCM	CTVSPLIO	CTVTDRCV	CTVWOSCR
CTVQXFER	CTVSDTCP	CTVSQXIO	CTVTDUPL	CTVWOTA
CTVQXFRS	CTVSDTIO	CTVSRDFM	CTVTEDDY	CTVWOUPD
CTVRCMSG	CTVSECUR	CTVSRDWR	CTVTEST	CTVWOVAL
CTVRCVIO	CTVSEDSC	CTVSRQIO	CTVTHNDL	CTVWOWBB

Schedule 1.21 – Page 9

CTVWRKUP	CTWRKPCI	CXCLBFRM	CXTMPAS2	JTCCNXFL
CTVWRTLG	CTWRKRSP	CXCNTCNV	CXUCTEXT	JTCDEDIT
CTVWSCHS	CTWRKXFR	CXCNVEXT	CXVANCTL	JTCEINVC
CTVWSDMV	CTWRORPT	CXCNVFRM	CXWKOEXT	JTCEPACK
CTVXCIDS	CTWRTOFF	CXCNVUPK	CXWKOFRM	JTCFFRPT
CTVXLIST	CTXFRMST	CXCNVVAL	CXWKOSCK	JTCGDFRP
CTVXPAED	CTXPACUP	CXCOLEXT	CXWKOUPK	JTCMARLD
CTVXPAIO	CTXPAEVL	CXCUSEXT	CXWOHCPY	JTCMARUP
CTVXPAND	CTXPAEX1	CXCUSFRM	DBCCUSEX	JTCMBNUP
CTVXPASC	CTXPAEX2	CXDISCNV	DBPLAGST	JTCMBRLD
CTVXPLSC	CTXPALOD	CXDTEPAS	DBPLCUST	JTCMBRRP
CTVZASDU	CTXPAMON	CXDTPSSR	DBPLHSAC	JTCMBRUP
CTVZIPCV	CTXPAMRG	CXEVTEXT	DBPLHSEQ	JTCPAYFM
CTVZIPFX	CTXPAMRP	CXEVTFRM	DBPLSTNM	JTCRGRXP
CTVZIPIO	CTXPAPRG	CXEVTUPD	DBPULCUS	JTCRGSTR
CTVZIPRT	CTXPARPT	CXEVTUPK	DESCSQSH	JTCRIPFM
CTVZNCKD	CTXPASUM	CXEVTVAL	ESPINTR	JTCRIPOT
CTVZPCNV	CTXPAUPD	CXFINCNV	EZPRINT	JTCRIPRP
CTVZPINT	CTXPAUPD	CXFINEXT	FDCIKCP	JTCRPTDS
CTVZSEDT	CTXPCCMG	CXFINRTN	FDRAITCT	JTCRPTD1
CTVZVTAM	CTXSORT	CXFTPINP	FDRAITVX	JTCSYPXL
CTWAPULL	CTX100	CXHSEEXT	FDRALLOC	JTCTBPXL
CTWJOBLD	CTX110	CXHSEFRM	FDRCBCT0	JTCTRNFM
CTWOAUDT	CTX150	CXHSESCK	FDRCMCT0	JTCTUGBD
CTWOCUP	CTX203	CXHSEUPK	FDRCOMPR	JTCTUGMG
CTWODATE	CTX250	CXHSEVAL	FDRNULL	JTCXLAT2
CTWOHUPD	CTX300	CXMONEXT	FDRSORT	JTCXLAT5
CTWOLOAD	CTX350	CXORCCNV	FDRSPOOL	JTCXLCCS
CTWOPPDM	CTX350A	CXORDEXT	FDRTOCP	JTCXRFLD
CTWOPPD2	CTX360	CXPAJEXT	FDRTSP	JTCYCMRG
CTWOPRDR	CTX370	CXPCTEND	GETVOL	JTLGSPLT
CTWOPRFL	CTX380	CXPCTEOJ	GETVOLS	JTLTRHED
CTWOPRNT	CTX90200	CXROWCNT	G1CPC10	JTPAYEXT
CTWOPRPT	CTZIPBR9	CXRTYEXT	G1CPC20	JTPAYHST
CTWOPRSL	CTZIPCAL	CXSACEXT	HGVOUTJ1	JTPMTMGR
CTWOPRT1	CTZIPDEN	CXSBBFRM	HPFILPGM	JTPMTRPT
CTWOPRT2	CTZIPEXT	CXSCHEXT	HPRPTPGM	JTPMTSPR
CTWOPSEL	CTZNTHIN	CXSEQEXT	INDEX	JTPMTSPT
CTWOPWSM	CT3060CH	CXSRTBLD	INDEX	JTPMTSWS
CTWOPWS2	CT3060QT	CXSUBEXT	INFORPT2	JTPTRANS
CTWOREAD	CT3060RP	CXSUBSCK	INFOTES1	JTSTMCMR
CTWOSORT	CXADJEXT	CXSUBUPK	INFOTES2	JTVASGEN
CTWOUPD	CXBASECD	CXSUPER0	JTCAGGMG	JTVCTBLD
CTWOWRIT	CXBLDEXT	CXSUPER1	JTCAGGRP	JTVESLOG
CTWPULL4	CXBLKEXT	CXSVCEXT	JTCAGGTR	JTVFONKY
CTWRKLOB	CXCLBEXT	CXTMEPAS	JTCARCCS	JTVMARCP

Schedule 1.21 – Page 10

JTVMARED	OPRPRINT	TTATCTOT	TTDSPULL	TTPC0070
JTVMARIO	PDSPRINT	TTATC306	TTDSRRPT	TTPC0075
JTVMBRCP	PHONCODE	TTATNTRY	TTDUPETA	TTPC0080
JTVMBRED	PROCPRNT	TTBLDPAS	TTDWNCBL	TTPC0090
JTVMBRIO	PROCSCAN	TTBLECTL	TTEDTCI	TTPC0100
JTVMBRNO	RNSELEXT	TTBLKPAS	TTESIDIN	TTPC0300
JTVMBXIO	RPTCOPYS	TTBLKREC	TTESSCIN	TTPHSPL1
JTVMPHCP	RPTCOPYX	TTBRISFR	TTEVTPAS	TTPHWRPT
JTVMPYCP	RRMATCHR	TTBTPRPT	TTEXSTMR	TTPLMTCH
JTVMSRCH	RRPULLER	TTCACBIN	TTFINPAS	TTPSASFM
JTVNAMCD	RSETVSAM	TTCACBRF	TTFRMTYP	TTPTEDIT
JTVNAMLN	SAPAMPSC	TTCACBTO	TTGCBOT	TTPTPRNT
JTVNAMSC	SAPSAPEN	TTCCPCAP	TTGEOEXT	TTPTPROC
JTVPCFIO	SAPSAPPS	TTCDEDIT	TTGLTPAS	TTPTRPTS
JTVPYHIO	SAPSAPRT	TTCESACT	TTGSCMT	TTPULEVT
JTVSCNIO	SAPSAPRU	TTCESAEC	TTGSCTMR	TTPULRTM
KMVOUTVN	SAPSAPSD	TTCESGRF	TTGWCONV	TTPULSEL
LESTER	SAPSAPSN	TTCESMOD	TTGWCRBU	TTPULSUB
LTRSNAME	SAPSAPST	TTCESMOW	TTGWPPV	TTPUL308
MABADATE	SAPSAPSU	TTCESPLY	TTGWSUBS	TTPURPUL
MC2PINTR	SAPSAPUT	TTCESPRM	TTHSECPY	TTROPID
MRCHREAD	SCANMOD	TTCESREQ	TTHSEPAS	TTROYPUL
MSBILLUP	SCANMOD	TTCESVWC	TTHSESTP	TTRPTCI
MSCLNYPT	SETSSI	TTCEXATC	TTHSEUPD	TTRPT6
MSCLNYRP	SISMERGE	TTCLBUPD	TTIRUPDT	TTRTYPAS
MSCSFINT	SISTOTAL	TTCNREXT	TTKSETRN	TTSACF
MSDIRINT	SPLPRGE2	TTCNTUPD	TTKSOACT	TTSAXSUB
MSEDTRPT	SQEZALFA	TTCNVPAS	TTLABELS	TTSBCVDM
MSEDTRSL	STLOOKUP	TTCNVUPD	TTLABFMT	TTSBCVDT
MSESPRPT	TCASEBCD	TTCONVPL	TTLABRMT	TTSCHADT
MSMS00	TCDLRCPR	TTCRSYNC	TTMDOBIL	TTSCHBLD
MSNA00	TCDLRRPT	TTCSELTR	TTMDOEDT	TTSCOBAL
MSPDINTR	TCDLRRP1	TTCSOXLT	TTMDOSTR	TTSCOTRM
MSPREDIR	TCSHOEXT	TTCSPREX	TTMONEXT	TTSELCI
MSPRERSL	TCSHOVIA	TTCSWEEP	TTOCKRSP	TTSETTL1
MSPSTNET	TCSHOWAT	TTCTAMDA	TTORDPAS	TTSICTL
MSPS00	TEST	TTCTAMDB	TTPAJPAS	TTSPAEXT
MSRESRPT	TSG@@WTR	TTCTKRHS	TTPARMRG	TTSRPROG
MSRPSTMT	TTACTNO1	TTCTKRPV	TTPARTOT	TTSSART
MSRPSUMS	TTACTNO2	TTCTKRSE	TTPASSWD	TTSSECUR
MSRP00	TTADDBRK	TTCVTXDT	TTPAYXFR	TTSTDATA
MSST00	TTADJPAS	TTCYCUPD	TTPC0010	TTSUBDMP
MSSYSPRN	TTAMWMON	TTDB2EXT	TTPC0030	TTSUBPAS
MSZIPCOD	TTAMWTAX	TTDISRPT	TTPC0040	TTSUBSEL
NAMSWTCH	TTATCMRG	TTDLEVNT	TTPC0050	TTSUBSTP
NEWFILE	TTATCPAS	TTDLQEXT	TTPC0060	TTSUBTAP

Schedule 1.21 – Page 11

TTSUBYTD	TVIDXXFR	VTS300I	VXATHFMT	VXCSTMT5
TTSVCPAS	TVRESTOR	VTS300K	VXATHSPS	VXCSTMT8
TTSW306	TVSNTRT	VTS300L	VXATHUSA	VXCYCRPT
TTTAX110	TVUPSUBR	VTS300M	VXATRANS	VXDALPHA
TTTBCPAS	TVVASGEN	VTS300O	VXBACUP	VXDATER
TTTELSUB	TVVCPTBL	VTS300P	VXBCHMON	VXDBPRTR
TTTEVENT	TVVMONCC	VTS301	VXBCHPRT	VXDELQIO
TTTHEFT1	TVVOUTDC	VTS310MN	VXBILDAT	VXDNRBLD
TTTHEFT2	TVVWOIO	VTS320MN	VXBILLIO	VXDONBLD
TTTNVPAS	TVVZPINT	VTS600	VXBILLUP	VXDSCACT
TTTOTRPT	UPDTDATE	VTS610	VXBILRPT	VXEDSPLT
TTTRNLST	UPMS00	VTS620	VXBLDSLS	VXEDTRPT
TTTRN045	UPNA00	VTS630	VXBSPUL1	VXEFTCNG
TTTRN046	UPPS00	VTS635	VXCANRPT	VXEFTMTH
TTTWHPS1	UPRPSTMT	VTS640	VXCBORFD	VXEFTPAY
TTTWHPS2	UPRPSUMS	VTS650	VXCCDRFD	VXEFTTRN
TTUNSUBM	UPRP00	VTS660	VXCCDUPS	VXEPMAST
TTUPREAD	UPST00	VTS670	VXCCRPTS	VXEXPCON
TTVCNVWS	VCOMPRES	VTS680	VXCCXREF	VXEXPGRA
TTVDATER	VGEO005	VT300MS	VXCHBRPT	VXEXPPUL
TTVINOS	VGEO010	VT301MS	VXCHBRPT	VXEXTUPD
TTVINRC	VGEO025	VT302MS	VXCHDM2	VXFDPRM
TTVINUW	VGEO040	VT303MS	VXCHDM4	VXFICHE
TTVINZV	VGEO050	VT304MS	VXCHDM9	VXFILBLD
TTVINZ7	VGEO100	VT305MS	VXCHKREO	VXFILCOD
TTVOUTOS	VSAMLOAD	VT306MS	VXCHKRFD	VXFILLOD
TTVOUTRC	VSAMPUT	VT307MS	VXCHPROM	VXFILPUL
TTVOUTUW	VSCMACCT	VT308MS	VXCHRACT	VXFINDTL
TTVOUTZV	VSCMEDIT	VXACCRPD	VXCHRGBK	VXFINRPT
TTVOUTZ7	VSCMIC	VXACCRPW	VXCNTRY	VXFUFLPL
TTVOVRID	VSCMRNDX	VXACTDMP	VXCOFMNT	VXFUFNJE
TTVRBRIO	VSCMRTR	VXACTNO1	VXCPM004	VXFUTDCN
TTVRENUM	VTS100	VXACTSTA	VXCPM006	VXGENVES
TTVSECRU	VTS101	VXACTUPD	VXCPM008	VXGLUPDT
TTVVWLST	VTS105	VXADITAP	VXCPM014	VXGNLDBD
TTVZIPFX	VTS110	VXADJFMT	VXCPM016	VXHDREDT
TTVZIPRT	VTS110C	VXADJRES	VXCPM018	VXHDRED2
TTWKOPAS	VTS120	VXADKEY	VXCRDRPT	VXHDRED3
TTWKOUPD	VTS120N	VXADMDIS	VXCRTAMT	VXHLDFLG
TTWOPRPT	VTS200	VXALMRGE	VXCSRPUL	VXHLDRPT
TTZIPDEN	VTS250	VXALMTCH	VXCSRRPT	VXHRDSUB
TTZIPEXT	VTS250N	VXAMREPT	VXCSTMTR	VXHSTUPD
TVBACUP	VTS300	VXAPDECL	VXCSTMT1	VXINSTAT
TVFREAD	VTS300C	VXASACTV	VXCSTMT2	VXINTFCE
TVFREAD2	VTS300E	VXATHAMX	VXCSTMT3	VXINTLAD
TVFWRIT	VTS300G	VXATHDEC	VXCSTMT4	VXIPTPOP

Schedule 1.21 – Page 12

VXITEMIO	VXOQCCTP	VXPRMSND	VXSIPERR	VXTS301
VXKEXIT	VXOQLKTP	VXPRMSN1	VXSIPSHT	VXTS600
VXKIOTSQ	VXOQPRTP	VXPROCUM	VXSISMER	VXTS610
VXKSECUR	VXOQSBTP	VXPROMER	VXSISTOT	VXTS620
VXLEDGIO	VXOQSTTP	VXPROMO	VXSLSRPT	VXTS630
VXLTREDT	VXORDFMT	VXPROMTB	VXSNTRT	VXTS635
VXLTRMRG	VXORDRPT	VXPROPUL	VXSRECAP	VXTS640
VXLTRPUL	VXORDTRK	VXPROSMD	VXSSEDIT	VXTS650
VXLTRUPD	VXOREJER	VXPROSMM	VXSTAPRO	VXTS660
VXLUSER	VXOSKLTN	VXPROSMW	VXSTATR1	VXTS670
VXMALPHA	VXOSKLTP	VXPRSMRT	VXSTDLTS	VXTTXINP
VXMATCH	VXOSTXAD	VXPRSTMA	VXSTMEDT	VXTXDLTS
VXMATSUB	VXOSTXED	VXPTRANS	VXSTMP4A	VXUDFAUD
VXMEMO	VXOSTXIO	VXPULCON	VXSTMSRT	VXUDFBLD
VXMEMPUL	VXOSTXIQ	VXPULMON	VXSTMT4A	VXUDFEDT
VXMEMUPD	VXOSTXTP	VXPULPEN	VXSUBPUL	VXUDFFE
VXMMBRED	VXOSTXUP	VXPULREF	VXSVCIO	VXUPDATE
VXMMBRUP	VXOV0MS	VXPULSCX	VXSVCMST	VXUPSUBR
VXMM012	VXOV1MS	VXPUL302	VXSVCPUL	VXUSATRN
VXMM020	VXOV2MS	VXQTYRPT	VXSVCSND	VXUSGRPT
VXMONBLD	VXOV3MS	VXREFRPT	VXSVCXCP	VXUSGSND
VXMONLTR	VXOV4MS	VXREJPUL	VXSW306	VXUSXREF
VXMONMTA	VXOV5MS	VXRESTOR	VXTAXXCP	VXVAJEDT
VXMONPUL	VXOV6MS	VXRNLSPT	VXTAX100	VXVAJENT
VXMRGSVC	VXOV7MS	VXROMRPT	VXTAX105	VXVALPHA
VXNKRPTS	VXOV8MS	VXROYADD	VXTAX110	VXVANEDT
VXNMMEMO	VXO300C	VXROYCUM	VXTAX120	VXVASGEN
VXNMONBT	VXO300E	VXROYFIN	VXTAX260	VXVBSDSP
VXNMONPL	VXO300G	VXROYRPT	VXTAX300	VXVBUILD
VXNOMO	VXO300I	VXROYSRT	VXTBLPRO	VXVCHDCP
VXNRFRPT	VXO300K	VXROYSUB	VXTBLRNW	VXVCKDGT
VXOCUSIO	VXO300L	VXRPTCPY	VXTBLSVC	VXVCRYPT
VXOCUSTP	VXO300M	VXRPTPRT	VXTELEDT	VXVCSRCH
VXOFFTRN	VXO300O	VXRPTSND	VXTELINP	VXVCTLF0
VXOINSTP	VXO300P	VXRPT1	VXTHLCPY	VXVCTYST
VXOLSRPT	VXPACKIO	VXRPT11A	VXTMEDIT	VXVDUFRP
VXOMEMAD	VXPASSWD	VXRPT11B	VXTMPRG	VXVDUPLX
VXOMEMCH	VXPCTYPE	VXRPT13	VXTOTSIO	VXVEDREO
VXOMEMIO	VXPHXREF	VXRPT2	VXTPFMTR	VXVEDSPL
VXOMEMTP	VXPRDISC	VXRPT2A	VXTRINPL	VXVEDTBL
VXOOLPTP	VXPRECAP	VXRPT2B	VXTSTDTR	VXVENROL
VXOOLSDR	VXPREDIT	VXRPT8	VXTS100	VXVENTER
VXOOLSER	VXPREDON	VXSCREPT	VXTS101	VXVESLOD
VXOOLSTP	VXPREMRG	VXSEQBIL	VXTS105	VXVFONKY
VXOPPRT	VXPRENJE	VXSEQNUM	VXTS110	VXVFREAD
VXOPSTAT	VXPREPAS	VXSETDAY	VXTS120	VXVFWRIT

Schedule 1.21 – Page 13

VXVGETNO	VXZIPCAL	XXTSTDTR
VXVIPTPP	VXZIPDEN	XXUDFEDT
VXVLETTR	VXZIPEXT	XXVAIP
VXVLNGTH	VXZIPSPA	XXVAUTHI
VXVLTRDK	VXZIPSYN	XXVAUTHO
VXVLTRFM	VX287MEM	XXVBLKDS
VXVLTRNM	VX287PAS	XXVFLECT
VXVLTRPR	VX287RPT	XXVMEMIO
VXVLTRTI	VX288CCD	XXVMEMO
VXVLTRTO	VX288RPT	XXVSMSCM
VXVMGHND	WBCOMMON	XXVSVCTX
VXVMONBH	WBLATETO	XXVXBSCM
VXVMONDS	WBSDMNME	XXVXISCM
VXVMONIO	WCFRMMRG	XXVXUEDT
VXVMONPY	WMBMONTH	XXVXUSCM
VXVMONTL	WTOR	ZIPBARCD
VXVNAMES	XREFPULR
VXVNAMEV	XVALMTCH
VXVNMNIO	XXATHORD
VXVNOMON	XXBITMAP
VXVOLSND	XXCSTMT6
VXVPHCKD	XXCSTMT7
VXVPRMDS	XXCSTMT8
VXVPROIO	XXDATER
VXVPSRCH	XXDONRBL
VXVRCMSG	XXEPSINS
VXVREOIO	XXFORMS
VXVSAVVY	XXMRCHCD
VXVSBSCM	XXMRCHTB
VXVSCHIT	XXOTPXAD
VXVSPTAB	XXOTPXDL
VXVSPZDS	XXOTPXED
VXVSPZIO	XXOTPXIO
VXVSTMIO	XXOTPXIP
VXVSTMT	XXOTPXIT
VXVSTXIO	XXOTPXTP
VXVSUBIO	XXOTPXUP
VXVSYSDF	XXPRODUP
VXVTIMER	XXPRONEG
VXVTPREO	XXPROSPL
VXVTSRCH	XXROYSUB
VXVTUFIO	XXSCATCH
VXWPULL1	XXSIPFRM
VXWPULL3	XXSSPULL
VXZIPADI	XXSSREPT
VXZIPBR9	XXTBLSVC

Schedule 1.21 – Page 14

SCHEDULE 1.25

FDT SERVICES AND FDT CURRENT SERVICE CHARGES

I. FDT Services:

Account Management:

Provide coordination, direction and assistance for problem management related to all FDT Data Center activities regarding problems and changes that impact CSG’s system performance. Account management participates in ongoing discussion and project management efforts to ensure that all FDT activities are in accordance with CSG’s business objectives.

Automation Analyst:

Automation analysts review manual computer operation procedures for possible automation using operator automation tools, primarily Computer Associate’s Automate software. Automated procedures are developed to improve operator manual errors, batch cycle and transmission completion times to meet all agreed Performance Criteria. This group is the primary point of contact for problem determination and resolution regarding automated procedures.

Capacity Planning:

FDT’s capacity planning department monitors current system resource capacity used based on projections provided by CSG for forecasting system resource utilization. The forecasts are presented to CSG as recommendations in capacity plans for CPU, DASD, TAPE indicating trends and possible estimates of how system resources and their use may change.

Technical Services:

Technical Services supports the System Software, CICS and OEM software (excluding the FDT Software) required by CSG to run its applications.

DASD:

The DASD group for FDT continually monitors DASD file placement and availability and provides first level support for all DASD related problems. This group also reviews system storage growth estimates for overall growth and special projects provided by FDT customer business units and the FDT Capacity group.

Data Network Services:

Data Network Services encompasses all components related to the physical equipment used for telecommunications, including, telephone company circuit orders, dial backup testing, performance of circuit outage, dial backup and telephone company escalation for telecommunications related problems and installation and design of new telecommunications equipment and network configurations. Data Network Services provides 24x7 second level support for all network problems and works continually with the Network software group to obtain the optimal level of circuit loading and network capacity for the FDT Data Center.

Schedule 1.21 – Page 1

Disaster Recovery:

Disaster Recovery develops and maintains plans for FDT Data Center recovery. The plans which identify all procedures and resources necessary for recovery are tested with the coordination and cooperation of CSG.

Hardware and Facilities:

The FDT hardware area coordinates installation, upgrades and maintenance for all physical hardware and related critical environmental support facilities (power, water coolers, air handlers, etc.) used by FDT. This area plans and coordinates all vendor required upgrades and preventative maintenance to help ensure that equipment functions in accordance with current Performance Criteria.

Help Desk:

The Help Desk (commonly known as the “CSC” — Customer Support Center) at FDT provides the first point of contact for FDT internal, CSG calls for all system and network related problems. The CSC performs first level problem determination notifying additional technical support as needed.

The CSC will provide 24x7 coverage for calls relating to the FDT Data Center and receive those related calls from CSG’s internal support center.

Data Security:

FDT Data Security team maintains access rules for files, system resource and user id’s. In addition, Data Security performs the above functions for other related OEM software requiring internal product security administration.

Standards:

FDT Data Center standards are supported by the FDT Quality Services area and include revisions to established standards and the preparation of proposals relating to those standards for periodic review by the FDT Standards Committee, which committee includes CSG personnel. The approved standards are then published by Quality Services for online viewing.

Change Management:

Change Management is supported by the Quality Services area and includes a review of all changes for the FDT Data Center. This review is performed to identify conflicts with other changes, missing required information needed for changes, and scheduling/approvals for those changes. Reports listing changes by day and week are published by the Change Management group and are reviewed during regular meetings internally and with CSG to ensure that system changes meet both FDT’s and CSG’s business needs.

Infoman Standard Support Processes:

FDT Quality Services supports administrative Infoman functions relating to the FDT standard problem and change screens and reports.

Schedule 1.25 – Page 2

Mainframe Console Operations:

Operations is responsible for monitoring all Systems Software and the Platform to help ensure continued service to CSG. Operations tracks CSG batch cycle and online processes and reports any Performance Criteria or key indicator impact to appropriate FDT and CSG management personnel. Operations also assists in coordinating the implementation of all approved system changes.

Media Services:

FDT Media Services processes, distributes and mails all output generated by CSG’s applications to CSG, CSG customers and associated vendors. Media forms currently produced are microfiche, magnetic tapes and personal computer diskettes.

Network Software:

The Network Software (VTAM) group installs, maintains and monitors all network software components necessary to support host mainframe data communications as well as specialized hardware components. This group provides support to CSG and its customers for data file transfer, including RJE, NDM, PC download, and IP data transfer methods. This group also provides network capacity plans indicating trends based on projections provided by CSG for forecasting resource utilization.

Performance:

FDT Performance monitors and identifies trends, changes and bottlenecks in system workload. The performance area recommends and implements system tuning changes based on identified variances in system performance and workload.

Problem Management:

Problem management provides resolution and follow-up assistance relating to FDT related problems. Daily and monthly reporting is provided by problem management for tracking by the Parties.

Tape Operations:

Tape operations mounts and re-files tapes for all external tape drives and re-files tapes ejected from tape silos. Tape operations also performs physical maintenance related to tape media, including new tape initialization, tape cleaning, replacement of broken or damaged tapes. Tape operations also resolves tape drive and silo problems.

II. FDT Service Charges:

1. Monthly Service Fees. The fees for FDT Services shall be determined as set forth below and as set out in Exhibits 1 and 2 attached to this Schedule 1.25. Exhibit 2 to this Schedule 1.25 sets forth Sysplex pricing models for High Application Resiliency.

2. Pass-Through Expenses. The costs associated with Data Lines, Postage, Special Projects and Unshared Software are paid by FDT as payment agent for CSG, subject to Section II.3 of this Schedule 1.25. If the Parties agree that any other particular expense is to be paid directly by CSG, FDT will promptly provide CSG with a copy of the third party invoice for such expense. If the Parties agree that FDT shall act as a payment agent for CSG for any other particular expense, FDT shall pay any third party charges comprising such expense, subject to Section II.3 of this Schedule 1.25.

Schedule 1.25 – Page 3

3. Reimbursable Expenses. In addition to any other payments specified in this Services Agreement and to the extent not provided for in this Schedule 1.25, CSG will pay, or reimburse FDT for, all reasonable out-of-pocket costs and expenses incurred by FDT in connection with: (a) travel specifically requested by CSG; (b) any CSG-requested document production; (c) specially CSG-requested courier deliveries; (d) CSG-required preprinted and stock forms; (e) general supplies; (f) third party charges for programming, training, seminars and similar consulting; (g) overtime, additional personnel, products and services required as a result of (i) any federal, state or local regulatory or administrative authority, (ii) third party audit, or (iii) CSG’s internal or external auditors; or (h) any pass-through expenses paid on CSG’s behalf pursuant to Section II.2 of this Schedule 1.25, including costs arising out of all CSG Vendor Software license and maintenance fees, as well as Software requested by CSG and not originally included in this Services Agreement. Any items set forth in this Section II.2 of this Schedule 1.25 that are not specifically requested or required by CSG shall be subject to CSG prior approval, which approval shall not be unreasonably withheld or delayed.

4. Billing. FDT shall bill CSG monthly with a single invoice for all of CSG’s monthly fees and charges. The invoice shall reflect in reasonable detail the total fees and charges of CSG by FDT Service component, and shall be supported by appropriate documentation. FDT shall designate a contact person to answer questions from CSG regarding the monthly invoice.

Schedule 1.25 – Page 4

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

TABLE OF CONTENTS

Page

EXHIBIT 1 TO SCHEDULE 1.25 ^4,6

Year

Item

2003

2004

2005

2006

2007

2008

Processing Fee

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

CPU Rate per MIP¹

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

Out of Bound MIP Rate

DASD Rate per GB

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

(***)

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

Fiche Masters

(***

)

(***

)

Fiche Duplicators

(***

)

(***

)

One-Way Tape Rate

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

Network Services

(***

)

(***

)

(***

)

(***

)

(***

)

(***

)

Disaster Recovery²

(***

)

(Core Services) +

Future

Requirements

(***)+

future

requirements

(***)

future

requirements

(***)

future

requirements

(***)

future

requirements

(***)

future

requirements

Data Lines

**** *******
****

Postage

**** *******
****

Special Projects

**** *******
****

Unshared Software

**** *******
****

Assumed Annual Volume Growth Rates:^3,5

MIPs		(***)%
DASD		(***)%
Tape		(***)%
One-Way Tape		(***)%
Fiche to end 2004

Proposed MIP Pricing Illustration (Early 2004)

	Current Contract		Proposed
Mgmt Fee	(***	)	(***	)
Processing Fee	(***	)	(***	)
LPAR	(***	)	(***	)
MIP Rate	(***	)	(***	)
Incremental MIP Rate	(***	)	(***	)
Total CPU Fees	(***	)	(***	)
Total Monthly MIPs	(***	)	(***	)
Effective Cost/MIP	(***	)	(***	)

Schedule 1.25 – Page 5

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

¹	The Processing Fee covers base MIPs of () per month. Under this Agreement, the CPU rate is only on MIPs above () per month.

$(***) price is for Disaster Recovery Core Services, as such services are set out in Exhibit 3 to Schedule 1.25. Services outside Disaster Recovery Core Services will be provided to CSG at an additional price. Disaster Recovery Care Services above the (***)% band or below the (***)% band (as referred to in Note 5, below) will be provided to CSG at an additional price.

³	Pricing is based on assumed annual volume growth rates. Any variance in assumed annual volume growth rates will change pricing.

⁴	These rates are for technology described in Schedule 1.43 and do not include the costs for new LPARs, job streams or advanced technology. Requests for such new technology shall be deemed requests for Additional Services, as defined by and pursuant to the terms of Section 2.15.

⁵

Re-negotiation of MIP and DASD rates will occur if rolling 12-month growth rates are less than (***)% or more than (***)%. Re-negotiation of tape and one-way tape rates will occur if rolling 12-month growth rates are less than (***)% or more than (***)%. Growth rates will be evaluated January 1 and July 1 during the life of the contract.

^6.

In the event CSG does not continue to provide services to ******* as a Customer, then FDT and CSG agree to act in good faith to enter into negotiations to set a new pricing Schedule 1.25.

Schedule 1.25 – Page 6

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

TABLE OF CONTENTS

Page

EXHIBIT 2 TO SCHEDULE 1.25

******** (CSG4) High Application Resiliency Sysplex Pricing Models

7/22/2003

Model A

2004

2005

2006

2007

2008

Business Unit Level Isolation

One-time Implementation Charge

(***

)

Monthly Charge

(***

)

(***

)

(***

)

(***

)

(***

)

Model B

2004

2005

2006

2007

2008

New ******** LPAR (CSG5)

One-time Implementation Charge

Monthly Charge

(***

)

(***

)

(***

)

(***

)

(***

)

Model C

2004

2005

2006

2007

2008

******** Workload Split

One-time Implementation Charge

(***

)

Monthly Charge

(***

)

(***

)

(***

)

(***

)

(***

)

Note: ******** Sysplex Pricing coverage is shown above for each of the models. Service coverage and isolation of the ******** business is represented as follows: Model A: Two dedicated LPARS using new and dedicated ******** Processing Units; Model B: Two dedicated LPARS using existing CSG processing units; Model C: Use existing LPARS.

Schedule 1.25 – Page 7

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

EXHIBIT 3 TO SCHEDULE 1.25

DISASTER RECOVERY CORE SERVICES

Disaster Recovery Core Services		Current subscription As of August 2003
MIPS
SY2		(***)
VIPA		(***)
CSG3		(***)
CSG4		(***)

TOTAL		(***)

DASD
Volumes		(***)

Tape:
Silo		(***)
*(SunGard – Facility buildout for Silo’s)
Virtual:		(***)
VSM Count		(***)
# Virtual drives		(***)
DASD Cache Drives		(***)

Network		Supports CSG Network infrastructure

Schedule 1.25 – Page 8

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

Schedule 1.43

PLATFORM DESCRIPTION

CSG/Shared

Component

Manufacturer

Model

Serial #

Complex

MIPS

Engines

Storage (MB)

ESCON

Parallel

OSA

CF(1)

CF(3)

LPAR(s)

***

*********

***

********

*****

****

******

***

****

***

*********

***

********

*****

****

******

***

****

******

*********

***

********

*****

****

******

***

****

Section 13

*********

************

*****

****** *

********

****

***** ****

*******

Section 14C *******

***

****

***

*****

***

********* ******** **** ****** **** ** *******

***

****

***

*****

***

********* ******** **** ****** **** ** *******

***

****

***

*****

***

********* ******** **** ****** **** ** *******

***

****

***

*****

***

****

***

*****

***

Section 15C

*******

*********

************

******

**********

********

***

**** ******

***

****

***

**** ******

***

**********

***

**** ******

***

**** ********

***

**** ******

***

****

*********

***

**** ******

***

****** ****

****

Schedule 1.43 - Page 1

***

****

**********

***

****

***

****** **********

***

**** *****

****

***

****

***

***** ****

Section 16

CSG/Shared

Component

Manufacturer

Model

Number

***

*********

********

*******

*********

***

********

******

*********

********

*******

*********

*****

*** *******

***

*********

********

*******

*********

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***

*********

********

*******

*********

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**** ***********

******

*********

********

*******

*********

***

**** *** ***********

16.1 Specifically excludes any equipment owned and operated by CSG

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

SCHEDULE 1.49

SYSTEMS SOFTWARE

Vendor Name

Product Name

Software
Release Levels

Software

License

and

applied to

SY2

Software

License

and

applied to
VIPA

Software

License

and

applied to

CSG4

Software

License

and

applied to
CSG3

*** ******* ********

******

*****

*** ******** ****

************

***** ********

****** ***********

***************

**** ******

****** ***********

******** ** *** ****

*** ******

****** ***********

******** ** *** ***

*** ******

******* ****

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****

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******** ********** ***** ****

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****

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********

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************

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************* ****

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************* **** ******t

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**********

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**********************

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***** **** ******

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Schedule 1.49 – Page 1

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

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Schedule 1.49 – Page 2

SCHEDULE 2.3

CSG-VENDOR SOFTWARE

VERTEX SOFTWARE including: GEO CODER and VERTEX SALES TAX – calculates sales tax at the State, City, Municipality, etc. level. CSG has the right to use the VERTEX SOFTWARE under a license granted to Time Warner Satellite Services, (a/k/a Time Warner Publishing Co.). CSG may access and use the VERTEX SOFTWARE for Time Warner’s business purposes only.

GROUP 1 SOFTWARE including: CODE 1+, Code 1+ Canadian, Bar Coded Bag Tray Option, MAILSTREAM +, DESKTOP MAILSTREAM+, and ARCLIST/ONLINE/TIME SHARING – used to perform various addressing and sorting functions for mailing statements to subscribers of CSG Clients.

VERSION MERGER – a software package that allows source modules to be checked out of a library and manages the merging of multiple program versions.

XENOS – statement format product.

PROTERM TransCentury Enterprise Tester– simulates transactions and scripts for volume testing.

C-CUBED, INC. – development product used to write code on a PC and then upload to the mainframe system for production implementation.

Schedule 2.3 – Page 1

SCHEDULE 2.3A

FORM OF CSG-VENDOR SOFTWARE LETTER

[TO BE PREPARED ON CSG LETTERHEAD]

April 1, 2000

First Data Technologies, Inc.

6200 South Quebec Street. Ste. 335

Englewood, Colorado 80111

Re:

Second Amended and Restated Services Agreement between First Data Technologies, Inc. and CSG Systems, Inc. dated as of April 1, 2000 (“Services Agreement”)

Ladies and Gentlemen:

Reference is made to Section 2.3 of the above-referenced agreement. All capitalized terms not otherwise defined in this letter shall have the meaning set forth in the Services Agreement.

In accordance with Section 2.3 of the Services Agreement, we hereby notify you that CSG has obtained at its sole cost and expense all rights necessary for FDT to access, operate (at or from any location where FDT will provide the FDT Services), and modify the CSG-Vendor Software to provide the FDT Services pursuant to this Services Agreement.

Very truly yours,

[NAME TO BE INSERTED]

Schedule 2.3A – Page 1

SCHEDULE 2.9

OPERATING PROCEDURES

1. ACCOUNT MANAGEMENT

FDT

CSG

• Provide quality control on Performance Criteria and key indicators.

• EnsurePerformance Criteria and key indicators are communicated to CSG.

• Provide status and statistical reporting to help ensure Services Agreement compliance

• Conduct regular quality of service review meetings.

• Help ensure technology concerns are closely linked to business decisions.

• Identify open issues and future plans through ongoing discussions with CSG management personnel.

• Include client in change control planning and IPL control planning meetings.

• Ensure FDT is aware of all data processing

/telecommunications implemented by CSG affecting production batch, onlines and network.

• Adhere to established change control and problem management methodologies for application changes. (INFOMAN/Development calendar) Provide representation for change control and problem management planning meetings.

• Communicate changes to business that may require alteration of Performance Criteria and key indicators.

Schedule 2.9 – Page 1

2. OPERATIONS AUTOMATION

FDT

CSG

• Investigate the possible elimination of all manual computer operations intervention.

• Coordinate implementation of new operator automation procedures between all affected departments.

• Maintain operation automation software in a dynamic environment.

• Work issues pertaining to Performance Criteria using operator automation tools where applicable.

• Develop automatic controls around the transmission environment that would escalate lateness or problem situations.

• Propose the appropriate course of action for research, development, implementation and problem resolution of operator automation issues.

• Review and resolve any problems with automated procedures.

• Create RFSin INFOMAN to request specific automation changes or enhancements.

Schedule 2.9 – Page 2

3. CAPACITY PLANNING

FDT

CSG

• Based on receipt of 90 day rolling MIPS capacity report from CSG, FDT will provide CSG with 90 day rolling MIPS capacity forecast

• Gather resource usage for existing applications from SMF, RMF, NETVIEW, DASD monitoring software and tape.

• Identify how resources may grow.

• Apply resource usage and estimate CPU, DASD, Tape, FDT network components or other resources from business unit assumptions.

• Estimate total resources required (CPU, DASD, and Tape).

• Monitor and provide reports for trends in workloads. Recommend trending for workloads that do not have a specific estimate.

• Summarize capacity plan by customer and seek approval from customer’s management.

• Present consolidated customer plans to FDT management.

• Application capacity planner must provide MIP, Subscriber and DASD information on a rolling 90-day forecast one month before end of each quarter to include information in capacity plan.

• Document dates of major software implementations.

• Document all assumptions which include how resource utilization will grow for identified areas.

• Provide monthly volume growth rate.

• Approve FDT Data Center capacity plan.

• Create change record in INFOMAN to request specific changes or enhancements.

• Build Capacity plan for MIPS

Schedule 2.9 – Page 3

4. CICS ON LINE SOFTWARE

FDT

CSG

• CICS installation, customization, tuning, application of PTFs, table maintenance.

• Support CICS disaster recovery.

• Build new CICS regions as requested.

• Design and implement CICS direction.

• Monitor all production CICS regions and note exceptions.

• Provide debugging and problem resolution assistance for application programming staff when requested.

• Tech Services will triage all region abends.

• Tech Services will research host response in production issues.

• Tech Services will assist with transaction abends upon request.

• Tech Services will research all exceptions to Performance Criteria.

• Participate in department education practices and provide workshops on materials and information obtained. (In-house, IBM external and vendor supplied).

• Evaluate new products.

• Data set contents (dumps) cleanup/copy.

• Create and maintain documentation within the CICS team.

• Create documentation to educate the technical services staff.

• Create documentation within INFOMAN for problem understanding and future tracking.

• Maintain accurate software inventory listing.

• Maintain software at vendor’s supported releases.

• Jointly evaluate and recommend Max Task and T Class parameters for CICS.

• Applications (or Q/A) is responsible for its loadlibs: cleanup old versions, sizing, compression, backups.

• Each application group is responsible for completing the correct paperwork for normal table maintenance along with the correct parameters for the usage of the table entry (i.e., CICS region/notification of entries that will have abnormally high usage).

• Each application group is responsible for identifying correctly the requirements for new CICS regions when requesting the same, including, region size, table entries, customization, etc.

• CSG should contact Applications as the first point of contact for transaction ASRA (s) and Abends.

• CSG should contact Applications as the first point of contact for Short on Storage conditions.

• CSG should contact Applications immediately for storage violations along with FDT Tech Services and both groups will investigate the dumps.

• Evaluate host response issues that may be caused by application issues in production regions.

• Use supplied monitoring tools to report on and analyze applications.

• All Genisys Software.

• Recovery/synchronization of all on-line application data sets at DR.

• Advantis: assignment of valid LU names that follow auto-install standards.

• Adhere to established change control methodologies for applications changes (INFO/MAN and Development Calendar).

• Create documentation within INFOMAN for problem understanding and future tracking.

• Run traces for troubleshooting application problems.

• Provide reasonable written notice (30 days) for the creation and/or major modifications to the CICS environment.

Schedule 2.9 – Page 4

5. DASD

FDT		CSG
DASD Capacity Planning 1. Review the forecast provided by CSG and determine hardware requirements. a. Analyze current DASD availability. b. If necessary, outline increased DASD to be purchased. c. 2 Execute the approved proposal. a. Order and install DASD. b. Initialize and configure DASD.		DASD Capacity Planning: 1. Project quarterly DASD requirement forecasts with changes and refinements noted. a. Develop requirements for new and existing projects and special projects. 2. Distribute forecast to FDT and conduct formal review.

File Monitoring/Maintenance: 1. Provide reporting to assist CSG with file maintenance and monitoring. Review and discuss with CSG changes necessary to enhance performance or alleviate problems and implement decided plan for change. 2. Allocate production VSAM files as requested by CSG, determine sizing and placement from attributes in request. 3. Implement and maintain software that manages DASD at the dataset and pool level. Review with CSG changes necessary for problem resolution, enhancements, conversions or growth and implement decided plan for change. 4. Monitor all production batch and online files for extents daily and make changes to alleviate any space problems. 5. Monitor for High RBA.		File Monitoring/Maintenance: 1. Monitor GDG bases and sequential files for allocation, sizing, and attributes to enhance performance and prevent problems. Initiate review with FDT to discuss recommended changes and determine implementation plan. 2. Provide change control or form to FDT with necessary specifications for production VSAM files. 3. Allocate and size production GDG bases and sequential files. 4. Implement and maintain daily cleanup jobs on test, work and GDG volumes. 5. Review extent reports. 6. Review and monitor High RBA reports. 7. Review and monitor Last Reference Date Reports

Monitor DASD Usage: 1. Review DASD pools for performance and sizing, discuss suggested changes with CSG and implement decided plan for change. 2. Research and recommend software packages. 3. Monitor freespace and CI/CA splits.		Monitor DASD Usage: 1. Review suggestions with FDT to determine final resolution to necessary changes. 2. Review and Monitor files. 3. Monitor freespace

Production Support: 1. Provide first level oncall support for DASD and storage software issues. . 3. Provide support on restore/recall problems. 4. Review and resolve any problems with DASD procedures.		Production Support: 1. Provide first level support for applications issues. 2. Review suggestions with FDT to determine final resolution to necessary changes. 3. CMA spool, BUNDL(RMS) administration. 4. Create change records in INFOMAN to request specific changes for enhancements. 5. Review and resolve any problems. 6. Perform weekly library compression and defrag routines, determining the applicable candidates.

Schedule 2.9 – Page 5

6. DATA NETWORK SERVICES

FDT

CSG

• Place orders with telephone companies for data circuits as required.

• Maintain network availability for all client data connections.

• Provide monthly dial back up line testing for all circuits having these features.

• Perform monthly data line billing review and audits. Approval of all data line invoices.

• Order, test and install all data communications hardware associated with client orders.

• Administration and monitoring of all network management systems for clients. This includes Racal NMS400 system used in the network control center.

• Provide 24X7 NCC second level support for all clients.

• Perform all required disaster recovery testing for each client as directed.

• Enter appropriate change control records.

• Review/approve change control records.

• Develop and distribute all problem report and network performance information used to produce client Performance Criteria statistics.

• Joint responsibility with network software group for circuit loading and network capacity planning.

• Represent Telecommunications in all scheduled and required client performance/status meetings.

• Vendor management of data network service providers which terminate at Millennium.

• Telephone company service escalation’s at all levels.

• Provide client quotes for pricing of new data lines and/or other network services.

• Second level support for protocol converter troubles and configurations as required.

• Arrange for any internal wiring or connectivity as required from telecommunication on demarc to DTE equipment within Millenium building

• Submit telecommunications service changes/requests for all new installations, changes, deletions or information regarding data network services and price quotes.

• Place orders with telephone companies for data circuits as required.

• Provide internal local security and access to installed data communications equipment in specified secured areas.

• Install dial back up analog lines at remote customer locations when required.

• Purchase hardware such as modems and csu/dsu’s when not provided by FDT.

• Physically replace failed modems and communications equipment at remote sites which are CSG owned

• Provide third level support for all clients.

• Assist FDT personnel as needed in the local troubleshooting CSG provided communications equipment. i.e. modems, sharing devices.

• Arrange for any internal wiring or connectivity as required from telecommunications demarc to DTE equipment at client sites.

• Enter appropriate change control records.

• Third level support for protocol converter troubles and configurations as required.

• Support new client installations and/or upgrades to existing configurations.

Schedule 2.9 – Page 6

7. DISASTER RECOVERY

FDT

CSG

• Develop and maintain DR plans for initial response and recovery of the Data Center including, Disaster Recovery Management Team, Recovery Site Team, Telecom Team, Quality Services Team, Administration Team

• Maintain Recovery contract and administer costs to business unit

• Ensure all business units have appropriate hardware to receive their application or if such hardware is not required, have such business units acknowledge such non-requirements.

• Coordinate and plan DR tests for CSG.

• Document the recovery test plans, post mortem and track problem/resolution.

• Assist business units where possible with their planning efforts.

• Assist if requested, in business units’ business recovery planning efforts

• Ensure offsite storage audits are performed quarterly.

• Assist business unit in their implementation of the data set tracking tool.

• Restore CSG’s production environment including the database data but not the production application data for recovery testing

• Develop and maintain technical recovery plans: Technical support (MVS), (CICS), Software Telecommunications, Hardware Telecommunications, Operations support, Quality Services

• To recover the system, the following areas shall have the following responsibilities:

• MVS: recover the operating system with the appropriate software

• Define, restore and back up of Code1+ Files

• DASD: provide full volume backups of System, and CSG Applications Software volumes for CSG. Also maintain the VSAM allocation process. At time of disaster or testing, restore the system volumes, CSG Application Software volumes and execute the VSAM allocation process

• CICS: recover the CICS software

• Software/Hardware/ Telecom: recover the subscribed to telecom network

• Supply recovery testing requirements in the form of goals and objectives

• Document and maintain the application recovery plan for the product

• Participate in the hotsite recovery testing by supporting the applications and their clients

• To backup and send offsite, CSG Application Data

• Recover application data for testing and in the event of a disaster (which includes the forward recovery of CICS.)

• If there is any additional data that CSG wants FDT to be responsible for backing up and recovering for disaster recovery, CSG shall submit these requirements in writing to FDT, and FDT must agree in writing to the additional requirements.

• Develop, maintain and test its business recovery plans

Schedule 2.9 – Page 7

8. HARDWARE AND FACILITIES

FDT

CSG

• Coordinate the installation and/or upgrade of the requested FDT Data Center hardware with the vendor and all business units serviced by the FDT Data Center.

• Coordinate the installation and/or upgrade of the FDT Data Center hardware microcode, to current and supported levels.

• Evaluate vendor hardware related to the operations of the FDT Data Center and the business unit needs.

• Maintain a current floor plan of the FDT Data Center.

• Maintain hardware configuration documentation related to the hardware installed in the FDT Data Center.

• Manage and maintain the power plant which support the FDT Data Center and will provide a configuration to support the continuous 24x7x365 operation of the FDT Data Center businesses.

• Manage problem and change records within INFOMAN.

• Determine hardware requirements and submit a formal request to FDT quarterly.

• If MIPS available, all requests for hardware and/or facility changes require 60 days prior written notice to FDT.

• Approve change requests on a timely basis for hardware improvements.

Schedule 2.9 – Page 8

9. HELP DESK

FDT

CSG

-Responsible for triaging first level data communications, hardware and software related issues.

-Responsible for performing hardware dispatch and follow-up.

-Provide assistance to CSG in order to assist in resolution of second level and higher online software, system software and network related issues.

- -Responsible for providing critical situation notifications to CSG management. Notifications to be performed on a 7x24 basis.

-Responsible for providing 30 minutes status notifications throughout the life of all critical situations (life of problem means the time the CSC is aware of a critical problem until the impact to client has ceased). This notification is performed on a 7x24 basis.

-Main point of contact for all external customer calls regarding online software, system software, network related issues, and all CSG application software issues.

-Responsible for coordinating and resolving new customer installation issues.

-Responsible for coordinating and resolving first, second and higher level application software, addressability and other external customer interfaces.

-Responsible for coordinating and resolving CSG network related issues.

-Responsible for escalating issues with the FDT processing platform to the FDT help desk.

Schedule 2.9 – Page 9

10. MEDIA SERVICES

FDT

CSG

• Responsible for the creation of microfiche and distributing the same to CSG and its customer base.

• Responsible for mailing out all CSG customer Tapes, diskettes and cartridges

• Responsible for all media conversion ( Tape to diskette )

• Responsible for processing/distributing special tape requests.

• Responsible for labeling and entering into Roscoe all conversion tapes received from the customer.

• Responsible for providing monthly Media statistical reports showing volumes processed, distributed and accuracy.

• Review and resolve any problems with Media processes.

• Responsible for providing update/current distribution list for all microfiche and special tape mailings 14 days prior to implementation

• Main point of contact for all CSG external customer calls and questions regarding inquiries/problems with distributed microfiche, conversion, CDROM, and tapes.

• Responsible for coordinating and implementing all customer conversions.

• Responsible for approving change requests.

Schedule 2.9 – Page 10

11. MVS SYSTEMS SOFTWARE

FDT

CSG

• Install, maintain, customize and support all mainframe operating systems and associated program products.

• Perform diagnostic and consulting services to the business unit.

• Provide product documentation for the FDT Data Center on operational aspects of installed products.

• Investigate and recommend new system software.

• Maintain accurate software inventory listing.

• Maintain software at vendor’s supported releases.

• Participate in INFO management procedures to assist in problem tracking and documentation.

• Adhere to established change control methodologies for changes (INFO/MAN and Develop Calendar).

• Test new releases of software

• Support Annual disaster recovery testing

• Research exception to performance criteria

• Provide product documentation for mainframe, OEM products utilized by CSG when requested.

• Request product trials and utilize product request process.

• Assist in testing of new releases and upgrades of all software.

• Support administration of third party software as agreed.

• Adhere to established change control methodologies for applications changes (INFO/MAN and Develop Calendar).

• Provide reasonable prior written notice (30 days) for platform and infrastructure changes.

Schedule 2.9 – Page 11

12. NETWORK SOFTWARE

FDT

CSG

• Maintain high network availability/stability.

• Perform Network customization, monitoring and tuning.

• Install, customize and maintain network and network related software products.

• Problem determination and resolution of network and network related software product issues.

• Install, customize and maintain transmission software products.

• Problem determination and resolution of transmission software product issues.

• Assist client with client and sub-client transmission software/hardware installation and support issues.

• Assist in installation and support of network hardware components (including 3745, CIP, SPC, Netlink solutions, OSA).

• Maintain accurate software inventory listing.

• Perform Network disaster recovery planning and support.

• Design and implement network direction/workload analysis.

• Provide consulting services for software product acquisition and evaluation.

• Provide consulting services for network planning and design.

• Participate in the monitoring, tuning, capacity planning and problem determination/resolution issues with external connected networks and VAN providers.

• Provide debugging and problem resolution assistance for client representatives when requested.

• Assist with network connectivity and access issues.

• Run traces to assist in troubleshooting network and application issues.

• Research exceptions to Performance Criteria.

• Create and maintain network documentation to assist the technical services and support staffs in troubleshooting and providing client service.

• Participate in interdepartmental education and provide seminars on monitoring and first level debugging procedures.

• Provide available network performance and availability reports as requested.

• Determine Network software requirements and submit formal requests to FDT staff.

• Test and evaluate software and network installations to insure requirements are satisfied.

• Participate with FDT staff in monitoring network resources.

• Use monitoring tools to report on and analyze network resources.

• Provide feedback to assist in customization and tuning efforts.

• Interface with and provide first level troubleshooting for sub clients.

• Assist sub clients with transmission software selection, installation and support.

• Primary interface with telecommunications access providers on network definitions, problem determination and resolution.

• Primary support for client connections to SP2.

• Provide forecasts to assist in Network capacity analysis.

• Adhere to established INFO management procedures for problem notification and tracking of network, transmission and related issues.

• Adhere to established INFO management change control procedures in addition to the development calendar for network, transmission and related change implementations.

• Design Network Direction and network analysis

• Provide reasonable prior written notice (30 days) for complex related changes

• Notify FDT and Coordinate to resolve issues

• Participate in INFO management procedures to assist in problem tracking and in change control tracking/documentation.

• Provide Network capacity analysis on a monthly basis based on input from CSG.

• Notify CSG and coordinate to resolve issues

Schedule 2.9 – Page 12

13. CHANGE MANAGEMENT

FDT

CSG

• Provide Standard INFOMAN Support.

• Provide Standard Reports to support scheduled meetings.

• All changes are opened on FDT’s INFOMAN System.

• Submit all request for services through INFOMAN for all FDT Data Center Activities, including:

System Software (MVS, CICS)

Hardware

Network Requests

Operations Requests

Security

Storage Management

Media Requests

Capacity

Performance

Network (VTAM) Requests

Installation of New System Products

INFOMAN Panel Change Requests

Schedule 2.9 – Page 13

14. INFOMAN STANDARD SUPPORT PROCESSES

FDT

CSG

Administrative Functions

• Set up user id by specific privilege classes within business unit controls.

• Store employee data for interested party access.

Problem Tracking

• Collection of production identified job abend data.

• Log problems regarding end users that appear to be caused by FDT support groups:

Systems area

Security

Operations

INFOMAN

DASD management

Capacity management

performance management

Change Tracking

• Allow logging of request for service from each business unit to support areas of FDT:

Systems’ areas

Security

Operations

INFOMAN

DASD management

Capacity management

Performance management

Administrative Functions

• Request changes to user id by specific privilege classes for problem record administration and for approvers on change records.

Problem Tracking

• Collection of production identified job abend data.

• Review and closure of problem records assigned to CSG application areas.

• Participation in Problem Review meetings.

Change Tracking

• Create and approve change requests for service from FDT support areas.

Schedule 2.9 – Page 14

15. MAINFRAME CONSOLE OPERATIONS

FDT

CSG

• Monitor system tasks

• Monitor system performance

• Monitor and adjust cycle progress based upon key indicator jobs defined by CSG

• Notify FDT management and primary business unit contact of problems impacting Performance Criteria and key indicator jobs

• Monitor system hardware

• Monitor computer room environmentals

• Track and act upon approved changes assigned to operations including IPL’s

• Process approved special requests

• Perform system level control functions as required

• Process batch cycle as defined in CA-7 and notify cycle support of discrepancies/problems identified in the process

• Provide 24x7 console coverage

• Monitor CAD1 transmissions during off hours

• Perform off hour job restarts based on CSG provided documentation or verbal instructions from cycle support groups

• Maintain list of unique business unit system tasks to be monitored

• Maintain list of key indicator jobs and latest completion time without impacting Performance Criteria

• Maintain list of contacts and phone numbers

• Maintain Performance Criteria and key indicator expectations via CSG operations

• Maintain escalation and notification procedures

• Maintain job restart documentation and procedures

• Provide operations with cycle run instructions

• Perform all CA7 scheduling functions for application related jobs

Schedule 2.9 – Page 15

16. PERFORMANCE

FDT

CSG

PERFORMANCE

• Provide standard reports that identify changes in workloads.

• Monitor reports to ensure Performance Criteria and key indicators are met, and recognize workload variances.

• Identify application/systems tuning opportunities.

• Provide manpower for systems tuning when Performance Criteria and key indicators are not being met.

• Assist in trouble shooting for host response issues.

• Provide input to problem records and implement changes as requested.

• Complete application design and maintenance.

• Identify application tuning opportunities.

• Implement application tuning changes.

• Identify business elements for Performance Criteria and key indicators

• Provide manpower for application tuning when Performance Criteria and key indicators are not being met.

• Adhere to established change control methodologies for applications changes (INFO/MAN and Develop Calendar).

Schedule 2.9 – Page 16

17. PROBLEM MANAGEMENT

FDT		CSG
All problems are opened on FDT’s Infoman system by FDT or CSG personnel.		All problems are opened on FDT’s Infoman system by FDT or CSG personnel.

FDT will respond to, update and resolve any records assigned to FDT Data Center departments.		CSG will respond to, update and resolve any records assigned to CSG departments.

Performance Criteria exceptions: FDT will compile exception information for Performance Criteria records. FDT and CSG will negotiate accountability if necessary.		CSG will ensure that any Performance Criteria records assigned to them will contain accurate resolution and duration information.

FDT will provide scheduled and adhoc reporting from data on the FDT Infoman database.		CSG will have access to the FDT Infoman database for data retrieval, reporting, etc.

FDT Problem Management Department will provide CSG with problem detail information from the Infoman database. FDT will provide CSG with any requested summaries, memos, post-mortems, etc.		CSG will provide problem summary information whenever the recipient is a CSG client.

Schedule 2.9 – Page 17

18. PRODUCTION SCHEDULING

FDT

CSG

• Perform CA-7 scheduling for non application related jobs

• Support operations in maintaining and verifying production processing.

• Support operations/tape library in maintaining TMS batch processing.

• Document departmental procedures

• Maintain CA-7 automated scheduler jobs and parameters for system level and operations processing.

• Provide abend restart functions where requested.

• Document and escalate processing problems according to escalation procedures.

• Add, delete and update jobs in CA-7 scheduler.

• Add, delete and update all scheduling parameters with the exception of the security macro.

• CreateRFS in INFOMAN to request adds/deletes to security macro

• Provide restart services for Cable processing.

Schedule 2.9 – Page 18

19. DATA SECURITY

FDT

CSG

• Upgrade or install fixes to the RACF software.

• Maintain RACF databases.

• Install/maintain external security interfaces between RACF and other software.

• Maintain internal security for other software, such as:

• CA7

• NETVIEW

• INFOMAN

• ROSCOE

• QMF

• VMANCSG

• NETSPY

• NDM

• TSO

• Reset passwords, suspend or resume user ids for FDT personnel.

• Maintain RACF user ids: create, modify, delete.

• Reset passwords and/or resume user ids for CSG clients and personnel on RACF.

• Maintain CSG client and personnel on RACF.

• Maintain DSN/RESOURCE access rules under RACF.

• Delete datasets/aliases when user id are deleted.

• SDSF system access.

• Interface with CSG data security administrator.

• Respond to audits with respect to FDT responsibilities.

• Provide documentation annually of FDT security policy and procedures.

• Maintain internal security of other products: RMS/ESF (BUNDLE).

• RACF for RMS/ESF (clients only): create, modify, delete.

• Respond to audits with respect to CSG responsibilities.

• Reset passwords and/or resume user ids for CSG clients and personnel on RACF.

• Administer all Team 35 Software security.

• Establish, maintain and administer security procedures consistent with industry standards for access to the Development Software and CSG Data by anyone accessing the same by or through CSG, its systems and networks, including access of the same through open systems adapters with or without the use of a firewall.

Schedule 2.9 – Page 19

20. TAPE OPERATIONS

FDT

CSG

• Monitor all external tape drives for mount activity.

• Setup, maintain and support tape vault patterns offsite disaster recovery activities.

• Pull all offsite backup tapes from offsite storage

• Refile all returning backup tapes from offsite storage.

• Refile tapes manually loaded (round reel and cartridge).

• Refile all tapes ejected from the tape silo’s throughout the day.

• Enter scratch tapes, cleaning cartridges and requested input tapes into the tape silo’s

• Initialize new tapes both round reel and cartridge (inhouse and oneway tapes).

• Clean and/or replace broken or damaged tapes with I/O errors for inhouse and microfiche.

• Retrieve and deliver all microfiche and Media Support tape requests for CSG.

• Publish monthly reports for tape utilization both automated and manual.

• Monitor, clean and resolve tape drive and silo problems.

• Provide 24 x 7 tape coverage for CSG.

• Analyze daily tape operations for possible improvements.

• Perform updates to TMS (i.e. extend and/or expire tapes).

• Resolve problem tickets involving tape library and tape operations.

• Monitor tape drive utilization and tape usage to minimize impact

• Recommend and actively engage CSG in technology reviews to help maintain processing levels

• Maintain master document of what application files are sent offsite.

• Provide written documentation when requesting offsite disaster recovery tape vaulting.

• Maintain a master list of retention periods for all tapes created using RDS (Retention DataSet).

• Provide written documentation when requesting changes to RDS file.

• Minimize tape drive allocation during job processing.

• Migrate small datasets to disk whenever possible.

• Provide change requests for modifying tape

activities.

Schedule 2.9 – Page 20

SCHEDULE 2.10

CSG BATCH JOB TARGETS

See attached listing. All times listed are Mountain Time.

Schedule 2.10 – Page 1

Critical path completion time means the end time of CAD0350, which as of the Effective Date, completes at approximately 05:30.

DESCRIPTION	DEFINITION	TARGET
1. Online System Updated: CCS	CAD0139, Cycle A; CBD0139, Cycle B CED0139, Cycle E	Completed by 04:15 Cycle A: CAE9000* to CAD0139 and/or Cycle B: CBE9000* to CBD0139, CED9000 to CED0139 to be completed within a 1 hour outage M-Sa; Cycle A: CAE9000* to CAD0139; Cycle B: CBE9000* to CBD0139 to be completed within 1.5hour outage Sat/Sun. Extended IPLs are the exception.

2. Online System Updated: SMS	VID0139	Completed by 04:30

3. File Availability: CCS	This covers the availability of production files for CCS.	All CCS files available 23 hours a day, from 04:30 to 03:30, 98.2% of the total monthly hours. File availability is measured at the completion of CAD0139/CBD0139 and will encompass downtime of CICS and the operating system.

4. Daily Reports	Sequence (CADSEQ11/CBDSEQ11, CED), house and work order (CADHWRK1/CBDHWRK1) and converter (CADCPMD1/CBDPMD1) reports available for printing at customer’s location.	In the print queue by 04:30

5. Work orders	Cycle A: CAEWPT2; Cycle B: CBEWTP2 , CEEWPT2	Completed by 02:00

6. WPT Transactions	Cycle A: CAEWPT1B, CAEWPT1C, CAEWPT1D Cycle B: CBEWPT1B, CBEWT1D, CEEWPT	Completed by 1¹/4 hours after scheduled beginning time. Scheduled beginning time is 05:30, 09:00, 12:00, 14:00, and 17:00

Schedule 2.10 – Page 2

DESCRIPTION	DEFINITION	TARGET
7. Weekly Reports	CAW7000 CEW7000 CBW7000	CAW7000 completed by 18:00 on Saturday CBW7000 completed by 18:00 on Saturday

8. Monthly Financial Reports	A. CAM7031 and CBM7031, CEM7031 B. Financial Tapes	A. Completed by 18:00 on the 22^nd of the month. B. Tapes mailed within 48 hours after creation, 99.9% of the time.

9. Monthly Statistics Reports	Completes the following statistics reports: CPMM0004, CPRM0006, CPMM308, CAM7062 and CBM7062, CEM7062	CAM7062, CBM7062 and CEM 7062 completed by 19:00 on the 23^rd of the month.

10. Online Statements – Information Available	CAD0350, Cycle A;CBD0350, Cycle B, CED0350	Completed by 05:30

11. Statements Available to the CSG Production Facility (Legacy & ESP)	CAD0332, CAD0336, Cycle A; CBD0332, CBD0336, Cycle B CED0332, CED0336	Completed by 07:30

12. Daily Vantage Cycle Extracts	UL04VEND	Completed by 04:00

Schedule 2.10 – Page 3

SCHEDULE 2.11

DISASTER RECOVERY PLAN

2.11.1 Data Processing.

If FDT declares the existence of a complete, unplanned interruption or inaccessibility to the FDT Data Center used to provide the FDT Services (a “Declared Disaster”), FDT shall make arrangements for the resumption and continuation of vital data processing services to CSG (the “Plan”). The resumption and continuation of vital data processing services shall be provided at a disaster recovery center selected by FDT (the “Disaster Recover Center”) using off-site back-up copies of critical application systems data sets in accordance with and subject to the terms of governing contracts. Vital services shall include those data processing services which are necessary for the survival of the business and where there would be a substantial cost or expense associated with the loss of the data processing services for which there is no satisfactory backup procedure, and for which an outage cannot be tolerated for more than twenty-four (24) consecutive hours. The vital data processing services to CSG shall be made available by means of communication between the Disaster Recovery Center, and selected terminals in FDT’s current network. The capacity of the Disaster Recovery Center currently has the capacity to enable FDT to run vital data processing services for CSG for up to six (6) weeks and for a “Coldsite” facility for up to six (6) months.

In the event of a Declared Disaster, FDT’s Disaster Recovery Management Team (DRMT) shall immediately assemble and determine whether to establish processing at the Disaster Recovery Center. In the event that it is determined that vital services can be resumed within twenty-four (24) consecutive hours after FDT announces a Declared Disaster, the DRMT will direct the resumption of such vital services, and will not initiate the transfer of processing to the Disaster Recovery Center. If it is determined that vital services cannot be resumed within twenty-four (24) consecutive hours after FDT announced the Declared Disaster, the DRMT shall immediately begin the implementation of the Plan, including the initiating of procedures for the declaration of disasters under applicable disaster recovery contracts and the establishment of processing at the disaster recovery site in accordance herewith. FDT shall recover the Systems Software and make it available to CSG within 18 hours after a Declared Disaster. As soon as processing is established at the disaster recovery site, a determination will be made as to whether additional equipment will be needed at the Disaster Recovery Center to adequately handle longer term load requirements. Extra data storage devices, tape drives, communication gear, and even central processing mainframes (CPU’s) can be acquired and installed in a matter of hours or days to handle the anticipated load during a protracted remote-processing period.

Operation of the Disaster Recovery Center will be handled entirety by FDT personnel. A DRMT, composed of management in each of six (6) functional areas, will direct travel to the Disaster Recover Center and to Denver Business Recovery Center, their staff at the earliest opportunity to set-up the normal FDT Data Center environment. The Hotsite Restoration Team (HRT), will then operate the Disaster Recovery Center for approximately the first forty-eight (48) hours and be relived by a second wave of FDT personnel who will take over and run the data center. The HRT and CSG conduct an annual disaster recovery test.

Listed below is a summary of actions contemplated by the Plan:

Schedule 2.11 – Page 1

•

The FDT Data Center help desk initiates severity level 1 page to Denver Data Center management indicating a potential disaster has occurred.

•

The FDT Data Center help desk opens the Disaster Recovery bridge line to initiate a center conference call for management to assess the situation. The Denver Data Center Executive Vice President, his direct reports, and the Director of Disaster Recovery are in attendance.

•

The DRMT will initiate an Emergency Response by initiating the Incident Management Plan and apprising Corporate Crisis Management of the situation.

•

Corporate Crisis Management will work with the Denver Incident Management team to perform a damage assessment and report a recommendation.

•

If the recommendation is to declare a disaster, The EVP must contact the EVP of CSG for approval.

•

The EVP will announce a “Declared Disaster” and instruct the Disaster Recovery Director to initiate the Data Center Business Continuity Plan (BCP). The recovery site manager and all off-site vendors will notified that the plan is in effect.

•

The DRMT will notify all Disaster Recovery Support Teams to mobilize according to the BCP.

•

The DR Support Teams will establish the CSG systems software environment at the recovery site and assure the availability of the customer data according to contract.

•

The Disaster Recovery Support Teams will establish the required telecommunications lines and verify that the necessary systems hardware and software connectivity is in place, including but not limited to, CICS regions and operational functions.

•

If necessary, enact the “return home” strategy to prepare a cold site if the recovery site cannot accommodate the deployment for longer than 6 weeks. Activation of the “Return Home” strategy includes, but is not limited to, the ordering hardware and software for the cold site and the verification of the cold site environment. This process is carried out for both interim and permanent redeployment of the Denver Data Center.

•

Develop and publish a management summary report of the event.

During the Term, FDT shall provide CSG with additional information concerning the Plan as may be reasonably required in writing by CSG, and which may require prior approval of the Disaster Recovery Center provider, if any. FDT reserves the right to change the Plan from time-to-time during the Term, provided that any such change shall not degrade the quality of the Plan in any manner which has a material, adverse impact on the data processing services provided hereunder.

Notwithstanding the foregoing, during the Term, CSG may instruct FDT to initiate the processes set forth in the Plan that occur prior to the declaration of a Declared Disaster for CSG processing only if the operating system incurs an outage greater than four (4) hours. Notwithstanding the foregoing, CSG may also instruct FDT to declare a Declared Disaster for CSG processing only if the operating system incurs an outage greater than twelve (12) hours. CSG and FDT may engage in disaster declaration discussions after eight (8) hours. If CSG instructs FDT to declare a Declared Disaster, CSG shall pay to FDT FDT’s insurance deductible relating to such Declared Disaster (not to exceed $50,000 per instruction), provided, that if FDT subsequently makes a Declared Disaster for multiple clients, such deductible shall not be the responsibility of CSG.

2.11.2 Return Home Strategy.

FDT has established a strategy to support CSG for a “Return Home” following a disaster declaration for the Denver Data Center. The plan will be enacted immediately upon deployment to the primary recovery facility. In the plan, FDT will exercise the following tasks:

Schedule 2.11 – Page 2

•

Determine time frames and dependencies for stay at recovery facility

•

Review Established Priorities

•

Evaluate sister company support availability

•

Analyze and Document Issues and Constraints

•

Inventory offsite storage

•

Verify Asset Management dB

•

Determine availability of salvage

•

Develop gap analysis

•

Update equipment requirements

•

Evaluate availability and contract tape and media storage facility

•

Evaluate equipment requirements

•

Evaluate network requirements

•

Evaluate telecom requirements

•

Evaluate software licensing requirements

•

Evaluate power and environmental requirements

•

Determine personnel resources required

•

Evaluate space / building availability

•

Contract building space

•

Contact vendors / determine equipment availability

•

Develop floor space plan (based on site)

•

Develop procurement plan

•

Obtain capital

•

Purchase all requirements

•

Build out space / environment

•

Establish OEM / Systems environment

•

Establish network and telecom environment

•

Recover applications environment

•

Return to normal operations

These tasks will be accomplished within a 49 day cycle. It is assumed that FDT will be able to gain time in excess of the 6 weeks contracted at the primary recovery facility by announcing a re-declaration immediately after the initial deployment.

During the Term, CSG shall provide FDT with ninety (90) days advance written notice of changes required by CSG relating to the hardware and network to be used in connection with a Declared Disaster so that FDT may coordinate such changes with the Disaster Recovery Center provider, if any.

2.11.3 Outsourced – In-House Models.

The Services described in this Schedule 2.11 (“Disaster Recovery Services”) are based on an outsourced service model. Should FDT bring the Disaster Recovery Services in-house during the Term, FDT agrees to perform appropriate testing and development of the fully implemented in-house Disaster Recovery Services with the goal of improving the operating system restoration time.

Schedule 2.11 – Page 3

SCHEDULE 2.13

PERFORMANCE CRITERIA

See attached list. All times listed are Mountain Time.

Schedule 2.13 – Page 1

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

FDT has no control or responsibility of how Application Software and FDT Software uses the environment. Application Software, FDT Software, hardware at client sites, client provided networks and hardware, use of DB2, CICS transactions and batch scheduling is the responsibility of CSG.

CATEGORY	DEFINITION	PERFORMANCE CRITERIA	REPORTED BY	MEASUREMENT
1. Operating System Availability	This covers the host computer hardware and system’s software	The operating system will be available 24 hours a day, (***)% of the time, excluding scheduled downtime. -Maintenance window : (02:30-04:00 -1 FDT initiated IPL per month (Hardware/Software) (12 annually) -1 FDT Quarterly extended IPL outage (02:30-06:30) with 30 day prior notification (4 annually) -2 FDT alternate IPL’s to be coordinated with CSG (Hardware/Software) (2 annually) -IPL’s required for CSG application will be additional. -Non IPL weekends : Maintenance window for non-IPL weekends will be reserved for FDT to perform maintenance on software/hardware excluding instances where CSG will be implementing major application releases or have special business related events.	Data Center (Operations)	Report daily and detail exceptions monthly.

2. CICS Availability	This covers availability to all production online regions	The online regions will be available 24 hours per day, (***)% of the time, excluding scheduled downtime. –CICS regions are cycled nightly with batch jobs Cycle A,; CAD0133, Cycle B, CBD0133, Cycle E CED0133	Data Center (Operations)	Report daily and detail exceptions monthly

Schedule 2.13 – Page 2

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY	DEFINITION	PERFORMANCE CRITERIA	REPORTED BY	MEASUREMENT
		*CSG must identify unscheduled CICS recycle timeline.

3. Host Response Time	Processing time for task by the CPU. Measure the host response time for production CICS regions. Excluding DB2.	a. General Criteria. Average * **** during each 15 minute interval (an “Interval”) from 06:00 to 18:00 Monday through Saturday, it being understood that FDT shall be permitted () Intervals per calendar month to exceed this Performance Criteria, calculated pursuant to the General Guidelines and Performance Criteria Conditions set forth below. General Guidelines: -(*) or more Intervals exceeding an average of ****** shall be deemed to be 1 violation of this Performance Criteria, provided that each such Interval violation exceeding an average of * ****** relates to the same issue. -if an issue arises that causes an Interval to exceed an average of * *****, and FDT creates a remedy for such issue, CSG and FDT shall confer promptly regarding the implementation of such remedy. If CSG does not permit FDT to implement the remedy, any subsequent Interval that exceeds an average of ****** as a result of FDT not being permitted to implement such remedy shall not be deemed to be a violation of this Performance Criteria. - if one or more Interval fails to meet this	Data Center	Report and detail exceptions monthly.

Schedule 2.13 – Page 3

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY

DEFINITION

PERFORMANCE CRITERIA

REPORTED BY

MEASUREMENT

Performance Criteria due to the way in which CSG conducts its business, such failures shall not be deemed to be a violation of this Performance Criteria.

Application path-length should not exceed the reciprocal of the arrival rate of a single CICS region (example: if transaction arrival rate is (***) per seconds; then the application path–length should not exceed (***) of a second). The components of the application path length are CPU, I/O request, application imposed waits (i.e. stimer, exec cics delay)

Minimum arrival rate of (***) transactions per second for the period is required to establish the response time measurements

b. ******** Criteria. Average *** *********** during each 15 minute Interval from 06:00 to 18:00 Monday through Saturday, it being understood that FDT shall be permitted 2 Intervals per calendar month to exceed this Performance Criteria, calculated pursuant to both the ******** Guidelines and Performance Criteria Conditions set forth below.

******** Guidelines:

-(***) or more Intervals exceeding an average of *** *********** shall be deemed to be 1 violation of this Performance Criteria, provided that each such Interval violation exceeding an average of *** *********** relates to the same issue.

Schedule 2.13 – Page 4

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY

DEFINITION

PERFORMANCE CRITERIA

REPORTED BY

MEASUREMENT

-if an issue arises that causes an Interval to exceed an average of *** ***********, and FDT creates a remedy for such issue, CSG and FDT shall confer promptly regarding the implementation of such remedy. If CSG does not permit FDT to implement the remedy, any subsequent Interval that exceeds an average of *** *********** as a result of FDT not being permitted to implement such remedy shall not be deemed to be a violation of this Performance Criteria.

- if one or more Interval fails to meet this Performance Criteria due to the way in which CSG conducts its business, such failures shall not be deemed to be a violation of this Performance Criteria.

-Additional requirements for *** *********** response time for ******** Application path-length should not exceed the reciprocal of the arrival rate of a single CICS region (example: if transaction arrival rate is *** per second; then the application path–length should not exceed (***) of a second). The components of the application path length are CPU, I/O request, application imposed waits (i.e. stimer, exec cics delay)

-Minimum arrival rate of (***) transactions per second for the period is required to establish the response time measurements

Schedule 2.13 – Page 5

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY	DEFINITION	PERFORMANCE CRITERIA	REPORTED BY	MEASUREMENT
		Performance Criteria Conditions -To meet this performance criteria the following conditions must be met: Regions must utilize under (*)% of a single logical engine during the period. All operating system components and the CICS regions on LPAR must utilize under (*)% of all the MIPS on LPAR during the period. Allow a mutually agreed upon number of SMF 110 records to be captured and full usage of CICS Monitoring software, to provide timely and accurate measurement and diagnosis.

4 Host Network Response Time	Response time as measured between the Mainframe and FDC owned Network Hardware	. Average * **** during each 15 minute interval (an “Interval”) from 06:00 to 18:00 Monday through Saturday, it being understood that FDT shall be permitted () Intervals per calendar month to exceed this Performance Criteria, calculated as follows: -(*) or more Intervals exceeding an average of ****** shall be deemed to be 1 violation of this Performance Criteria, provided that each such Interval violation exceeding an average of * ****** relates to the same issue. -if an issue arises that causes an Interval to	Data Center Network	Report and detail exceptions monthly Netspy, PINGALL, SNMP, and Netmaster

Schedule 2.13 – Page 6

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY	DEFINITION	PERFORMANCE CRITERIA	REPORTED BY	MEASUREMENT
		exceed an average of * *****, and FDT creates a remedy for such issue, CSG and FDT shall confer promptly regarding the implementation of such remedy. If CSG does not permit FDT to implement the remedy, any subsequent Interval that exceeds an average of **** as a result of FDT not being permitted to implement such remedy shall not be deemed to be a violation of this Performance Criteria. OSA Adapters * **** Measured via automated PING, SNMP CSG’s CIP interfaces * Measured via automated PING, SNMP MF/MF * *** Measured via Netspy Virtual Route Response Time 3745 FEPs (Local) * ******* Measured via Netspy Virtual Route Response Time

5. . Host Network Availability	Measure the network availability which includes 3745 front end processors, 7513 Cisco CIP routers and IOS running on the OSA Express Adapters directly connected to the FDT host	Mainframe Network connectivity will be available 24 hours a day, (***)% of the time excluding scheduled downtime (same downtime as the Operating System) An outage is defined as connectivity not an individual device. I.e. If one CIP were down but the other CIP provided full connectivity there would be no SLA hit.	Data Center (Network)	Report and detail exceptions monthly.

Schedule 2.13 – Page 7

“Confidential Treatment Requested

and the Redacted Material has been

separately filed with the Commission.”

CATEGORY	DEFINITION	PERFORMANCE CRITERIA	REPORTED BY	MEASUREMENT
6. Media Service Tape/Diskette Turnaround a. Selects and Specials b. Conversions	Measure the turnaround percentage of magnetic media items that are received by Media Services.	(*)% of tapes and diskettes will be shipped to client within 48 hours of receipt by Media Services. (*)% of conversions will be entered into the system within 48 hours of receipt by Media Services. Exception situations will be handled using commercially reasonable efforts.	Data Center (Media Services)	Report and detail exceptions monthly

7. Media Services Microfiche Turnaround a. Daily b. Weekly c. Monthly	Measure the percentage of microfiche items shipped to clients.	a. Daily (*)% of daily microfiche mailed within 48 hours of tape receipt by Media Services. b. Weekly ()% of weekly microfiche mailed within 72 hours of tape receipt by Media Services. c. Monthly (**)% of monthly microfiche mailed within 14 days of tape receipt by Media Services.	Data Center (Media Services)	Report and detail exceptions monthly

Schedule 2.13 – Page 8

SCHEDULE 2.14

CONFIDENTIALITY AGREEMENT

See attached.

Schedule 2.14 – Page 1

CONFIDENTIALITY AGREEMENT

This Confidentiality Agreement, made this day of , 200 , is by and between CSG Systems, Inc., 7887 E. Bellview Avenue, Englewood, Colorado 80111 (“CSG”), and (the “Participant”).

RECITALS

A. Participant desires to review an audit of CSG’s electronic data processing environment.

B. In connection with these discussions, certain confidential and proprietary information regarding CSG may be disclosed to the Participant to permit the review by Participant.

C. CSG desires to establish the terms under which it will disclose certain confidential and proprietary information.

The parties agree as follows:

1. Confidential Information. Confidential Information shall mean:

(A) any data or information that is competitively sensitive material, or secret, and not generally known to the public, including, but not including to, an audit of FDT’s electronic data processing environment for services provided to Participant by Cable Services Group, Inc.;

(B) any scientific or technical information, design, process, procedure, formula, or improvement that is commercially valuable and secret in the sense that its confidentiality affords CSG a competitive advantage over its competitors; and

(C) all confidential or proprietary concepts, documentation, reports, data, specifications, computer software, source code, object code, flow charts, databases, inventions, information, know-how, show-how and trade secrets, whether or not patentable or copyrightable.

Confidential Information includes without limitation, all documents, inventions, substances, engineering and laboratory notebooks, drawings, diagrams, specifications, bills of material, equipment, prototypes and models, and any other tangible manifestation of the foregoing which now exist or come into the control or possession of the Participant.

2. Confidentiality Obligations. Except as expressly authorized by prior written consent of CSG, the Participant shall:

(A) limit access to any Confidential Information received by it to its employees who have a need-to-know in connection with the evaluation of the potential or ongoing business transaction, and only for use in connection therewith;

Schedule 2.14 – Page 2

(B) advise its employees having access to the Confidential Information of the proprietary nature thereof and of the obligations set forth in this Confidentiality Agreement;

(C) take appropriate action by instruction or agreement with its employees having access to the Confidential Information to fulfill its obligations under this Confidentiality Agreement;

(D) safeguard all Confidential Information received by it using a reasonable degree of care, but not less than that degree of care used by the Participant in safeguarding its own similar information or material;

(E) use all Confidential Information received by it solely for purposes of evaluating the potential or ongoing business transactions with CSG and for no other purpose whatsoever;

(F) not disclose any Confidential Information received by it to third parties; and

(G) not disclose the existence of the discussions to any third party.

Upon the request of CSG, the Participant shall surrender to CSG all memoranda, notes, records, drawings, manuals, records, and other documents or materials (and all copies of same) pertaining to or including the Confidential Information. Upon the return of such materials, the Participant agrees to certify, in writing, that all of the foregoing materials have been surrendered to CSG.

3. Exceptions to Confidentiality. The obligations of confidentiality and restriction on use in Section 2 shall not apply to any Confidentiality Information that the Participant proves:

(A) was in the public domain prior to the date of this Agreement or subsequently came into the public domain through no fault of the Participant;

(B) was lawfully received by the Participant from a third party free of any obligation of confidence to such third party;

(D) is required to be disclosed in a judicial or administrative proceeding after all reasonable legal remedies for maintaining such information in confidence have been exhausted including, but not limited to, giving CSG as much advance written notice of the possibility of such disclosure as practical so CSG may attempt to stop such disclosure or obtain a protective order concerning such disclosure; or

(E) is subsequently and independently developed by employees, consultants or agents of the Participant without reference to the Confidential Information disclosed under this Agreement.

Schedule 2.14 – Page 3

4. Rights in Confidential Information. Except as specifically provided for herein, this Agreement does not confer any right, license, interest or title in, to or under the Confidential Information to Participant. Except as specifically provided for herein, no license is hereby granted to Participant, by estoppel or otherwise under any patent, trademark, copyright, trade secret or other proprietary rights of CSG. Title to the Confidential Information shall remain solely in CSG.

5. Indemnity by Participant. Participant agrees to indemnify and hold harmless CSG from and against any and all losses, claims, damages and expenses (including, but not limited to, attorneys’ and experts’ fees, costs of investigation and costs of settlement) which result from Participant’s breach of this Agreement or unauthorized use or disclosure of the Confidential Information. Participant’s indemnification obligations pursuant to the immediately preceding sentence shall include an obligation to indemnify and hold harmless CSG from and against any and all losses, claims, damages and expenses asserted by anyone claiming by, through or under CSG.

6. Equitable Relief. The Participant and CSG agree that money damages would not be a sufficient remedy for breach of the confidentiality and other obligations of this Agreement. Accordingly, in addition to all other remedies that either party may have, CSG shall be entitled to specific performance and injunctive or other equitable relief as a remedy for any breach of the confidentiality and other obligations of this Agreement. The Participant agrees to waive any requirement for a bond in connection with any such injunctive or other equitable relief.

7. Third Party Beneficiary. First Data Technologies, Inc. shall be the only third party beneficiary of this Agreement.

8. Merger. This Agreement embodies the entire agreement and understanding of the parties hereto with respect to the subject matter hereof, and supercedes all prior and contemporaneous agreements and understanding relative to such subject matter.

9. Governing Law. This Agreement and performance thereunder shall be governed by the laws of the State of Nebraska, excluding its conflicts of laws rules.

Schedule 2.14 – Page 4

IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first written above.

Participant		CSG SYSTEMS, INC.

By:	/s/ Guy Battista	By:	/s/ Edward C. Nafus

Name:	Guy Battista	Name:	Edward C. Nafus

Title:	EVP	Title:	President Broadband Services

Schedule 2.14 – Page 5

SCHEDULE 2.16.1

ADDITIONAL CSG OBLIGATIONS

1. Applications Software; FDT Software. CSG will have responsibility for the integrity and performance of the Applications Software and the FDT Software and will cause the same to be maintained in accordance with the provisions of the Services Agreement, including any special provisions in the Operations Procedures.

2. Trained Personnel. CSG will provide appropriate training for all new CSG employees on Software then in use by or on behalf of CSG. CSG will notify FDT promptly of any changes in authorized users of the Software to be operated by FDT.

3. Compatible Operating Environment. If CSG obtains any services from a third party relating to the FDT Services, any Software provided by such third party that will be operated by FDT must conform to, and be compatible with, the then current operating environment in the FDT Data Center and must meet any applicable operating standards relating to the FDT Services. In addition, CSG shall ensure that any third party-provided services or Software will not interfere with FDT’s ability to provide the FDT Services hereunder or increase FDT’s costs associated therewith.

4. Resource Requirements. It will be CSG’s responsibility to track its production and resource requirements and to request any Additional Services required beyond the existing FDT Services, allowing a reasonable time under the circumstances for FDT to provide such Additional Services in accordance with the Operations Procedures.

Schedule 2.16.1 – Page 1

SCHEDULE 6.5

DISPUTE RESOLUTION

Disputes shall be resolved as follows:

I. Informal Dispute Resolution.

(a) Upon the written request of either Party, both Parties will appoint a designated representative who does not devote substantially all of his or her time to performance under this Services Agreement, whose task it will be to meet for the purpose of endeavoring to resolve such Dispute.

(b) The designated representatives shall meet as often as the Parties reasonably deem necessary to discuss the problem in an effort to resolve the Dispute without the necessity of any formal proceeding.

(i) the designated representatives concluding in good faith that amicable resolution through continued negotiation of the matter does not appear likely; or

(ii) the expiration of the 30-day period immediately following the initial request to negotiate the Dispute;

provided, however, that this Section I of this Schedule 6.5 will not be construed to prevent a Party from instituting formal proceedings earlier to avoid the expiration of any applicable limitations period, to preserve a superior position with respect to other creditors or to seek temporary or preliminary injunctive relief pursuant to Section 6.6 of the Services Agreement.

II. Arbitration. If the Parties are unable to resolve any Dispute as contemplated by Section I of this Schedule 6.5 and if such Dispute is not subject to Section 6.6.1 of the Services Agreement, then such Dispute shall be submitted to mandatory and binding arbitration at the election of either Party (the “Disputing Party”). Except as otherwise provided in this Section II of this Schedule 6.5, the arbitration shall be pursuant to the Commercial Arbitration Rules of the American Arbitration Association (the “AAA”).

(a) To initiate the arbitration, the Disputing Party shall notify the other Party in writing (the “Arbitration Demand”), which shall (i) describe in reasonable detail the nature of the Dispute, (ii) state the amount of the claim, (iii) specify the requested relief and (iv) name an arbitrator who (A) has been licensed to practice law in the United States of America for at least ten years, (B) is not then an employee or attorney of either Party or of an Affiliate of either Party, and (c) is experienced in representing clients in connection with data processing services and mergers and acquisitions (the “Basic Qualifications”). Within 15 days after the other Party’s receipt of the Arbitration Demand, such other Party shall file, and 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 shall (A) describe in reasonable detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief; and (iii) naming a second arbitrator satisfying the Basic Qualifications. Promptly, but in any event within 15 days thereafter, the two arbitrators so named will 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 relationships with the Parties or their 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. All actions of the Arbitration Panel shall be by a majority vote of the arbitrators.

Schedule 6.5 – Page 1

(b) The arbitration hearing shall be held in such neutral location as the Parties may mutually agree. The Arbitration Panel shall have the power and authority to exclude evidence on grounds of prejudice, immateriality, or redundancy, and no ruling by the Arbitration Panel rejecting evidence on any of these grounds shall be a reason for vacating the arbitration award. The Party bringing a particular claim or asserting an affirmative defense will have the burden of proof with respect thereto. The arbitration proceedings and all testimony, filings, documents and information relating to or presented during the arbitration proceedings shall be deemed to be confidential information subject to Section 10 of the Services Agreement. 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 Services Agreement, including the provisions of this Section II of this Schedule 6.5. Subject to the foregoing, the Arbitration Panel will have the authority to grant preliminary and permanent injunctive relief.

(c) Should an arbitrator refuse or be unable to proceed with arbitration proceedings as called for by this Section II of this Schedule 6.5, the 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 Section II(a) of this Schedule 6.5. Each such replacement arbitrator shall satisfy the Basic Qualifications. If an arbitrator is replaced pursuant to this Section II(c) of this Schedule 6.5after the arbitration hearing has commenced, then a rehearing shall take place in accordance with the provisions of this Section II of this Schedule 6.5 and the Commercial Arbitration Rules of the AAA.

(d) Within 15 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 award. The Arbitration Panel’s award must state those reasons (but only those reasons) necessary to support its award. The award and the reasons for the award shall be deemed to be Confidential Information subject to the confidentiality obligations of the attached Services Agreement.

(e) The Chairman of the Arbitration Panel is instructed, directed, and commanded to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiative and control to assure resolution of the Dispute as expeditiously as practicable but in no event more than 365 days after the Arbitration Demand.

(f) Any award rendered by the Arbitration Panel will be final, conclusive and binding upon the Parties and any judgment thereon may be entered and enforced in any court of competent jurisdiction.

(g) Each Party will bear 50% of all fees, costs and expenses of the arbitrators, and notwithstanding any law to the contrary, each Party will bear all the fees, costs and expenses of its own attorneys, experts and witnesses; provided, however, that in connection with any judicial proceeding to compel arbitration pursuant to this Services 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 proceeding, in addition to any other relief to which it may be entitled.

(h) Prompt disposal of any Dispute is important to the Parties. The Parties shall conduct resolution of each Dispute expeditiously and shall use their reasonable best efforts to finally dispose of each Dispute within 365 days or less following the Arbitration Demand.

(i) Time is of the essence of this Schedule 6.5.

Schedule 2.16.1 – Page 2

EX-10.51 4 dex1051.htm STOCK OPTION CANCELLATION AGREEMENT WITH NEAL C. HANSEN, DATED 08/30/2002 Stock Option Cancellation Agreement With Neal C. Hansen, Dated 08/30/2002

Exhibit 10.51

STOCK OPTION CANCELLATION AGREEMENT

This Stock Option Cancellation Agreement is entered into as of August 30, 2002, by and between CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the “Company”), and NEAL C. HANSEN (“Grantee”).

* * *

The Company and Grantee hereby agree as follows:

1. In consideration of and exchange for the award to Grantee of 110,000 shares of the Common Stock of the Company as a Restricted Stock Award pursuant to the 1996 Stock Incentive Plan (the “Plan”) of the Company, the terms and conditions of such Restricted Stock Award being set forth in a Restricted Stock Award Agreement dated as of August 30, 2002, between Grantee and the Company entered into concurrently with this agreement (the “Award Agreement”) and in consideration of and exchange for the intended award to the Grantee in 2003 of an additional 270,833 shares of the Common Stock of the Company as an additional Restricted Stock Award pursuant to the Plan, Grantee hereby surrenders to the Company for cancellation all of the following Stock Options previously granted to Grantee under the 1996 Stock Incentive Plan of the Company (collectively, the Options”):

(a) Stock Option covering 400,000 shares of Common Stock granted on November 17, 1998;

(b) Stock Option covering 80,000 shares of Common Stock granted on January 14, 1999;

(d) Stock Option covering 100,000 shares of Common Stock granted on January 17, 2001;

(e) Stock Option covering 380,000 shares of Common Stock granted on December 14, 2001; and

(f) Stock Option covering 370,000 shares of Common Stock granted on January 17, 2002.

2. The Options hereby are cancelled, effective as of August 30, 2002, and shall have no further force or effect; and Grantee shall have no further rights of any kind under any of the Stock Option Agreements with the Company which evidenced the grant of the Options.

3. This agreement shall be binding upon and inure to the benefit of the Company and the Grantee and their respective heirs, personal representatives, successors, and assigns.

4. The Company agrees to recommend to the Compensation Committee of the Board of Directors of the Company that, not sooner than March 1, 2003, such Committee grant new stock options to Grantee under the 1996 Stock Incentive Plan of the Company. However, Grantee understands and acknowledges that such future grant, if any, and its terms and the number of shares of Common Stock of the Company covered by any such future grant are subject to all of the relevant terms and provisions of the 1996 Stock Incentive Plan of the Company and to the discretion of such Committee.

5. Grantee agrees to and hereby does fully and forever release, discharge, and waive any and all claims, complaints, causes of action, or demands of whatever kind which Grantee now has or at any time hereafter may have against the Company or against any of the Company’s subsidiaries, affiliates, predecessors, and successors or against any of their respective past and present directors, officers, and employees by reason of any event, matter, cause, or thing which occurred on or prior to the date of this agreement arising out of, involving, or related to the grant, ownership, or cancellation of the Options. Notwithstanding the foregoing provisions of this Paragraph 5, Grantee does not waive any rights which Grantee may have to require the issuance and delivery of shares of the Common Stock of the Company pursuant to the Award Agreement.

6. This agreement, the Award Agreement, and a Third Amendment to the Employment Agreement of Grantee with the Company and CSG Systems, Inc. entered into concurrently with this agreement constitute the entire agreement of the Company and Grantee with respect to the subject matter of this agreement, and there are no other or further promises, understandings, or agreements between the Company and Grantee with respect to the Common Stock of the Company or any existing or future options to acquire shares of such Common Stock.

7. This agreement shall be governed by and construed in accordance with the laws of Delaware.

IN WITNESS WHEREOF, the Company and Grantee have executed this Stock Option Cancellation Agreement as of the date first above written.

COMPANY: CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation

By:		/s/ John P. Pogge
		John P. Pogge, President

GRANTEE:

/s/ Neal C. Hansen

Neal C. Hansen

EX-10.56 5 dex1056.htm RESTRICTED STOCK AWARD AGREEMENT WITH NEAL C. HANSEN, DATED 08/30/2002 Restricted Stock Award Agreement With Neal C. Hansen, Dated 08/30/2002

Exhibit 10.56

RESTRICTED STOCK AWARD AGREEMENT

This Restricted Stock Award Agreement (this “Agreement”) is entered into as of August 30, 2002 (the “Award Date”), by and between CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation (the “Company”), and NEAL C. HANSEN (“Grantee”).

* * *

WHEREAS, the Company has adopted a 1996 Stock Incentive Plan (the “Plan”); and

WHEREAS, the Plan is administered by the Compensation Committee (the “Committee”) of the Board of Directors of the Company; and

WHEREAS, the Committee has authority under the Plan to grant Restricted Stock Awards covering shares of the Common Stock of the Company (the “Common Stock”); and

WHEREAS, pursuant to the Plan, on the Award Date the Committee granted a Restricted Stock Award of 110,000 shares of the Common Stock (the “Award”) to Grantee subject to and in exchange for Grantee’s surrender and cancellation of certain stock options previously granted to Grantee by the Company covering an aggregate of 1,390,000 shares of the Common Stock (the “Cancelled Options”) and directed the Company to execute this Agreement for the purpose of setting forth the terms and conditions of the Award; and

WHEREAS, Grantee accepted the Award and agreed to such exchange; and

WHEREAS, the Committee has expressed its intent to grant an additional Restricted Stock Award of 270,833 shares of the Common Stock to Grantee in 2003 pursuant to the Plan in further exchange for the Cancelled Options;

NOW, THEREFORE, in consideration of the premises and of the covenants and conditions contained herein, the Company and Grantee agree as follows:

Award of Restricted Shares.

(a) The Company hereby confirms the grant of the Award to Grantee as of the Award Date in exchange for the surrender and cancellation of the Cancelled Options, and Grantee hereby confirms Grantee’s acceptance of the Award from the Company in exchange for the surrender and cancellation of the Cancelled Options. The Award covers 110,000 shares of the Common Stock (the “Shares”) and is subject to all of the terms and conditions of this Agreement.

(b) Promptly after the execution of this Agreement, the Company shall cause one or more certificates evidencing the Shares to be issued in the name of Grantee and deposited with the Escrow Agent pursuant to Section 5.

Vesting of the Shares.

(a) The Shares automatically shall vest in Grantee on the first anniversary of the Award Date (such anniversary being referred to herein as the “Vesting Date”); provided, however, that no Shares shall vest in Grantee on the Vesting Date unless Grantee has been continuously employed by the Company from the Award Date until the Vesting Date. For purposes of this Agreement, in the context of employment of Grantee, the term “Company” shall include a Subsidiary (as defined in the Plan) if Grantee is then employed by a Subsidiary; provided, however, that neither a transfer of Grantee from the employ of the Company to the employ of a Subsidiary nor the transfer of Grantee from the employ of a Subsidiary to the employ of the Company or another Subsidiary shall be deemed to be a Termination of Employment of Grantee.

(b) Notwithstanding the provisions of Section 2(a), all Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon the occurrence of any of the following events while Grantee is employed by the Company:

(1)

Grantee’s death;

(2)

A Termination of Employment of Grantee by reason of a mental or physical condition that, in the opinion of the Committee, renders Grantee unable or incompetent to carry out the job responsibilities which Grantee then holds as an employee of the Company or the tasks to which Grantee is then assigned as an employee of the Company and that is expected to be permanent or to continue for an indefinite duration exceeding one year;

(3)

A Termination of Employment of Grantee after Grantee has reached the age of sixty-five (65) years; or

(4)

The occurrence of a Change of Control.

(c) Notwithstanding the provisions of Section 2(a), fifty percent (50%) of any Shares which have not previously vested in Grantee pursuant to Section 2(a) automatically shall vest in Grantee upon an involuntary Termination of Employment of Grantee without Cause.

(d) For purposes of this Agreement, a “Termination of Employment” of Grantee means the effective time when the employer-employee relationship between Grantee and the Company terminates for any reason whatsoever.

(e) For purposes of this Agreement, a “Change of Control” shall be deemed to have occurred upon the happening of any of the following events:

(1)

The Company is merged or consolidated into another corporation or entity, and immediately after such merger or consolidation becomes effective the holders of a majority of the outstanding shares of voting capital stock of the Company 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 or other equity interests having voting rights of the surviving or resulting corporation or other entity in such merger or consolidation;

(2)

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 the Company;

(3)

the Common Stock of the Company ceases to be publicly traded because of an issuer tender offer or other “going private” transaction (other than a transaction sponsored by the then current management of the Company);

(4)

the Company dissolves or sells or otherwise disposes of all or substantially all of its property and assets (other than to an entity or group of entities which is then under common majority ownership (directly or indirectly) with the Company); or

(5)

In one or more substantially concurrent transactions or in a series of related transactions, the Company directly or indirectly disposes of a portion or portions of its business operations (collectively, the “Sold Business”) other than by ceasing to conduct the Sold Business without its being acquired by a third party (regardless of the entity or entities through which the Company conducted the Sold Business and regardless of whether such disposition is accomplished through a sale of assets, the transfer of ownership of an entity or entities, a merger, or in some other manner) and either (i) the fair market value of the consideration received or to be received

by the Company for the Sold Business is equal to at least thirty percent (30%) of the market value of the outstanding Common Stock of the Company determined by multiplying the average of the closing prices for the Common Stock of the Company on the thirty (30) trading days immediately preceding the date of the first public announcement of the proposed disposition of the Sold Business by the average of the numbers of outstanding shares of Common Stock on such thirty (30) trading days or (ii) the revenues of the Sold Business during the most recent four (4) calendar quarters ended prior to the first public announcement of the proposed disposition of the Sold Business represented thirty percent (30%) or more of the total consolidated revenues of the Company during such four (4) calendar quarters.

(6)

during any period of two consecutive years or less, individuals who at the beginning of such period constituted the Board of Directors of the Company cease, for any reason, to constitute at least a majority of the Board of Directors of the Company, unless the election or nomination for election of each new director of the Company who took office during such period was approved by a vote of at least seventy-five percent (75%) of the directors of the Company still in office at the time of such election or nomination for election who were directors of the Company at the beginning of such period.

(f) For purposes of this Agreement, “Cause” shall mean only (i) Grantee’s confession or conviction of theft, fraud, embezzlement, or other crime involving dishonesty, (ii) Grantee’s excessive absenteeism (other than by reason of physical injury, disease, or mental illness) without a reasonable justification, (iii) material violation by Grantee of the provisions of any employment or non-disclosure agreement with the Company or any Subsidiary, (iv) habitual and material negligence by Grantee in the performance of Grantee’s duties and responsibilities as an employee of the Company or any Subsidiary and failure on the part of Grantee to cure such negligence within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such negligence, (v) material failure by Grantee to comply with a lawful directive of the Board of Directors or the Chief Executive Officer of the Company and failure to cure such non-compliance within twenty (20) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such non-compliance, (vi) a material breach by Grantee of any of

Grantee’s fiduciary duties to the Company and, if such breach is curable, Grantee’s failure to cure such breach within ten (10) days after Grantee’s receipt of a written notice from the Board of Directors or the Chief Executive Officer of the Company setting forth in reasonable detail the particulars of such breach, or (vii) willful misconduct or fraud on the part of Grantee in the performance of Grantee’s duties as an employee of the Company or any Subsidiary. In no event shall the results of operations of the Company or any Subsidiary or any business judgment made in good faith by Grantee constitute an independent basis for a Termination of Employment of Grantee for Cause.

Cancellation of Unvested Shares.

Upon a Termination of Employment of Grantee, all of the rights and interests of Grantee in any of the Shares which have not vested in Grantee prior to or upon such Termination of Employment of Grantee, as provided in Section 2, automatically shall completely and forever terminate; and the Escrow Agent shall deliver to the Company for cancellation the certificates for such Shares.

Employment.

Nothing contained in this Agreement (i) obligates the Company, or a Subsidiary, to continue to employ Grantee in any capacity whatsoever or (ii) prohibits or restricts the Company or a Subsidiary from terminating the employment of Grantee at any time or for any reason whatsoever, subject to any rights which Grantee may have under any other agreement with the Company or a Subsidiary. In the event of any Termination of Employment of Grantee, Grantee shall have only the rights set forth in this Agreement with respect to the Shares.

Escrow of Shares.

To ensure the availability for delivery to the Company for cancellation of the certificates for any unvested Shares in the event of a Termination of Employment of Grantee, Grantee shall deliver to and deposit with the escrow agent (the “Escrow Agent”) named in joint escrow instructions in the form of Annex A hereto (the “Joint Escrow Instructions”) a stock power duly endorsed in blank for each certificate for the Shares, and the Company shall cause the certificates for the Shares to be delivered to and deposited with the Escrow Agent as provided in Section 1(b). Such stock powers and certificates are to be held and delivered by the Escrow Agent pursuant to the terms of the Joint Escrow Instructions, which shall be executed by Grantee and the Company and delivered to the Escrow Agent concurrently with the execution of this Agreement. The parties acknowledge that the Joint Escrow Instructions have been executed solely for administrative convenience and that all questions as to Share ownership and whether or not Shares have vested shall be determined solely pursuant to this Agreement notwithstanding any action by the Escrow Agent. Grantee at all times shall have the right to vote with respect to all of the Shares, whether or not they have vested in Grantee.

Change in Capitalization.

If at any time that any of the Shares have not vested in Grantee there is any non-cash dividend of securities or other property or rights to acquire securities or other property, any

liquidating dividend of cash and/or property, or any stock dividend or stock split or other change in the character or amount of any of the outstanding securities of the Company, then in such event any and all new, substituted, or additional securities or other property to which Grantee may become entitled by reason of Grantee’s ownership of such unvested Shares immediately shall become subject to this Agreement, shall be delivered to the Escrow Agent to be held pursuant to the Joint Escrow Instructions, and shall have the same status with respect to vesting as the Shares upon which such dividend was paid or with respect to which such new, substituted, or additional securities or other property was distributed. Any cash or cash equivalents received pursuant to the first sentence of this Section 6 shall be invested in conservative short-term interest-bearing securities, and interest earned thereon also shall have the same status as to vesting. Cash dividends (other than liquidating dividends) paid on such unvested Shares shall be paid to Grantee and shall not be subject to vesting or to the Joint Escrow Instructions.

Grantee Representations.

Grantee hereby represents and warrants to the Company as follows:

(a) Grantee has full power and authority to execute, deliver, and perform Grantee’s obligations under this Agreement; and this Agreement is a valid and binding obligation of Grantee, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency, reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

(b) Grantee (i) received and reviewed copies of this Agreement and the accompanying Joint Escrow Instructions prior to their execution, (ii) received all such business, financial, tax, and other information as Grantee deemed necessary and appropriate to enable Grantee to evaluate the financial risk inherent in accepting the award of the Shares in exchange for Grantee’s surrender and cancellation of the Cancelled Options, and (iii) received satisfactory and complete information concerning the business and financial condition of the Company in response to all of Grantee’s inquiries in respect thereof. Grantee acknowledges the public availability of the Company’s periodic and other filings made with the United States Securities and Exchange Commission at www.sec.gov.

Company Representations and Warranties.

The Company hereby represents and warrants to Grantee as follows:

(a) The Company is a corporation duly organized, validly existing, and in good standing under the laws of Delaware and has all requisite corporate power and authority to enter into this Agreement, to issue the Shares to Grantee, and to perform its obligations hereunder.

(b) The execution and delivery of this Agreement by the Company have been duly and validly authorized, and all necessary corporate action has been taken to make this Agreement a valid and binding obligation of the Company, enforceable in accordance with its terms, except that the enforcement thereof may be subject to bankruptcy, insolvency,

reorganization, moratorium, or other similar laws now or hereafter in effect relating to creditors’ rights generally and to general principles of equity (regardless of whether such enforcement is considered in a proceeding in equity or at law).

(c) When issued to Grantee as provided for herein, the Shares will be duly and validly issued, fully paid, and non-assessable.

Gross-Up Payments.

If the vesting of any Shares is accelerated pursuant to Section 2(b)(4) and such accelerated vesting causes Grantee to become liable for any excise tax on “excess parachute payments” (within the meaning of Section 280G of the Internal Revenue Code of 1986, as amended, and any regulations thereunder) and any interest or penalties thereon (such excise tax, interest, and penalties, collectively, the “Tax Penalties”), then the Company promptly shall make a cash payment (the “Cash Payment”) to Grantee in an amount equal to the Tax Penalties. The Company also promptly shall make an additional cash payment to Grantee 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 Grantee for the year for which such Tax Penalties are owed) for which Grantee will be liable as a result of the Grantee’s receipt of the Cash Payment (the additional cash payment provided for in this sentence being referred to as a “Gross-Up Payment”). In addition, Grantee shall be entitled to promptly receive from the Company 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.

10.

Restriction on Sale or Transfer.

None of the Shares that have not vested in Grantee pursuant to this Agreement (or any beneficial interest therein) may be sold, transferred, assigned, pledged, or encumbered in any way (including transfer by operation of law); and any attempt to make any such sale, transfer, assignment, pledge, or encumbrance shall be null and void and of no effect.

11.

Legends.

The certificates representing the Shares will, upon their issuance to Grantee, bear a legend in substantially the following form:

“This certificate and the shares of stock represented hereby are subject to the terms and conditions (including forfeiture provisions and restrictions against transfer) contained in the CSG Systems International, Inc. 1996 Stock Incentive Plan and a Restricted Stock Award Agreement entered into between the registered owner and CSG Systems International, Inc. Release from such terms and conditions may be obtained only in accordance with the provisions of such Plan and Agreement, a copy of each of which is on file in the office of the Secretary of CSG Systems International, Inc.”

Grantee shall be entitled to have such legend removed from the certificates representing Shares which have vested in Grantee.

12.

Enforcement.

The parties acknowledge that the remedy at law for any breach or violation or attempted breach or violation of the provisions of Section 10 will be inadequate and that, in the event of any such breach or violation or attempted breach or violation, the Company shall be entitled to injunctive relief in addition to any other remedy, at law or in equity, to which the Company may be entitled.

13.

Violation of Transfer Provisions.

The Company shall not be required to transfer on its books any Shares which have been sold, transferred, assigned, pledged, or encumbered in violation of any of the provisions of this Agreement or to treat as the owner of such Shares or to accord the right to vote or pay dividends to any purported transferee or pledgee to whom such Shares shall have been so sold, transferred, assigned, pledged, or encumbered.

14.

Section 83(b) Election.

Grantee shall have the right to make an election pursuant to Treasury Regulation § 1.83-2 with respect to the Shares and promptly will furnish the Company with a copy of the form of election Grantee has filed and evidence that such an election has been filed in a timely manner.

15.

Dispute Resolution.

Subject to the provisions of Section 12, any claim or dispute by Grantee or the Company 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 Grantee or the Company (the “Disputing Party”). Except as otherwise provided in this Section 15, 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, and (iii) specify the requested relief. 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 and (ii) asserting any counterclaim, which statement shall (A) describe in reasonable detail the nature of the Dispute relating to the counterclaim, (B) state the amount of the counterclaim, and (C) specify the requested relief. The parties shall attempt in good faith to agree upon a single arbitrator (the “Sole Arbitrator”). If the parties are unable to so agree, then each party shall appoint 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 Grantee or the Company, and (C) is experienced in representing clients in connection with corporate law matters (the “Basic Qualifications”); and promptly, but in any event within five (5) days after such appointments, the two arbitrators so appointed 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. If a Sole Arbitrator is not appointed, then the arbitration will be heard by a panel of the three arbitrators so appointed (the “Arbitration Panel”), with the third arbitrator so appointed serving as the chairperson of the Arbitration Panel. Decisions of the Sole Arbitrator or of a majority of the members of the Arbitration Panel, as the case may be, shall be determinative.

(c)

The arbitration hearing shall be held in Denver, Colorado, or such other city in which the principal executive office of the Company was located immediately prior to a Change of Control (if a Change of Control has occurred). The Sole Arbitrator or the Arbitration Panel, as the case may be, 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 Section 15. At either party’s request, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall have the right to grant injunctive relief.

(d)

Within ten (10) days after the closing of the arbitration hearing, the Sole Arbitrator or the Arbitration Panel, as the case may be, shall prepare and distribute to the parties a writing setting forth the Sole Arbitrator’s or 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.

(e)

The Sole Arbitrator or the Arbitration Panel, as the case may be, is instructed to schedule promptly all discovery and other procedural steps and otherwise to assume case management initiatives and controls to effect an efficient, economical, and expeditious resolution of the Dispute. The Sole Arbitrator

or the Arbitration Panel, as the case may be, is authorized to issue monetary sanctions against either party if, upon a showing of good cause, such party is unreasonably delaying the proceeding.

(g)

Any award rendered by the Sole Arbitrator or the Arbitration Panel, as the case may be, will be final, conclusive, and binding upon the parties and shall be the exclusive remedy for all claims, counterclaims, or issues presented to the Sole Arbitrator or the Arbitration Panel, as the case may be; and any judgment on such award may be entered and enforced in any court of competent jurisdiction.

(h)

Each party will bear an equal share of all fees, costs, and expenses of the arbitrators. Notwithstanding any law to the contrary, (i) if the Company is the prevailing party in the arbitration, then each party will bear all of the fees, costs, and expenses of such party’s own attorneys, experts, and witnesses and (ii) if the Grantee is the prevailing party in the arbitration, then the Company shall pay all of the reasonable fees, costs, and expenses of both the Company’s and the Grantee’s 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 Sole Arbitrator or the Arbitration Panel, as the case may be, 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 Section 15 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 Section 15.

16.

Withholding.

Upon Grantee’s making of the election referred to in Section 14 with respect to any of the Shares or upon the vesting in Grantee of any of the Shares as to which the election referred to in Section 14 was not made, Grantee shall pay to or provide for the payment to or withholding by the Company of all amounts which the Company is required to withhold for federal, state, or local tax purposes from Grantee’s compensation by reason of or in connection with such election or vesting. Notwithstanding any provision of the Joint Escrow Instructions to the contrary, neither the Company nor the Escrow Agent shall be obligated to deliver any certificate for any of the Shares until Grantee’s obligations under this Section 16 have been satisfied.

17.

Application of Plan.

The relevant provisions of the Plan relating to Restricted Stock Awards and the authority of the Committee under the Plan shall be applicable to this Agreement to the extent that this Agreement does not otherwise expressly address the subject matter of such provisions.

18.

General Provisions.

(a) No Assignments. Grantee may not sell, transfer, assign, pledge, or encumber any of Grantee’s rights or obligations under this Agreement without the prior written consent of the Company; and any such attempted sale, transfer, assignment, pledge, or encumbrance shall be void.

(b) Notices. All notices, requests, consents, and other communications required or permitted hereunder shall be in writing and shall be deemed to have been duly given and made upon personal delivery to the person for whom it is intended (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon deposit, postage prepaid, registered or certified mail, return receipt requested, in the United States mail as follows:

(i) if to Grantee, addressed to Grantee at Grantee’s address shown on the stock register maintained by or on behalf of the Company or at such other address as Grantee may specify by written notice to the Company, or

(ii) if to the Company, addressed to the Chief Executive Officer of the Company at the principal office of the Company or at such other address as the Company may specify by written notice to the Grantee.

Each such notice, request, consent, and other communication shall be deemed to have been given upon receipt thereof as set forth above or, if sooner, three (3) business days after deposit as described above. The addresses for purposes of this Section 18(b) may be changed by giving written notice of such change in the manner provided herein for giving notice. Unless and until such written notice is received, the addresses provided herein shall be deemed to continue in effect for all purposes hereunder.

(c) Choice of Law. This Agreement shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

(d) Severability. The parties hereto agree that the terms and provisions in this Agreement are reasonable and shall be binding and enforceable in accordance with the terms hereof and, in any event, that the terms and provisions of this Agreement shall be enforced to the fullest extent permissible under law. In the event that any term or provision of this Agreement shall for any reason be adjudged to be unenforceable or invalid, then such unenforceable or invalid term or provision shall not affect the enforceability or validity of the remaining terms and provisions of this Agreement, and the parties hereto hereby agree to replace such unenforceable or invalid term or provision with an enforceable and valid arrangement which in its economic effect shall be as close as possible to the unenforceable or invalid term or provision.

(e) Parties in Interest. All of the terms and provisions of this Agreement shall be binding upon and inure to the benefit of and be enforceable by the respective permitted heirs, personal representatives, successors, and assigns of the parties hereto; provided, that the provisions of this Section 18(e) shall not authorize any assignment which is otherwise prohibited by this Agreement.

(f) Modification, Amendment, and Waiver. No modification, amendment, or waiver of any provision of this Agreement shall be effective against the Company or Grantee unless approved in writing and, in the case of the Company, authorized by the Committee and unless it specifically states that it is intended to modify, amend, or waive a specific provision of this Agreement. The failure of a party at any time to enforce any of the provisions of this Agreement shall in no way be construed as a waiver of such provisions and shall not affect the right of such party thereafter to enforce each and every provision of this Agreement in accordance with its terms.

(g) Integration. This Agreement constitutes the entire agreement of the parties with respect to the subject matter hereof and supersedes all prior negotiations, understandings, and agreements, written or oral.

(h) Headings. The headings of the sections and paragraphs of this Agreement have been inserted for convenience of reference only and do not constitute a part of this Agreement.

(i) Counterparts. This Agreement may be executed in counterpart with the same effect as if all parties had signed the same document. All such counterparts shall be deemed to be an original, shall be construed together, and shall constitute one and the same instrument.

(j) Further Assurances. The parties agree to use their best efforts and act in good faith in carrying out their obligations under this Agreement. The parties also agree to execute such further instruments and to take such further actions as reasonably may be necessary or desirable to carry out the purposes and intent of this Agreement.

In Witness Whereof, the parties hereto have executed this Restricted Stock Award Agreement as of the date first above written.

COMPANY: CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation		GRANTEE: /s/ Neal C. Hansen Neal C. Hansen

By:	/s/ John P. Pogge
	John P. Pogge, President

ANNEX A

JOINT ESCROW INSTRUCTIONS

August 30, 2002

Joseph T. Ruble, Corporate Secretary

CSG Systems International, Inc.

7887 East Belleview Avenue, Suite 1000

Englewood, Colorado 80111

Dear Sir:

As the Escrow Agent for CSG Systems International, Inc. (the “Company”), a Delaware corporation, and the undersigned holder of Common Stock of the Company (the “Grantee”), you hereby are authorized and directed to hold the documents delivered to you pursuant to the terms of that certain Restricted Stock Award Agreement (the “Agreement”) between the undersigned dated the date hereof, to which these Joint Escrow Instructions relate, in accordance with the following instructions:

1. A copy of the Agreement has been delivered to you concurrently with the execution of these Joint Escrow Instructions. By signing these Joint Escrow Instructions, you acknowledge receipt of such copy.

2. The Company promptly shall notify you (with a copy to Grantee) upon (i) the vesting in Grantee of any of the Shares covered by the Agreement and (ii) Grantee’s satisfaction of the withholding requirements set forth in Section 16 of the Agreement. Five (5) business days after your receipt of such notice, you shall deliver to Grantee the certificate or certificates for the Shares that have so vested and as to which such withholding requirements have been satisfied and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement.

3. The Company promptly shall notify you (with a copy to Grantee) of a Termination of Employment (as defined in the Agreement) of Grantee which results in the termination of the rights and interests of Grantee in any of the Shares covered by the Agreement in accordance with Section 3 of the Agreement. Five (5) business days after your receipt of such notice, you shall deliver to the Company for cancellation the certificates for such Shares and any other items pertaining to such Shares then held by you pursuant to Section 6 of the Agreement.

4. The escrow created by these Joint Escrow Instructions shall terminate upon the delivery by you, in accordance with the Agreement and these Joint Escrow Instructions, of all of the certificates for the Shares covered by the Agreement and all other items pertaining to the Shares received by you pursuant to Section 6 of the Agreement.

5. Your duties hereunder may be altered, amended, modified, or revoked only by a writing signed by the parties hereto.

6. You shall be obligated only for the performance of such duties as are specifically set forth herein and may rely and shall be protected in acting or refraining from acting in reliance upon any instrument reasonably believed by you to be genuine and to have been signed or presented by the proper party or parties. You shall not be personally liable for any act you may do or omit to do hereunder as Escrow Agent while acting in good faith and in the exercise of your own good judgment and not in contravention of the express terms hereof, and any act done or omitted by you pursuant to the advice of your own independent attorneys shall be conclusive evidence of such good faith.

7. You shall not be liable in any respect on account of the identity, authority, or rights of the parties executing or delivering or purporting to execute or deliver the Agreement or any documents or papers deposited or called for hereunder or thereunder.

8. You shall be entitled to employ such independent legal counsel and other experts as you may deem necessary properly to advise you in connection with your obligations hereunder, may rely upon the advice of such counsel, and may pay such counsel reasonable compensation for such advice.

9. Your responsibilities as Escrow Agent hereunder shall terminate on the thirtieth day following receipt by the parties of your written notice of resignation or upon the joint selection of a successor Escrow Agent by the Company and Grantee and your receipt of written notification of such a selection. In the event of your resignation, you and the Company shall jointly appoint a successor Escrow Agent.

10. If you reasonably require other or further instruments in connection with these Joint Escrow Instructions or your obligations in respect hereto, the necessary parties hereto shall furnish or join in furnishing such instruments.

11. If a dispute arises with respect to the delivery and/or ownership or right of possession of the securities or any other property held by you hereunder, then you are authorized and directed to retain in your possession without liability to anyone all or any part of such securities or other property until such dispute shall have been settled either by mutual written agreement of the parties concerned or by a final order of a court of competent jurisdiction, but you shall be under no duty whatsoever to institute or defend any such proceedings. All questions as to whether any securities held by you have vested will be determined under the Agreement by the Company and Grantee or by a final order of a court of competent jurisdiction, and you have no authority to make any such decisions. No transfer of securities or other property by you shall be effective unless made pursuant to the terms of the Agreement, and any transfer in contravention thereof shall be null and void.

12. Any notice required or permitted hereunder shall be given in writing and shall be deemed effectively given upon personal delivery (including by a reputable overnight delivery service which shall be deemed to have effected personal delivery) or upon deposit in the United States mail, by registered or certified mail with postage and fees prepaid, return receipt requested, addressed to each of the other parties thereunto entitled at the following addresses, or at such other addresses as a party may designate by ten (10) days’ advance written notice to each of the other parties hereto:

Company:		CSG Systems International, Inc. 7887 East Belleview Avenue, Suite 1000 Englewood, Colorado 80111 Attn: Chief Executive Officer

Grantee:		Notice to Grantee shall be sent to the address set forth below Grantee’s signature on these Joint Escrow Instructions.

Escrow Agent:		Notice to the Escrow Agent shall be sent to his address at the beginning of these Joint Escrow Instructions.

13. By signing these Joint Escrow Instructions, you become a party hereto only for the purpose of these Joint Escrow Instructions; and you do not become a party to the Agreement.

14. All liabilities, losses, costs, fees, and disbursements incurred or made by you in connection with the performance of your duties hereunder, including without limitation the compensation paid to legal counsel pursuant to Paragraph 8 hereof, shall be borne by the Company; and the Company hereby agrees to indemnify you against and hold you harmless from all claims, actions, demands, liabilities, losses, costs, fees, and expenses incurred by you in the performance of your duties hereunder; provided, however, that this indemnity shall not extend to conduct which has been determined, by a final order of a court of competent jurisdiction, to have been grossly negligent or to have constituted intentional misconduct. You shall not be entitled to compensation for your services hereunder.

15. This instrument shall be governed by and construed in accordance with the internal laws, and not the laws of conflicts of laws, of the State of Delaware.

16. This instrument shall be binding upon and inure to the benefit of the parties hereto and their respective successors and permitted assigns.

[This space intentionally left blank]

19. This instrument may be executed in counterparts with the same effect as if all parties had signed the same document. All such counterparts shall be deemed an original, shall be construed together and shall constitute one and the same instrument.

Very truly yours,

COMPANY:

CSG SYSTEMS INTERNATIONAL, INC.

By:		/s/ John P. Pogge

		John P. Pogge, President

GRANTEE:

/s/ Neal C. Hansen

Neal C. Hansen

Grantee’s Address:

41 Charlou Circle

Englewood, CO 80111

Accepted:

ESCROW AGENT:

/s/ Joseph T. Ruble

Joseph T. Ruble, Corporate Secretary
of CSG Systems International, Inc.

EX-31.01 6 dex3101.htm CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.01

CERTIFICATIONS PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Neal C. Hansen, certify that:

1.	I have reviewed this report on Form 10-Q of CSG Systems International, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

(c)

Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

Disclosed in this report any change in the registrant’s internal controls over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

/s/ Neal C. Hansen

Neal C. Hansen

Chairman and Chief Executive Officer

EX-31.02 7 dex3102.htm CERTIFICATION PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002 Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

Exhibit 31.02

CERTIFICATIONS PURSUANT TO

SECTION 302

OF THE SARBANES-OXLEY ACT OF 2002

I, Peter E. Kalan, certify that:

1.	I have reviewed this report on Form 10-Q of CSG Systems International, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

4.	The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have:

(a)

(b)

[Paragraph omitted pursuant to SEC Release Nos. 33-8238 and 34-47986]

(c)

(d)

5.	The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

(a)

(b)

Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: November 14, 2003

/s/ Peter E. Kalan

Peter E. Kalan

Senior Vice President and Chief Financial Officer

EX-32.01 8 dex3201.htm CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 Certification Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002

Exhibit 32.01

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

The certification set forth below is being submitted in connection with the Quarterly Report on Form 10-Q (the “Report”) for the purpose of complying with Rule 13a-14(b) or Rule 15d-14(b) of the Securities Exchange Act of 1934 (the “Exchange Act”) and Section 1350 of Chapter 63 of Title 18 of the United States Code.

Neal C. Hansen, the Chief Executive Officer and Peter E. Kalan, the Chief Financial Officer of CSG Systems International Inc., each certifies that, to the best of his knowledge:

(1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Exchange Act; and

(2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of CSG Systems International, Inc.

November 14, 2003

/s/ Neal C. Hansen

Neal C. Hansen

Chairman and Chief Executive Officer

November 14, 2003

/s/ Peter E. Kalan

Peter E. Kalan

Senior Vice President and Chief Financial Officer

EX-99.01 9 dex9901.htm SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS Safe Harbor for Forward-Looking statements

Exhibit 99.01

SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES

LITIGATION REFORM ACT OF 1995

CERTAIN CAUTIONARY STATEMENTS AND

RISK FACTORS

CSG Systems International, Inc. and its subsidiaries (collectively, the “Company”) or their representatives from time-to-time may make or may have made certain forward-looking statements, whether orally or in writing, including without limitation, any such statements made or to be made in Management’s Discussion and Analysis of Financial Condition and Results of Operations (“MD&A”) 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 global telecommunications industry (e.g., cable television, DBS, wireline and wireless telephony, Internet and high speed data, etc.), 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.

CURRENT ECONOMIC STATE OF THE GLOBAL TELECOMMUNICATIONS INDUSTRY

The economic state of the global telecommunications industry continues to be depressed, with many of the companies operating within this industry publicly reporting decreased revenues and earnings, as well as several companies filing for bankruptcy protection. Public reports indicate any expected turnaround in the economic state of the global telecommunications industry could be slow, and a sustained recovery could take several years. Many telecommunications companies have announced cost and capital expenditure reduction programs to cope with the depressed economic state of the industry. Since most of the Company’s current and future clients operate within this industry sector, the economic state of this industry directly impacts the Company’s business, potentially limiting the amount of products and services current or future clients may purchase from the Company, as well as increasing the likelihood of uncollectible amounts from current and future accounts receivable and lengthening the cash collection cycle. For these reasons, the continued depressed economic state of the global telecommunications industry may materially impact the Company’s future results (including possible impairments to the Company’s goodwill and other intangible assets) of operations and limit the Company’s ability to grow its revenues. In fact, in response to the lingering poor economic conditions within this industry, during 2003 and 2002, the Company has undertaken several cost reduction initiatives (e.g., involuntary employee terminations) and has reduced its revenue and earnings expectations.

RESTRUCTURING ACTIVITIES

As a result of the Comcast arbitration ruling, the Company announced it would begin implementation of a cost reduction initiative during the fourth quarter of 2003 which is expected to result in approximately $30 million of cost savings for 2004. See MD&A, “Restructuring Charges” for additional discussions of this matter. There can be no assurance that the Company’s cost reduction initiatives will achieve the expected cost savings within the expected time frame, while simultaneously not jeopardizing the Company’s revenue opportunities.

In connection with this cost reduction initiative, the Company expects to record a restructuring charge during the fourth quarter of 2004, related primarily to involuntary termination benefits. At this time, the Company is not able to estimate the amount of the restructuring charge. However, the amount of the restructuring charges is likely to be material.

RELIANCE ON KEY CUSTOMER CARE AND BILLING PRODUCTS AND SERVICES

The Company serves its clients through its two operating segments: the Broadband Services Division (the “Broadband Division”) and the Global Software Services Division (the “GSS Division”).

The Broadband Division generates a substantial percentage of its revenues by providing customer care and billing services to the United States (“U.S.”) cable television and satellite industries through its core service bureau processing product, CSG CCS/BP (“CCS”). Historically, a substantial percentage of the Company’s total revenues were generated from providing CCS products and related services. These CCS products and services are expected to provide a large percentage of the Company’s and most of the Broadband Division’s total revenues in the foreseeable future.

The GSS Division consists of the Company’s stand-alone software products and related services, which consists principally of the Kenan Business acquired in February 2002. Historically, a significant percentage of the Kenan Business’ revenues have been generated from its core customer care and billing system product, CSG Kenan FX (formerly CSG Kenan/BP), to include software maintenance services and professional services associated with this product. CSG Kenan FX and related software maintenance services and professional services are expected to provide a large percentage of the GSS Division’s total revenues in the foreseeable future.

Any reduction in demand for CCS and/or CSG Kenan FX and related services discussed above could have a material adverse effect on the Company’s financial condition and results of operations, including possible impairments to related goodwill and other intangible assets.

In addition, 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 its revenues depends upon continued market acceptance of its current products, including CCS and CSG Kenan FX, and the Company’s ability to adapt, modify, maintain, and operate its products to address the increasingly complex and evolving needs of its clients, without sacrificing the reliability or quality of the products. As a result, substantial research and development will be required to maintain the competitiveness of the Company’s products and services in the market. There is an inherent risk of technical problems in maintaining and operating the Company’s products and services as the complexities are increased. 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 complexities increase. 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. There are additional risks related to implementation projects addressed below.

COMCAST AND AT&T BROADBAND BUSINESS RELATIONSHIP

The Company generates a significant percentage of its total revenues under the Comcast Master Subscriber Agreement. The Company recently received a ruling in its arbitration with Comcast and its predecessor company, AT&T Broadband. See “MD&A-Comcast and AT&T Broadband Business Relationship” for a discussion of the Company’s business relationship with Comcast and related risk factors.

RENEWAL OF ECHOSTAR COMMUNICATIONS CONTRACT

The percentages of the Company’s total revenues generated from Echostar Communications (“Echostar”) for the nine months ended September 30, 2003 and 2002 were approximately 11.3% (prior to the impact of the Comcast arbitration charge) and 10.9%, respectively. The Company expects that the amount of its future quarterly revenues generated from Echostar will be comparable to that of the third quarter of 2003. However, due to the expected reduction in future Comcast revenues as a result of the arbitration ruling and the impact this has on the Company’s total revenues, Echostar’s percentage of the Company’s total revenues is expected to increase.

The Company provides services to Echostar under a master agreement which is scheduled to expire on December 31, 2004. The failure of Echostar to renew its contract, representing a significant part of its business with the Company, could have a material adverse effect on the Company’s financial condition and results of operations.

DEPENDENCE ON U.S. VIDEO INDUSTRY – CABLE TELEVISION AND SATELLITE

The Broadband Division generates its revenues by providing products and services to the U.S. and Canadian cable television and satellite industries. Although the Company’s dependence on these industries has been lessened as a result of additional revenues being generated outside the U.S. as a result of the Kenan Business acquisition, revenues from the U.S. cable television and satellite industries are still expected to provide a large percentage of the Company’s, and substantially all of the Broadband Division’s, total revenues in the foreseeable future. A decrease in the number of customers served by the Company’s clients, loss of business due to non-renewal of client contracts, industry and client consolidations, and/or changing consumer demand for services could have a material adverse effect on the Company’s results of operations. 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 telecommunications industry. 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.

CONSOLIDATION OF THE GLOBAL TELECOMMUNICATIONS INDUSTRY

The global telecommunications industry is undergoing significant ownership changes at an accelerated pace. One facet of these changes is that telecommunications service providers are consolidating, decreasing the potential number of buyers for the Company’s products and services. In addition, consolidation in the global telecommunications industry may put at risk the Company’s ability to leverage its existing relationships. Should this consolidation result in a concentration of 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 having a material adverse effect to the Company’s results of operations.

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, many with significant and well-established 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 at times can be intense, particularly in the areas of research and development, conversions, software implementations, and technical support. In addition, the Company’s restructuring activities adversely impact the Company’s workforce as a result of involuntary terminations of employees and may adversely impact the Company’s ability to retain key personnel and recruit new employees when there is a need. For these reasons, the Company may not be successful in attracting and retaining the personnel it requires, which could have a material adverse effect on the Company’s ability to meet its commitments and new product delivery objectives. As mentioned above, the Company seeks to ensure that its cost reduction initiatives do not adversely impact its revenue opportunities.

INTEGRATION OF ACQUISITIONS

As part of its growth strategy, the Company seeks to acquire assets, technology, and businesses which could 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. Consistent with this strategy, the Company completed several acquisitions in 2002, including the Kenan Business.

Acquisitions involve a number of risks and difficulties, including: (i) expansion into new geographic markets and business areas; (ii) the requirement to understand local business practices; (iii) the diversion of management’s attention to the assimilation of acquired operations and personnel; and (iv) potential adverse effects on the Company’s operating results for various reasons, including, but not limited to, the following items: (a) the Company’s inability to achieve revenue targets; (b) the Company’s inability to manage and/or reduce operating costs; (c) the Company’s inability to achieve certain operating synergies; (d) costs incurred to integrate, support, and expand the acquired businesses; (e) charges related to purchased in-process research and development projects; (f) costs incurred to exit current or acquired contracts or activities; (g) costs incurred to manage the size of the combined existing and acquired workforce, due to certain redundancies or inefficiencies; (h) costs incurred to service any acquisition debt; and (i) the amortization or impairment of intangible assets.

Due to the multiple risks and difficulties associated with any acquisition, there can be no assurance that the Company will be successful in achieving its expected strategic and operating goals for any such acquisition.

IMPLEMENTATION PROJECT COMPLEXITIES AND RISKS

The Company’s GSS Division provides a variety of implementation services in conjunction with its software arrangements. The nature of the efforts required to complete the implementations can range from relatively short and noncomplex projects to long and complex projects. These implementation projects typically range from six to twelve months in length, but can be longer or shorter depending upon the specifics of the project. The length and complexity of an individual project is dependent upon many factors including, but not limited to, the following: (i) the level of software customization, if any, required in the implementation; (ii) the complexity of the client’s business, and the client’s intended use of the Company’s products and services to address its business needs; (iii) whether the project includes multiple software product implementations or services; (iv) the extent of efforts required to integrate the Company’s products with the client’s other computer systems and business processes; (v) the amount and type of data that is required to be converted from the client’s old application system to the newly implemented

system; (vi) the geographic location of the implementation project; (vii) whether the arrangement includes additional vendors participating in the overall project, including, but not limited to, prime and subcontractor relationships with the Company; and (viii) the responsibility the Company has assumed for the overall project completion. For example, from time-to-time the Company may assume a prime contractor (or prime integrator) role in a project in addition to its software implementation responsibilities. Prime contractor roles are inherently more difficult and/or complex as the Company takes on the additional responsibility of managing other vendors as part of the project.

Lengthy and/or complex projects carry a greater degree of business risk than those projects that are short and/or noncomplex in nature. The Company’s inability to timely and successfully complete a project and meet client expectations could have a material adverse effect on the Company’s financial condition and results of operations by impacting:

•

the amount and timing of revenue recognition. As discussed in greater detail in the Company’s 2002 10-K under “MD&A-Critical Accounting Policies”, the Company generally accounts for its software implementation projects using the percentage-of-completion (“POC”) method of accounting. The Company applies various judgements and estimates in following this accounting method, the primary one being the determination of the estimated efforts required to complete a project. Significant increases between quarters in the total estimated efforts required to complete a project accounted for in this manner can result in a reduction in anticipated revenues, and possibly, the reversal of previously recognized revenue;

•

the overall profitability of a project. Many of the Company’s projects are priced on a fixed-fee basis or the amount of fees that can be billed on a time-and-materials basis is capped. As a result, unexpected costs and/or delays result in the projects being less profitable than originally anticipated, or even unprofitable (i.e., a loss contract). In addition, the Company’s products are considered mission critical customer management systems by its clients. As a result, an arrangement may include penalties and/or potential damages for failure of the Company to perform under the agreed-upon terms of the arrangement; and/or

•

the timing of invoicing and/or collection of arrangement fees. The Company’s ability to invoice and collect arrangement fees may be dependent upon the Company meeting certain contractual milestones, or may be dependent on the overall project status in certain situations in which the Company acts as a subcontractor to another vendor on a project. As a result, the status of and/or delays in a project can impact the timing of invoicing and collection of the Company’s arrangement fees.

VARIABILITY OF QUARTERLY RESULTS

The Company’s quarterly revenues and operating results, particularly relating to software licenses, software maintenance services, and professional services, may fluctuate depending on various factors, including: (i) the timing of executed contracts; (ii) the delivery of products and services; (iii) the amount of work performed on, and the overall status of implementation projects; (iv) the cancellation of the Company’s services and products by existing or new clients; (v) the hiring of additional staff; and (vi) new product development and other expenses. No assurance can be given that results will not vary due to these and other factors.

Variability in quarterly revenues and operating results are inherent characteristics of the software and professional services industries. Common causes of a failure to meet revenue and operating expectations in these industries include, among others: (i) the inability to close one or more material software transactions that may have been anticipated by management in any particular period; (ii) the inability to timely renew one or more material software maintenance agreements, or renewing such agreements at lower rates than anticipated; and (iii) the inability to timely and successfully complete an implementation project and meet client expectations, due to factors discussed in greater detail above.

The Company expects software license, software maintenance services, and professional services revenues to become an increasingly larger percentage of its total revenues in the future. Consequently, as the Company’s total revenues grow, so too does the risk associated with meeting financial expectations for revenues derived from its software licenses, software maintenance services, and professional 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.

Historically, the vast majority of the Company’s revenue has come from domestic sources, limiting the need to develop a strong international intellectual property protection program. With the Kenan Business acquisition, the Company has clients using its products in more than 40 countries. As a result, the Company needs to continually assess whether there is any risk to its intellectual property rights in many countries throughout the world. Should these risks be improperly assessed or if for any reason should the Company’s right to develop, produce and distribute its products anywhere in the world be successfully challenged or be significantly curtailed, it could have a material adverse effect on the Company’s financial condition and results of operations.

INTERNATIONAL OPERATIONS

The Company’s growth strategy includes a commitment to the marketing of its products and services internationally. The Company has conducted international operations in the past and has significantly increased the level of its international operations as a result of its acquisition of the Kenan Business. The Company is subject to certain inherent risks associated with operating internationally including: (i) difficulties with product development meeting local requirements such as the conversion to local currencies and languages; (ii) difficulties in staffing and management of personnel, including considerations for cultural differences; (iii) reliance on independent distributors or strategic alliance partners; (iv) fluctuations in foreign currency exchange rates for which a natural or purchased hedge does not exist or is ineffective; (v) longer collection cycles for client billings (i.e., accounts receivable), as well as heightened client collection risks, especially in countries with highly inflationary economies and/or with restrictions on the movement of cash out a country; (vi) compliance with laws and regulations related to the collection, use, and disclosure of certain personal information relating to clients’ customer’s (i.e., privacy laws) that are more strict than those currently in force in the U.S.; (vii) effective coordination of worldwide sales and marketing programs; (viii) compliance with foreign regulatory requirements, including local labor laws; (ix) variability of foreign economic conditions; (x) changing restrictions imposed by U.S. or foreign import/export laws; (xi) political and economic instability; (xii) reduced protection for intellectual property rights in some countries; (xiii) inability to recover value added taxes (“VAT”) and/or goods and services taxes (“GST”) in foreign jurisdictions; (xiv) competition from companies which have firmly established significant international operations; (xv) the effects of terrorist activities and/or conflicts between two or more political governments or factions, which could impact general economic activities, as well as the Company’s ability to operate effectively in the effected regions; and (xvi) a potential adverse impact to the Company’s overall effective income tax rate resulting from: (a) operations in foreign countries with higher tax rates than the U.S.; (b) the inability to utilize certain foreign tax credits; and (c) the inability to utilize some or all of losses generated in one or more foreign countries.

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’ customers 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 periodically by an independent party. The Company periodically undergoes a security review of its internal systems by independent parties, 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 are impossible to predict. As a result, there can be no assurances that the Company’s networks and systems will not fail, or 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 Company’s financial condition and results of operations, 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 or increase in expense, as well as damaging the reputation of the Company. Any of these events could have both an immediate, negative impact upon the Company’s short-term revenue and profit expectations, as well as its long-term ability to attract and retain new clients.

PRODUCT OPERATIONS AND SYSTEM AVAILABILITY

The Company’s product operations are run in both mainframe and distributed system computing environments, as follows:

Mainframe Environment

CCS operates in a mainframe data processing center managed by First Data Corporation (“FDC”), with end users dispersed throughout the U.S. and Canada. These services are provided under an agreement with FDC, which runs through June 2008 (renegotiated in the third quarter of 2003). 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 (the “FDC Data Center”) suffer an extended business interruption or outage. This plan is exercised on an annual basis.

Distributed Systems Environment

Several of the Broadband Division’s 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 operates these distributed systems servers in the FDC Data Center. Under an agreement with FDC that runs through June 2008 (renegotiated in the third quarter of 2003), 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’s systems are continuously connected to the Company’s CCS 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 effect on the Company’s financial condition and results of operations, as well as negatively affect the Company’s ability to attract and retain new clients.

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