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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-27512
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware
(State or other jurisdiction of incorporation or organization)
47-0783182
(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)
Securities Registered Pursuant to Section 12(b) of the Act: None
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, Par Value $0.01 Per Share
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 a check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to the Form 10-K. [_]
The aggregate market value of the voting stock held by non-affiliates of the
registrant, computed by reference to the last sales price of such stock, as of
the close of trading on January 31, 1999 was $1,706,906,316.
Shares of common stock outstanding at March 15, 1999: 51,613,111.
DOCUMENTS INCORPORATED BY REFERENCE
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Portions of the Registrant's Proxy Statement for its Annual Meeting of
Stockholders to be filed on or prior to April 30, 1999, are incorporated by
reference into Part III of the Form 10-K.
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CSG SYSTEMS INTERNATIONAL, INC.
1998 FORM 10-K
TABLE OF CONTENTS
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PART I
Item 1. Business..................................................... 3
Item 2. Properties................................................... 9
Item 3. Legal Proceedings............................................ 9
Item 4. Submission of Matters to a Vote of Security Holders.......... 9
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder
Matters...................................................... 10
Item 6. Selected Financial Data...................................... 11
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 13
Item 8. Financial Statements and Supplementary Data.................. 27
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure..................................... 48
PART III
Item 10. Directors and Executive Officers of the Registrant........... 49
Item 11. Executive Compensation....................................... 49
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 49
Item 13. Certain Relationships and Related Transactions............... 49
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form
8-K.......................................................... 49
Signatures.............................................................. 50
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ITEM 1. BUSINESS
GENERAL
CSG Systems International, Inc. (the "Company" or "CSG") was formed in
October 1994 and acquired all of the outstanding stock of CSG Systems, Inc.
(formerly Cable Services Group, Inc.) from First Data Corporation ("FDC") in
November 1994 (the "CSG Acquisition"). CSG Systems, Inc. had been a subsidiary
or division of FDC from 1982 until the acquisition.
The Company's principal executive offices are located at 7887 East
Belleview, Suite 1000, Englewood, Colorado 80111, and the telephone number at
that address is (303) 796-2850. The Company's common stock is listed on the
Nasdaq National Market under the symbol "CSGS".
COMPANY OVERVIEW
The Company provides customer care and billing solutions worldwide for the
converging communications markets, including cable television, direct
broadcast satellite ("DBS"), telephony, on-line services and others. The
Company's products and services enable its clients to focus on their core
businesses, improve customer service, and enter new markets and operate more
efficiently. The Company offers its clients a full suite of processing and
related services, and software and professional services which automate
customer care and billing functions. These functions include set-up and
activation of customer accounts, sales support, order processing, invoice
calculation, production and mailing, management reporting, and customer
analysis for target marketing. The Company's products and services combine the
reliability and high volume transaction processing capabilities of a mainframe
platform with the flexibility of client/server architecture. The Company
generated revenue of $236.6 million in 1998 compared to $171.8 million in
1997, an increase of 38%, and revenue grew at a compound annual growth rate of
35% over the three-year period ended December 31, 1998.
The Company has established a leading presence by developing strategic
relationships with major participants in the cable television and DBS
industries, and derived approximately 78% and 13% of its total revenues in
1998 from the U.S. cable television and DBS industries, respectively. The
Company provides customer care and billing to one-third of the households in
the U.S. During 1998, the Company derived approximately 81% of its total
revenues from processing and related services. At December 31, 1998, the
Company was servicing client sites having an aggregate of 29.5 million
customers in the U.S., compared to 21.1 million customers serviced as of
December 31, 1997, an increase of 39%. During 1998, the Company converted and
processed approximately 9.0 million new customers on its systems, with
approximately 7.7 million of these new customers coming from Tele-
Communications, Inc. ("TCI"). Total domestic revenue per customer account for
1998 was $8.71, compared to $7.73 for 1997, an increase of 13%, and revenue
per customer account grew at a compound annual growth rate of 16% over the
three-year period ended December 31, 1998.
The convergence of communications markets and growing competition are
increasing the complexity and cost of managing the interaction between
communications service providers and their customers. Customer care and
billing systems coordinate all aspects of the customer's interaction with a
service provider, from initial set-up and activation, to service activity
monitoring, through billing and accounts receivable management. The growing
complexity of communications services and the manner in which they are
packaged and priced, has created increased demand for customer care and
billing systems which deliver enhanced flexibility and functionality. Because
of the significant level of technological expertise and capital resources
required to develop and implement such systems successfully, the majority of
cable television, DBS, and wireless service providers have elected to
outsource customer care and billing.
In 1998, the Company acquired substantially all of the assets of US Telecom
Advanced Technology Systems, Inc. ("USTATS") for approximately $6.0 million in
cash and assumption of certain liabilities of approximately $1.3 million.
USTATS, a South Carolina-based company, specializes in open systems,
client/server customer care and billing systems serving the telecommunications
markets. This acquisition
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strengthened CSG's core telephony system serving cable television providers
and provided technology for use in entering new markets, including the
competitive local exchange carrier ("CLEC") and incumbent local exchange
carriers ("ILEC").
In September 1997, the Company entered into a 15-year processing agreement
with TCI (the "TCI Contract") which expires in 2012. The TCI Contract has
minimum financial commitments over the 15-year life of the contract and
includes exclusive rights to provide customer care and billing products and
services for TCI's offerings of wireline video, all Internet/high-speed data
services, residential wireline telephony services, and print and mail
services. As of December 31, 1998, the Company had successfully converted
approximately 8 million of the over 9 million TCI customers originally
scheduled to be converted under the TCI Contract. The remaining customers are
scheduled to be converted to the Company's processing system by the second
quarter of 1999. AT&T completed a merger with TCI in March 1999. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussion of the TCI Contract and the TCI and AT&T
merger.
In addition, during 1997, the Company purchased certain SUMMITrak software
technology assets that were in development from TCI. The development efforts
are on schedule and the resource requirements for completion of the
development efforts are consistent with the original expectations. The related
products from these development efforts are expected to be available for
general release in 1999. See Note 4 to the Company's Consolidated Financial
Statements for additional discussion of the SUMMITrak asset acquisition.
The Company expanded its operations internationally through the acquisition
of Bytel Limited in June 1996. During 1998, Bytel Limited changed its name to
CSG International Limited ("CSGI"). CSGI, established in 1992, is a leading
provider of customer care and billing solutions in the United Kingdom to
providers of converged cable television and telephony services. During 1998,
1997, and 1996, the Company derived 6.3%, 9.6%, and 8.1%, respectively, of its
total revenues from international sources. See Note 3 to the Company's
Consolidated Financial Statements for additional discussion of the Company's
international operations.
Growth Strategy
The Company's growth strategy is designed to provide revenue and profit
growth. The key elements of the strategy include:
Expand Core Processing Business. The Company will continue to leverage its
investment and expertise in high-volume transaction processing to expand its
processing business. The processing business provides highly predictable
recurring revenues through multi-year contracts with a client base which
includes leading communications service providers in growing markets. The
Company increased the number of customers processed on its systems from 18.0
million as of December 31, 1995 to 29.5 million as of December 31, 1998. The
Company's approach to customer care and billing provides a full suite of
products and services which combines the reliability and high volume
transaction processing capabilities of a mainframe platform with the
flexibility of client/server architecture.
Introduce New Products and Services. The Company has a significant installed
client base to which it can sell additional value-added products and services.
The Company has increased its annual revenue per customer from $5.60 in 1995
to $8.71 in 1998, a compound annual growth rate of 16%, due primarily to the
introduction of new products and services. The Company will continue to
develop software applications, which will enhance and extend the functionality
of its customer care and billing solution and also provide additional revenue
opportunities.
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Enter New Markets. As communications markets converge, the Company's
products and services can facilitate efficient entry into new markets by
existing or new clients. For example, as the cable television providers expand
into on-line services and telephony, the Company will continue to offer the
customer care and billing solutions necessary to meet their needs. The Company
also seeks to identify other industries, such as the CLEC and ILEC markets,
that with acquired technology or modifications to the Company's existing
technology, could be served by the Company's customer care and billing
solutions.
Enhance Growth Through Focused Acquisitions. The Company follows a
disciplined approach to acquire assets and businesses which 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 or clients.
Continue Technology Leadership. The Company believes that its technology in
customer care and billing solutions gives communications service providers a
competitive advantage. The Company's continuing investment in research and
development ("R&D") is designed to position the Company to meet the growing
and evolving needs of existing and potential clients.
Pursue International Opportunities. The Company believes that privatization
and deregulation in international markets presents new opportunities for
customer care and billing providers. In the United Kingdom, CSGI is one of the
leading providers of customer care and billing solutions to providers of
converged cable television and telephony services. The Company also intends to
market the telephony customer care and billing system acquired in the USTATS
transaction in European and other international markets.
CSG Products and Services
CSG's Multi-Tier Architecture. CSG's multi-tier approach maximizes the
strength of the technological components in each tier. CSG's clients benefit
from having a highly scaleable system that can grow with their businesses, as
well as access to next generation technologies that are flexible and adaptable
to their changing needs. In addition, these products are supported by CSG's
Professional Services Group, which provides project management, and technical,
business and marketing consulting services.
CSG's Base Tier. This layer in CSG's customer care and billing solution does
the "heavy lifting". The billing engine uses proven, world-class technology,
providing the highest throughput available. This allows CSG's clients to
easily and affordably handle high-volume transactions. As communications
providers begin to offer more than their traditional single service, such as
cable or telephony, their ability to increase the scope of their customer care
and billing solution is very important.
Communications Control System ("CCS") enables a client's customer service
representatives ("CSRs") to enroll new customers, modify services to
current customers, schedule installation and repairs, and process billing.
CCS can handle more than 100 million accounts without significant capital
investments. CCS also has a complete set of customer service functions,
from order processing to customer information that can be used for target
marketing.
Financial Services include an entire suite of financial products aimed at
increasing CSG's clients' cash flow, managing risk and improving operating
margins. Financial products include:
. Credit Verification Service lets clients verify applicants' identities,
assess risks and make service decisions while the applicant is on the
phone.
. Risk Management System helps CCS clients determine the credit-worthiness
of prospective customers, relative to their general as well as cable
credit histories.
. Auto-Check Refunds Service processes refunds, issues and tracks checks
and communicates directly with the customer.
. PayBill Advantage Service allows customers to have their bills debited
from their checking accounts or placed on their credit cards.
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. Credit Card Processing Services uses a one-time credit card transaction
to automatically collect payments for monthly services and special
circumstances, such as a delinquent customer.
. Electronic Lockbox Service automates the process of posting electronic
payments, dramatically reducing the possibility for error in payment.
. Collections Service automates the accounts receivable system, increasing
recovery rates and reducing costs.
CSG's Middle-Tier. CSG's middle tier uses next generation technology to
route, rate and deliver messages and transactions. Next generation
technologies were chosen for these applications because of their openness,
flexibility and adaptability. All of these products were introduced in the
last three years.
Usage Handling System allows clients to rate different transactions based
on the amount they are used, rather than using flat fee pricing. Rated
transactions may include everything from telephone calls to downloading
files on the worldwide web.
CSG Workforce Express helps make dispatchers and technicians more
productive. It automatically routes the nearest technician to the next job.
Technicians have a hand-held device, called CSG TechNet, with many
functions, such as providing customer background, allowing them to up-sell
new services and receive payments from customers, and providing a map to
the next site.
Service Delivery System takes manual and automated tasks and configures
them into a logical work flow system, to perform certain functions such as
notifying external providers and activating service.
CSG Vantage is a sophisticated reporting package that allows clients to
conduct market analyses and use that data to monitor customer behavior.
CSG Call Center Express is a suite of products that allow customers to
complete a number of common service functions over the phone, increasing
CSRs' productivity. The four products include:
. CSG Info Express allows customers to perform tasks such as checking
account balances without having to speak to a CSR.
. CSG Ticket Express allows customers to order a pay-per-view event
without speaking to a CSR.
. CSG Screen Express allows CSRs to get general customer background on
their computer screens as each call comes in.
. CSG Statement Express allows CSRs to view a customer's statement as it
was printed and sent to the customer.
CSG Enhanced Statement Presentation allows clients to tailor their logos,
graphics and messages on customer invoices, including printing coupons.
This helps them turn monthly bills into an easy-to-read communications and
marketing tool.
Client Tier. These applications were designed with a variety of
"touchpoints", or opportunities where CSG's clients' employees work directly
with customers. Touchpoints include everything from a customer paying a bill
over the Internet, to a technician completing a service call, to a CSR adding
a new service for a customer. All of these applications have been introduced
in the past three years, a visible sign of CSG's R&D efforts.
CSG Advanced Customer Service Representative (ACSR) is a "graphical user
interface" to CCS. This allows CSRs to use "point and click" technology
when performing customer care and billing functions. ACSR gives CSRs an
integrated view of multiple services, such as cable TV, telephony, high-
speed data, from one workstation. ACSR has two add-on modules:
. Customer Information Tracking tracks interactions with customers by type
and subject and allows CSRs to add notes to them.
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. Application Object Interface allows clients to create customized
applications that access customer information and get updates from ACSR.
CSG TechNet is a handheld device that facilitates communication between
technicians and dispatchers, and helps technicians to close their work
orders in real time.
CSG.web is a self-directed customer service tool that allows customers to
perform most service-related tasks over the Internet.
YEAR 2000
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations" for discussion of the Company's efforts to address the year
2000 risks related to the Company's business.
CLIENTS
The majority of the Company's largest clients are cable television and DBS
providers and based on 1998 revenues are listed below in alphabetical order.
All of such clients are located in the U.S. except Telewest, which is located
in the United Kingdom.
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CableVision Systems Corporation Media One Group, Inc.
Century Communications Corporation Primestar, Inc.
Comcast Corporation TCI
Echostar Communications Corporation Telewest
Falcon Cable TV Time Warner
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During the years ended December 31, 1998, 1997, and 1996, revenues from TCI
represented approximately 37.4%, 32.9%, and 25.9% of total revenues, and
revenues from Time Warner Cable and its affiliated companies ("Time Warner")
represented approximately 14.1%, 20.1%, and 22.9% of total revenues,
respectively. The increase in the TCI percentage between 1998 and 1997 relates
primarily to the additional TCI customers converted to the Company's systems
as a result of the 15-year TCI Contract executed in September 1997. The
Company has separate processing agreements with multiple affiliates of Time
Warner and provides products and services to them under separately negotiated
and executed contracts.
CLIENT AND PRODUCT SUPPORT
The Company's clients typically rely on CSG for ongoing support and training
needs relating to the Company's products. The Company has a multi-level
support environment for its clients. The Company's Product Support Center
operates 24 hours a day, seven days a week. Clients call an 800 number and
through an automated voice response unit, direct their calls to the specific
product support areas where the questions are answered . In addition, each
client has a dedicated account manager. This professional helps clients
resolve strategic and business issues. The Company has a full-time training
staff and conducts ongoing training sessions both in the field and at its
training facilities located in Denver, Colorado and Omaha, Nebraska.
SALES AND MARKETING
The Company has assembled a direct sales and sales support organization. The
market for the Company's products and services is concentrated, with each
existing and potential client representing multiple revenue opportunities. The
Company has organized its sales efforts around senior level account managers
who are responsible for new revenues and renewal of existing contracts within
an account. Account managers are supported by direct sales and sales support
personnel who are experienced in the various products and services that the
Company provides.
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FDC Data Processing Facility
The Company outsources to FDC data processing and related services required
for operation of the CCS system. The Company's proprietary software is run in
FDC's facility to obtain the necessary mainframe computer capacity and support
without making the substantial capital investment that would be necessary for
the Company to provide this service internally. The Company's clients are
connected to the FDC facility through a combination of private and
commercially provided networks. FDC provides the services to the Company
pursuant to a five-year agreement which is scheduled to expire December 31,
2001. The Company believes it could obtain data processing services from
alternative sources, if necessary.
Research and Development
The Company's product development efforts are focused on developing new
products and improving existing products. The Company believes that the timely
development of new applications and enhancements is essential to maintaining
its competitive position in the marketplace.
The Company's total R&D expense, excluding purchased R&D, was $27.5 million,
$22.6 million, and $20.2 million for the years ended December 31, 1998, 1997,
and 1996, or 11.6%, 13.2%, and 15.3% of total revenues, respectively. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
Competition
The market for customer care and billing systems in the converging
communications industries is highly competitive. The Company competes with
both independent providers and in-house developers of customer management
systems. The Company believes its most significant competitors are DST
Systems, Inc., Convergys Corporation, and in-house systems. As the Company
enters additional market segments, it expects to encounter additional
competitors. Some of the Company's actual and potential competitors have
substantially greater financial, marketing and technological resources than
the Company.
The Company believes that the principal competitive factors in its markets
include time to market, flexibility and architecture of the system, breadth of
product features, product quality, customer service and support, quality of
R&D effort, and price.
Proprietary Rights and Licenses
The Company relies on a combination of trade secrets and copyright laws,
patents, license agreements, non-disclosure and other contractual provisions,
and technical measures to protect its proprietary rights. The Company
distributes its products under service and software license agreements which
typically grant clients non-exclusive licenses to use the products. Use of the
software products is restricted and subject to terms and conditions
prohibiting unauthorized reproduction or transfer of the software products.
The Company also seeks to protect the source code of its software as a trade
secret and as a copyrighted work. Despite these precautions, there can be no
assurance that misappropriation of the Company's software products and
technology will not occur. The Company also incorporates via licenses or
reselling arrangements a variety of third party technology and software
products that provide specialized functionality within its own products and
services. Although the Company believes that its product and service offerings
conform with such arrangements and do not infringe upon the intellectual
property rights of the other parties to such arrangements or of other third
parties, there can be no assurance that any third parties will not assert
contractual or infringement claims against the Company.
Employees
As of December 31, 1998, the Company had a total of 1,328 employees, an
increase of 187 from December 31, 1997. The Company's success is dependent
upon its ability to attract and retain qualified employees. None
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of the Company's employees are subject to a collective bargaining agreement.
The Company believes that its relations with its employees are good.
Item 2. Properties
The Company leases four facilities, totaling approximately 118,000 square
feet in Denver, Colorado and surrounding communities. The Company utilizes
these facilities primarily for (i) corporate headquarters, (ii) sales and
marketing activities, (iii) business offices for its professional consultants,
and (iv) certain R&D activities. The leases for these facilities expire in the
years 1999 through 2004.
The Company leases four facilities, totaling approximately 187,000 square
feet in Omaha, Nebraska. The Company utilizes these facilities primarily for
(i) client services and product support, (ii) systems and programming
activities, (iii) R&D activities, (iv) statement production and mailing, and
(v) general and administrative functions. The leases for these facilities
expire in the years 2000 through 2007.
The Company leases one facility, totaling 17,000 square feet in Jasper
County, South Carolina. This facility is used for product support functions
and R&D activities, and the lease expires in 2009.
The Company leases one facility, totaling 63,000 square feet in Wakulla
County, Florida. This facility is used for statement production and mailing
and the lease expires in 2008.
The Company leases office space totaling 13,000 square feet in Slough,
Berkshire, in the United Kingdom for its U. K. operations. The lease for this
facility expires in 2002.
The Company believes that its facilities are adequate for its current needs
and that additional suitable space will be available as required. The Company
also believes that it will be able to extend leases as they terminate. See
Note 9 to the Company's Consolidated Financial Statements for information
regarding the Company's obligations under its facilities leases.
Item 3. Legal Proceedings
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, after consultation with legal counsel, the
Company is not presently a party to any material pending or threatened legal
proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
None.
***
Executive Officers of the Registrant
The present executive officers of the Company are Neal C. Hansen (Chairman
of the Board and Chief Executive Officer), John P. Pogge (President and Chief
Operating Officer), Greg A. Parker (Vice President and Chief Financial
Officer) and Edward C. Nafus (Executive Vice President). During 1998, the
Company executed employment agreements with each of the executive officers.
Information concerning such executive officers appears in the following
paragraphs:
Mr. Hansen, 58, is a co-founder of the Company and has been the Chairman of
the Board and Chief Executive Officer and a director of the Company since its
inception in 1994. From 1991 until founding the Company, Mr. Hansen served as
a consultant to several software companies, including FDC. From 1989 to 1991,
Mr. Hansen was a General Partner of Hansen, Haddix and Associates, a
partnership which provided advisory management services to suppliers of
software products and services. From 1983 to 1989, Mr. Hansen was Chairman and
Chief Executive Officer of US WEST Applied Communications, Inc., and President
of US WEST Data Systems Group.
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Mr. Pogge, 45, joined the Company in 1995 and has served as President, Chief
Operating Officer and a director of the Company since September 1997. Prior to
that time, Mr. Pogge was an Executive Vice President of the Company and
General Manager, Business Units. From 1992 to 1995, Mr. Pogge was Vice
President, Corporate Development for US WEST, Inc. From 1987 to 1991, Mr.
Pogge served as Vice President and General Counsel of Applied Communications,
Inc. Mr. Pogge holds a J.D. degree from Creighton University School of Law and
a BBA in Finance from the University of Houston. Mr. Pogge and Mr. Parker are
brothers-in-law.
Mr. Parker, 40, joined the Company in July 1995 and has served as Vice
President and Chief Financial Officer since April 1997. Prior to that time,
Mr. Parker was Vice President, Finance. Previously, Mr. Parker was with Banc
One for thirteen years and was Chief Financial Officer for Banc One in Houston
and San Antonio. Mr. Parker received a BBA in Accounting and Economics from
the University of Iowa in 1980. Mr. Pogge and Mr. Parker are brothers-in-law.
Mr. Nafus, 58, joined the Company in August 1998 as Executive Vice
President. From 1992 to 1998, Mr. Nafus served as Executive Vice President of
First Data Corporation and President of First Data International. Mr. Nafus
was President of First Data Resources from 1989 to 1992, Executive Vice
President of First Data Resources from 1984 to 1989 and held various other
management positions with that company since 1984. Mr. Nafus holds a B.S.
degree in Mathematics from Jamestown College.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
The Company's Common Stock is listed on the Nasdaq National Market
("NASDAQ/NMS") under the symbol "CSGS". The following table sets forth, for
the fiscal quarters indicated, the high and low sale prices of the Company's
Common Stock as reported by NASDAQ/NMS since the Company's Initial Public
Offering on February 28, 1996. The per share amounts disclosed herein have
been adjusted to reflect the Company's two-for-one stock split which was
effective on March 5, 1999.
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High Low
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1998
First quarter.................................................. $22.63 $18.44
Second quarter................................................. 24.50 18.91
Third quarter.................................................. 24.63 18.38
Fourth quarter................................................. 39.50 19.13
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High Low
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1997
First quarter.................................................. $10.13 $ 7.50
Second quarter................................................. 15.50 7.38
Third quarter.................................................. 20.13 11.00
Fourth quarter................................................. 24.88 15.31
</TABLE>
On March 15, 1999, the last sale price of the Company's Common Stock as
reported by NASDAQ/NMS was $35.31 per share. On January 31, 1999, the number
of holders of record of Common Stock was 220.
Dividends
The Company has not declared or paid cash dividends on its Common Stock
since its incorporation. The Company's debt agreement contains restrictions on
the payment of dividends. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 6 to the Company's
Consolidated Financial Statements.
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Item 6. Selected Financial Data
The following selected financial data have been derived from the audited
financial statements of the Company and CSG Systems, Inc., formerly Cable
Services Group, Inc. (the "Predecessor"). The selected financial data
presented below should be read in conjunction with, and is qualified by
reference to "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and the Company's and the Predecessor's Consolidated
Financial Statements. The information below is not necessarily indicative of
the results of future operations.
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Company(1)(2) Predecessor(1)
--------------------------------------------------------- --------------
One month 11 Months
Year ended December 31, ended ended
------------------------------------------- December 31, November 30,
1998 1997 1996 1995 1994 1994
--------- ---------- --------- --------- ------------ --------------
(in thousands, except per share amount)
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Statements of Operations
Data:
Revenues:
Processing and related
services.............. $ 191,802 $ 131,399 $ 113,422 $ 96,343 $ 7,757 $76,081
Software license and
maintenance fees...... 31,021 26,880 14,736 57 -- --
Professional services.. 13,817 13,525 4,139 4 -- --
--------- ---------- --------- --------- -------- -------
Total revenues........ 236,640 171,804 132,297 96,404 7,757 76,081
--------- ---------- --------- --------- -------- -------
Expenses:
Cost of processing and
related services:
Direct costs........... 77,155 58,259 52,027 46,670 3,647 34,977
Amortization of
acquired software(1).. -- 10,596 11,003 11,000 917 --
Amortization of client
contracts and related
intangibles(1)........ 5,043 4,293 4,092 4,092 341 1,594
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Total cost of
processing and
related services..... 82,198 73,148 67,122 61,762 4,905 36,571
Cost of software
license and
maintenance fees...... 17,907 9,787 5,040 -- -- --
Cost of professional
services.............. 7,141 7,047 2,083 -- -- --
--------- ---------- --------- --------- -------- -------
Total cost of
revenues............. 107,246 89,982 74,245 61,762 4,905 36,571
--------- ---------- --------- --------- -------- -------
Gross margin (exclusive
of depreciation)....... 129,394 81,822 58,052 34,642 2,852 39,510
--------- ---------- --------- --------- -------- -------
Operating expenses:
Research and
development:
Research and
development........... 27,485 22,586 20,206 14,278 1,044 7,680
Charge for purchased
research and
development(1)(5)..... -- 105,484 -- -- 40,953 --
Impairment of
capitalized software
development costs(6).. -- 11,737 -- -- -- --
Selling and marketing.. 11,810 10,198 8,213 3,770 293 3,054
General and
administrative:
General and
administrative........ 22,959 19,385 13,702 11,406 3,073 9,461
Amortization of
goodwill and other
intangibles(1)........ 5,381 6,927 6,392 5,680 547 826
Impairment of
intangible assets(7).. -- 4,707 -- -- -- --
Stock-based employee
compensation(1)....... 297 449 3,570 841 -- --
Depreciation........... 8,159 6,884 5,121 5,687 433 3,520
--------- ---------- --------- --------- -------- -------
Total operating
expenses............. 76,091 188,357 57,204 41,662 46,343 24,541
--------- ---------- --------- --------- -------- -------
Operating income (loss). 53,303 (106,535) 848 (7,020) (43,491) 14,969
--------- ---------- --------- --------- -------- -------
Other income (expense):
Interest expense....... (9,771) (5,324) (4,168) (9,070) (769) (1,067)
Interest income........ 2,484 1,294 844 663 39 227
Other.................. (21) 349 -- -- -- --
--------- ---------- --------- --------- -------- -------
Total other........... (7,308) (3,681) (3,324) (8,407) (730) (840)
--------- ---------- --------- --------- -------- -------
Income (loss) before
income taxes,
extraordinary item and
discontinued
operations............. 45,995 (110,216) (2,476) (15,427) (44,221) 14,129
Income tax (provision)
benefit(8)............. 39,643 -- -- -- 3,757 (5,519)
--------- ---------- --------- --------- -------- -------
Income (loss) before
extraordinary item and
discontinued
operations............. 85,638 (110,216) (2,476) (15,427) (40,464) 8,610
Extraordinary loss from
early extinguishment
of debt(3)(5)......... -- (577) (1,260) -- -- --
--------- ---------- --------- --------- -------- -------
Income (loss) from
continuing operations.. 85,638 (110,793) (3,736) (15,427) (40,464) 8,610
Discontinued
operations(4):
Loss from operations... -- -- -- (3,093) (239) --
Gain (loss) from
disposition........... -- 7,922 -- (660) -- --
--------- ---------- --------- --------- -------- -------
Total gain (loss) from
discontinued
operations........... -- 7,922 -- (3,753) (239) --
--------- ---------- --------- --------- -------- -------
Net income (loss)....... $ 85,638 $ (102,871) $ (3,736) $ (19,180) $(40,703) $ 8,610
========= ========== ========= ========= ======== =======
Diluted net income
(loss) per common
share(9):
Income (loss)
attributable to common
stockholders.......... $ 1.62 $ (2.16) $ (.07) $ (2.76) $ (7.88)
Extraordinary loss from
early extinguishment
of debt............... -- (.01) (.03) -- --
Gain (loss) from
discontinued
operations............ -- 15 -- (.54) (.04)
--------- ---------- --------- --------- --------
Net income (loss)
attributable to common
stockholders.......... $ 1.62 $ (2.02) $ (.10) $ (3.30) $ (7.92)
========= ========== ========= ========= ========
Weighted average
diluted common shares. 52,991 50,994 43,746 6,901 5,175
========= ========== ========= ========= ========
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
Company(1)(2) Predecessor(1)
-------------------------------------------------- --------------
One month 11 Months
Year ended December 31, ended ended
------------------------------------ December 31, November 30,
1998 1997 1996 1995 1994 1994
-------- -------- -------- -------- ------------ --------------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Other Data (at Period
End):
Number of clients'
customers processed.... 29,461 21,146 19,212 17,975 16,435 16,347
Balance Sheet Data (at
Period End):
Cash and cash
equivalents............ $ 39,593 $ 20,417 $ 6,134 $ 3,603 $ 6,650 $ 22
Working capital......... 7,050 3,518 4,430 2,359 4,681 8,356
Total assets(5)......... 271,496 179,793 114,910 105,553 130,160 65,695
Total debt(3)(5)........ 128,250 135,000 32,500 85,068 95,000 10,438
Redeemable convertible
preferred stock(3)..... -- -- -- 62,985 59,363 --
Stockholders' equity
(deficit)(1)(3)(5)(6).. 60,998 (33,086) 41,964 (61,988) (40,429) 43,031
</TABLE>
- --------
(1) The Company was formed in October 1994 and acquired all of the outstanding
shares of CSG Systems, Inc., formerly Cable Services Group, Inc., from
First Data Corporation ("FDC") on November 30, 1994 (the "CSG
Acquisition"). The Company did not have any substantive operations prior
to the CSG Acquisition. The CSG Acquisition was accounted for as a
purchase and the Company's Consolidated Financial Statements (the
"Consolidated Financial Statements") since the date of the acquisition are
presented on the new basis of accounting established for the purchased
assets and liabilities. The Company incurred certain acquisition-related
charges as a result of the CSG Acquisition. These acquisition-related
charges included an immediate charge of $40.9 million as of the
acquisition date for purchased research and development and recurring,
periodic amortization of acquired software, client contracts and related
intangibles, noncompete agreement and goodwill, and stock-based employee
compensation.
(2) On June 28, 1996, the Company acquired all of the outstanding shares of
Bytel Limited. Bytel Limited changed its name to CSG International Limited
("CSGI") in 1998. The acquisition was accounted for using the purchase
method of accounting.
(3) The Company completed an initial public offering ("IPO") of its Common
Stock in March 1996. The Company sold 6,670,000 shares of Common Stock
resulting in net proceeds to the Company of $44.8 million. Such proceeds
were used to repay long-term debt of $40.3 million and to pay accrued
dividends of $4.5 million on Redeemable Convertible Preferred Stock
("Preferred Stock"). As of the closing of the IPO, all of the Preferred
Stock was automatically converted into 35,999,996 shares of Common Stock.
The Company incurred an extraordinary loss of $1.3 million for the write-
off of deferred financing costs attributable to the portion of the long-
term debt repaid.
(4) Contemporaneously with the Acquisition, the Company purchased from FDC all
of the outstanding capital stock of Anasazi Inc. ("Anasazi"). On August
31, 1995, the Company completed a substantial divestiture of Anasazi,
resulting in the Company owning less than 20% of Anasazi. In September
1997, the Company sold its remaining ownership interest in Anasazi for
$8.6 million in cash and recognized a gain of $7.9 million. The Company
accounted for its ownership in Anasazi as discontinued operations after
its acquisition in 1994.
(5) During 1997, the Company purchased certain SUMMITrak technology assets
from Tele-Communications, Inc. ("TCI") and entered into a 15-year
processing contract (the "TCI Contract"). The total purchase price was
approximately $159 million, with approximately $105 million charged to
purchased research and development and the remaining amount allocated
primarily to the TCI Contract. The Company financed the asset acquisition
with a $150.0 million term credit facility (the "Term Credit Facility"),
of which $27.5 million was used to retire the Company's previously
outstanding debt, resulting in an extraordinary loss of $0.6 million for
the write-off of deferred financing costs attributable to such debt. See
Note 4 to the Consolidated Financial Statements for additional discussion.
(6) During 1997, the Company recorded a non-recurring charge of $11.7 million
to reduce certain CSG Phoenix assets to their net realizable value as of
December 31, 1997.
(7) During 1997, the Company recorded a non-recurring charge of $4.7 million
for the impairment of certain intangible assets related to software
systems which the Company decided to no longer market and support.
(8) During 1998, the Company recorded an income tax benefit of $39.6 million
related primarily to the elimination of its valuation allowance against
its deferred tax assets. See Note 7 to the Consolidated Financial
Statements for further discussion.
(9) On March 5, 1999, the Company completed a two-for-one stock split for
shareholders of record on February 8, 1999. In January 1996, the Company
also completed a two-for-one stock split. Both splits were effected as a
stock dividend. Share and per share data for all periods presented herein
have been adjusted to give effect to both splits. Diluted net income
(loss) per common share and the shares used in the per share computation
have been computed on the basis described in Note 2 to the Consolidated
Financial Statements.
12
<PAGE>
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
General
The Company. The Company was formed in October 1994 and acquired all of the
outstanding stock of CSG Systems, Inc. from First Data Corporation ("FDC") in
November 1994 (the "CSG Acquisition"). CSG Systems, Inc. had been a subsidiary
or division of FDC from 1982 until the acquisition.
The Company is a leading provider of customer care and billing solutions for
cable television and direct broadcast satellite providers, and also serves on-
line services and telecommunications providers. The Company's products and
services enable its clients to focus on their core businesses, improve
customer service, and enter new markets and operate more efficiently. The
Company offers its clients a full suite of processing and related services,
and software and professional services which automate customer care and
billing functions. These functions include set-up and activation of customer
accounts, sales support, order processing, invoice calculation, production and
mailing, management reporting, and customer analysis for target marketing. The
Company's products and services combine the reliability and high volume
transaction processing capabilities of a mainframe platform with the
flexibility of client/server architecture.
Stock Splits. On March 5, 1999, the Company completed a two-for-one stock
split for shareholders of record on February 8, 1999. In January 1996, the
Company also completed a two-for-one stock split. Both splits were effected as
a stock dividend. Share and per share data for all periods presented herein
have been adjusted to give effect to both splits.
Stock Offerings. The Company completed the initial public offering ("IPO")
of its common stock in March 1996. The Company sold 6,670,000 shares of Common
Stock, resulting in net proceeds to the Company, after deducting the
underwriting discount and offering expenses, of approximately $44.8 million.
The net proceeds from the IPO were used to repay long-term debt of $40.3
million and to pay accrued dividends of $4.5 million on Preferred Stock. As of
the closing of the IPO, all of the 8,999,999 outstanding shares of Preferred
Stock were automatically converted into 35,999,996 shares of Common Stock and
all accrued dividends were paid. See Notes 5 and 6 to the Consolidated
Financial Statements for additional information regarding the Company's
Preferred Stock and long-term debt.
In April 1998, the Company completed a secondary public stock offering of
approximately 7.0 million shares of Common Stock. The primary shareholders in
the offering included Morgan Stanley affiliated entities and General Motors
employee benefit plan trusts. The Company received none of the proceeds from
the offering, nor incurred any expense.
Acquisitions
USTATS Asset Acquisition. On July 30, 1998, the Company acquired
substantially all of the assets of US Telecom Advanced Technology Systems,
Inc. ("USTATS") for approximately $6.0 million in cash and assumption of
certain liabilities of approximately $1.3 million. USTATS, a South Carolina-
based company, specializes in open systems, client/server customer care and
billing systems serving the telecommunications markets. The Company intends to
use the acquired technology and software to (i) enhance its current service-
bureau telephony customer care and billing system, and (ii) provide a customer
care and billing system for the domestic and international competitive local
exchange carrier ("CLEC") and incumbent local exchange carrier ("ILEC")
markets. The cash portion of the purchase price was paid out of corporate
funds. The total purchase price of $7.3 million has been allocated to the
technology and software acquired and is being amortized over its expected
useful life of five years.
Acquisition of SUMMITrak Assets. In September 1997, the Company purchased
certain SUMMITrak software technology assets that were in development from
Tele-Communications, Inc. ("TCI"). The development efforts are on schedule and
the resource requirements for completion of the development efforts are
consistent with the original expectations. The related products from these
development efforts are expected to be available for general release in 1999.
See Note 4 to the Company's Consolidated Financial Statements for additional
discussion of the SUMMITrak asset acquisition.
13
<PAGE>
Acquisition of CSG International Limited. On June 28, 1996, the Company
acquired all of the outstanding shares of Bytel Limited for $3.1 million in
cash and assumption of certain liabilities of $1.6 million. During 1998, Bytel
Limited changed its name to CSG International Limited ("CSGI"). The
acquisition was accounted for using the purchase method. The cost in excess of
the fair value of the net tangible assets acquired of $4.2 million was
allocated to goodwill and is being amortized over seven years on a straight-
line basis. The Consolidated Financial Statements include CSGI's results of
operations since the acquisition date. CSGI, established in 1992, is one of
the leading providers of customer care and billing solutions in the United
Kingdom to providers of converged cable television and telephony services.
Acquisition-Related Charges
Acquisition Charges. The CSG Acquisition was accounted for using the
purchase method. As a result, the Company has recorded recurring, periodic
amortization of acquired software, client contracts and related intangibles,
noncompete agreement, goodwill and stock-based employee compensation
(collectively, the "Acquisition Charges"). The Acquisition Charges totaled
$8.2 million, $20.7 million, and $24.4 million for the years ended December
31, 1998, 1997 and 1996, respectively. The Acquisition Charges will be
approximately $7.5 million for 1999, and thereafter, the amounts will be
approximately $0.2 million per year until fully amortized in 2004.
Discontinued Operations. Contemporaneously with the CSG Acquisition, the
Company purchased from FDC all of the outstanding shares of Anasazi Inc.
("Anasazi") for $6.0 million cash. Anasazi provides central reservation
systems and services for the hospitality and travel industries. The Company
accounted for its ownership in Anasazi as discontinued operations after its
acquisition in 1994. On August 31, 1995, the Company completed a substantial
divestiture of Anasazi, resulting in the Company owning less than 20% of
Anasazi. As a result, Anasazi's results of operations subsequent to August 31,
1995 are not included in the Company's results of operations as the Company
accounted for its investment in Anasazi under the cost method subsequent to
August 31, 1995. In September 1997, the Company sold its remaining interest in
Anasazi for $8.6 million in cash and recognized a gain of $7.9 million.
Non-Recurring Items
Charge for Purchased Research and Development. During 1997, the Company
recorded a charge of $105.5 million related primarily to the portion of the
SUMMITrak asset acquisition purchase price allocated to purchased research and
development related to software technologies which had not reached
technological feasibility and had no other alternative future use as of the
acquisition.
Impairment of Capitalized Software Development Costs. During 1997, the
Company recorded a charge of $11.7 million related to certain CSG Phoenix
assets. After the consideration of multiple factors and events, consisting
primarily of an increase in demand for the Company's outsourced processing
services and previously announced delays in the delivery of CSG Phoenix, such
assets were reduced to their estimated net realizable value as of December 31,
1997. The charge primarily included previously capitalized internal
development costs and purchased software incorporated into the product.
Impairment of Intangible Assets. During 1997, the Company recorded a charge
of $4.7 million for the impairment of certain intangible assets related to
software systems which the Company decided to no longer market and support.
This impairment charge related principally to the Company's CableMAX product.
CableMAX was a personal computer-based customer management system targeted at
smaller cable systems of 2,500 customers or less. During 1997, the Company
decided not to invest the resources necessary to make the software year 2000
compliant, resulting in the impairment of the CableMAX intangible assets.
Extraordinary Loss From Early Extinguishment Of Debt. In September 1997, the
Company retired its outstanding bank indebtedness of $27.5 million in
conjunction with obtaining financing for the SUMMITrak asset acquisition. Upon
repayment of the outstanding debt, the Company recorded an extraordinary loss
of $0.6
14
<PAGE>
million for the write-off of deferred financing costs. In March 1996, the
Company recorded an extraordinary charge of $1.3 million for the write-off of
deferred financing costs related to repayment of $40.3 million of long-term
debt with proceeds from the IPO.
Income Tax Benefit. As of September 30, 1998, the Company had a valuation
allowance of $48.5 million against certain of its deferred tax assets due to
the uncertainty that it would realize the income tax benefit from these
assets. During the fourth quarter of 1998, the Company concluded that it was
more likely than not that it would realize the entire tax benefit from its
deferred tax assets. As a result, the Company eliminated the entire valuation
allowance of $48.5 million as of December 31, 1998, which resulted in the
Company recording a net income tax benefit of $39.6 million during the fourth
quarter. This conclusion was based primarily upon the Company's expected
profitable operations in future periods. See below for additional discussion.
Adjusted Results of Operations
Impact of Acquisition Charges and Non-recurring Charges on Earnings. As
discussed above, the Company has incurred Acquisition Charges and non-
recurring charges in each of the last three years. The total of these charges
was $8.2 million, $135.3 million, and $25.6 million for the years ended
December 31, 1998, 1997 and 1996, respectively. The Company's adjusted results
of operations excluding these items are shown in the following table. In
addition to the exclusion of these expenses from the calculation, the adjusted
results of operations were computed using an effective income tax rate of
38.0%, and outstanding shares on a diluted basis.
<TABLE>
<CAPTION>
For the year ended December 31,
-------------------------------------------
1998 1997 1996
------------- ------------- -------------
(in thousands, except per share amounts)
<S> <C> <C> <C>
Adjusted Results of
Operations:
Operating income........... $ 61,512 $ 36,131 $ 25,194
Operating income margin.... 26.0% 21.0% 19.0%
Income before income taxes. 54,204 32,450 21,870
Net income................. 33,606 20,119 13,559
Earnings per diluted common
share..................... .63 .39 .27
Weighted average diluted
common shares............. 52,991 52,138 50,588
</TABLE>
15
<PAGE>
Results of Operations
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated. The results of CSGI's
operations since its acquisition on June 28, 1996 are included in the following
table and considered in the discussion of the Company's operations that
follows.
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------------------------------
1998 1997 1996
----------------- ------------------ -----------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
-------- ------- --------- ------- -------- -------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Processing and related
services.............. $191,802 81.1% $ 131,399 76.5% $113,422 85.8%
Software license and
maintenance fees...... 31,021 13.1 26,880 15.6 14,736 11.1
Professional services.. 13,817 5.8 13,525 7.9 4,139 3.1
-------- ----- --------- ------ -------- -----
Total revenues........ 236,640 100.0 171,804 100.0 132,297 100.0
-------- ----- --------- ------ -------- -----
Expenses:
Cost of processing and
related services:
Direct costs........... 77,155 32.6 58,259 33.9 52,027 39.3
Amortization of
acquired software..... -- -- 10,596 6.2 11,003 8.3
Amortization of client
contracts and related
intangibles........... 5,043 2.1 4,293 2.5 4,092 3.1
-------- ----- --------- ------ -------- -----
Total cost of
processing and
related services..... 82,198 34.7 73,148 42.6 67,122 50.7
Cost of software
license and
maintenance fees...... 17,907 7.6 9,787 5.7 5,040 3.8
Cost of professional
services.............. 7,141 3.0 7,047 4.1 2,083 1.6
-------- ----- --------- ------ -------- -----
Total cost of
revenues............. 107,246 45.3 89,982 52.4 74,245 56.1
-------- ----- --------- ------ -------- -----
Gross margin (exclusive
of depreciation)....... 129,394 54.7 81,822 47.6 58,052 43.9
-------- ----- --------- ------ -------- -----
Operating expenses:
Research and
development:
Research and
development........... 27,485 11.6 22,586 13.2 20,206 15.3
Charge for purchased
research and
development........... -- -- 105,484 61.4 -- --
Impairment of
capitalized software
development costs..... -- -- 11,737 6.8 -- --
Selling and marketing.. 11,810 5.0 10,198 5.9 8,213 6.2
General and
administrative:
General and
administrative........ 22,959 9.7 19,385 11.3 13,702 10.4
Amortization of
noncompete agreements
and goodwill.......... 5,381 2.3 6,927 4.0 6,392 4.8
Impairment of
intangible assets..... -- -- 4,707 2.7 -- --
Stock-based employee
compensation.......... 297 0.1 449 3 3,570 2.7
Depreciation........... 8,159 3.4 6,884 4.0 5,121 3.9
-------- ----- --------- ------ -------- -----
Total operating
expenses............. 76,091 32.1 188,357 109.6 57,204 43.3
-------- ----- --------- ------ -------- -----
Operating income (loss). 53,303 22.6 (106,535) (62.0) 848 .6
Other income (expense):
Interest expense....... (9,771) (4.1) (5,324) (3.1) (4,168) (3.1)
Interest income........ 2,484 1.0 1,294 .7 844 .6
Other.................. (21) -- 349 .2 -- --
-------- ----- --------- ------ -------- -----
Total other........... (7,308) (3.1) (3,681) (2.2) (3,324) (2.5)
-------- ----- --------- ------ -------- -----
Income (loss) before
income taxes,
extraordinary item and
discontinued
operations............. 45,995 19.5 (110,216) (64.2) (2,476) (1.9)
Income tax benefit..... 39,643 16.7 -- -- -- --
-------- ----- --------- ------ -------- -----
Income (loss) before
extraordinary item and
discontinued
operations............. 85,638 36.2 (110,216) (64.2) (2,476) (1.9)
Extraordinary loss from
early extinguishment
of debt............... -- -- (577) (.3) (1,260) (.9)
-------- ----- --------- ------ -------- -----
Income (loss) from
continuing operations.. 85,638 36.2 (110,793) (64.5) (3,736) (2.8)
Gain from disposition
of discontinued
operations............ -- -- 7,922 4.6 -- --
-------- ----- --------- ------ -------- -----
Net income (loss)....... $ 85,638 36.2% $(102,871) (59.9)% $ (3,736) (2.8)%
======== ===== ========= ====== ======== =====
</TABLE>
16
<PAGE>
Twelve Months Ended December 31, 1998 Compared to Twelve Months Ended December
31, 1997
Revenues. Total revenues increased $64.8 million, or 37.7%, to $236.6
million in 1998, from $171.8 million in 1997.
Revenues from processing and related services increased $60.4 million, or
46.0%, to $191.8 million in 1998, from $131.4 million in 1997. Of the total
increase in revenue, approximately 61% resulted from the Company serving a
higher number of customers for its clients and approximately 39% was due to
increased revenue per customer. Customers serviced as of December 31, 1998 and
1997 were 29.5 million and 21.1 million, respectively, an increase of 39.3%.
The increase in the number of customers serviced was due to the conversion of
additional customers by new and existing clients to the Company's systems, and
internal customer growth experienced by existing clients. During 1998, the
Company converted and processed approximately 9.0 million new customers on its
systems, with approximately 7.7 million of these new customers coming from
TCI. Total domestic revenue per customer account for 1998 was $8.71, compared
to $7.73 for 1997, an increase of 12.7%. Revenue per customer increased due
primarily to (i) the 15-year processing contract with TCI (the "TCI
Contract"), which was executed in September 1997, (ii) increased usage of
ancillary services by clients, and (iii) price increases included in client
contracts.
Revenues from software and related product sales and professional consulting
services increased $4.4 million, or 11.0%, to $44.8 million in 1998, from
$40.4 million in 1997. This increase relates to the continued growth of the
Company's software products and related product sales and professional
consulting services.
Cost of Processing and Related Services. Direct processing costs as a
percentage of related revenues were 40.2% for 1998, compared to 44.3% for
1997. The improvement between years relates primarily to better overall
leveraging of the direct processing costs as a result of the continued growth
of the customer base processed on the Company's system. Amortization of
acquired software decreased to zero in 1998, from $10.6 million in 1997, due
to acquired software from the CSG Acquisition becoming fully amortized as of
November 30, 1997. Amortization of client contracts and related intangibles
increased $0.7 million, or 17.5%, to $5.0 million in 1998, from $4.3 million
in 1997. The increase in expense is due to amortization of the value assigned
to the TCI Contract, offset by a decrease in the amortization of certain
intangible assets from the CSG Acquisition becoming fully amortized as of
November 30, 1997. The value assigned to the TCI Contract is being amortized
over the life of the contract in proportion to the financial minimums included
in the contract. Amortization related to the TCI Contract was $1.9 million in
1998, compared to $0.3 million in 1997. For 1999, the scheduled amortization
for the TCI Contract is $3.3 million.
Cost of Software License and Maintenance Fees. The cost of software license
and maintenance fees as a percentage of related revenues was 57.7% in 1998,
compared to 36.4% in 1997. The increase in this percentage between years
relates primarily to the timing of the sales cycle for new products introduced
in 1998. For 1999, the cost of software license and maintenance fees as a
percentage of related revenues is expected to be comparable to the 1997
percentage.
Gross Margin. Gross margin increased $47.6 million, or 58.1%, to $129.4
million in 1998, from $81.8 million in 1997, due primarily to revenue growth.
The gross margin as a percentage of total revenues increased to 54.7% in 1998,
compared to 47.6% in 1997. The overall increase in the gross margin percentage
is due primarily to the increase in revenues while the amount of amortization
of acquired software decreased, and to a lesser degree, the improvement in the
gross margin percentage for processing and related services, due primarily to
the increase in revenue per customer while controlling the cost of delivering
such services.
Research and Development Expense. Research and development ("R&D") expense
increased $4.9 million, or 21.7%, to $27.5 million in 1998, from $22.6 million
in 1997. As a percentage of total revenues, R&D expense decreased to 11.6% in
1998, from 13.2% in 1997.
During 1997, the Company capitalized software development costs of
approximately $9.7 million, which consisted of $8.4 million of internal
development costs and $1.3 million of purchased software. The Company
17
<PAGE>
capitalized third party, contracted programming costs of approximately $1.4
million during 1998, related primarily to enhancements to existing products.
As a result, total R&D development expenditures (i.e., the total R&D costs
expensed, plus the capitalized development costs) for 1998 and 1997, were
$28.9 million, or 12.2% of total revenues, and $31.0 million, or 18.0% of
total revenues, respectively. The overall decrease in the R&D expenditures
between periods is due primarily to effective control of development costs,
primarily the reduction of third party, contracted programming services.
Selling and Marketing Expense. Selling and marketing ("S&M") expense
increased $1.6 million, or 15.8%, to $11.8 million in 1998, from $10.2 million
in 1997. As a percentage of total revenues, S&M expense decreased to 5.0% in
1998, from 5.9% in 1997. The overall decrease in S&M expenses as a percentage
of total revenues is due primarily to increased revenues, while controlling
S&M costs.
General and Administrative Expense. General and administrative ("G&A")
expense increased $3.6 million, or 18.4%, to $23.0 million in 1998, from $19.4
million in 1997. As a percentage of total revenues, G&A expense decreased to
9.7% in 1998, from 11.3% in 1997. The increase in G&A expenses relates
primarily to the continued expansion of the Company's administrative staff and
other administrative costs to support the Company's overall growth. The
decrease in G&A expenses as a percentage of total revenues is due primarily to
increased revenue, while controlling G&A costs.
Amortization of Noncompete Agreements and Goodwill. Amortization of
noncompete agreements and goodwill decreased $1.5 million, or 22.3%, to $5.4
million in 1998, from $6.9 million in 1997. The decrease in amortization
expense is due primarily to a write-down of certain intangible assets in 1997.
See Note 2 to the Consolidated Financial Statements for additional discussion.
Depreciation Expense. Depreciation expense increased $1.3 million, or 18.5%,
to $8.2 million in 1998, from $6.9 million in 1997. The increase in expense
relates to capital expenditures made throughout 1998 and 1997 in support of
the overall growth of the Company, consisting principally of computer hardware
and related equipment and statement processing equipment and related
facilities. Depreciation expense for all property and equipment is reflected
separately in the aggregate and is not included in the other components of
operating expenses.
Operating Income (Loss). Operating income was $53.3 million for 1998,
compared to an operating loss of $106.5 million in 1997. The change between
years relates primarily to the non-recurring charges recorded in 1997, as
discussed above. The Company's operating income margin, excluding the
Acquisition Charges and non-recurring charges discussed above, was 26.0% for
1998, compared to 21.0% for 1997.
Interest Expense. Interest expense increased $4.5 million, or 83.5%, to $9.8
million in 1998, from $5.3 million in 1997, with the increase attributable
primarily to the financing of the Company's acquisition of the SUMMITrak
assets in September 1997.
Interest Income. Interest income increased $1.2 million, or 92.0%, to $2.5
million in 1998, from $1.3 million in 1997, with the increase attributable
primarily to an increase in operating funds available for investment and an
increase in interest charges on aged client accounts.
Income Tax Benefit. As of September 30, 1998, the Company had a valuation
allowance of $48.5 million against certain of its deferred tax assets due to
the uncertainty that it would realize the income tax benefit from these
assets. During the fourth quarter of 1998, the Company concluded that it was
more likely than not that it would realize the entire tax benefit from its
deferred tax assets. As a result, the Company eliminated the entire valuation
allowance of $48.5 million as of December 31, 1998, which resulted in the
Company reflecting a net income tax benefit of $39.6 million for 1998.
Management believes the Company will obtain the full benefit of the deferred
tax assets on the basis of its evaluation of the Company's anticipated
profitability over the period of years that the temporary differences are
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expected to become deductions. The Company believes that sufficient book and
taxable income will be generated to realize the entire benefit of these
deferred tax assets. The Company's assumptions of future profitable operations
are supported by (i) the Company's strong financial performance in 1998, (ii)
the successful conversion of approximately 9.0 million new customers onto the
Company's processing system in 1998, with approximately 7.7 million of these
customers coming from TCI, and (iii) continued strong demand from the
converging communications markets for the Company's service bureau customer
care and billing solutions and related software and services products,
evidenced by the signing of several significant clients (both renewal and new
contracts) to long-term processing contracts during 1998.
Twelve Months Ended December 31, 1997 Compared to the Twelve Months Ended
December 31, 1996
Revenues. Total revenues increased $39.5 million, or 29.9%, to $171.8
million in 1997, from $132.3 million in 1996.
Revenues from processing and related services increased $18.0 million, or
15.8%, to $131.4 million in 1997, from $113.4 million in 1996. Of the total
increase in revenue, approximately 59% resulted from the Company serving a
higher number of customers for its clients and approximately 41% was due to
increased revenue per customer. Customers serviced as of December 31, 1997 and
1996 were 21.1 million and 19.2 million, respectively, an increase of 10.1%.
The increase in the number of customers serviced was due primarily to internal
customer growth experienced by existing clients and the addition of new
clients. Total domestic revenue per customer account for 1997 was $7.73,
compared to $6.67 for 1996, an increase of 15.9%. Revenue per customer
increased due to price increases included in client contracts and increased
usage of ancillary services by existing clients.
Revenues from software and related product sales and professional consulting
services increased $21.5 million, or 114.1%, to $40.4 million in 1997, from
$18.9 million in 1996. This increase relates to the introduction of the
Company's new software products and professional consulting services in early
1996 with continued expansion throughout 1996 and 1997, and the inclusion of
revenues from CSGI's operations for all of 1997, whereas six months of
revenues for CSGI were included for 1996.
Cost of Processing and Related Services. Direct processing costs as a
percentage of related revenues were 44.3% for 1997, compared to 45.8% for
1996. The improvement between years relates primarily to better overall
leveraging of the direct processing costs as a result of the continued growth
of the customer base processed on the Company's system, and a reduction in
data processing costs resulting from the Company's renegotiated contract with
FDC effective January 1, 1997. Amortization of acquired software decreased
$0.4 million, or 3.7%, to $10.6 million in 1997, from $11.0 million in 1996,
due primarily to acquired software from the CSG Acquisition becoming fully
amortized as of November 30, 1997. Amortization of client contracts and
related intangibles increased $0.2 million, or 4.9%, to $4.3 million in 1997,
from $4.1 million in 1996 due primarily to amortization from the TCI Contract
executed in September 1997.
Gross Margin. Gross margin increased $23.7 million, or 40.9%, to $81.8
million in 1997, from $58.1 million in 1996, due primarily to revenue growth.
The gross margin as a percentage of total revenues increased to 47.6% in 1997,
compared to 43.9% in 1996. The increase in the gross margin as a percentage of
total revenues is due primarily to (i) a favorable change in revenue mix which
included more higher-margined software products, (ii) the increase in revenues
while the overall amount of amortization of acquired software and the
amortization of client contracts and related intangibles remained relatively
constant, and (iii) the improvement in the gross margin percentage for
processing and related services, due primarily to the increase in revenue per
customer while controlling the cost of delivering such services.
Research and Development Expense. R&D expense increased $2.4 million, or
11.8%, to $22.6 million in 1997, from $20.2 million in 1996. As a percentage
of total revenues, R&D expense decreased to 13.2% in 1997 from 15.3% in 1996.
The Company capitalized software development costs, related primarily to CSG
Phoenix, of approximately $9.7 million during 1997, which consisted of $8.4
million of internal development costs and
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$1.3 million of purchased software. The Company capitalized software
development costs, related primarily to CSG Phoenix, ACSR Telephony and CSG
VantagePoint, of approximately $3.1 million in 1996, which consisted of $2.5
million of internal development costs and $0.6 million of purchased software.
As a result, total R&D expenditures (i.e., the total R&D costs expensed, plus
the capitalized internal development costs) for 1997 and 1996 were $31.0
million, or 18.0% of total revenues, and $22.7 million, or 17.2% of total
revenues, respectively. The overall increase in R&D expenditures is due
primarily to continued efforts on several products which are in development
and enhancements of the Company's existing products. The increased R&D
expenditures consist primarily of increases in salaries, benefits, contracted
programming services, and other programming-related expenses.
Selling and Marketing Expense. S&M expense increased $2.0 million, or 24.2%,
to $10.2 million in 1997, from $8.2 million in 1996. As a percentage of total
revenues, S&M expense decreased to 5.9% in 1997, compared to 6.2% in 1996. The
increase in expense is due primarily to continued growth of the Company's
direct sales force throughout 1996 and most of 1997. The Company began
building a new direct sales force in mid-1995 and continued to expand its
sales force through the end of 1997.
General and Administrative Expense. G&A expense increased $5.7 million, or
41.5%, to $19.4 million in 1997, from $13.7 million in 1996. As a percentage
of total revenues, G&A expense increased to 11.3% in 1997, from 10.4% in 1996.
The increase in expense relates primarily to (i) the continued expansion of
the Company's management team and related administrative staff, added
throughout 1996 and 1997, to support the Company's overall growth, (ii) an
increase in facility costs to support employee growth, including the cost of
relocating the Company's corporate headquarters, (iii) expenses of $0.7
million related to the closing of the TCI Contract and the SUMMITrak asset
purchase agreement, and (iv) the inclusion of G&A expenses from CSGI's
operations for all of 1997, whereas six months of G&A expenses for CSGI were
included for 1996.
Amortization of Noncompete Agreements and Goodwill. Amortization of
noncompete agreements and goodwill increased $0.5 million, or 8.4%, to $6.9
million in 1997, from $6.4 million in 1996. The increase in expense relates to
amortization of goodwill from the CSGI acquisition and amortization of an
additional noncompete agreement executed in April 1996.
Stock-Based Employee Compensation. During 1995 and 1994, the Company sold
Common Stock to executive officers and key employees pursuant to performance
stock agreements and recorded deferred compensation of $5.8 million related to
these purchases. Prior to the completion of the IPO, the deferred compensation
was being recognized as stock-based employee compensation expense on a
straight-line basis from the time the shares were purchased through November
30, 2001, as the shares became vested as of this date. Upon completion of the
IPO, shares owned by certain executive officers of the Company became fully
vested. In addition, the vesting for the remaining performance stock shares
decreased to 20.0% annually over a five-year period. As a result,
approximately $3.2 million of stock-based employee compensation expense was
recorded when the IPO was completed in March 1996. See Note 11 to the
Consolidated Financial Statements for additional discussion.
Depreciation Expense. Depreciation expense increased $1.8 million, or 34.4%,
to $6.9 million in 1997, from $5.1 million in 1996, with the increase
attributed to capital expenditures throughout 1996 and 1997 in support of the
overall growth of the Company. Depreciation expense for all property and
equipment is reflected separately in the aggregate and is not included in the
other components of operating expenses.
Operating Income (Loss). Operating loss was $106.5 million for 1997,
compared to operating income of $0.8 million for 1996. The change between
years relates primarily to the non-recurring charges recorded in the fourth
quarter of 1997, as discussed above. The Company's operating income margin,
excluding the Acquisition Charges and non-recurring charges discussed above,
was 21.0% for 1997, compared to 19.0% for 1996.
Interest Expense. Interest expense increased $1.1 million, or 27.7%, to $5.3
million in 1997, from $4.2 million in 1996, with the increase attributable
primarily to new debt incurred under the Term Credit Facility.
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This increase was partially offset by the effects of (i) scheduled principal
payments on the Company's long-term debt, (ii) the retirement of $40.3 million
of long-term debt with the proceeds from the IPO in March 1996, and (iii) a
decrease in the Company's interest rate spread on LIBOR, as a result of the
Company favorably amending its long-term credit facility in April 1996.
Liquidity and Capital Resources
As of December 31, 1998, the Company's principal sources of liquidity
included cash and cash equivalents of $39.6 million and a revolving credit
facility with a bank in the amount of $40.0 million, of which there were no
borrowings outstanding as of December 31, 1998. The Company's ability to
borrow under the revolving credit facility is subject to maintenance of
certain levels of eligible receivables. At December 31, 1998, all of the $40.0
million revolving credit facility was available to the Company. The revolving
credit facility expires in September 2002. The Company's working capital as of
December 31, 1998 and 1997 was $7.1 million and $3.5 million, respectively.
As of December 31, 1998 and 1997, respectively, the Company had $60.5
million and $44.7 million in net billed trade accounts receivable, an increase
of $15.8 million, with the increase primarily a result of the Company's
revenue growth. The Company's trade accounts receivable balance includes
billings for several non-revenue items, such as postage, communication lines,
travel and entertainment reimbursements, sales tax, and deferred items. As a
result, the Company evaluates its performance in collecting its accounts
receivable through its calculation of days billings outstanding ("DBO") rather
than a typical days sales outstanding ("DSO") calculation. DBO is calculated
based on the billing for the period (including non-revenue items) divided by
the average net trade accounts receivable balance for the period. The
Company's DBO calculations for the years ended December 31, 1998 and 1997 were
56 days and 54 days, respectively.
The Company's net cash flows from operating activities for the years ended
December 31, 1998, 1997 and 1996 were $47.3 million, $31.4 million and $29.1
million, respectively. The increase of $15.9 million, or 50.6%, in 1998 over
1997 relates to a $20.1 million increase in net cash flows from operations,
offset by a decrease in the net change in operating assets and liabilities of
$4.2 million. The increase of $2.3 million, or 7.8%, in 1997 over 1996 relates
to a $9.2 million increase in net cash flows from operations, offset by a
decrease in the net change in operating assets and liabilities of $6.9
million.
The Company's net cash flows used in investing activities totaled $27.1
million in 1998, compared to $117.4 million in 1997, a decrease of $90.3
million. The decrease between years relates primarily to the cash payments of
$106.5 million for the SUMMITrak assets acquired in September 1997 and a
decrease of $8.7 million in capitalized software development costs between
years, with these decreases offset by (i) proceeds of $8.6 million from the
final disposition of Anasazi in 1997, (ii) cash payment of $6.0 million for
the acquisition of assets of USTATS, (iii) conversion incentive payments of
$4.0 million made in 1998, and (iv) an increase in purchases of net property
and equipment of $6.3 million (with the increase related to computer hardware
and related equipment and statement processing equipment and related
facilities). The Company's net cash flow used in investing activities totaled
$14.7 million in 1996. The increase of $102.7 million between 1996 and 1997
relates primarily to the cash payments of $106.5 million for the SUMMITrak
assets acquired in September 1997 and a increase of $6.6 million in
capitalized software development costs between years, with these increases
offset by proceeds of $8.6 million from the final disposition of Anasazi in
1997.
The Company's net cash flows used in financing activities was $1.1 million
in 1998, compared to net cash flows provided by financing activities of $100.7
million in 1997, a decrease of $101.8 million. The significant decrease
between years relates primarily to the net change in the Company's long-term
debt between years. In 1997, the Company generated $150.0 million from a new
debt agreement entered into primarily to fund the SUMMITrak asset acquisition,
and repaid long-term debt of $47.5 million, which included (i) $5.0 million of
scheduled payments on the previous debt agreement, (ii) $27.5 million of
existing debt which was refinanced as part of the new debt agreement, and
(iii) an optional prepayment of $15.0 million on the new debt. The scheduled
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principal payments made in 1998 were $6.8 million. The net cash flows used in
financing activities totaled $12.1 million for 1996. The increase of $112.8
million between 1996 and 1997 relates primarily to the net change in the
Company's long-term debt between years. In addition, during 1996, the Company
sold 6,670,000 shares of Common Stock in its IPO, resulting in net proceeds to
the Company of approximately $44.8 million. The net proceeds from the IPO were
used to repay long-term debt of $40.3 million and to pay accrued dividends of
$4.5 million on Preferred Stock. As of the closing of the IPO in March 1996,
all of the 8,999,999 outstanding shares of the Preferred Stock were
automatically converted into 35,999,996 shares of Common Stock, at which time
the accrued dividends became payable.
Earnings from continuing operations (before extraordinary item and non-
recurring charges) before interest, taxes, depreciation and amortization
("EBITDA") for 1998 was $73.5 million or 31.0% of total revenues, compared to
$45.5 million or 26.5% of total revenues for 1997. EBITDA is presented here as
a measure of the Company's debt service ability and is not intended to
represent cash flows for the periods.
Interest rates for the Term Credit Facility and revolving credit facility
are chosen at the option of the Company and are based on the LIBOR rate or the
prime rate, plus an additional percentage spread, with the spread dependent
upon the Company's leverage ratio. As of December 31, 1998, the spread on the
LIBOR rate and prime rate was 0.75% and 0%, respectively. The Term Credit
Facility restricts, among other things, the payment of cash dividends or other
types of distributions on any class of the Company's stock unless the
Company's leverage ratio, as defined in the loan agreement, is under 1.50. As
of December 31, 1998, the leverage ratio was 1.63. See Note 6 to the
Consolidated Financial Statements for additional discussion of the Term Credit
Facility.
The purchase price for the SUMMITrak assets acquired in September 1997
included up to $26.0 million in conversion incentive payments. The timing of
the conversion incentive payments is based upon the achievement of certain
milestones by TCI and the Company, as specified in the SUMMITrak asset
acquisition agreement. The milestones are based principally upon the number of
TCI customers converted to, and the total number of TCI customers processed
on, the Company's customer care and billing system. Total payments as of
December 31, 1998 have been approximately $4.0 million. Based on the
conversions performed to date and the additional conversions scheduled as of
December 31, 1998, the Company expects to pay the remaining $22.0 million to
TCI in 1999. See Note 4 to the Consolidated Financial Statements for
additional discussion.
For income tax purposes, the amortization of the intangible assets from
acquisitions (including the intangible assets related to the CSG Acquisition
and the charge for purchased R&D related to the SUMMITrak asset acquisition)
are principally deductible over 15 years on a straight-line basis. The Company
has paid U.S. income taxes since its inception in 1994. Based on its current
projections, the Company expects to pay U.S. income taxes for 1999, and its
effective book income tax rate for 1999 is expected to be approximately 38%.
The Company continues to make significant investments in capital equipment,
facilities, and research and development. The Company had no significant
capital commitments as of December 31, 1998. The Company believes that cash
generated from operations, together with the current cash and cash equivalents
and the amount available under the revolving credit facility, will be
sufficient to meet its anticipated cash requirements for operations, income
taxes, debt service, conversion incentive payments and capital expenditures
for both its short and long-term purposes.
Market Risk
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 has entered into an interest rate collar agreement to manage its
interest rate risk from the variable rate features of its long-term debt. The
Company does not utilize any derivative financial instruments for purposes of
managing its foreign currency exchange rate risk. The Company does not enter
into derivatives or other financial instruments for trading or speculative
purposes.
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Interest Rate Risk. The Company had long-term debt (including current
maturities) of $128.3 million as of December 31, 1998. Interest rates for the
debt are chosen at the option of the Company and are based on the LIBOR rate
or the prime rate, plus an additional percentage spread, with the spread
dependent upon the Company's leverage ratio. As of December 31, 1998, the
spread on the LIBOR rate and prime rate was 0.75% and 0%, respectively. As of
December 31, 1998, the entire amount of the debt was under either one or six-
month LIBOR contracts with an overall weighted average interest rate of 5.89%
(i.e., LIBOR at 5.14% plus spread of 0.75%). The carrying amount of the
Company's long-term debt approximates fair value due to its variable interest
rate features. See Note 6 to the Consolidated Financial Statements for
additional description of the long-term debt and scheduled principal payments.
As required by the debt agreement with its bank, the Company entered into a
three-year interest rate collar in December 1997 with a major bank to manage
its risk from its variable rate long-term debt. The underlying notional amount
covered by the collar agreement is $71.3 million as of December 31, 1998, and
decreases over the three-year term in relation to the scheduled principal
payments on the long-term debt. Any payment on the 4.9% (LIBOR) interest rate
floor, or receipt on the 7.5% (LIBOR) interest rate cap component of the
collar, would be recognized as an adjustment to interest expense in the period
incurred. There are no amounts due or receivable under this agreement as of
December 31, 1998, and the agreement had no effect on the Company's interest
expense for 1998 or 1997. The fair value of the collar agreement is not
recognized in the Company's financial statements. The fair value of the collar
agreement at December 31, 1998, based on a quoted market price, was not
significant.
Foreign Exchange Rate Risk. The Company's foreign currency transactions
relate almost entirely to the operations conducted through its United Kingdom
("UK") subsidiary, CSGI. CSGI's transactions are executed primarily within the
UK and generally are denominated in British pounds. The Company does not
utilize any derivative financial instruments for purposes of managing its
foreign currency exchange rate risk. Exposure to variability in currency
exchange rates is mitigated by the fact that purchases and sales are typically
in the same currency with similar maturity dates and amounts. A hypothetical
adverse change of 10% in year-end exchange rates would not have a material
effect upon the Company's financial condition or results of operations.
TCI Contract and AT&T Merger
During the years ended December 31, 1998, 1997, and 1996, revenues from TCI
and affiliated companies represented approximately 37.4%, 32.9%, and 25.9% of
the Company's total revenues. The TCI Contract has a 15-year term and expires
in 2012. The TCI Contract has minimum financial commitments over the 15-year
life of the contract and includes exclusive rights to provide customer care
and billing products and services for TCI's offerings of wireline video, all
Internet/high-speed data services, residential wireline telephony services,
and print and mail services. The TCI Contract provides certain performance
criteria and other obligations to be met by the Company. The Company is
required to perform certain remedial efforts and is subject to certain
penalties if it fails to meet the performance criteria or other obligations.
The Company is also subject to an annual technical audit to determine whether
the Company's products and services include innovations in features and
functions that have become standard in the wireline video industry. To date,
the Company believes it has complied with the terms of the contract, and has
converted onto its processing system approximately 8 million of the over 9
million TCI customers originally scheduled to be converted under the TCI
Contract. The remaining customers are scheduled to be converted to the
Company's processing system by the second quarter of 1999.
AT&T completed its merger with TCI in March 1999. At this time, it is too
early to determine the near- and long-term impact, if any, the merger will
have on the Company's relationship with the combined entity. However, the
Company expects to continue performing successfully under the TCI Contract,
and is hopeful that it can continue to sell products and services to the
combined entity that are in excess of the minimum financial commitments
included in the contract.
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Year 2000
The Company's business is dependent upon various computer software programs
and operating systems that utilize dates and process data beyond the year
2000. The Company's actions to address the risks associated with the year 2000
are as follows:
The Company's State of Readiness. The Company has established a corporate
program to coordinate its year 2000 ("Y2K") compliance efforts across all
business functions and geographic areas. The scope of the program includes
addressing the risks associated with the Company's (i) information technology
("IT") systems (including the Company's products and services), (ii) non-IT
systems that include embedded technology, and (iii) significant vendors and
their Y2K readiness. The Company is utilizing the following steps in executing
its Y2K compliance program: (1) awareness, (2) assessment, (3) renovation
(including upgrades and enhancements to the Company's products), (4)
validation and testing, and (5) implementation. The Company has completed the
awareness and assessment steps for all areas.
Products and Services. The renovation step has been substantially completed
for all significant products and services, and the Company now is focusing
its efforts on validation and testing. The Company's most significant
renovation effort involved its core product, Communications Control System
("CCS"). CCS utilizes one subroutine for calculating dates, with the
various computer programs within CCS with date dependent calculations
accessing this subroutine. As a result, all date calculations are performed
in one location. The renovation of this subroutine and the related
interfaces to the various date dependent programs has been completed. The
Company is now testing CCS using its standard testing methodologies, while
adding date simulation to specifically address the Y2K risk. Such date
simulation considers pre-2000, cross over, and post-2000 time frames,
including year 2000 leap year considerations. As of February 28, 1999,
approximately 90-95% of the testing for CCS was completed, with the
remaining testing consisting primarily of third party interfaces to CCS.
The Company is dependent upon the third parties for such testing, which is
expected to be completed in its entirety by the end of the second quarter
of 1999. The interfaces are not complex and are considered low risk by the
Company. Implementation into the production environment is expected to
occur shortly after testing is completed.
For the Company's software products, no significant renovation is believed
necessary as the products are relatively new and were designed to be Y2K
compliant. The Company plans to test these products with similar date
simulation techniques discussed above to ensure they are Y2K compliant.
Such testing is expected to be substantially completed by the end of the
first quarter of 1999, with the remaining testing expected to be done by
the end of the second quarter of 1999.
The Company is currently developing a process to manage further updates or
enhancements to any product related software code which has been tested and
internally certified as Y2K compliant, and is considering a plan to
"freeze" all changes to mission critical product related software after
November 1999. The Company also plans to retest CCS (through an initial
program load of the CCS system) in the fourth quarter of 1999 to ensure
continued Y2K compliance. Several CSG clients are conducting tests of the
Company's products in conjunction with their own operating environments.
Several test phases have been completed (beginning in December 1998), with
additional phases continuing into the second quarter of 1999, including
participation by TCI in such testing.
Internal Systems. Renovation and/or testing of the Company's significant
internal use IT Systems (e.g., payroll systems, accounting systems, etc.)
is underway and is expected to be substantially completed by the end of the
first quarter of 1999, with all systems expected to be tested and
implemented by the end of the second quarter of 1999. The Company has a
substantial number of non-IT systems that include embedded technology
(e.g., buildings, plant, equipment and other infrastructure) that are owned
and managed by the lessors of the buildings in which the Company is
located. The Company has sent letters to its lessors requesting
certifications of the Y2K compliance of the embedded systems. The Company
has received some of the certifications from lessors and expects to receive
the remaining certifications by the end of the second quarter of 1999.
Letters have also been sent to third parties providing other internal non-
IT systems with embedded technology (e.g., statement insertion machines,
copy machines, etc.). Y2K certifications and/or upgrades are expected be
substantially complete by the end of the first quarter of 1999, with all
systems
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completed by the end of the second quarter of 1999. The Company is
currently assessing whether any testing of significant non-IT systems will
be required.
Significant Vendors. As part of the Company's Y2K compliance program, the
Company has contacted its significant vendors to assess their Y2K
readiness. For substantially all mission critical third party software
embedded in or specified for use in conjunction with the Company's IT
systems and products, the Company's communications with the vendors
indicates that the vendors believe they are fully Y2K compliant as of
December 31, 1998. The remaining vendors indicate that they are
substantially Y2K compliant as of December 31, 1998. The Company expects to
receive further enhancements from these vendors as they become available
throughout 1999 to bring the products into full Y2K compliance. Such third
party software has been or is being tested in conjunction with the testing
of the IT systems and products discussed above. All other significant
vendors (including the Company's vendor who provides data processing
services for CCS) have indicated they are substantially Y2K compliant as of
December 31, 1998, except for one of the Company's vendors which provides
data lines access for CCS. This vendor indicates that it expects to be Y2K
compliant by the end of the first quarter of 1999. There can be no
assurance that (i) the Company's significant vendors will succeed in their
Y2K compliance efforts, or (ii) the failure of vendors to address Y2K
compliance will not have a material adverse effect on the Company's
business or results of operations.
The Costs to Address the Company's Year 2000 Issues. Since inception of its
program in 1995 through December 31, 1998, the Company has incurred and
expensed costs of approximately $2.8 million related to Y2K compliance
efforts. The total estimated costs to complete the Company's Y2K compliance
effort are approximately $1.5 million. The estimated costs to complete, which
does not include any costs which may be incurred by the Company if its
significant vendors fail to timely address Y2K compliance, is based on
currently known circumstances and various assumptions regarding future events.
However, there can be no assurance that these estimates will be achieved and
actual results could differ materially from those anticipated.
The Risks of the Company's Year 2000 Issues. The Company's failure to timely
resolve the Y2K risks could result in system failures, the generation of
erroneous information, and other significant disruptions of business
activities, including among others, access to CCS and the use of related
software products, and timely printing and delivery of clients' customers'
statements. Although the Company believes it will be successful in its Y2K
compliance efforts, there can be no assurance that the Company's systems and
products contain all necessary date code changes. In addition, the Company's
operations may be at risk if its vendors and other third parties (including
public and private infrastructure services, such as electricity, water, gas,
transportation, and communications) fail to adequately address the Y2K issue
or if software conversions result in system incompatibilities with these third
parties. To the extent that either the Company or a third party vendor or
service provider on which the Company relies does not achieve Y2K compliance,
the Company's results of operations could be materially adversely affected.
Furthermore, it has been widely reported that a significant amount of
litigation surrounding business interruption will arise out of Y2K issues. It
is uncertain whether, or to what extent, the Company may be affected by such
litigation.
As is the case with many software companies and service providers, if the
Company's current or future clients experience significant business
interruptions due to their failure to achieve Y2K compliance, the Company's
results of operations could be materially adversely affected. There can be no
assurance that the Company's current or future clients will adequately and
successfully address their Y2K risk and not experience any business
interruptions.
The Company's Contingency Plan. The Company intends to address the need for
any Y2K specific contingency plan as part of its overall business continuity
planning, with modifications to the plan where Y2K specific exposures are
identified as the Company continues to execute its Y2K compliance project
during 1999. The Company is establishing a Y2K task force for all mission
critical operations of the Company which will provide dedicated personnel to
escalate the resolution of any Y2K specific matters that may occur. The
Company is also implementing a restricted vacation policy for December 1999
and January 2000 to ensure all mission critical personnel are available if any
Y2K specific matters occur.
25
<PAGE>
The (i) inability to timely implement a contingency plan, if deemed
necessary, and (ii) the cost to develop and implement such a plan, may have a
material adverse effect on the Company's results of operations.
Certain Factors That May Affect Future Results of Operations. Except for
statements of existing or historical facts, the foregoing discussion of Y2K
consists of forward-looking statements and assumptions relating to forward-
looking statements, including without limitation the statements relating to
future costs, the timetable for completion of Y2K compliance efforts,
potential problems relating to Y2K, the Company's state of readiness, third
party representations, and the Company's plans and objectives for addressing
Y2K problems. Certain factors could cause actual results to differ materially
from the Company's expectations, including without limitation (i) the failure
of vendors and service providers (such as the vendors of data processing
services and data lines access for CCS and providers of third party software)
to timely achieve Y2K compliance, (ii) system incompatibilities with third
parties resulting from software conversions, (iii) the Company's systems and
products not containing all necessary date code changes, (iv) the failure of
existing or future clients to achieve Y2K compliance, (v) potential litigation
arising out of Y2K issues, the risk of which may be greater for information
technology based service providers such as the Company, (vi) the failure of
the Company's validation and testing phase to detect operational problems
internal to the Company, in the Company's products or services or in the
Company's interface with service providers, vendors or clients, whether such
failure results from the technical inadequacy of the Company's validation and
testing efforts, the technological infeasibility of testing certain non-IT
systems, the perceived cost-benefit constraints against conducting all
available testing, or the unavailability of third parties to participate in
testing, or (vii) the failure to timely implement a contingency plan to the
extent Y2K compliance is not achieved.
26
<PAGE>
Item 8. Financial Statements and Supplementary Data
CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED FINANCIAL STATEMENTS
INDEX
<TABLE>
<S> <C>
Report of Independent Public Accountants................................... 28
Consolidated Balance Sheets as of December 31, 1998 and 1997............... 29
Consolidated Statements of Operations for the Years Ended December 31,
1998, 1997 and 1996....................................................... 30
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1998, 1997 and 1996.......................................... 31
Consolidated Statements of Cash Flows for the Years Ended December 31,
1998, 1997 and 1996....................................................... 32
Notes to Consolidated Financial Statements................................. 33
</TABLE>
27
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors of
CSG Systems International, Inc.:
We have audited the accompanying consolidated balance sheets of CSG Systems
International, Inc. (a Delaware corporation) and Subsidiaries as of December
31, 1998 and 1997, and the related consolidated statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1998. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of CSG Systems International,
Inc. and Subsidiaries as of December 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the
period ended December 31, 1998, in conformity with generally accepted
accounting principles.
Arthur Andersen LLP
Omaha, Nebraska
January 20, 1999
28
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
December 31,
------------------
1998 1997
-------- --------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 39,593 $ 20,417
Accounts receivable--
Trade--
Billed, net of allowance of $2,051 and $1,394........ 60,529 44,678
Unbilled............................................. 2,828 2,080
Other.................................................. 1,179 1,400
Deferred income taxes.................................... 1,803 443
Other current assets..................................... 2,275 2,664
-------- --------
Total current assets............................... 108,207 71,682
-------- --------
Property and equipment, net................................ 24,711 17,157
Software, net.............................................. 9,422 1,959
Noncompete agreements and goodwill, net.................... 7,596 13,938
Client contracts and related intangibles, net.............. 59,791 64,640
Deferred income taxes...................................... 59,389 6,909
Other assets............................................... 2,380 3,064
-------- --------
Total assets....................................... $271,496 $179,349
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt..................... $ 19,125 $ 6,750
Customer deposits........................................ 10,018 7,002
Trade accounts payable................................... 10,471 11,795
Accrued employee compensation............................ 12,276 5,719
Deferred revenue......................................... 13,470 10,619
Conversion incentive payments............................ 22,032 17,768
Accrued income taxes..................................... 6,756 3,207
Other current liabilities................................ 7,009 5,304
-------- --------
Total current liabilities.......................... 101,157 68,164
-------- --------
Non-current liabilities:
Long-term debt, net of current maturities................ 109,125 128,250
Deferred revenue......................................... 216 7,789
Conversion incentive payments............................ -- 8,232
-------- --------
Total non-current liabilities...................... 109,341 144,271
-------- --------
Commitments and contingencies (Note 9)
Stockholders' equity (deficit):
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; 11,421,416 and 11,993,126 shares
reserved for common stock warrants, employee stock
purchase plan and stock incentive plans; 51,465,646 and
50,959,936 shares outstanding (Note 2).................. 515 510
Common stock warrants; 3,000,000 warrants issued and
outstanding............................................. 26,145 26,145
Additional paid-in capital............................... 120,599 112,615
Deferred employee compensation........................... (328) (636)
Notes receivable from employee stockholders.............. (478) (685)
Cumulative translation adjustments....................... 38 (1)
Treasury stock, at cost, 66,000 shares and zero shares... (97) --
Accumulated deficit...................................... (85,396) (171,034)
-------- --------
Total stockholders' equity (deficit)............... 60,998 (33,086)
-------- --------
Total liabilities and stockholders' equity......... $271,496 $179,349
======== ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
29
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Revenues:
Processing and related services............... $191,802 $ 131,399 $113,422
Software license and maintenance fees......... 31,021 26,880 14,736
Professional services......................... 13,817 13,525 4,139
-------- --------- --------
Total revenues............................... 236,640 171,804 132,297
-------- --------- --------
Expenses:
Cost of processing and related services:
Direct costs.................................. 77,155 58,259 52,027
Amortization of acquired software............. -- 10,596 11,003
Amortization of client contracts and related
intangibles.................................. 5,043 4,293 4,092
-------- --------- --------
Total cost of processing and related
services.................................... 82,198 73,148 67,122
Cost of software license and maintenance fees. 17,907 9,787 5,040
Cost of professional services................. 7,141 7,047 2,083
-------- --------- --------
Total cost of revenues....................... 107,246 89,982 74,245
-------- --------- --------
Gross margin (exclusive of depreciation)....... 129,394 81,822 58,052
-------- --------- --------
Operating expenses:
Research and development:
Research and development...................... 27,485 22,586 20,206
Charge for purchased research and development. -- 105,484 --
Impairment of capitalized software development
costs........................................ -- 11,737 --
Selling and marketing......................... 11,810 10,198 8,213
General and administrative:
General and administrative.................... 22,959 19,385 13,702
Amortization of noncompete agreements and
goodwill..................................... 5,381 6,927 6,392
Impairment of intangible assets............... -- 4,707 --
Stock-based employee compensation............. 297 449 3,570
Depreciation.................................. 8,159 6,884 5,121
-------- --------- --------
Total operating expenses..................... 76,091 188,357 57,204
-------- --------- --------
Operating income (loss)........................ 53,303 (106,535) 848
-------- --------- --------
Other income (expense):
Interest expense.............................. (9,771) (5,324) (4,168)
Interest income............................... 2,484 1,294 844
Other......................................... (21) 349 --
-------- --------- --------
Total other.................................. (7,308) (3,681) (3,324)
-------- --------- --------
Income (loss) before income taxes,
extraordinary item and discontinued
operations.................................... 45,995 (110,216) (2,476)
Income tax benefit............................ 39,643 -- --
-------- --------- --------
Income (loss) before extraordinary item and
discontinued operations....................... 85,638 (110,216) (2,476)
Extraordinary loss from early extinguishment
of debt...................................... -- (577) (1,260)
-------- --------- --------
Income (loss) from continuing operations....... 85,638 (110,793) (3,736)
Gain from disposition of discontinued
operations................................... -- 7,922 --
Net income (loss).............................. $ 85,638 $(102,871) $ (3,736)
======== ========= ========
Basic net income (loss) per common share:
Income (loss) before extraordinary item and
discontinued operations...................... $ 1.67 $ (2.16) $ (.07)
Extraordinary loss from early extinguishment
of debt...................................... -- (.01) (.03)
Gain from disposition of discontinued
operations................................... -- .15 --
Net income (loss) attributable to common
stockholders................................. $ 1.67 $ (2.02) $ (.10)
-------- --------- --------
Weighted average common shares................ 51,198 50,994 43,746
======== ========= ========
Diluted net income (loss) per common share:
Income (loss) before extraordinary item and
discontinued operations...................... $ 1.62 $ (2.16) $ (.07)
Extraordinary loss from early extinguishment
of debt...................................... -- (.01) (.03)
Gain from disposition of discontinued
operations................................... -- .15 --
-------- --------- --------
Net income (loss) attributable to common
stockholders................................. $ 1.62 $ ( 2.02) $ (.10)
-------- --------- --------
Weighted average diluted common shares........ 52,991 50,994 43,746
======== ========= ========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
30
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
For the Years Ended December 31, 1998, 1997 and 1996
(in thousands)
<TABLE>
<CAPTION>
Notes
Receivable
Common Common Additional Deferred From Cumulative
Stock Common Stock Paid-in Employee Employee Translation Treasury Accumulated
Outstanding Stock Warrants Capital Compensation Stockholders Adjustments Stock Deficit
----------- ------ -------- ---------- ------------ ------------ ----------- -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE,
December 31,
1995............ 8,486 $ 85 $ -- $ 7,677 $(4,968) $(976) $ -- $ -- $(63,806)
Comprehensive
income (loss):
Net loss........ -- -- -- -- -- -- -- -- (3,736)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 573 -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- --
Issuance of
common stock for
cash pursuant to
initial public
offering........ 6,670 67 -- 44,727 -- -- -- -- --
Accrued
dividends on
redeemable
convertible
preferred stock. -- -- -- -- -- -- -- -- (614)
Conversion of
redeemable
convertible
preferred stock
into common
stock........... 36,000 360 -- 58,749 -- -- -- -- --
Amortization of
deferred stock-
based employee
compensation
expense......... -- -- -- -- 3,570 -- -- -- --
Purchase and
cancellation of
common stock.... (211) (2) -- (219) 191 5 -- -- --
Issuance of
common stock as
compensation.... 12 -- -- 89 -- -- -- -- --
Exercise of
stock options
for common
stock........... 10 -- -- 6 -- -- -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan... 11 -- -- 83 -- -- -- -- --
Accretion of
redeemable
convertible
preferred stock. -- -- -- -- -- -- -- -- (7)
Payment of note
receivable from
employee
stockholder..... -- -- -- -- -- 110 -- -- --
------ ---- ------- -------- ------- ----- ---- ---- --------
BALANCE,
December 31,
1996............ 50,978 510 -- 111,112 (1,207) (861) 573 -- (68,163)
Comprehensive
loss:
Net loss........ -- -- -- -- -- -- -- -- (102,871)
Foreign currency
translation
adjustments..... -- -- -- -- -- -- (574) -- --
Comprehensive
loss............ -- -- -- -- -- -- -- -- --
Issuance of
common stock for
purchase of
assets.......... 3 -- -- 75 -- -- -- -- --
Issuance of
common stock
warrants,
granted as part
of the SUMMITrak
asset
acquisition..... -- -- 26,145 -- -- -- -- -- --
Amortization of
deferred stock-
based employee
compensation
expense......... -- -- -- -- 449 -- -- -- --
Purchase and
cancellation of
common stock.... (209) (2) -- (342) 122 176 -- -- --
Exercise of
stock options
for common
stock........... 149 2 -- 1,016 -- -- -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan... 39 -- -- 439 -- -- -- -- --
Tax benefit of
stock options
exercised....... -- -- -- 315 -- -- -- -- --
------ ---- ------- -------- ------- ----- ---- ---- --------
BALANCE,
December 31,
1997............ 50,960 510 26,145 112,615 (636) (685) (1) -- (171,034)
Comprehensive
income:
Net income...... -- -- -- -- -- -- -- -- 85,638
Foreign currency
translation
adjustments..... -- -- -- -- -- -- 39 -- --
Comprehensive
income.......... -- -- -- -- -- -- -- -- --
Amortization of
deferred stock-
based employee
compensation
expense......... -- -- -- -- 297 -- -- -- --
Repurchase of
common stock.... (66) -- -- (12) 11 146 -- (97) --
Exercise of
stock options
for common
stock........... 540 5 -- 4,957 -- -- -- -- --
Payments on
notes receivable
from
stockholders.... -- -- -- -- -- 61 -- -- --
Purchase of
common stock
pursuant to
employee stock
purchase plan... 32 -- -- 622 -- -- -- -- --
Tax benefit of
stock options
exercised....... -- -- -- 2,417 -- -- -- -- --
------ ---- ------- -------- ------- ----- ---- ---- --------
BALANCE,
December 31,
1998............ 51,466 $515 $26,145 $120,599 $ (328) $(478) $ 38 $(97) $(85,396)
====== ==== ======= ======== ======= ===== ==== ==== ========
<CAPTION>
Total
Stockholders'
Equity
(Deficit)
-------------
<S> <C>
BALANCE,
December 31,
1995............ $(61,988)
Comprehensive
income (loss):
Net loss........ --
Foreign currency
translation
adjustments..... --
Comprehensive
loss............ (3,163)
Issuance of
common stock for
cash pursuant to
initial public
offering........ 44,794
Accrued
dividends on
redeemable
convertible
preferred stock. (614)
Conversion of
redeemable
convertible
preferred stock
into common
stock........... 59,109
Amortization of
deferred stock-
based employee
compensation
expense......... 3,570
Purchase and
cancellation of
common stock.... (25)
Issuance of
common stock as
compensation.... 89
Exercise of
stock options
for common
stock........... 6
Purchase of
common stock
pursuant to
employee stock
purchase plan... 83
Accretion of
redeemable
convertible
preferred stock. (7)
Payment of note
receivable from
employee
stockholder..... 110
-------------
BALANCE,
December 31,
1996............ 41,964
Comprehensive
loss:
Net loss........ --
Foreign currency
translation
adjustments..... --
Comprehensive
loss............ (103,445)
Issuance of
common stock for
purchase of
assets.......... 75
Issuance of
common stock
warrants,
granted as part
of the SUMMITrak
asset
acquisition..... 26,145
Amortization of
deferred stock-
based employee
compensation
expense......... 449
Purchase and
cancellation of
common stock.... (46)
Exercise of
stock options
for common
stock........... 1,018
Purchase of
common stock
pursuant to
employee stock
purchase plan... 439
Tax benefit of
stock options
exercised....... 315
-------------
BALANCE,
December 31,
1997............ (33,086)
Comprehensive
income:
Net income...... --
Foreign currency
translation
adjustments..... --
Comprehensive
income.......... 85,677
Amortization of
deferred stock-
based employee
compensation
expense......... 297
Repurchase of
common stock.... 48
Exercise of
stock options
for common
stock........... 4,962
Payments on
notes receivable
from
stockholders.... 61
Purchase of
common stock
pursuant to
employee stock
purchase plan... 622
Tax benefit of
stock options
exercised....... 2,417
-------------
BALANCE,
December 31,
1998............ $ 60,998
=============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
31
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands, except share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------
1998 1997 1996
-------- --------- --------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss).............................. $ 85,638 $(102,871) $ (3,736)
Adjustments to reconcile net income (loss) to
net cash provided by operating activities--
Depreciation................................... 8,159 6,884 5,121
Amortization................................... 12,684 23,035 22,180
Deferred income taxes.......................... (50,463) (5,891) (1,455)
Charge for purchased research and development.. -- 105,484 --
Impairment of capitalized software development
costs......................................... -- 11,737 --
Impairment of intangible assets................ -- 4,707 --
Stock-based employee compensation.............. 297 449 3,570
Extraordinary loss from early extinguishment
of debt....................................... -- 577 1,260
Gain from discontinued operations.............. -- (7,922) --
Changes in operating assets and liabilities:
Trade accounts and other receivables, net...... (16,320) (9,511) (12,090)
Other current and noncurrent assets............ (75) 11 (2,914)
Trade accounts payable and other liabilities... 7,394 4,723 17,194
-------- --------- --------
Net cash provided by operating activities.... 47,314 31,412 29,130
-------- --------- --------
Cash flows from investing activities:
Purchases of property and equipment, net....... (15,706) (9,389) (8,181)
Acquisition of assets.......................... (5,974) (106,500) --
Acquisition of businesses, net of cash
acquired...................................... -- -- (4,918)
Additions to software.......................... (1,410) (10,185) (3,553)
Proceeds from disposition of discontinued
operations.................................... -- 8,654 2,000
Payments of conversion incentive payments...... (3,968) -- --
-------- --------- --------
Net cash used in investing activities.......... (27,058) (117,420) (14,652)
-------- --------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock......... 5,584 1,457 44,883
Payment of note receivable from employee
stockholder................................... 64 -- 110
Purchase and cancellation of common stock...... (2) (46) (25)
Payment of dividends for redeemable convertible
preferred stock............................... -- -- (4,497)
Proceeds from long-term debt................... -- 150,000 --
Payments on long-term debt..................... (6,750) (47,500) (52,568)
Payment of deferred financing costs............ -- (3,181) --
-------- --------- --------
Net cash provided by (used in) financing
activities................................... (1,104) 100,730 (12,097)
-------- --------- --------
Effect of exchange rate fluctuations on cash.... 24 (439) 150
-------- --------- --------
Net increase in cash and cash equivalents....... 19,176 14,283 2,531
Cash and cash equivalents, beginning of period.. 20,417 6,134 3,603
-------- --------- --------
Cash and cash equivalents, end of period........ $ 39,593 $ 20,417 $ 6,134
======== ========= ========
Supplemental disclosures of cash flow
information:
Cash paid (received) during the period for--
Interest....................................... $ 8,151 $ 4,767 $ 4,000
Income taxes................................... $ 7,259 $ 3,357 $ (655)
</TABLE>
Supplemental disclosures of non-cash investing and financing activities:
During 1998, the Company assumed liabilities of $1.3 million as part of the
purchase price for the USTATS asset acquisition.
During 1997, the Company granted 3.0 million common stock warrants, valued at
$26.1 million, and recorded a liability for $26.0 million for conversion
incentive payments as part of the purchase price for the SUMMITrak asset
acquisition.
During 1996, the Company converted 8,999,999 shares of redeemable convertible
preferred stock into 35,999,996 shares of common stock.
During 1996, the Company assumed liabilities of $1.6 million as part of the
purchase price for CSGI.
The accompanying notes are an integral part of these consolidated financial
statements.
32
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. General
CSG Systems International, Inc. (the "Company" or "CSG"), a Delaware
corporation, was formed in October 1994 and acquired all of the outstanding
shares of CSG Systems, Inc. ("CSG Systems") from First Data Corporation
("FDC") in November 1994 (the "CSG Acquisition"). CSG Systems had been a
subsidiary or division of FDC from 1982 until the acquisition. The Company did
not have any substantive operations prior to the acquisition of CSG Systems.
Based in Denver, Colorado, the Company provides customer care and billing
solutions worldwide for the converging communications markets.
On June 28, 1996, the Company purchased all of the outstanding shares of
Bytel Limited. During 1998, Bytel Limited changed its name to CSG
International Limited ("CSGI").
On March 5, 1999, the Company completed a two-for-one stock split for
shareholders of record on February 8, 1999. In January 1996, the Company also
completed a two-for-one stock split. Both splits were effected as a stock
dividend. Share and per share data for all periods presented herein have been
adjusted to give effect to both splits. In March 1996, the Company amended its
Certificate of Incorporation to increase the number of authorized shares of
Common Stock to 100,000,000 and to authorize 10,000,000 shares of preferred
stock.
In April 1998, the Company completed a secondary public stock offering of
approximately 7.0 million shares of Common Stock. The primary shareholders in
the offering included Morgan Stanley affiliated entities and General Motors
employee benefit plan trusts. The Company received none of the proceeds from
the offering, nor incurred any expense.
The Company completed an initial public offering ("IPO") of its Common Stock
in March 1996. The Company sold 6,670,000 shares of Common Stock at an initial
public offering price of $7.50 per share, resulting in net proceeds to the
Company, after deducting underwriting discounts and offering expenses, of
approximately $44.8 million. As of the closing of the IPO, all of the
8,999,999 outstanding shares of Redeemable Convertible Series A Preferred
Stock ("Preferred Stock") were automatically converted into 35,999,996 shares
of Common Stock. The Company used the IPO proceeds to repay $40.3 million of
outstanding bank indebtedness (Note 6) and to pay $4.5 million of accrued
dividends on the Preferred Stock (Note 5).
2. Summary of Significant Accounting Policies
Principles of Consolidation. The accompanying consolidated financial
statements include the accounts of the Company and CSG Systems for all periods
presented and the accounts of CSGI since June 28, 1996. All material
intercompany accounts and transactions have been eliminated.
Use of Estimates in Preparation of Consolidated Financial Statements. The
preparation of the consolidated financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from those
estimates.
Cash and Cash Equivalents. The Company considers all highly liquid
investments with original maturities of three months or less to be cash
equivalents.
Revenue Recognition. During 1998, the Company adopted Statement of Position
("SOP") 97-2, "Software Revenue Recognition", as amended. SOP 97-2 provides
guidance in recognizing revenue on software transactions. There was no impact
on the Company's results of operations or financial condition upon adoption of
SOP 97-2.
33
<PAGE>
Processing and related services are recognized as the services are
performed. Processing fees are typically billed based on the number of
client's customers serviced, ancillary services are typically billed on a per
transaction basis, and certain customized print and mail services are billed
on a usage basis. Software license fees consist of both one-time perpetual
licenses and term licenses. Perpetual license fees are typically recognized
upon delivery, depending upon the nature and extent of the installation and/or
customization services, if any, to be provided by the Company. Term license
fees and maintenance fees are recognized ratably over the contract term.
Professional services are recognized as the related services are performed.
Payments received for revenues not yet recognized are reflected as deferred
revenue in the accompanying consolidated balance sheets. Revenue recognized
prior to the scheduled billing date of an item is reflected as unbilled
accounts receivable.
Postage and Communications Lines. The Company passes through to its clients
the cost of postage and the cost of communication lines between client sites
and the mainframe data processing facility. Such reimbursements of costs are
netted against the expense and are not included in total revenues. The Company
requires postage and communications lines deposits from its clients based on
contractual arrangements. These amounts are reflected as current liabilities
regardless of the contract period.
Realizability of Long-Lived and Intangible Assets. The Company continually
evaluates whether events and circumstances have occurred that indicate the
remaining estimated useful life of long-lived and intangible assets may
warrant revision or that the remaining balance of these assets may not be
recoverable. The Company evaluates the recoverability of its long-lived and
intangible assets by measuring the carrying amount of the assets against the
estimated undiscounted future cash flows associated with them. At the time
such evaluations indicate that the future undiscounted cash flows of certain
long-lived and intangibles assets are not sufficient to recover the carrying
value of such assets, the assets are adjusted to their estimated fair values.
Property and Equipment. Property and equipment are recorded at cost and are
depreciated over their estimated useful lives ranging from two to ten years.
Depreciation is computed using the straight-line method for financial
reporting purposes. Depreciation for income tax purposes is computed using
accelerated methods.
Property and equipment at December 31 consists of the following (in
thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Computer equipment....................................... $ 24,515 $ 21,734
Leasehold improvements................................... 3,676 2,347
Operating equipment...................................... 14,445 5,205
Furniture and equipment.................................. 4,639 3,834
Construction in process.................................. 1,179 358
Other.................................................... 22 22
-------- --------
48,476 33,500
Less--accumulated depreciation........................... (23,765) (16,343)
-------- --------
Property and equipment, net............................ $ 24,711 $ 17,157
======== ========
</TABLE>
Software. Software at December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Acquired software........................................ $ 40,849 $ 33,516
Internally developed software............................ 3,964 2,547
-------- --------
44,813 36,063
Less--accumulated amortization........................... (35,391) (34,104)
-------- --------
Software, net.......................................... $ 9,422 $ 1,959
======== ========
</TABLE>
34
<PAGE>
Acquired software resulted from acquisitions and is stated at cost.
Amortization expense related to acquired software for the years ended December
31, 1998, 1997, and 1996 was $0.6 million, $10.6 million, and $11.0 million,
respectively.
The Company capitalizes certain software development costs when the
resulting products reach technological feasibility and begins amortization of
such costs upon the general availability of the products for licensing. The
Company capitalized costs of $1.4 million, $9.7 million and $3.1 million for
the years ended December 31, 1998, 1997, and 1996, respectively.
Amortization of internally developed software and acquired software costs
begins when the products are available for general release to clients and is
computed separately for each product as the greater of (i) the ratio of
current gross revenue for a product to the total of current and anticipated
gross revenue for the product, or (ii) the straight-line method over the
remaining estimated economic life of the product. Currently, estimated lives
of two to five years are used in the calculation of amortization. Amortization
expense related to capitalized software development costs for the years ended
December 31, 1998, 1997, and 1996 was $0.7 million, $0.6 million, and $0.01
million, respectively.
The Company continually evaluates the carrying value of its unamortized
capitalized software development costs. The amount by which the unamortized
capitalized costs exceed the net realizable value of the asset is expensed.
During 1997, the Company recorded a charge of $11.7 million related to certain
CSG Phoenix capitalized costs. After the consideration of multiple factors and
events, consisting primarily of an increase in demand for the Company's
outsourced processing services and previously announced delays on the delivery
of CSG Phoenix, such assets were reduced to their estimated net realizable
value as of December 31, 1997. The charge primarily included previously
capitalized internal development costs and purchased software incorporated
into the product.
Noncompete Agreements and Goodwill. Noncompete agreements and goodwill as of
December 31 are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Noncompete agreements.................................... $ 25,340 $ 25,340
Goodwill................................................. 7,134 8,088
-------- --------
32,474 33,428
Less--accumulated amortization........................... (24,878) (19,490)
-------- --------
Noncompete agreements and goodwill, net................ $ 7,596 $ 13,938
======== ========
</TABLE>
The noncompete agreements resulted from acquisitions and are being amortized
on a straight-line basis over the terms of the agreements, ranging from three
to five years. Goodwill resulted from acquisitions and is being amortized over
seven to ten years on a straight-line basis.
During 1997, the Company recorded a charge of $4.7 million for the
impairment of certain intangible assets related to software systems which the
Company decided to no longer market and support. This impairment charge
related principally to the Company's CableMAX product. CableMAX was a personal
computer based customer management system that was targeted at smaller cable
systems of 2,500 customers or less. During 1997, the Company decided not to
invest the resources necessary to make the software year 2000 compliant,
resulting in the impairment to the CableMAX intangible assets. The estimated
fair value of the CableMAX intangible assets was based upon an analysis of
expected future cash flows and a quoted purchase price from an independent
buyer.
Client Contracts and Related Intangibles. Client contracts and related
intangibles which resulted from the CSG Acquisition are being amortized over
their estimated lives of five and three years, respectively. The value
assigned to the Tele-Communications, Inc. ("TCI") processing contract (Note 4)
is being amortized over the
35
<PAGE>
15-year life of the contract in proportion to the financial minimums included
in the contract. As of December 31, 1998 and 1997, accumulated amortization
for client contracts and related intangibles was $17.7 million and $12.8
million, respectively.
Financial Instruments with Market Risk and Concentrations of Credit Risk. In
the normal course of business, the Company is exposed to credit risk resulting
from the possibility that a loss may occur from the failure of another party
to perform according to the terms of a contract. The Company regularly
monitors credit risk exposures and takes steps to mitigate the likelihood of
these exposures resulting in a loss. The primary counterparties to the
Company's accounts receivable and sources of the Company's revenues consist of
cable television providers throughout the United States. The Company generally
does not require collateral or other security to support accounts receivable.
Financial Instruments. The Company's balance sheet financial instruments as
of December 31, 1998 and 1997 include cash and cash equivalents, accounts
receivable, accounts payable, conversion incentive payments, and long-term
debt. Because of their short maturities, the carrying amounts of cash
equivalents, accounts receivable, accounts payable, and conversion incentive
payments approximate their fair value. The carrying amount of the Company's
long-term debt (including current maturities) approximates fair value due to
its variable interest rates.
In December 1997, the Company entered into a three-year interest rate collar
with a major bank to manage its risk from its variable rate long-term debt.
The underlying notional amount covered by the collar agreement is $71.3
million as of December 31, 1998, and decreases over the three-year term in
relation to the scheduled principal payments on the long-term debt. Any
payment on the 4.9% (LIBOR) interest rate floor, or receipt on the 7.5%
(LIBOR) interest rate cap component of the collar, would be recognized as an
adjustment to interest expense in the period incurred. There are no amounts
due or receivable under this agreement as of December 31, 1998, and the
agreement had no effect on the Company's interest expense for 1998 or 1997.
The fair value of the collar agreement is not recognized in the Company's
financial statements. The fair value of the collar agreement at December 31,
1998, based on a quoted market price, was not significant.
Translation of Foreign Currency. The Company's foreign subsidiary, CSGI,
uses the British pound as its functional currency. CSGI's assets and
liabilities are translated into U.S. dollars at the exchange rates in effect
at the balance sheet date. Revenues and expenses are translated at the average
rates of exchange prevailing during the period. Translation gains and losses
are included in total comprehensive income in the Company's Consolidated
Statements of Stockholders' Equity. Transaction gains and losses related to
intercompany accounts are not material and are included in the determination
of net income or loss.
36
<PAGE>
Earnings Per Common Share. The Company follows Statement of Financial
Accounting Standards ("SFAS") No. 128 in calculating earnings per share
("EPS"). Basic EPS is computed by dividing income attributable to common
stockholders by the weighted average number of common shares outstanding
during the period. Diluted EPS is consistent with the calculation of basic EPS
while giving effect to any dilutive potential common shares outstanding during
the period. Basic and diluted EPS are presented on the face of the Company's
Consolidated Statements of Operations. The reconciliation of the numerators
and denominators for the EPS calculation is as follows (dollars and shares in
thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- --------- -------
<S> <C> <C> <C>
Net income (loss) attributable to common
stockholders:
Income (loss) before extraordinary item and
discontinued operations....................... $85,638 $(110,216) $(2,476)
Preferred stock dividends...................... -- -- (614)
------- --------- -------
Income (loss) attributable to common
stockholders.................................. 85,638 (110,216) (3,090)
Extraordinary item............................. -- (577) (1,260)
Gain from discontinued operations.............. -- 7,922 --
------- --------- -------
Net income (loss) attributable to common
stockholders (basic and diluted)............ $85,638 $(102,871) $(4,350)
Shares Outstanding:
Basic weighted average common shares........... 51,198 50,994 43,746
Dilutive shares from common stock options...... 1,793 -- --
------- --------- -------
Weighted average diluted common shares......... 52,991 50,994 43,746
======= ========= =======
</TABLE>
The following weighted average dilutive potential common shares are excluded
from the diluted EPS calculation (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1998 1997 1996
------- ------- -------
<S> <C> <C> <C>
Redeemable convertible preferred stock............... -- -- 6,231
Common stock options................................. -- 1,144 612
Common stock warrants................................ 1,414 305 --
------- ------- -------
Total dilutive potential common shares............. 1,414 1,449 6,843
======= ======= =======
</TABLE>
The dilutive potential common shares related to redeemable convertible
preferred stock and common stock options were excluded for 1997 and 1996
because their inclusion would have had an antidilutive effect on EPS. Dilutive
potential common shares related to common stock warrants are excluded as the
events necessary to allow the exercise of the warrants have not been satisfied
as of December 31, 1998. It is expected that 2.0 million of the warrants will
become exercisable in the third quarter of 1999 (Note 4).
Stock-Based Compensation. The Company accounts for its stock-based
compensation plans under Accounting Principles Board ("APB") Opinion No. 25,
"Accounting for Stock Issued to Employees", and related interpretations, and
follows the disclosure provisions of SFAS No. 123, "Accounting for Stock-Based
Compensation" ("SFAS 123"). See Note 12 for the required disclosures under
SFAS 123.
Comprehensive Income. During 1998, the Company adopted SFAS No. 130,
"Reporting Comprehensive Income" ("SFAS 130"), which establishes standards for
reporting and display of comprehensive income and its components in a
financial statement for the period in which they are recognized. The
components of comprehensive income are reflected in the Company's Consolidated
Statements of Stockholders' Equity.
37
<PAGE>
New Accounting Pronouncements Not Yet Effective. In June 1998, SFAS No. 133,
"Accounting for Derivative Instruments and for Hedging Activities" ("SFAS
133") was issued. The Statement establishes accounting and reporting standards
requiring every derivative instrument, as defined, to be recorded in the
balance sheet as either an asset or liability measured at its fair value. The
Statement requires that changes in the derivative's fair value be recognized
currently in earnings unless specific hedge accounting criteria are met. The
Company expects to adopt SFAS 133 no later than fiscal year 2000, and does not
expect the adoption of this statement to have a significant effect on the
Company's Consolidated Financial Statements.
Reclassification. Certain December 31, 1997 amounts have been reclassified
to conform to the December 31, 1998 presentation.
3. Segment Reporting
During 1998, the Company adopted SFAS No. 131, "Disclosures About Segments
of an Enterprise and Related Information" ("SFAS 131"). SFAS 131 requires
selected information about operating segments and related disclosures about
products and services, geographic areas, and major customers. SFAS 131
requires operating segments to be determined based on the way management
organizes a company for purposes of making operating decisions and assessing
performance. Based on the guidelines of SFAS 131, the Company has determined
it has only one reportable segment: customer care and billing solutions for
the worldwide converging communications markets.
Products and Services. The Company provides customer care and billing
solutions worldwide for the converging communications markets, including cable
television, direct broadcast satellite, telephony, on-line services and
others. The Company offers its clients a full range of processing services,
software and support services that automate customer management functions,
including billing, sales support and order processing, invoice calculation and
production, management reporting and customer analysis for target marketing.
The Company derived approximately 78.0%, 76.7%, and 77.3% of its total
revenues in the years ended December 31, 1998, 1997 and 1996, respectively,
from its core service bureau product, Communications Control System ("CCS")
and related products and ancillary services. The Company generated 77.7%,
73.1%, and 76.6% of its total revenues from U.S. cable television providers,
and 13.0%, 10.5%, and 9.3% of its total revenues from U.S. direct broadcast
satellite ("DBS") providers during the years ended December 31, 1998, 1997 and
1996, respectively.
Geographic Regions. Revenues are generated from external customers only. The
Company uses the location of the customer as the basis of attributing revenues
to individual countries. Financial information relating to the Company's
operations by geographic areas is as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
Total Revenue: -------- -------- --------
<S> <C> <C> <C>
United States................................... $221,778 $155,243 $121,584
United Kingdom.................................. 11,740 15,756 8,982
Other........................................... 3,122 805 1,731
-------- -------- --------
$236,640 $171,804 $132,297
======== ======== ========
</TABLE>
<TABLE>
<CAPTION>
As of December 31,
-----------------------
1998 1997 1996
Long-Lived Assets (excludes intangible assets): ------- ------- -------
<S> <C> <C> <C>
United States..................................... $23,398 $15,780 $12,931
United Kingdom.................................... 1,313 1,377 162
------- ------- -------
$24,711 $17,157 $13,093
======= ======= =======
</TABLE>
38
<PAGE>
Significant Clients. During the years ended December 31, 1998, 1997, and
1996, revenues from TCI and affiliated companies represented approximately
37.4%, 32.9%, and 25.9% of total revenues, and revenues from Time Warner Cable
and its affiliated companies ("Time Warner") represented approximately 14.1%,
20.1%, and 22.9% of total revenues, respectively. The Company has separate
processing agreements with multiple affiliates of Time Warner and provides
products and services to them under separately negotiated and executed
contracts.
4. Acquisitions
USTATS Asset Acquisition. On July 30, 1998, the Company acquired
substantially all of the assets of US Telecom Advanced Technology Systems,
Inc. ("USTATS") for approximately $6.0 million in cash and assumption of
certain liabilities of approximately $1.3 million. USTATS, a South Carolina-
based company, specializes in open systems, client/server customer care and
billing systems serving the telecommunications markets. The Company intends to
use the acquired technology and software to (i) enhance its current service-
bureau telephony customer care and billing system, and (ii) provide a customer
care and billing system for the domestic and international competitive local
exchange carrier ("CLEC") and incumbent local exchange carrier ("ILEC")
markets. The cash portion of the purchase price was paid out of corporate
funds. The total purchase price of $7.3 million has been allocated to the
technology and software acquired and will be amortized over its expected
useful life of five years.
SUMMITrak Asset Acquisition. In September 1997, the Company purchased
certain SUMMITrak software technology assets that were in development from TCI
(the "SUMMITrak Acquisition") and entered into a 15-year exclusive contract
with a TCI affiliate to consolidate 13.0 million TCI customers onto the
Company's customer care and billing system (the "TCI Contract"). The purchase
price for the SUMMITrak Acquisition was determined as follows (in thousands):
<TABLE>
<S> <C>
Cash paid at closing............................................. $106,000
Transaction-related costs........................................ 500
Conversion incentive payments.................................... 26,000
Common Stock warrants granted.................................... 26,145
--------
Total purchase price............................................. $158,645
========
</TABLE>
The conversion incentive payments represent payments to incent TCI to timely
convert its customers to the Company's system, and reimburse TCI for the cost
of converting to the Company's system. The conversion incentive payments
consist of two separate pieces as follows: (i) TCI receives a monthly payment
of $0.15 per customer for the first 24 months after the customer is converted
to the Company's system (total of $3.60 per customer), up to a total of $14.0
million. As of December 31, 1998, the Company had converted approximately 8
million of the 9 million TCI customer backlog onto its system. During 1998,
the Company paid approximately $4.0 million of this amount to TCI, with the
remaining $10.0 million expected to be paid in 1999, and (ii) TCI will be paid
an additional $12.0 million when the Company processes a total of 13.0 million
TCI customers on its system. Based on the current customer levels on the
Company's system and additional conversions scheduled as of December 31, 1998,
the Company also expects to pay TCI the $12.0 million in 1999.
The Company granted 3.0 million Common Stock warrants to TCI as part of the
overall purchase price. The warrants have a five-year life with a $12 per
share exercise price. The fair value of the warrants included in the purchase
price was estimated as of the date of the grant using the Black-Scholes
pricing model. The exercisability of the warrants is as follows: (i) TCI will
be able to exercise 2.0 million of the warrants when the Company processes a
total of 13.0 million TCI customers on its system. Based on the current
customer levels on the Company's system and additional conversions scheduled
as of December 31, 1998, the 2.0 million warrants are expected to become
exercisable in 1999, and (ii) the remaining 1.0 million warrants are
exercisable at various increments as additional qualifying TCI customers are
converted to the Company's system in excess of the 13.0 million customers (the
"Excess Customers"). Dependent upon the source of the Excess Customers, the
1.0 million warrants may be exercisable with a minimum of 1.25 million Excess
Customers, but require no more than 2.5 million Excess Customers to become
fully exercisable.
39
<PAGE>
The Company engaged an independent party to assist in the allocation of the
purchase price to the assets acquired. The Company allocated the purchase price
as follows (in thousands):
<TABLE>
<S> <C>
Purchased research and development............................... $105,000
TCI Contract..................................................... 51,575
Other assets..................................................... 2,070
--------
Total allocated purchase price................................. $158,645
========
</TABLE>
Purchased research and development represents research and development
("R&D") of software technologies which had not reached technological
feasibility as of the acquisition date, and had no other alternative future
use. Purchased research and development was charged to operations in 1997. The
Company has continued the R&D of certain software technologies acquired from
TCI, with such efforts including the completion of the R&D projects and the
integration of the completed software technologies into certain of its current
products. The development efforts are on schedule and the resource requirements
for completion of the development efforts are consistent with the original
expectations. The related products from these development efforts are expected
to be available for general release in 1999.
The value assigned to the TCI Contract is being amortized over the life of
the contract in proportion to the financial minimums included in the contract.
The amortization expense for the TCI Contract was $1.9 million and $0.3 million
for the years ended December 31, 1998 and 1997, respectively. The other assets
are being depreciated over their estimated useful lives of three years.
CSG International Limited. On June 28, 1996, the Company acquired all of the
outstanding shares of CSGI for approximately $3.1 million in cash and
assumption of certain liabilities of $1.6 million (the "CSGI Acquisition"). The
CSGI Acquisition was recorded using the purchase method of accounting. The cost
in excess of the fair value of the net tangible assets acquired of $4.2 million
was allocated to goodwill. CSGI is a United Kingdom company which provides
customer care and billing solutions to the cable and telecommunications
industries in the United Kingdom.
The following represents the unaudited pro forma results of operations as if
the CSGI Acquisition had occurred on January 1 (in thousands, except per share
amounts):
<TABLE>
<CAPTION>
Year Ended
December 31, 1996
-----------------
<S> <C>
Total revenues.......................................... $136,536
Loss attributable to common stockholders................ (4,464)
Pro forma loss per share attributable to common
stockholders (basic and diluted)....................... (.10)
</TABLE>
The pro forma financial information shown above does not purport to be
indicative of results of operations that would have occurred had the
acquisition taken place at the beginning of the period presented or of the
future results of operations.
5. Redeemable Convertible Preferred Stock
In conjunction with the formation of the Company and the CSG Acquisition in
1994, the Company sold for cash 8,999,999 shares of Preferred Stock with a par
value of $0.01 per share. Total proceeds, net of issuance costs of $0.4
million, were $59.1 million. The holders of Preferred Stock were entitled to
vote on all matters and were entitled to the number of votes equivalent to the
number of shares of Common Stock into which such shares of Preferred Stock were
converted. All Preferred Stock converted into 35,999,996 shares of the
Company's Common Stock upon completion of the IPO in March 1996.
40
<PAGE>
Prior to completion of the IPO, the holders of the outstanding shares of
Preferred Stock were entitled to receive cumulative annual dividends of
$0.3967 per share, prior to any dividends being paid on the Company's Common
Stock. Upon completion of the IPO and the resulting conversion into Common
Stock, the Company paid dividends on the Preferred Stock of $4.5 million, of
which $3.9 million was accrued as of December 31, 1995.
6. Debt
The CSG Acquisition was partially funded with a $95.0 million term facility
in 1994 (the "1994 Debt"). In conjunction with the IPO, the Company refinanced
this debt with its bank in April 1996. The Company repaid approximately $40.6
million of the outstanding 1994 Debt, principally with IPO proceeds. The
remaining balance of the 1994 Debt was refinanced with a single $40.0 million
term note with the bank (the "1996 Debt"). In conjunction with this
refinancing, the Company recorded an extraordinary loss of $1.3 million for
the write-off of deferred financing costs. The Company did not recognize any
income tax benefit related to the extraordinary loss.
In conjunction with the SUMMITrak Acquisition, the Company entered into a
$190.0 million debt agreement with a bank in September 1997 (the "1997 Debt"),
which consists of a $150.0 million term facility (the "Term Credit Facility")
and a $40.0 million revolving credit facility. The proceeds from the Term
Credit Facility were used to pay the $106.0 million cash purchase price for
the SUMMITrak assets, retire the Company's existing 1996 Debt of $27.5
million, and pay transaction costs of $3.4 million. The remaining proceeds
were used for general corporate purposes. In conjunction with this
refinancing, the Company recorded an extraordinary loss of $0.6 million for
the write-off of deferred financing costs. The Company did not recognize any
income tax benefit related to the extraordinary loss. In December 1997, the
Company made an optional principal payment on the Term Credit Facility of
$15.0 million.
Interest rates for the 1997 Debt, including the term and revolving credit
facilities, are chosen at the option of the Company and are based on the LIBOR
rate or the prime rate, plus an additional percentage spread, with the spread
dependent upon the Company's leverage ratio. As of December 31, 1998, the
spread on the LIBOR rate and prime rate was 0.75% and 0%, respectively. The
Company entered into an interest rate collar agreement in December 1997 to
manage its risk from the variable rate features of the 1997 Debt agreement
(Note 2). The 1997 Debt agreement is collateralized by all of the Company's
assets and the stock of its subsidiaries.
The 1997 Debt agreement requires maintenance of certain financial ratios and
contains other restrictive covenants, including restrictions on payment of
dividends, a fixed charge coverage ratio, a leverage ratio, and restrictions
on capital expenditures. As of December 31, 1998, the Company was in
compliance with all covenants. The payment of cash dividends or other types of
distributions on any class of the Company's stock is restricted unless the
Company's leverage ratio, as defined in the 1997 Debt agreement, is under
1.50. As of December 31, 1998, the leverage ratio was 1.63.
Long-term debt as of December 31 consists of the following (in thousands):
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Term Credit Facility, due September 2002, quarterly
payments beginning
June 30, 1998, ranging from $2.3 million to $18.0
million, interest at adjusted LIBOR plus 0.75%
(weighted average rate of 5.89% at
December 31, 1998)..................................... $128,250 $135,000
Revolving credit facility, due September 2002, interest
at adjusted LIBOR plus 0.75%........................... -- --
-------- --------
128,250 135,000
Less-current portion.................................... (19,125) (6,750)
-------- --------
Long-term debt, net of current maturities............... $109,125 $128,250
======== ========
</TABLE>
41
<PAGE>
There were no borrowings made on the revolving credit facilities during the
years ended December 31, 1998, 1997, and 1996. Under the 1997 Debt agreement,
the Company pays an annual commitment fee on the unused portion of the
revolving credit facility, based upon the Company's leverage ratio. As of
December 31, 1998, the fee was 0.25%. The Company's ability to borrow under
the current revolving credit facility is subject to maintenance of certain
levels of eligible receivables. At December 31, 1998, all of the $40.0 million
revolving credit facility was available to the Company.
As of December 31, 1998 and 1997, unamortized deferred financing costs were
$2.0 million and $2.9 million, respectively. Deferred financing costs are
amortized to interest expense over the related term of the debt agreement
using a method which approximates the effective interest rate method. Interest
expense for the years ended December 31, 1998, 1997 and 1996 includes
amortization of deferred financing costs of approximately $0.9 million, $0.5
million, and $0.6 million, respectively.
As of December 31, 1998, scheduled maturities of the Company's long-term
debt for each of the years ending December 31 are: 1999--$19.1 million, 2000--
$29.3 million, 2001--$34.9 million, and 2002--$45.0 million.
7. Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting for Income Taxes" ("SFAS 109"). SFAS 109 is an asset and liability
approach which requires the recognition of deferred tax assets and liabilities
for the expected future tax consequences of events which have been recognized
in the Company's Consolidated Financial Statements or tax returns. In
estimating future tax consequences, SFAS 109 generally considers all expected
future events other than enactment of or changes in the tax law or rates.
Income tax provision (benefit) consists of the following (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Current:
Federal...................................... $ 11,574 $ 4,466 $ 1,225
State........................................ 1,594 615 230
Foreign...................................... (36) 810 --
-------- -------- -------
13,132 5,891 1,455
-------- -------- -------
Deferred:
Federal...................................... 6,592 (38,298) (2,305)
State........................................ 908 (5,276) (433)
Foreign...................................... 1,048 393 503
-------- -------- -------
8,548 (43,181) (2,235)
-------- -------- -------
Change in valuation allowance.................. (61,323) 37,290 780
-------- -------- -------
Net income tax provision (benefit)............. $(39,643) $ -- $ --
======== ======== =======
</TABLE>
42
<PAGE>
The difference between the income tax provision (benefit) computed at the
statutory federal income tax rate and the financial statement provision
(benefit) for income taxes is summarized as follows (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------
1998 1997 1996
-------- -------- -------
<S> <C> <C> <C>
Provision (benefit) at federal rate of 35% in
1998 and 1997, and 34% in 1996............... $ 16,099 $(36,005) $(1,270)
Change in valuation allowance................. (59,224) 37,290 1,283
Effective state income taxes.................. 1,625 (3,030) (134)
Basis differences from acquisition............ -- -- (1,346)
Amortization of nondeductible goodwill........ 781 1,582 231
Stock-based employee compensation............. 362 157 1,214
Other......................................... 714 6 22
-------- -------- -------
$(39,643) $ -- $ --
======== ======== =======
</TABLE>
The deferred tax assets and liabilities result from differences in the
timing of the recognition of certain income and expense items for tax and
financial reporting purposes. The sources of these differences at December 31
are as follows (in thousands):
<TABLE>
<CAPTION>
1998 1997
------- --------
<S> <C> <C>
Current deferred tax assets (liabilities):
Accrued expenses and reserves............................. $ 1,598 $ 1,325
Deferred revenue.......................................... 205 3,033
------- --------
1,803 4,358
Valuation allowance....................................... -- (3,915)
------- --------
$ 1,803 $ 443
======= ========
Noncurrent deferred tax assets (liabilities):
Purchased research and development........................ $47,086 $ 51,224
Software.................................................. 7,942 8,345
Client contracts and related intangibles.................. (370) 1,508
Noncompete agreements..................................... 5,104 3,965
Property and equipment.................................... 705 443
<CAPTION>
Other....................................................... (1,078) (1,168)
<S> <C> <C>
------- --------
59,389 64,317
Valuation allowance......................................... -- (57,408)
------- --------
$59,389 $ 6,909
======= ========
</TABLE>
As part of the CSGI acquisition, the Company acquired certain net deferred
tax assets (principally related to net operating loss carryforwards) and
established a valuation allowance of approximately $1.0 million against those
net deferred tax assets as of the acquisition date. Upon the realization of
these deferred tax assets, the Company eliminated the valuation allowance and
reduced goodwill for CSGI by a corresponding amount of $0.9 million in 1998.
As of December 31, 1997, the Company had a valuation allowance of $61.3
million against certain of its deferred tax assets due to the uncertainty that
it would realize the income tax benefit from these assets. During 1998, the
Company concluded that it was more likely than not that it would realize the
entire tax benefit from its deferred tax assets. As a result, the Company
eliminated the entire valuation allowance of as of December 31, 1998, which
resulted in the Company reflecting a net income tax benefit of $39.6 million
for 1998.
43
<PAGE>
Management believes the Company will obtain the full benefit of the deferred
tax assets on the basis of its evaluation of the Company's anticipated
profitability over the period of years that the temporary differences are
expected to become deductions. The Company believes that sufficient book and
taxable income will be generated to realize the entire benefit of these
deferred tax assets. The Company's assumptions of future profitable operations
are supported by (i) the Company's strong financial performance in 1998, (ii)
the successful conversion of approximately 9.0 million new customers onto the
Company's processing system in 1998, with approximately 7.7 million of these
customers coming from TCI, and (iii) continued strong demand from the
converging communications markets for the Company's service bureau customer
care and billing solutions and related software and services products,
evidenced by the signing of several significant clients (both renewal and new
contracts) to long-term processing contracts during 1998.
8. Employee Retirement Benefit Plans
Incentive Savings Plan. The Company sponsors a defined contribution plan
covering substantially all employees of the Company. Participants may
contribute up to 15% of their annual wages, subject to certain limitations, as
pretax, salary deferral contributions. The Company makes certain matching and
service related contributions to the plan. The Company's matching and service
related contributions for the years ended December 31, 1998, 1997 and 1996,
were approximately $2.9 million, $2.0 million, and $1.5 million, respectively.
Deferred Compensation Plan. The Company established a non-qualified deferred
compensation plan during 1996 for certain Company executives which allows the
participants to defer a portion of their annual compensation. The Company
provides a 25% matching contribution of the participant's deferral, up to a
maximum of $6,250 per year. The Company also credits the participant's
deferred account with a specified rate of return on an annual basis. The
Company records the actuarially-determined present value of the obligations
expected to be paid under the plan. As of December 31, 1998 and 1997, the
Company has recorded a liability for this obligation of $1.0 million and $0.6
million, respectively. The Company's expense for this plan for the years ended
December 31, 1998, 1997 and 1996, which includes Company contributions and
interest expense, was $0.4 million, $0.5 million, and $0.1 million,
respectively. The plan is unfunded.
9. Commitments and Contingencies
Operating Leases. The Company leases certain office and production
facilities under operating leases which run through 2009. Future aggregate
minimum lease payments under these agreements for the years ending December 31
are as follows: 1999--$4.5 million, 2000--$3.9 million, 2001--$3.4 million,
2002--$3.1 million, 2003--2.8 million, thereafter--$9.1 million.
Total rent expense for the years ended December 31, 1998, 1997, and 1996,
was approximately $3.9 million, $3.4 million, and $1.9 million, respectively.
Service Agreements. The Company has service agreements with FDC and
subsidiaries for data processing services, communication charges and other
related services. FDC provides data processing and related services required
for the operation of the Company's CCS system.
Prior to 1997, the Company was charged a usage-base fee per customer for
data processing and related services. The other services were charged based on
usage and/or actual costs. Effective January 1, 1997, the Company renegotiated
its services agreement with FDC and its subsidiaries. The new agreement
expires December 31, 2001, and is cancelable at the Company's option with (i)
notice of six months any time after January 1, 2000, and (ii) payment of a
termination fee equal to 20% of the fees paid in the twelve months preceding
the notification of termination. Under the new agreement, the Company is
charged based on usage and/or actual costs, and is subject to certain
limitations as to the amount of increases or decreases in usage between years.
The total amount paid under the service agreements for the years ended
December 31, 1998, 1997 and 1996, was approximately $22.1 million, $19.2
million, and $19.6 million, respectively. The Company believes it could obtain
data processing services from alternative sources, if necessary.
44
<PAGE>
Legal Proceedings. 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, after consultation with
outside legal counsel, the ultimate dispositions of such matters will not have
a materially adverse effect on the Company's consolidated financial position
or results of operations.
10. Discontinued Operations
Contemporaneously with the CSG Acquisition, the Company purchased from FDC
all of the outstanding shares of Anasazi Inc. ("Anasazi") for $6.0 million
cash. Anasazi provides central reservation systems and services for the
hospitality and travel industries. The Company accounted for its ownership in
Anasazi as discontinued operations after its acquisition in 1994. On August
31, 1995, the Company completed a substantial divestiture of Anasazi as part
of a tax-free reorganization, resulting in the Company owning less than 20% of
Anasazi. As a result, Anasazi's results of operations subsequent to August 31,
1995 are not included in the Company's results of operations as the Company
accounted for its investment in Anasazi under the cost method subsequent to
this date. In September 1997, the Company sold its remaining interest in
Anasazi for $8.6 million in cash and recognized a gain of $7.9 million.
11. Restricted Common Stock
Stock-Based Employee Compensation Expense. During 1995 and 1994, the Company
sold Common Stock to executive officers and key employees pursuant to
restricted stock agreements and recorded deferred compensation of $5.8 million
related to these purchases. Prior to the completion of the IPO, the deferred
compensation was being recognized as stock-based employee compensation expense
on a straight-line basis from the time the shares were purchased through
November 30, 2001, as the shares became vested as of this date. Upon
completion of the IPO, shares owned by certain key officers of the Company
became fully vested. In addition, the vesting for the remaining performance
stock shares decreased to 20% annually over a five-year period. As a result,
approximately $3.2 million of stock-based employee compensation expense was
recorded when the IPO was completed in March 1996. Stock-based employee
compensation expense for the years ended December 31, 1998, 1997 and 1996, was
$0.3 million, $0.4 million, and $3.6 million, respectively. Deferred
compensation of $0.3 million and $0.6 million as of December 31, 1998 and
1997, respectively, relates to the shares that continue to vest on an annual
basis of 20% and is reflected as a component of stockholders' equity.
Repurchase Option. The Company has the option upon termination of employment
to repurchase certain shares of unvested restricted stock at either the
original purchase price (ranging from $0.11 to $2.13 per share) or the net
book value per share, depending upon the specific terms of the agreements. As
of December 31, 1998, 583,200 shares were still subject to the repurchase
option. During the years ended December 31, 1998, 1997, and 1996, the Company
repurchased unvested shares of 66,000, 209,100, and 211,200, respectively,
from terminated employees. The 66,000 shares repurchased in 1998 are held as
treasury shares. The shares repurchased in 1997 and 1996 were cancelled.
Notes Receivable From Employee Stockholders. Certain employees financed a
portion of their stock purchases with full recourse promissory notes. The
notes accrue interest at 7% annually and have terms of approximately five
years. As of December 31, 1998 and 1997, the outstanding balance of the
promissory notes was approximately $0.5 million and $0.7 million,
respectively, and is reflected as a component of stockholders' equity.
12. Stock-Based Compensation Plans
Stock Incentive Plans. During 1995, the Company adopted the Incentive Stock
Plan (the "1995 Plan") whereby 514,000 shares of the Company's Common Stock
have been reserved for issuance to eligible employees of the Company in the
form of stock options. The 256,550 options outstanding under the 1995 Plan at
December 31, 1998, vest annually over five years.
45
<PAGE>
During 1996, the Company adopted the 1996 Stock Incentive Plan (the "1996
Plan") whereby 4,800,000 shares of the Company's Common Stock have been
reserved for issuance to eligible employees of the Company in the form of
stock options, stock appreciation rights, performance unit awards, restricted
stock awards, or stock bonus awards. In December 1997, upon shareholder
approval, the number of shares authorized for issuance under the 1996 Plan was
increased to 8,000,000. The 5,852,914 options outstanding under the 1996 Plan
at December 31, 1998, vest over two to five years. Certain options become
fully vested upon a change in control of the Company.
During 1997, the Company adopted the Stock Option Plan for Non-Employee
Directors (the "Director Plan") whereby 200,000 shares of the Company's Common
Stock have been reserved for issuance to non-employee Directors of the Company
in the form of stock options. The 120,000 options outstanding under the
Director Plan at December 31, 1998, vest annually over three years.
Stock options are granted with an exercise price equal to the fair market
value of the Company's Common Stock as of the date of the grant. All
outstanding options have a 10-year term. A summary of the stock options issued
under the 1996 Plan, the Director Plan, and 1995 Plan and changes during the
years ending December 31 are as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------------------------------------------------
1998 1997 1996
------------------------- ------------------------- -------------------------
Weighted Weighted Weighted
Average Average Average
Shares Exercise Price Shares Exercise Price Shares Exercise Price
--------- -------------- --------- -------------- --------- --------------
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of year................ 4,152,220 $10.43 2,869,460 $ 9.31 503,500 $ 0.68
Granted............... 3,276,000 23.86 2,223,400 11.61 2,446,760 10.89
Exercised............. (540,336) 9.20 (148,600) 6.80 (9,600) 0.67
Forfeited............. (658,420) 13.89 (792,040) 10.35 (71,200) 3.68
--------- ------ --------- ------ --------- ------
Outstanding, end of
year................... 6,229,464 $17.23 4,152,220 $10.43 2,869,460 $ 9.31
========= ====== ========= ====== ========= ======
Options exercisable at
year end............... 913,774 530,152 84,300
========= ========= =========
Weighted average fair
value of options
granted during the
year................... $ 10.39 $ 4.60 $ 4.89
========= ========= =========
Options available for
grant.................. 1,774,150 4,391,730 2,423,090
========= ========= =========
</TABLE>
The following table summarizes information about the Company's stock options
as of December 31, 1998:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
------------------------------------------- --------------------------
Weighted
Average Weighted Weighted
Range Of Number Remaining Average Number Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- -------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
$0.63--
$1.88.. 256,550 6.65 $ 0.69 112,750 $ 0.70
$7.50--
$11.06. 1,842,250 7.89 9.26 447,576 9.31
$11.75--
$14.94. 886,650 7.85 14.62 329,084 14.71
$16.78--
$23.38. 1,562,314 9.22 20.81 24,364 19.16
$23.59--
$33.81. 1,681,700 9.85 26.55 -- --
--------- ---- ------ ------- ------
$0.63--
$33.81. 6,229,464 8.70 $17.23 913,774 $10.46
========= ==== ====== ======= ======
</TABLE>
In January 1999, the Company granted 496,150 options at a price per share of
$35.88 under the 1996 Plan, with 80,000 shares and 416,150 shares vesting over
five and four years, respectively. These options are not reflected in the
above tables as they were granted subsequent to December 31, 1998.
46
<PAGE>
1996 Employee Stock Purchase Plan. During 1996, the Company adopted the 1996
Employee Stock Purchase Plan whereby 500,000 shares of the Company's Common
Stock have been reserved for sale to employees of the Company and its
subsidiaries through payroll deductions. The price for shares purchased under
the plan is 85% of market value on the last day of the purchase period.
Purchases are made at the end of each month. During 1998, 1997, and 1996,
respectively, 31,374 shares, 39,318 shares, and 11,506 shares have been
purchased under the plan for $0.6 million ($15.62 to $33.58 per share), $0.4
million ($7.17 to $17.00 per share), and $0.08 million ($6.54 to $8.61 per
share).
Stock-Based Compensation Plans. At December 31, 1998, the Company had four
stock-based compensation plans, as described above. The Company accounts for
these plans under APB Opinion No. 25, under which no compensation expense has
been recognized in 1998, 1997 or 1996, except for $89,000 recognized in 1996
for 11,850 shares granted as stock bonus awards under the 1996 Plan.
Had compensation expense for the Company's four stock-based compensation
plans been based on the fair value at the grant dates for awards under those
plans consistent with the method of SFAS 123, the Company's net income (loss)
and net income (loss) per share attributable to common stockholders for 1998,
1997 and 1996 would approximate the pro forma amounts as follows (in
thousands, except per share amounts):
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------
1998 1997 1996
------- --------- -------
<S> <C> <C> <C>
Net income (loss):
As reported................................... $85,638 $(102,871) $(4,350)
Pro forma..................................... 80,710 (104,776) (5,263)
Diluted net income (loss) per common share:
As reported................................... 1.62 (2.02) (.10)
Pro forma..................................... 1.52 (2.06) (.12)
</TABLE>
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 for options granted in 1998, 1997 and 1996, respectively: risk-
free interest rates of 4.9%, 6.3% and 6.1%; dividend yield of zero percent for
all years; expected lives of 4.4 years, 3.9 years, and 5.0 years; and
volatility of 40.0% for all years. Consistent with SFAS 123, the Company
assumed zero volatility for all options granted prior to the date the Company
qualified as a public entity.
The effects of applying SFAS 123 in this pro forma disclosure are not
indicative of future amounts. SFAS 123 applies only to 1998, 1997 and 1996,
and additional awards in future years are anticipated.
47
<PAGE>
13. UNAUDITED QUARTERLY FINANCIAL DATA
<TABLE>
<CAPTION>
QUARTER ENDED
-----------------------------------------
MARCH 31 JUNE 30 SEPTEMBER 30 DECEMBER 31
-------- ------- ------------ -----------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C>
1998:
Total revenues..................... $49,308 $54,244 $63,461 $ 69,627
Gross margin....................... 26,158 29,152 34,757 39,327
Operating income................... 8,377 10,707 15,456 18,763
Income before income taxes......... 6,484 8,651 13,576 17,284
Income tax benefit(1).............. -- -- -- 39,643
Net income attributable to common
stockholders...................... 6,484 8,651 13,576 56,927
Net income attributable to common
stockholders per share:
Basic............................ .13 .17 .26 1.11
Diluted.......................... .12 .16 .26 1.06
1997:
Total revenues..................... $38,582 $41,030 $43,278 $ 48,914
Gross margin....................... 16,094 18,862 21,235 25,631
Operating income (loss)(3)......... 1,327 2,117 3,740 (113,719)
Income (loss) attributable to com-
mon stockholders.................. 1,164 1,731 3,113 (116,224)
Extraordinary item(2).............. -- -- (577) --
Discontinued operations(2)......... -- -- 7,922 --
Net income (loss) attributable to
common stockholders............... 1,164 1,731 10,458 (116,224)
Net income (loss) per share (basic
and diluted):
Income (loss) attributable to
common stockholders............. .02 .03 .06 (2.28)
Extraordinary item............... -- -- (.01) --
Discontinued operations.......... -- -- .15 --
Net income (loss) attributable to
common stockholders............. .02 .03 .20 (2.28)
</TABLE>
- --------
(1) The fourth quarter of 1998 includes an income tax benefit of $39.6
million, or $0.74 per diluted share, related primarily to the elimination
of its valuation allowance against its deferred tax assets (Note 7).
(2) The third quarter of 1997 includes a $0.6 million extraordinary charge for
early extinguishment of debt (Note 6) and a $7.9 million gain on
disposition of discontinued operations (Note 10).
(3) The fourth quarter of 1997 includes the following non-recurring items:
a) The Company recorded a $105.5 million charge, or $2.07 per share, for
purchased research and development related primarily to the SUMMITrak
asset acquisition (Note 4).
b) The Company recorded a $11.7 million charge, or $0.23 per share, for
impairment of certain capitalized software development costs (Note 2).
This charge includes internal software development costs of $8.4 million
which were previously capitalized over the first three quarters of 1997
at $2.8 million per quarter.
c) The Company recorded a $4.7 million charge, or $0.09 per share, for
impairment of certain intangible assets (Note 2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
48
<PAGE>
Item 10. Directors and Executive Officers of the Registrant
See the Proxy Statement for the Company's Annual Meeting of Stockholders,
which information regarding directors is incorporated herein by reference.
Information regarding the Company's executive officers will be omitted from
such proxy statement and is furnished in a separate item captioned "Executive
Officers of the Registrant" included in Part I of this Form 10-K.
Item 11. Executive Compensation
See the Proxy Statement for the Company's Annual Meeting of Stockholders,
which information is incorporated herein by reference.
Item 12. Security Ownership of Certain Beneficial Owners and Management
See the Proxy Statement for the Company's Annual Meeting of Stockholders,
which information is incorporated herein by reference.
Item 13. Certain Relationships and Related Transactions
See the Proxy Statement for the Company's Annual Meeting of Stockholders,
which information is incorporated herein by reference.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) Financial Statements, Financial Statement Schedules, and Exhibits:
(1) Financial Statements
The financial statements filed as part of this report are listed on
the Index to Consolidated Financial Statements on page 27.
(2) Financial Statement Schedules:
Index to Consolidated Financial Statement Schedules:
<TABLE>
<S> <C>
Page
----
Report of Independent Public Accountants.............................. 52
Schedule II--Valuation and Qualifying Accounts........................ 53
</TABLE>
(3) Exhibits
Exhibits are listed in the Exhibit Index on page 54.
The Exhibits include management contracts, compensatory plans and
arrangements required to be filed as exhibits to the Form 10-K by Item
601(10)(iii) of Regulation S-K.
(b) Reports on Form 8-K
None
49
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned, thereunto duly authorized.
CSG Systems International, Inc.
/s/ Neal C. Hansen
By: _________________________________
Neal C. Hansen
Chief Executive Officer
(Principal Executive Officer)
Date: March 29, 1999
POWER OF ATTORNEY
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Neal C. Hansen Chairman of the Board of March 29, 1999
______________________________________ Directors and Chief
Neal C. Hansen Executive Officer
(Principal Executive
Officer)
/s/ John P. Pogge President, Chief Operating March 29, 1999
______________________________________ Officer and Director
John P. Pogge
/s/ Greg A. Parker Vice President and Chief March 29, 1999
______________________________________ Financial Officer
Greg A. Parker (Principal Financial
Officer)
/s/ Randy R. Wiese Controller (Principal March 29, 1999
______________________________________ Accounting Officer)
Randy R. Wiese
/s/ George F. Haddix Director March 29, 1999
______________________________________
George F. Haddix
/s/ Royce J. Holland Director March 29, 1999
______________________________________
Royce J. Holland
/s/ Janice Obuchowski Director March 29, 1999
______________________________________
Janice Obuchowski
</TABLE>
50
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Bernard W. Reznicek Director March 29, 1999
______________________________________
Bernard W. Reznicek
/s/ Rockwell A. Schnabel Director March 29, 1999
______________________________________
Rockwell A. Schnabel
/s/ Frank V. Sica Director March 29, 1999
______________________________________
Frank V. Sica
</TABLE>
51
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS ON SCHEDULE OF
CSG SYSTEMS INTERNATIONAL, INC.
To the Board of Directors of
CSG Systems International, Inc.:
We have audited in accordance with generally accepted auditing standards,
the consolidated financial statements of CSG Systems International, Inc. and
Subsidiaries included in this Form 10-K and have issued our report thereon
dated January 20, 1999. Our audits were made for the purpose of forming an
opinion on the basic financial statements taken as a whole. The schedule of
CSG Systems International, Inc. listed in Item 14(a)(2) of Part IV of this
Form 10-K is the responsibility of the Company's management and is presented
for purposes of complying with the Securities and Exchange Commission's rules
and is not part of the basic financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
financial statements and, in our opinion, fairly states in all material
respects the financial data required to be set forth therein in relation to
the basic financial statements taken as a whole.
Arthur Andersen LLP
Omaha, Nebraska
January 20, 1999
52
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
<TABLE>
<CAPTION>
For the Year Ended
December 31,
----------------------
1998 1997 1996
------- ------ -----
(in thousands)
<S> <C> <C> <C>
Balance, beginning of period............................ $ 1,394 $ 819 $ 521
Acquisition of businesses............................... -- -- 101
Additions charged to expense............................ 1,724 875 319
Reductions.............................................. (1,067) (300) (122)
------- ------ -----
Balance, end of period.................................. $ 2,051 $1,394 $ 819
======= ====== =====
</TABLE>
53
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.01(1) Agreement of Merger among CSG Holdings, Inc., CSG Acquisition
Corporation, Cable Services Group, Inc. and First Data Resources
Inc., dated October 26, 1994
(2.02 intentionally omitted)
2.03(1) Amendment Agreement between First Data Corporation, First Data
Resources Inc., CSG Holdings, Inc., CSG Systems, Inc. and Anasazi
Inc., dated April 27, 1995
(2.04-2.06 intentionally omitted)
2.07(1) Founder Stock Purchase Agreement between CSG Holdings, Inc. and Neal
C. Hansen, dated November 30, 1994
2.08(1) Founder Stock Purchase Agreement between CSG Holdings, Inc. and
George Haddix, dated November 30, 1994
2.09(1) Founder Performance Stock Purchase Agreement between CSG Holdings,
Inc. and Neal C. Hansen, dated November 30, 1994, and first and
second amendments thereto
2.10(1) Founder Performance Stock Purchase Agreement between CSG Holdings,
Inc. and George Haddix, dated November 30, 1994, and first and
second amendments thereto
2.11(1) Series A Preferred Stock Purchase Agreement among CSG Holdings, Inc.
and the purchasers listed on the Schedule of Purchasers attached
thereto, dated November 30, 1994
2.12(1) Stockholders Agreement among CSG Holdings, Inc. and each of the
investors listed on the Schedule of Investors attached thereto,
dated November 30, 1994
(2.13-2.15 intentionally omitted)
2.16(2) Share Purchase Agreement among Cray Systems Ltd., Digital Equipment
Company Ltd. and CSG Systems International, Inc. dated June 28, 1996
2.17(2) Administration and Development Services Agreement between Cray
Systems Ltd. and CSG International Limited dated June 28, 1996
(2.18 intentionally omitted)
2.19(5)* Restated and Amended CSG Master Subscriber Management System
Agreement between CSG Systems, Inc. and TCI Cable Management
Corporation dated August 10, 1997
2.19A(7)* Second Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated January 9, 1998.
2.19B(8)* First Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated June 29, 1998.
2.19C(9) Sixth Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated July 22, 1998.
2.19D(9)* Seventh Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 8, 1998.
2.19E(9) Eighth Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 25, 1998.
</TABLE>
54
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
2.19F(9)* Eleventh Amendment to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation, dated September 30, 1998.
2.19G* Fifth, Ninth, Tenth, Thirteenth, Fourteenth, Seventeenth and
Nineteenth Amendments to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and TCI Cable
Management Corporation.
2.20(5) Asset Purchase Agreement between CSG Systems International, Inc. and
TCI SUMMITrak of Texas, Inc., TCI SUMMITrak, L.L.C., and TCI
Technology Ventures, Inc., dated August 10, 1997
2.21(5) Contingent Warrant to Purchase Common Stock between CSG Systems
International, Inc. and TCI Technology Ventures, Inc., dated
September 19, 1997
2.22(5) Royalty Warrant to Purchase Common Stock between CSG Systems
International, Inc. and TCI Technology Ventures, Inc., dated
September 19, 1997
2.23(5) Registration Rights Agreement between CSG Systems International,
Inc. and TCI Technology Ventures, Inc., dated September 19, 1997
2.24(5) Loan Agreement among CSG Systems, Inc. and CSG Systems
International, Inc. as co-borrowers, and certain lenders and Banque
Paribas, as Agent, dated September 18, 1997
2.25(6) First Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain lenders and
Banque Paribas, as Agent, dated November 21, 1997
2.26 Second Amendment to Loan Agreement among CSG Systems, Inc. and CSG
Systems International, Inc. as co-borrowers, and certain lenders and
Banque Paribas, as Agent, dated November 16, 1998.
3.01(1) Restated Certificate of Incorporation of the Company
3.02(4) Restated Bylaws of CSG Systems International, Inc.
3.03(4) Certificate of Amendment of Restated Certificate of Incorporation of
CSG Systems International, Inc.
4.01(1) Form of Common Stock Certificate
10.01(1) CSG Systems International, Inc. 1995 Incentive Stock Plan
10.02(1) CSG Employee Stock Purchase Plan
10.03(1) CSG Systems International, Inc. 1996 Stock Incentive Plan
10.04(1) Employee Performance Stock Purchase Agreement between CSG Systems
International, Inc. and George Haddix, dated August 17, 1995, and
first amendment thereto
10.04A(7) Second Amendment of Employee Performance Stock Purchase Agreement
dated March 18, 1998.
10.05(1) Employee Restricted Stock Purchase Agreement between CSG Systems
International, Inc. and John P. Pogge, dated March 6, 1995
10.06(1) Employee Performance Stock Purchase Agreement between CSG Systems
International, Inc. and John P. Pogge, dated March 6, 1995, and
first and second amendments thereto
10.07(1) Employee Performance Stock Purchase Agreement between CSG Systems
International, Inc. and John P. Pogge, dated May 16, 1995, and first
and second amendments thereto
(10.08-10.10 intentionally omitted)
10.11(1) Registration Rights Agreement among CSG Systems International, Inc.
and the purchasers listed on the Schedule of Purchasers attached
thereto, dated November 30, 1994
10.12(6) Separation Agreement and Releases with George F. Haddix
10.13(6) Independent Consulting Agreement with George F. Haddix, dated
December 23, 1997
10.14 Employment Agreement with Neal C. Hansen, dated November 17, 1998
10.15(6) Indemnification Agreements between CSG Systems International, Inc.
and certain directors
</TABLE>
55
<PAGE>
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
10.16(1) Indemnification Agreements between CSG Systems International,
Inc. and its directors and certain officers
10.17(1) Lease, Assignment and Acceptance of Lease, Assignment and
Assumption of Lease, and First Amendment to Lease respecting
facility at 2525 North 117th Avenue, Omaha, Nebraska
10.18(1) Lease, Assignment and Assumption of Leases, and Lease Amendment
respecting facility at 14301 Chandler Road, Omaha, Nebraska
10.19(1) Lease and Sublease respecting facility at 4949 Pearl East Circle,
Boulder, Colorado
(10.20-10.36 intentionally omitted)
10.37(1)* Printing and Mailing Services Agreement between CSG Systems, Inc.
and PageMart, Inc., dated August 29, 1995
(10.38 intentionally omitted)
10.39 CSG Systems, Inc. Wealth Accumulation Plan, as amended November
14, 1996 (previously filed as and incorporated by reference to
Exhibit 10.38 Registrant's Quarterly Report on Form 10-Q for the
period to the ended September 30, 1996)
10.40(3)* Amended and Restated Services Agreement between First Data
Technologies, Inc. and CSG Systems, Inc., formerly known as Cable
Services Group, Inc., dated December 31, 1996
10.40A(3) Schedules 2.11, 2.14, 5.3 and 6.4 and Exhibit 9(a) to Schedule
5.6 to Amended and Restated Services Agreement between First Data
Technologies, Inc. and CSG Systems, Inc., formerly known as Cable
Services Group, Inc., dated December 31, 1996
10.40B(P)(3) Schedules 1.21 and 1.47 and Exhibit A to Schedule 5.6 to Amended
and Restated Services Agreement between First Data Technologies,
Inc. and CSG Systems, Inc., formerly known as Cable Services
Group, Inc., dated December 31, 1996
10.40C(9)* First Amendment to Amended and Restated Services Agreement
between CSG Systems, Inc. and First Data Technologies, Inc.,
dated July 8, 1998.
(10.41-10.43 intentionally omitted)
10.44(4) CSG Systems International, Inc. Stock Option Plan for Non-
Employee Directors
10.45 Employment Agreement with John P. Pogge, dated November 17, 1998.
10.46 Employment Agreement with Edward Nafus, dated November 17, 1998.
10.47 Employment Agreement with Greg Parker, dated November 17, 1998.
21.01 Subsidiaries of the Company
23.01 Consent of Arthur Andersen LLP
27.01 Financial Data Schedule (EDGAR Version Only)
99.01 Safe Harbor for Forward-Looking Statements Under the Private
Securities Litigation Reform Act of 1995--Certain Cautionary
Statements and Risk Factors
</TABLE>
- --------
(1) Incorporated by reference to the exhibit of the same number to the
Registration Statement No. 333-244 on Form S-1.
(2) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated July 9, 1996.
(3) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K, as amended, for the year ended
December 31, 1996.
(4) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1997.
56
<PAGE>
(5) Incorporated by reference to the exhibit of the same number to the
Registrant's Current Report on Form 8-K dated October 6, 1997.
(6) Incorporated by reference to the exhibit of the same number to the
Registrant's Annual Report on Form 10-K, as amended for the year ended
December 31, 1997.
(7) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended March 31,
1998.
(8) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended June 30,
1998.
(9) Incorporated by reference to the exhibit of the same number to the
Registrant's Quarterly Report on Form 10-Q for the period ended September
30, 1998.
* 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.
57
<PAGE>
EXHIBIT 2.19G
FIFTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC. AND
TCI CABLE MANAGEMENT CORPORATION
This Fifth Amendment (the "Amendment") is executed this 30th day of December,
1998, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG AND CUSTOMER AGREE AS FOLLOWS:
1. FOR THE FEES SET FORTH IN SECTION 2 BELOW, CUSTOMER DESIRES TO LICENSE ACSR
AOI WHICH IS AN APPLICATION OBJECT INTERFACE THAT ALLOWS THIRD PARTY
APPLICATIONS TO BE USED IN CONJUNCTION WITH ACSR. AS A RESULT THE DEFINITION OF
CCS PRODUCTS IS HEREBY AMENDED TO INCLUDE ACSR AOI.
2. THE FEES FOR ACSR AOI ARE SET FORTH IN SCHEDULE D OF THE AGREEMENT.
3. CUSTOMER WILL BE LICENSED TO USE ACSR AOI AT THE FOLLOWING SYSTEM SITES AND
FOR THE APPLICATIONS SET FORTH BELOW:
<TABLE>
<CAPTION>
SYSTEM SITE SYS/PRIN APPLICATION
- ----------- -------- -----------
<S> <C> <C>
HARTFORD, CT 8493-1800 OUTBOUND COLLECTION SCREEN POP
DALLAS, TX 8493-1300 EMPOWER CREDIT VERIFICATION
CHICAGO, IL 8493-2300 DAVOX OUTBOUND PREDICTIVE DIALER FOR COLLECTION
COLLECTION
BEAVERTON, OR 8494-5600 SATELLITE OUTBOUND PREDICTIVE SCREEN POP
EVERETT, WA 8498-0000 EIS OUTBOUND COLLECTION SCREEN POP
DENVER, CO 8497-0000 MALITA OUTBOUND COLLECTION SCREEN POP
</TABLE>
THIS AMENDMENT IS EXECUTED ON THE DAY AND YEAR FIRST SHOWN ABOVE.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT
CORPORATION ("CUSTOMER")
1.
<PAGE>
BY: /S/ JOSEPH T. RUBLE BY: /S/ JERRY KULIN
----------------------------- ---------------------------------
NAME: JOSEPH T. RUBLE NAME: JERRY KULIN
--------------------------- -------------------------------
TITLE: V. P. & GENERAL COUNSEL TITLE: EXEC. DIR. BILLING. SYST.
-------------------------- ------------------------------
2.
<PAGE>
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 (***).
NINTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Ninth Amendment (the "Amendment") is executed this 26th day of October,
1998, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG AND CUSTOMER AGREE AS FOLLOWS:
1. The terms of this Amendment shall apply only with respect to CIT(R).
2. Schedule C and all references to the CCS Products in the Agreement are
hereby amended to include CSG's Customer Interaction Tracking (CIT) licensed
software, which is a module offered with ACSR that provides enhanced methods
for tracking the interaction with the customer base. It provides note taking
functionality as well as an interaction history feature that allows specific
actions to be recorded in a transaction history log. CIT also allows for the
scheduling of customer call backs. These call backs can be reviewed by
management as well as moved between CSRs.
3. Customer shall be licensed to use CIT on one hundred fifty (150)
workstations at its System Site at 5450 N. Cumberland, Suite 300, Chicago,
IL 60656.
4. The term of this Amendment and Customer's license to use CIT shall terminate
on January 31, 1999. Upon the parties' mutual consent, the term of
Customer's license to use CIT in the manner set forth herein or in any other
manner (e.g., in a service bureau capacity) may be extended pursuant to a
separately executed document.
5. Schedule D is hereby amended to include the following fees for CIT:
. Number of Customer's users of CIT during this trial period shall be a
maximum of one-hundred fifty (150) located at Customer's Chicago System
Site.
3.
<PAGE>
. CIT usage fee for this trial period shall be (***) ($***) dollars.
. Fees for any extension of the total period beyond January 31, 1999 will
be negotiated.
. CIT fees do not include any user workstation hardware.
. CIT fees do not include network communication charges.
. CIT fees include third party software, server hardware, system operation,
project management, installation, computer based training, reporting
software for two (2) users.
6. Exhibit C-2 of the Agreement shall be amended to include the Designated
Environment set forth below for CIT, and Customer shall receive CSG's
standard CIT installation, training and support services.
DESIGNATED ENVIRONMENT
----------------------
- --------------------------------------------------------------------------------
DESIGNATED ACSR FAMILY OF PRODUCTS ENVIRONMENT
1. ACSR.
2. Customer Interaction Tracking (CIT).
3. ACSR Telephony.
4. Computer Based Training (CBT).
5. Application Object Interface (AOI).
6. Additional Data Facility (ADF) [NOT AVAILABLE AT THIS TIME].
IMPORTANT NOTES:
1. The following applies only in regards to the CCS Products actually licensed
by Customers under SCHEDULE C of their contracts and may be subject to
change as the specific hardware configuration cannot be completely
identified and certified until after the business requirements of Customer
are determined during the pre-installation visit
2. The Support Services do not include support of the CCS Products if used
outside the Certified Designated Environment (i.e. other hardware, software,
or other modifications have been introduced by Customer that are outside the
certified Designated Environment). In such a case, CSG may agree to provide
customized technical support for CSG's then-current fees for such services.
- --------------------------------------------------------------------------------
PRODUCT COMPATIBILITY MATRIX - (Yes indicates the product is available on the
indicated client workstation platform; date indicates the estimated date
available).
Product Windows NT Apple Macintosh SUN Solaris Windows
95
- --------------------------------------------------------------------------------
ACSR Yes (3) Yes Yes
- --------------------------------------------------------------------------------
CIT Yes (1) (3) (4) Yes
- --------------------------------------------------------------------------------
Telephony Yes No No No
- --------------------------------------------------------------------------------
ADF (2) (2) (2) (2)
- --------------------------------------------------------------------------------
ACSR CBT Yes No Yes Yes
- --------------------------------------------------------------------------------
CIT CBT Yes No Yes Yes
- --------------------------------------------------------------------------------
Telephony CBT Yes N/A N/A N/A
- --------------------------------------------------------------------------------
AOI w/DDE Yes N/A N/A Yes
- --------------------------------------------------------------------------------
4.
<PAGE>
- --------------------------------------------------------------------------------
AOI w/TCPIP Yes (3) Yes Yes
- --------------------------------------------------------------------------------
1. CIT coexistence with Telephony (no Telephony specific functionality).
2. Not Available at this point in time.
3. Available under existing contracts only.
4. Availability subject to Statement of Work (SOW) to convert application to
SUN Solaris.
- --------------------------------------------------------------------------------
Client Workstation Hardware, Memory, and Video Section:
- --------------------------------------------------------------------------------
A. HARDWARE:
WINDOWS NT & 95 PLATFORM HARDWARE: Compaq, and IBM Business Class computers
designated as Microsoft Windows NT certified are supported for the Windows 95
and NT ACSR platforms. Four examples are shown below:
1) Compaq Deskpro 2000 Pentium (133 MHz minimum).
2) IBM PC350 Pentium (133 MHz minimum).
3) IBM PC300PL Pentium (200 MHz) - Replacement for discontinued model
PC350.
4) Compaq Deskpro 4000N Pentium 233 MHz [Windows NT Version 4.0 platform
only].
UNIX PLATFORM HARDWARE:
1) Sun Ultra 5 11/97 and 8/97 MHz, Solaris Version 2.5.1.
2) Ultra Sparc 1, model 170, Solaris 2.5.1.
MACINTOSH PLATFORM HARDWARE:
1. Apple 7600 Power Macintosh.
- --------------------------------------------------------------------------------
Client Workstation Hardware Notes:
- --------------------------------------------------------------------------------
1) CD ROM recommended for all workstations except Compaq Deskpro 4000N.
2) Personal Computers with 100 MHz bus speeds must be provided to CSG for
approval.
- --------------------------------------------------------------------------------
B. WORKSTATION MINIMUM MEMORY (RAM)
1. 32MB (with Windows 95 and UNIX SUN Solaris) - Assumes ACSR is the only
application running on the desktop. Clients running additional desktop
applications are recommended to have 64 MB.
2. 64MB (with Windows NT Version 4.0 and Apple Macintosh).
C. WORKSTATION MINIMUM HARD DRIVE SPACE
1. 1.2 Gigabyte of Hard Drive space available for ACSR.
D. WORKSTATION MINIMUM VIDEO REQUIREMENTS
1. Minimum video resolution supported 1024 x 768 x 256 colors, small
font.
2. Minimum 15" SVGA monitor (17" for Apple MAC).
- --------------------------------------------------------------------------------
Workstation Software Section:
- --------------------------------------------------------------------------------
WINDOWS NT AND 95 WORKSTATIONS:
1. Microsoft Windows NT Version 4.0 w/ Service Pack 3 applied (note:
Telephony workstations running Applications Administration Screens
require 16 bit drivers).
2. NetManage Chameleon Hostlink Version 7.0.2 (with Windows NT or 95).
3. Microsoft Windows 95 w/ Service Pack 1 and the Kernel32 update
applied.
5.
<PAGE>
UNIX SUN SOLARIS WORKSTATIONS:
1. Solaris Version 2.5.1 (see workstations above).
2. Brixton 3270 client for Solaris Version 3.0.1.9 in the HLLAPI
environment.
3. Open Windows.
6.
<PAGE>
APPLE MACINTOSH WORKSTATIONS:
1. Macintosh Operating System Version 7.6.1.
2. Macintosh Irma Version 5.11.
ADDITIONAL WORKSTATION SOFTWARE TO SUPPORT TELEPHONY:
(Note: Telephony workstations running Applications Administration Screens
require 16 bit drivers)
1. Oracle SQL*NET V2.1.4.1.4 for NT runtime (with Windows NT).
2. Oracle SQL Forms V4.5.6.5.5 for NT runtime (with Windows NT).
3. Forest & Trees 4.1 (with Windows NT) (Optional reporting tool for PCs
doing reporting queries).
ADDITIONAL WORKSTATION SOFTWARE TO SUPPORT CIT:
1. Oracle SQL*NET V2.1.4.1.4 runtime (with NT or 95) (For PCs with Forest
& Trees).
2. Forest & Trees 4.1 (with Windows NT or 95) (Optional reporting tool for
PCs doing reporting queries).
- --------------------------------------------------------------------------------
ACSR Server(s) Section:
- --------------------------------------------------------------------------------
1. SUN Sparc 20.
2. SUN Sparc 1000E.
3. Ultra Sparc 1 - model 170 only.
4. Ultra Sparc 2.
5. Ultra Sparc 3000.
(Server model, number of CPUs, memory, and disk storage are based on
individual customer requirements.)
(CDROM required for all servers)
- --------------------------------------------------------------------------------
Note: The SUN Sparc 20 and SUN Sparc 1000E are no longer sold by SUN but
are supported by CSG.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
ACSR/CIT Server(s) Array Section:
- --------------------------------------------------------------------------------
1. Software - Veritas Volume Manager (a.k.a. Sun Enterprise Volume Manager)
bundled with Sun SSA Models 112, 114, and 214.
2. Hardware - Sun SSA Models 112, 114, and 214.
- --------------------------------------------------------------------------------
Server Software Section:
- --------------------------------------------------------------------------------
1. Solaris V2.5.1
2. Samba V1.9.15 p8 (with NT or 95).
3. Brixton Server PU2.1 for Solaris (Release 4.0) running in 2.3.2 mode
(both core and session components required).
4. Brixton 3270 Client for Solaris (Version 3.0.1.9) (1 copy required for
trouble shooting and 1 copy required for each mainframe printer if
printing through TCP/IP).
5. Hewlett Packard Solaris Jet Admin software Rev. D.03.15.
ADDITIONAL SERVER SOFTWARE TO SUPPORT CIT OR ADF:
1. Oracle V7.3.3 runtime.
2. Platinum EPM Agent V3.1.0
3. Tuxedo V6.1
7.
<PAGE>
ADDITIONAL SERVER SOFTWARE TO SUPPORT TELEPHONY (WINDOWS NT 4.0 ONLY):
1. Oracle V7.3.2.1 runtime.
2. Tuxedo V 6.1.(With NT or 95)
3. Platinum EPM Agent V3.1.0
4. Platinum Autosys agent V3.3 release 5
5. Postalsoft V 5.00
- --------------------------------------------------------------------------------
Distribution Server and Software Section:
- --------------------------------------------------------------------------------
1. SPARCstation 5/170Mhz, 64M RAM, 2.1G hard drive, Solaris V2.5.1
2. A CD ROM drive is required for all distribution servers.
- --------------------------------------------------------------------------------
Note: The SPARCstation 5/170Mhz is no longer sold by SUN, but is still
supported by CSG.
- --------------------------------------------------------------------------------
CONCENTRATORS:
1. BayNetworks (Synoptics) 2813-04 (managed 16-port Ethernet hub).
2. BayNetworks (Synoptics) 2803 (passive 16-port Ethernet hub).
3. BayNetworks (Synoptics) 800 (passive 8-port Ethernet hub).
4. BayNetworks (Synoptics) 2712B-04 (managed 16-port token ring hub).
5. BayNetworks (Synoptics) 2702B-C (passive 16-port token ring hub).
NETWORK CARDS/DEVICES:
1. 3Com Etherlink cards.
2. SUN Fast Ethernet 10/100M.
3. SUN Token Ring 4/16M.
4. SUN Single Ring FDDI Interface.
5. SUN Dual Ring FDDI Interface.
6. Hewlett Packard Jet Direct EX [Printer Interface].
PRINTERS:
1. IBM 4226 - 533 characters per second [Work Order printer]
(cps).
2. Lexmark 4227- 533 cps. [Work Order printer]
3. IBM 6400 model 005. [Work Order printer]
4. IBM 6400 models 008 and 012. [Reports printer]
5. Hewlett Packard LaserJet5. [Screen Print printer]
6. Okidata ML 320. [Cash Register Receipts printer]
ROUTERS:
1. Cisco 2501, 2509, 2511, 2514, 4500.
THIS AMENDMENT IS EXECUTED ON THE DAY AND YEAR FIRST SHOWN ABOVE.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("CUSTOMER")
BY: /S/ JOHN P. POGGE BY: /S/ SCOTT D. BESSELIEVRE
----------------- ---------------------------------------
NAME: JOHN P. POGGE NAME: SCOTT D. BESSELIEVRE
----------------- ---------------------------------------
TITLE: PRESIDENT TITLE: EXECUTIVE DIRECTOR, CUSTOMER OPERATIONS
----------------- ---------------------------------------
8.
<PAGE>
TENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Tenth Amendment (the "Amendment") is executed this 30th day of October,
1998, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG AND CUSTOMER AGREE AS FOLLOWS:
1. EXHIBIT S-1 OF THE AGREEMENT SHALL BE AMENDED TO INCLUDE THE FOLLOWING FOUR
(4) SYSTEM LOCATIONS AT WHICH CUSTOMER IS LICENSED TO USE THE CSG INFOEXPRESS
SOFTWARE PURSUANT TO THE TERMS AND CONDITIONS OF THE AGREEMENT, INCLUDING, BUT
NOT LIMITED TO, SCHEDULE S THERETO:
CHICAGO, IL
DALLAS, TX
FIFE, WA
BALTIMORE, MD
THIS AMENDMENT IS EXECUTED ON THE DAY AND YEAR FIRST SHOWN ABOVE.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("CUSTOMER")
BY: /s/ JOSEPH T. RUBLE BY: /s/ SCOTT D. BESSELIEVRE
----------------------------- ---------------------------------------
NAME: JOSEPH T. RUBLE NAME: SCOTT D. BESSELIEVRE
--------------------------- -------------------------------------
TITLE: V.P. & GENERAL COUNSEL TITLE: EXEC. DIRECTOR, CUSTOMER OPERATIONS
-------------------------- ------------------------------------
9.
<PAGE>
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 (***).
THIRTEENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Thirteenth Amendment ("Amendment") is executed this 31st day of December,
1998, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment by
the parties, any subsequent reference to the Agreement between the parties shall
mean the Agreement as amended by this Amendment. Except as amended by this
Amendment, the terms and conditions set forth in the Agreement shall continue in
full force and effect according to their terms.
CSG and Customer agree as follows:
1. Schedule D of the Agreement shall be amended to include the fees set forth
below for CSG's Statement Express/TM/ software which Customer is licensed to use
pursuant to Schedule T of the Agreement.
CSG Statement Express/TM/ (Note 1)
- -------------------------
Perpetual License Fees--For CSR Use
0 to 100 workstations $(***) per CSR workstation
101 to 500 workstations $(***) per CSR workstation
501 to 1500 workstations $(***) per CSR workstation
1500 and greater workstations $(***) per CSR workstation
Annual Software Maintenance 20% of License Fees
Monthly Statement Archive Fee $(***) per data frame (Note 2)
(includes semi-annual archival CD-ROM)
(Note 1): CSG shall not increase any of the fees set forth herein prior to
January 1, 2000. Thereafter, the fees set forth herein shall be subject to
increases in accordance with Section 4 of the Agreement.
#4024
3/17/99
1
CONFIDENTIAL AND PROPRIETARY INFORMATION--FOR USE BY AUTHORIZED EMPLOYEES
OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN
OR OUTSIDE THEIR RESPECTIVE COMPANIES.
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
. Remote installation services support set forth in Exhibit T-3 shall be
provided on a time and material basis at CSG's then current rates.
. If additional on-site support is requested by Customer, it may be
provided on a time and materials basis at CSG's then current rates.
Pilot System Site:
- -----------------
The following terms shall apply with respect to one (1) System Site, which is
referred to herein as the "Pilot System Site", during the periods described
below. At all times thereafter, the terms and conditions of the Agreement,
including, but not limited to Schedule T, shall govern Customer's use of the
Statement Express Product:
a. Customer shall select the Pilot System Site, and notify CSG of such
selection in writing, no later than January 31, 1999.
b. The Pilot System Site shall have no more than six hundred thousand
(600,000) basic subscribers.
c. Customer shall purchase a minimum of one hundred sixty (0) licenses of
CSG Statement Express at a price of $(***) per CSR workstation. CSG shall
invoice Customer for such licenses on the "Commencement Date".
d. CSG shall waive the annual software maintenance on the one hundred sixty
(160) licenses through December 31, 1999. Annual software maintenance on the one
hundred sixty (160) licenses shall commence being billed on January 1, 2000.
e. CSG will lower the monthly statement archive fee to $(***) for the
period of January 1, 1999 through December 31, 1999.
For purposes of this Thirteenth Amendment, "the term "Commencement Date" shall
be deemed to be the date upon which CSG Statement Express and other >Products
and Services contemplated by this Thirteenth Amendment are fully installed and
operational. CSG shall invoice Customer for such licenses on the "Commencement
Date".
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Jerry Kulin
------------------------------ ------------------------------
Name: Joseph T. Ruble Name: Jerry Kulin
---------------------------- ----------------------------
Title: V.P. & General Counsel Title: Exec. Dir. Billing Syst.
--------------------------- ---------------------------
#4024
3/17/99
2
CONFIDENTIAL AND PROPRIETARY INFORMATION--FOR USE BY AUTHORIZED EMPLOYEES
OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN
OR OUTSIDE THEIR RESPECTIVE COMPANIES.
<PAGE>
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 (***).
FOURTEENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Fourteenth Amendment (the "Amendment") is executed this 8th day of
December, 1998, and is made by and between CSG Systems, Inc., a Delaware
corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and
Customer entered into a certain Restated and Amended CSG Master Subscriber
Management System Agreement dated August 10, 1997, which has subsequently been
amended pursuant to separately executed amendments (collectively, the
"Agreement"), and now desire to amend the Agreement in accordance with the terms
and conditions set forth in this Amendment. If the terms and conditions set
forth in this Amendment shall be in conflict with the Agreement, the terms and
conditions of this Amendment shall control. Any terms in initial capital letters
or all capital letters used as a defined term but not defined in this Amendment,
shall have the meaning set forth in the Agreement. Upon execution of this
Amendment by the parties, any subsequent reference to the Agreement between the
parties shall mean the Agreement as amended by this Amendment. Except as amended
by this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Customer desires to receive CSG's CSG Ticket Express(TM) service, which
automates Pay-Per-View movie and event ordering functionality by enabling
subscribers' orders to be placed through a toll-free number which is processed
through CSG's billing system without live agent intervention. Therefore, the
definition of "Services" in the Agreement shall be amended to include CSG Ticket
Express, and Schedule D of the Agreement shall be amended to include the fees
----------
for CSG Ticket Express that are set forth in Paragraph 3 below.
2. Customer shall receive the CSG Ticket Express service for a term commencing
on the date of execution of this Amendment and ending on December 31, 2006.
Although the term set forth in this paragraph 2 is different from the term set
forth in Section 15 of the Agreement, the rest of the terms and conditions of
the Agreement, including, but not limited to, Section 17(d), shall apply with
respect to Customer's use of CSG's Ticket Express.
3. Schedule D of the Agreement shall be amended to include the following fees
for CSG Ticket Express(TM)
A. Monthly Transaction Fees:
a. Volume of: 0 to 1,000,000 completed Pay-Per-View (PPV)
transactions:
. Base Service Fee $(***) per completed PPV transaction
(Note 1)
. PIN Usage Fee (optional) $(***) per call using a PIN (Note 2)
b. Volume of: 1,000,001 and greater completed Pay-Per-View (PPV)
transactions:
. Base Service Fee $(***) per completed PPV transaction
(Note 1)
10.
<PAGE>
. PIN Usage Fee (optional) $(***) per call using a PIN (Note 2)
(Note 1):
Base Service Fee includes the following:
- Data Link/Host Connection
- Custom Greeting
- Database Configuration (voice file
recording/management)
- Title Insertion- Movies
- ANI performance reports/statistics
- One (1) Project Manager until March 31, 2000
(Note 2):
The PIN usage fee is an incremental charge that is in addition to
the Base Service Fee. The PIN usage fee will be charged to Customer
on a per call basis, regardless of whether a PPV transaction is
completed or not completed.
c. Monthly Transaction Fee Minimum:
Beginning January 1, 2000 and continuing until December 31, 2006,
Customer shall be responsible for paying a minimum of $(***) per
calendar quarter in Monthly Transaction Fees for CSG Ticket
Express.
d. If, subsequent to the date of this Amendment, Customer executes
additional amendment(s) pursuant to which CSG provides additional
capability related to CSG Ticket Express, any Monthly Transaction
Fees paid by Customer for such additional capability shall apply
towards the quarterly minimum set forth in Paragraph 3(A)(c) above.
B. Other Fees:
. Call Re-Direct Fee $ (***) per re-directed call Set-up
. Fee for Promotions $ (***) per promotion
. Promotion/Special Messages $ (***) per message Title
. Insertion-Special Events $ (***) per event
C. Installation Fees: (***)
4. Customer shall not be responsible for paying the fees set forth in
paragraph 3.A and 3.B above until CSG's CSG Ticket Express service is initiated.
5. The $(***) minimum monthly fee commitment for Summitrak Pay-Per-View
Service that is set forth in Section 17 of Schedule D shall be deleted upon
----------
execution of this Amendment.
6. With respect to CSG Ticket Express only, the first sentence of Section 4 of
the Agreement shall be deleted in its entirety and replaced with the following:
CSG shall not adjust any of the fees specified in Schedule D or
----------
otherwise specified in the schedule prior to January 1,1999.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
-------------------------------- ----------------------------
11.
<PAGE>
Name: Joseph T. Ruble Name: Ann Montgomery
-------------------------------- ---------------------
Title: V.P & General Counsel Title: SVP Fulfillment Svcs.
-------------------------------- ---------------------
TCI Communications, Inc.
12.
<PAGE>
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 (***).
SEVENTEENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Seventeenth Amendment (the "Amendment") is executed this 31st day of
December, 1998, and is made by and between CSG Systems, Inc., a Delaware
corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and
Customer entered into a certain Restated and Amended CSG Master Subscriber
Management System Agreement dated August 10, 1997, which has subsequently been
amended pursuant to separately executed amendments (collectively, the
"Agreement"), and now desire to amend the Agreement in accordance with the terms
and conditions set forth in this Amendment. If the terms and conditions set
forth in Amendment shall be in conflict with the Agreement, the terms and
conditions of this Amendment shall control. Any terms in initial capital letters
or all capital letters used as a defined term but not defined in this Amendment,
shall have the meaning set forth in the Agreement. Upon execution of this
Amendment by the parties, any subsequent reference to the Agreement between the
parties shall mean the Agreement as amended by this Amendment. Except as amended
by this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
1. For the fees set forth in paragraph 4 below and in accordance with the terms
and conditions of the Agreement, CSG hereby grants to Customer a site license
pursuant to which Customer may use ACSR on two houndred and twenty five (225)
workstations. Therefore, as of the date of execution of this Amendement,
Customer is, pursuant to the multiple site licenses granted prior to the date of
execution of this Amendment, entitled to use ACSR on a total of six thousand
three hundred twenty five (6,325) workstations.
2. CSG shall provide Customer one (1) master copy of ACSR for the purpose of
installing ACSR on the two hundred twenty five (225) workstations referenced
above.
3. The System Sites at which Customer will be licensed to use ACSR pursuant to
paragraph 1 above will be:
System Site Workstations
----------- ------------
Tulsa, Oklahoma 20
Lee's Summit, Missouri 45
Mesa, AZ 90
Atlanta, GA 10
San Antonio 60
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
4. The fees to be paid by Customer for the additional site license of 225
workstations of ACSR are as follows:
ACSR Perpetual License Fees
---------------------------
225 workstations $(***)
($(***) per workstation)
ACSR Annual Maintenance Fees
----------------------------
Twenty percent (20%) of License Fees
Agreed and accepted this 31/st/ day of December, 1998 by:
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
------------------------------ ------------------------------
#4160
12/31/98
2
CONFIDENTIAL AND PROPRIETARY INFORMATION--FOR USE BY AUTHORIZED EMPLOYEES
OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN
OR OUTSIDE THEIR RESPECTIVE COMPANIES.
<PAGE>
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 (***).
NINETEENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Nineteenth Amendment (the "Amendment") is executed this 31st day of
December, 1998, and is made by and between CSG Systems, Inc., a Delaware
corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and
Customer entered into a certain Restated and Amended CSG Master Subscriber
Management System Agreement dated August 10, 1997, which has subsequently been
amended pursuant to separately executed amendments (collectively, the
"Agreement"), and now desire to amend the Agreement in accordance with the terms
and conditions set forth in this Amendment. If the terms and conditions set
forth in this Amendment shall be in conflict with the Agreement, the terms and
conditions of this Amendment shall control. Any terms in initial capital letters
or all capital letters used as a defined term but not defined in this Amendment,
shall have the meaning set forth in the Agreement. Upon execution of this
Amendment by the parties, any subsequent reference to the Agreement between the
parties shall mean the Agreement as amended by this Amendment. Except as amended
by this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. For the fees set forth in paragraph 3 below and in accordance with the terms
and conditions of the Agreement, CSG hereby grants to Customer a site license
pursuant to which Customer may use ACSR on one thousand five hundred (1,500)
workstations. Therefore, as of the date of execution of this Amendment, Customer
is, pursuant to the multiple site licenses granted prior to the date of
execution of this Amendment, entitled to use ACSR on a total of seven thousand
eight hundred twenty five (7,825) workstations.
2. CSG shall provide Customer one (1) master copy of ACSR for the purpose of
installing ACSR on the one thousand five hundred (1,500) workstations referenced
above.
3. The fees to be paid by Customer for the additional site license of 1,500
workstations of ACSR are as follows:
ACSR Perpetual License Fees
---------------------------
1,500 workstations 5(***)
($(***) per workstation)
ACSR Annual Maintenance Fees
----------------------------
Twenty percent (20%) of License Fees
THIS AMENDMENT is executed on the day and year first shown above.
#4199
12/31/98
1
CONFIDENTIAL AND PROPRIETARY INFORMATION--FOR USE BY AUTHORIZED EMPLOYEES
OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN
OR OUTSIDE THEIR RESPECTIVE COMPANIES.
<PAGE>
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
------------------------------ ------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
---------------------------- ----------------------------
Title: V.P. & General Counsel Title: SVP Fulfillment Svcs.
--------------------------- ---------------------------
#4199
12/31/98
2
CONFIDENTIAL AND PROPRIETARY INFORMATION--FOR USE BY AUTHORIZED EMPLOYEES
OF THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN
OR OUTSIDE THEIR RESPECTIVE COMPANIES.
<PAGE>
EXHIBIT 2.26
SECOND AMENDMENT TO LOAN AGREEMENT
THIS SECOND AMENDMENT TO LOAN AGREEMENT (this "Amendment") is made and
entered into as of November 16, 1998, by and among CSG SYSTEMS, INC., a Delaware
corporation ("CSG"), and CSG SYSTEMS INTERNATIONAL, INC., a Delaware corporation
("Holdings"), as co-borrowers on a joint and several basis (each individually
being from time to time referred to herein as a "Borrower" and collectively as
the "Borrowers"), the Lenders named in the Loan Agreement (as defined below),
and PARIBAS (formerly known as Banque Paribas), not in its individual capacity
but solely in its capacity as the agent on behalf of the Lenders (in such
capacity, the "Agent").
RECITALS
A. The Borrowers, the Lenders and the Agent have entered into that
certain Loan Agreement dated as of September 18, 1997 (as amended by that
certain First Amendment to Loan Agreement dated as of November 21, 1997, and as
such may be further amended, modified, supplemented or restated from time to
time, the "Loan Agreement"), by and among the Borrowers, the Lenders and the
Agent, pursuant to which the Lenders have extended and have agreed to extend and
make available to the Borrowers certain advances of credit in accordance with
their respective Commitments and upon the terms and conditions set forth in the
Loan Agreement and the other Loan Documents.
B. The Borrowers have requested that the Lenders amend the Loan Agreement
as provided below.
C. The Lenders and the Agent are willing to accommodate the Borrowers'
requests, but only on the terms and subject to the conditions specified herein.
Capitalized terms not otherwise defined herein shall have the same meanings
given to such terms in the Loan Agreement.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
covenants herein set forth, and intending to be legally bound, the parties
hereto agree as follows:
1. AMENDMENTS TO LOAN AGREEMENT.
(A) AMENDMENTS TO SECTION 1.1 (DEFINED TERMS).
(I) A new defined term "Data Center Capex" is added to Section
1.1 of the Loan Agreement immediately following the defined term "Customer
Services Client," to read as follows:
" Data Center Capex" shall have the meaning set forth in SUBSECTION
8.8(B).
(II) The definition of the term "Excess Cash Flow Percentage" is
amended to delete the term "1.50:1.00" and to replace such term with
"1.75:1.00."
13.
<PAGE>
(III) The definition of the term "Fixed Charge Coverage Ratio"
is deleted in its entirety and replaced with the following:
"Fixed Charge Coverage Ratio" means, as calculated quarterly as of the
last day of each Fiscal Quarter on a rolling four (4) quarter basis, the
ratio of (a) an amount equal to (i) Operating Cash Flow plus (ii) the
SUMMITrak/Phoenix Capex Adjustment plus (iii) the SUMMITrak/Phoenix Expense
Adjustment plus (iv) Data Center Capex made during such period to (b) Fixed
Charges.
(IV) The definition of the term "Interest Coverage Ratio" is
deleted in its entirety and replaced with the following:
"Interest Coverage Ratio" means, as calculated quarterly as of the
last day of each Fiscal Quarter on a rolling four (4) quarter basis, the
ratio of (a) an amount equal to (i) Operating Cash Flow plus (ii) the
SUMMITrak/Phoenix Capex Adjustment plus (iii) the SUMMITrak/Phoenix Expense
Adjustment plus (iv) Data Center Capex made during such period to (b) Net
Interest Expense.
(B) AMENDMENT TO SECTION 8.3 (LOANS AND INVESTMENTS). The words
"equal to $25,000,000" set forth in Subsection 8.3(d) of the Loan Agreement are
deleted and replaced with the words "up to $35,000,000."
(C) AMENDMENT TO SECTION 8.8 (CAPITAL EXPENDITURES). Section 8.8 of
the Loan Agreement is deleted in its entirety and replaced with the following:
SECTION 8.8 CAPITAL EXPENDITURES. (A) Except as otherwise provided in
Section 8.8(b), the Borrowers shall not, and shall not permit any of their
respective Subsidiaries to, make or commit to make Capital Expenditures
during any of the following Fiscal Years in excess of the following
amounts:
<TABLE>
<CAPTION>
FISCAL YEAR CAPITAL EXPENDITURES
<S> <C>
1998 $20,000,000
1999 $25,000,000
2000 $30,000,000
2001 and thereafter $35,000,000
</TABLE>
plus any unutilized portion of the immediately preceding Fiscal Year's
permitted Capital Expenditures provided that any such unutilized portion
carried forward shall not for any Fiscal Year exceed $5,000,000. For
purposes of this SECTION 8.8 only, the term "Capital Expenditures" shall
mean an amount equal to "Capital Expenditures," as defined in SECTION 1.1
of this Agreement, exclusive of the amount of the SUMMITrak/Phoenix Capex
Adjustment.
(B) In addition to and without limiting the Capital Expenditures
permitted to be made pursuant to SUBSECTION 8.8(A), the Borrowers may make
Capital
14.
<PAGE>
Expenditures up to an aggregate amount of $20,000,000 in the aggregate for
both of Fiscal Years 1999 and 2000 for the sole purpose of constructing
(including site acquisition and preparation) and equipping (including
capitalized software) a new data center for the Borrowers (the additional
Capital Expenditures permitted pursuant to this subsection (b) being
referred to herein as the "Data Center Capex").
(D) AMENDMENT TO SECTION 8.9 (RESTRICTED PAYMENTS). Section 8.9 of
the Loan Agreement is deleted in its entirety and replaced with the following:
SECTION 8.9 RESTRICTED PAYMENTS. Unless the Borrowers shall have
delivered to the Agent in accordance with SUBSECTION 7.1(D) a Compliance
Certificate certifying that (a) the Leverage Ratio as calculated as of the
last day of the immediately preceding Fiscal Quarter is less than 1.50 and
(b) no Default or Event of Default shall have occurred and be continuing,
Holdings shall not, and shall not suffer or permit any of its Subsidiaries
(other than a wholly-owned Subsidiary) to, declare or make any dividend
payment or other distribution of assets, properties, cash, rights,
obligations or securities on account of any shares of any class of its
Stock (provided that Holdings may declare and pay a dividend payable solely
in shares of common stock of Holdings and cash in lieu of any fractional
shares resulting from such dividend payment), or purchase, redeem or
otherwise acquire for value any shares of its Stock or any warrants, rights
or options to acquire such shares, now or hereafter outstanding; provided,
however, that Holdings from time to time (i) may repurchase its Stock from
the public at fair market value in an aggregate amount for all such
transactions not to exceed $20,000,000 and (ii) may re-purchase shares of
"Restricted Stock" and "Performance Stock" sold pursuant to the CSG
Employee Stock Purchase Plan from a holder of such Stock whose employment
with Holdings and its Subsidiaries has terminated; provided that the
repurchase price paid for any such Restricted Stock or Performance Stock
shall not exceed, in the case of Performance Stock, the purchase price
initially paid by such Person for such Performance Stock or, in the case of
Restricted Stock, the higher of the purchase price initially paid by such
Person for such Restricted Stock or the Book Value (as defined in the
applicable purchase agreement) of such Restricted Stock.
2. LIMITED AMENDMENT; FULL FORCE AND EFFECT. Each of the amendments set
forth in this Amendment shall be limited precisely as written and shall not be
deemed (a) to be an amendment, consent or waiver of any other term or condition
of the Loan Agreement or the other Loan Documents, to prejudice any right or
remedy which the Agent or the Lenders may now have or may have in the future
under or in connection with the Loan Agreement or the other Loan Documents or
(b) to be a consent to any future amendment, consent or waiver or departure from
the terms and conditions of the Loan Agreement or the other Loan Documents.
This Amendment shall be construed in connection with and as part of the Loan
Documents, and all terms, conditions, representations, warranties, covenants and
agreements set forth in the Loan Documents, except as herein waived or amended,
are hereby ratified and confirmed and shall remain in full force and effect.
15.
<PAGE>
3. REPRESENTATIONS AND WARRANTIES. In order to induce the Agent and the
Lenders to enter into this Amendment, each of the Borrowers hereby jointly and
severally represents and warrants to each Lender and the Agent as follows:
(A) CORPORATE POWER AND AUTHORITY. Each of the Borrowers has all
requisite corporate power and authority to enter into this Amendment and to
carry out the transactions contemplated hereby. The certificates of
incorporation and bylaws of each of the Borrowers have not been amended since
September 18, 1997.
(B) AUTHORIZATION OF AGREEMENTS. The execution and delivery of this
Amendment and the performance hereof have been duly authorized by all necessary
corporate action on the part of the Borrowers.
(C) NO CONFLICT. The execution and delivery by the Borrowers of this
Amendment and the performance by the Borrowers of the Loan Agreement as amended
hereby do not and will not contravene (i) any law or regulation binding on or
affecting either Borrower or any of its Subsidiaries, (ii) the certificate of
incorporation or by-laws of either Borrower or its Subsidiaries, (iii) any
order, judgment or decree of any court or other agency of government binding on
either Borrower or its Subsidiaries or (iv) any contractual restriction binding
on or affecting either Borrower or its Subsidiaries.
(D) GOVERNMENTAL CONSENTS, FILINGS. The execution, delivery and
performance by the Borrowers of this Amendment and the performance by the
Borrowers of the Loan Agreement as amended hereby do not and will not require
any authorization or approval of, or other action by, or notice to or filing
with any Governmental Authority or regulatory body or the consent of any third
party which has not yet been obtained.
(E) BINDING OBLIGATION. This Amendment has been duly executed and
delivered by each of the Borrowers and is the binding obligation of each of the
Borrowers, enforceable against each of them in accordance with its terms, except
as such enforceability may be limited by bankruptcy, insolvency, reorganization,
liquidation, moratorium or other similar laws of general application and
equitable principles relating to or affecting creditors' rights generally.
(F) ABSENCE OF DEFAULT AND MODIFICATION OF AGREEMENTS WITH OTHER
CREDITORS. After giving effect to this Amendment, no event has occurred and is
continuing or will result from the consummation of the transactions contemplated
by this Amendment that would constitute an Event of Default as defined in the
Loan Agreement. Neither Borrower has modified any agreement with any creditor
of such Person other than (i) by this Amendment and (ii) modifications of
agreements with trade creditors made in the ordinary course of business.
(G) RESTATEMENT OF REPRESENTATIONS AND WARRANTIES IN LOAN AGREEMENT.
Each Borrower, with respect to the representations and warranties set forth in
ARTICLE 5 of the Loan Agreement, represents and warrants that each of such
representations and warranties is true, correct and complete as of the date of
this Amendment (except to the extent such representations and warranties
expressly relate to another date or as specifically described therein).
16.
<PAGE>
4. REAFFIRMATION. Each Borrower hereby reaffirms its obligations under
each Loan Document to which it is a party.
5. EFFECTIVENESS. This Amendment shall be effective upon the execution
and delivery to the Agent of a copy of this Amendment by each Borrower, the
Agent and by Lenders representing Required Lenders.
6. MISCELLANEOUS.
(A) REFERENCE TO AND EFFECT ON THE LOAN AGREEMENT AND THE OTHER LOAN
DOCUMENTS. On and after the date on which this Amendment is effective in
accordance with SECTION 5 hereof, each reference in the Loan Agreement or the
other Loan Documents to "this Agreement," "hereunder," "hereof," "herein" or
words of like import shall mean and be a reference to such agreement after
giving effect hereto.
(B) HEADINGS. Section and subsection headings in this Amendment are
included herein for convenience of reference only and shall not constitute a
part of this Amendment for any other purpose or be given any substantive effect.
(C) APPLICABLE LAW. THIS AMENDMENT SHALL BE GOVERNED BY, AND SHALL BE
CONSTRUED AND ENFORCED IN ACCORDANCE WITH, THE INTERNAL LAWS OF THE STATE OF
CALIFORNIA, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES.
(D) COUNTERPARTS. This Amendment may be executed in counterparts,
each of which when so executed shall be deemed an original, but all such
counterparts together shall constitute but one and the same instrument;
signature pages may be detached from multiple separate counterparts and attached
to a single counterpart so that all signature pages are physically attached to
the same document.
[INTENTIONALLY BLANK]
17.
<PAGE>
WITNESS the due execution hereof by the respective duly authorized officers
of the undersigned as of the date first written above.
BORROWERS:
CSG SYSTEMS, INC., a Delaware corporation
By: /s/ G. A. Parker
--------------------------------------
Name: Greg A. Parker
Title: CFO
CSG SYSTEMS INTERNATIONAL, INC., a Delaware
corporation
By: /s/ G. A. Parker
--------------------------------------
Name: Greg A. Parker
Title: CFO
18
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
AGENT: PARIBAS
By: /s/ Robert N. Pinkerton
-----------------------------------------
Printed Name: Robert N. Pinkerton
---------------------------------
Title: Director
----------------------------------------
By: _________________________________________
Printed Name:_________________________________
Title:________________________________________
LENDERS: PARIBAS
By: /s/ Robert N. Pinkerton
-----------------------------------------
Printed Name: Robert N. Pinkerton
---------------------------------
Title: Director
----------------------------------------
By: _________________________________________
Printed Name:_________________________________
Title:________________________________________
NORWEST BANK COLORADO, N.A.
By: /s/ Darlene A. Evans for Kertin Punt
------------------------------------------
Printed Name: Darlene A. Evans
----------------------------------
Title: Vice President
-----------------------------------------
BANK OF MONTREAL
By: _________________________________________
Printed Name:_________________________________
Title:________________________________________
THE FUJI BANK LIMITED, LOS ANGELES AGENCY
By: /s/ Masahito Fukuda
-----------------------------------------
Printed Name: Masahito Fukuda
---------------------------------
Title: Joint General Manager
----------------------------------------
19.
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
UNION BANK OF CALIFORNIA, N.A.
By: /s/ Stender E. Sweeney
---------------------------------------------
Printed Name: Stender E. Sweeney
-------------------------------------
Title: Assistant Vice President
--------------------------------------------
NATIONAL CITY BANK
By: /s/ Wilmer J. Jacobs
---------------------------------------------
Printed Name: Wilmer J. Jacobs
-------------------------------------
Title: Officer
------------------------------------------
CREDITANSTALT CORPORATE FINANCE, INC.
By: _____________________________________________
Printed Name:_____________________________________
Title:____________________________________________
BANK OF HAWAII
By: /s/ Bernadine M. Havertine
---------------------------------------------
Printed Name: Bernadine M. Havertine
-------------------------------------
Title: Corporate Banking Officer
--------------------------------------------
CREDIT LYONNAIS NEW YORK BRANCH
By: /s/ Robert Ivosevich
---------------------------------------------
Printed Name: Robert Ivosevich
-------------------------------------
Title: Senior Vice President
--------------------------------------------
THE LONG-TERM CREDIT BANK OF JAPAN, LTD. LOS
ANGELES AGENCY
By: /s/ Noboru Akahane
---------------------------------------------
Printed Name: Noboru Akahane
-------------------------------------
Title: Deputy General Manager
--------------------------------------------
BANQUE NATIONALE DE PARIS
By: /s/ Clive Bettles
---------------------------------------------
Printed Name: Clive Bettles
-------------------------------------
20
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Title: SVP & Manager
--------------------------------------------
By: /s/ Janice S. H. Ho
---------------------------------------------
Printed Name: Janice S. H. Ho
-------------------------------------
Title: Vice President
--------------------------------------------
BBL (USA) CAPITAL CORP.
By: _____________________________________________
Printed Name:_____________________________________
Title:____________________________________________
21
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.14
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into on the 17th day of
November, 1998, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware
corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and NEAL C.
HANSEN (the "Executive"). CSGS and Systems collectively are referred to in this
Employment Agreement as the "Companies".
* * *
WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and
WHEREAS, the Executive currently is employed by the Companies pursuant to
an Employment Agreement whose term extends through November 30, 1999, and serves
as the Chairman of the Board and Chief Executive Officer of both of the
Companies; and
WHEREAS, the Companies desire to provide for the continued employment of
the Executive as their Chairman of the Board and Chief Executive Officer and to
replace the Executive's present Employment Agreement with this agreement; and
WHEREAS, the Executive desires to accept such continued employment upon the
terms set forth in this agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Companies and the Executive agree as follows:
1. Employment and Duties. Each of the Companies hereby employs the
---------------------
Executive as its Chairman of the Board and Chief Executive Officer throughout
the term of this agreement and agrees to cause the Executive from time to time
to be elected or appointed to such corporate offices or positions. The duties
and responsibilities of the Executive shall include the duties and
responsibilities of the Executive's corporate offices and positions referred to
in the preceding sentence which are set forth in the respective bylaws of the
Companies from time to time, overall responsibility for the development and
implementation of the business plans and strategies of the Companies, and such
other duties and responsibilities consistent with the Executive's corporate
offices and positions referred to in the preceding sentence and this agreement
which the Board of Directors of CSGS (the "Board") from time to time may assign
to the Executive. If the Executive is elected or appointed as a director of
CSGS or Systems or as an officer or director of any of the respective
subsidiaries of the Companies during the term of this agreement, then he also
shall serve in such capacity or capacities but without additional compensation.
2. Term. The term of this agreement shall begin on the date of this
----
agreement and shall continue thereafter through December 31, 2001, unless the
Executive's employment under this agreement is sooner terminated in accordance
with this agreement. On December 31 of each year during the term of this
agreement, as extended from time to time pursuant to this sentence, beginning
December 31, 1999, the term of this agreement automatically and without further
action being required shall be extended by one (1) year unless, not later than
one (1) year prior to a particular December 31, either CSGS notifies the
Executive and Systems in writing or the Executive notifies the Companies in
writing that such extension shall not occur on such December 31, in which latter
case this agreement shall terminate upon the expiration of its then current
term, unless the Executive's employment under this agreement is sooner
terminated in accordance with this agreement. References in this agreement to
the "current term" of this agreement shall include both the original term of
this agreement and any automatic extensions of such term which actually have
occurred pursuant to this Paragraph 2.
3. Place of Employment. Regardless of the location of the executive
-------------------
offices of the Companies during the term of this agreement, the Companies shall
maintain a suitably staffed office for the Executive in the Denver,
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Colorado, metropolitan area during the term of this agreement; and the Executive
will not be required without his consent to relocate or transfer his executive
office or principal residence from the immediate vicinity of the Denver,
Colorado, metropolitan area.
4. Base Salary. For all services to be rendered by the Executive
-----------
pursuant to this agreement, the Companies agree to pay the Executive during the
term of this agreement a base salary (the "Base Salary") at an annual rate of
$350,000 through December 31, 1998, and at an annual rate of not less than
$400,000 after December 31, 1998; provided, that the Base Salary as then in
effect shall be increased as of January 1 of each calendar year after 1999
during the term of this agreement by at least the same percentage that the
United States Department of Labor Consumer Price Index (All Items) for All Urban
Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such
January 1 increased over the CPI-U for the November one year earlier. The Board
shall review the Base Salary at least annually for the purpose of determining
whether a Base Salary increase greater than such CPI-U increase should be
granted to the Executive for a particular 12-month period. The Executive's
annual incentive bonus provided for in Paragraph 5 and all other compensation
and benefits to which the Executive is or may become entitled pursuant to this
agreement or under any plans or programs of the Companies shall be in addition
to the Base Salary.
5. Annual Incentive Bonus. As soon as practicable after the execution of
----------------------
this agreement, the Board and the Executive in good faith shall agree upon an
incentive bonus program for the Executive for 1999. Such incentive bonus
program shall be reflected either in a written supplement to this agreement
signed by the Companies and the Executive or in such other form as the Companies
and the Executive may agree upon. The same procedure shall be followed for
subsequent calendar years during the term of this agreement, so that an annual
incentive bonus program for the Executive will be in effect throughout the term
of this agreement. The Executive and the Companies understand and acknowledge
that, among other things, such incentive bonus program will involve achievement
by the Companies of various financial objectives, which may include but are not
limited to revenues and earnings, and also may include achievement by the
Companies of various non-financial objectives. Such incentive bonus program for
each calendar year shall provide the opportunity for the Executive to earn an
incentive bonus of not less than sixty-five percent (65%) of his Base Salary for
such calendar year if the agreed upon objectives are fully achieved. The Board
from time to time also may establish incentive compensation programs for the
Executive covering periods of more than one (1) year, and any such programs
shall be in addition to the annual incentive bonus program required by this
Paragraph 5. For 1998 the annual incentive bonus program previously established
by the Companies for the Executive shall remain in effect.
6. Expenses. During the term of this agreement, the Executive shall be
--------
entitled to prompt reimbursement by the Companies of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Companies for
their respective senior executive officers) in the performance of his duties and
responsibilities under this agreement; provided, that the Executive shall
properly account for such expenses in accordance with the policies and
procedures of the Companies, which may include but are not limited to itemized
accountings.
7. Other Benefits. During the term of this agreement, the Companies
--------------
shall provide to the Executive and his eligible dependents at the expense of the
Companies individual or group medical, hospital, dental, and long-term
disability insurance coverages and group life insurance coverage, in each case
at least as favorable as those coverages which are provided to the other senior
executive officers of the Companies. During the term of this agreement, the
Executive shall be entitled to receive a monthly automobile allowance from the
Companies in the amount of $1,000.00 and also shall be entitled to participate
in such other benefit plans or programs which the Companies from time to time
may make available to their employees generally or to some or all of their other
senior executive officers (except such programs, such as the 1996 Employee Stock
Purchase Plan of CSGS, in which executive officers of CSGS are not eligible to
participate because of securities law reasons). During the term of this
agreement, the Companies shall pay an initiation fee and the monthly dues and
assessments necessary to provide and maintain for the Executive a social
membership in a country club or social club in the Denver, Colorado,
metropolitan area selected by the Executive; usage charges (such as but not
limited to charges for meals) imposed by such club shall be paid or reimbursed
to the Executive to the extent they fall within the scope of Paragraph 6 and
shall be paid by the Executive without right of reimbursement to the extent they
are personal in nature.
8. Vacations and Holidays. During the term of this agreement, the
----------------------
Executive shall be entitled to paid
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vacations and holidays in accordance with the policies of the Companies in
effect from time to time for their respective senior executive officers, but in
no event shall the Executive be entitled to less than five (5) weeks of vacation
during each calendar year.
9. Full-Time Efforts and Other Activities. During the term of this
--------------------------------------
agreement, to the best of his ability and using all of his skills, the Executive
shall devote substantially all of his working time and efforts during the normal
business hours of the Companies to the business and affairs of the Companies and
to the diligent and faithful performance of the duties and responsibilities
assigned to him pursuant to this agreement, except for vacations, holidays, and
sick days. However, the Executive may devote a reasonable amount of his time to
civic, community, or charitable activities, to service on the governing bodies
or committees of trade associations or similar organizations of which either or
both of the Companies are members, and, with the prior approval of the Board, to
service as a director of other corporations and to other types of activities not
expressly mentioned in this paragraph, so long as the activities referred to in
this sentence do not materially interfere with the proper performance of the
Executive's duties and responsibilities under this agreement. The Executive
also shall be free to manage and invest his assets in such manner as will not
require any substantial services by the Executive in the conduct of the
businesses or affairs of the entities or in the management of the properties in
which such investments are made, so long as such activities do not materially
interfere with the proper performance of the Executive's duties and
responsibilities under this agreement.
10. Termination of Employment.
-------------------------
(a) Termination Because of Death. The Executive's employment by the
----------------------------
Companies under this agreement shall terminate upon his death. If the
Executive's employment under this agreement terminates because of his death,
then the Executive's estate or his beneficiaries (as the case may be) shall be
entitled to receive the following compensation and benefits from the Companies:
(i) The Base Salary through the date of the Executive's death;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which his death occurs
(computed as if the Executive were employed by the
Companies throughout such calendar year), based upon the
number of days in such calendar year elapsed through the
date of the Executive's death as a proportion of 365, to be
paid at the same time that such incentive bonus would have
been paid had the Executive's death not occurred;
(iii) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the date of the
Executive's death; and
(iv) Any other benefits payable by reason of the Executive's
death, or to which the Executive otherwise may be entitled,
under any benefit plans or programs of the Companies in
effect on the date of the Executive's death.
(b) Termination Because of Disability. If the Executive becomes incapable
---------------------------------
by reason of physical injury, disease, or mental illness of substantially
performing his duties and responsibilities under this agreement for a continuous
period of six (6) months or more or for more than one hundred eighty (180) days
in the aggregate (whether or not consecutive) during any 12-month period, then
at any time after the elapse of such six-month period or such 180 days, as the
case may be, the Board may terminate the Executive's employment by the Companies
under this agreement. If the Executive's employment under this agreement is
terminated by the Board because of such disability on the part of the Executive,
then the Executive shall be entitled to receive the following compensation and
benefits from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which such termination
occurs (computed as if the Executive were
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employed by the Companies throughout such calendar year),
based upon the number of days in such calendar year elapsed
through the effective date of such termination as a
proportion of 365, to be paid at the same time that such
incentive bonus would have been paid if such termination
had not occurred;
(iii) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the effective date
of such termination;
(iv) Continued participation in the following benefit plans or
programs of the Companies which may be in effect from time
to time and in which the Executive was participating as of
the effective date of such termination, to the extent that
such continued participation by the Executive is permitted
under the terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such plans),
until the first to occur of the cessation of such
disability, the Executive's death, the Executive's
attainment of age sixty-five (65), or (separately with
respect to the termination of each benefit) the provision
of a substantially equivalent benefit to the Executive by
another employer of the Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(v) Any other benefits payable by reason of the Executive's
disability, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such
termination.
For purposes of this subparagraph (b), decisions with respect to the Executive's
disability shall be made by the Board, using its reasonable good faith judgment;
and, in making any such decision, the Board shall be entitled to rely upon the
opinion of a duly licensed and qualified physician selected by a majority of the
members of the Board who are not employees of either of the Companies or any of
their respective subsidiaries.
(c) Termination for Cause. The Board may terminate the Executive's
---------------------
employment by the Companies under this agreement for cause; however, for
purposes of this agreement "cause" shall mean only (i) the Executive's
confession or conviction of theft, fraud, embezzlement, or other crime involving
dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of
physical injury, disease, or mental illness) without a reasonable justification,
(iii) material violation by the Executive of the provisions of Paragraph 11,
(iv) habitual and material negligence by the Executive in the performance of his
duties and responsibilities under or pursuant to this agreement and failure on
the part of the Executive to cure such negligence within twenty (20) days after
his receipt of a written notice from the Board setting forth in reasonable
detail the particulars of such negligence, (v) material non-compliance by the
Executive with his obligations under Paragraph 9 and failure to correct such
non-compliance within twenty (20) days after his receipt of a written notice
from the Board setting forth in reasonable detail the particulars of such non-
compliance, (vi) material failure by the Executive to comply with a lawful
directive of the Board and failure to cure such non-compliance within twenty
(20) days after his receipt of a written notice from the Board setting forth in
reasonable detail the particulars of such non-compliance, (vii) a material
breach by the Executive of any of his fiduciary duties to the Companies and, if
such breach is curable, the Executive's failure to cure such breach within ten
(10) days after his receipt of a written notice from the Board setting forth in
reasonable detail the particulars of such breach, or (viii) willful misconduct
or fraud on the part of the Executive in the performance of his duties under
this agreement. In no event shall the results of operations of the Companies or
any business judgment made in good faith by the Executive constitute an
independent basis for termination for cause of the Executive's employment under
this agreement. Any termination of the Executive's employment for cause must be
authorized by a majority vote of the Board taken not later
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than nine (9) months after a majority of the members of the Board (other than
the Executive) have actual knowledge of the occurrence of the event or conduct
constituting the cause for such termination. If the Executive's employment under
this agreement is terminated by the Board for cause, then the Executive shall be
entitled to receive the following compensation and benefits from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the effective date
of such termination; and
(iii) Any other benefits payable to the Executive upon his
termination for cause, or to which the Executive otherwise
may be entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such
termination.
(d) Termination Without Cause Prior to a Change of Control. If, prior to
------------------------------------------------------
the occurrence of a Change of Control, the Companies terminate the Executive's
employment under this agreement for any reason other than cause or the
Executive's death or disability, then the Executive shall be entitled to receive
the following compensation, benefits, and other payments from the Companies:
(i) The Base Salary through the last day of the then current
term of this agreement (the "Ending Date"), to be paid at
the same times that the Base Salary would have been paid if
such termination had not occurred; provided, that if the
Executive commences employment with another employer,
whether as an employee or as a consultant, prior to the
Ending Date (for purposes of this Paragraph 10, the "Other
Employment"), then such payments of the Base Salary shall
be reduced from time to time by the aggregate amount of
salary, cash bonus, and consulting fees received or
receivable by the Executive from the Other Employment for
services performed by him during the period from the
commencement of the Other Employment through the Ending
Date;
(ii) The Executive's annual incentive bonus for the calendar
year in which such termination occurs (computed as if the
Executive were employed by the Companies throughout such
calendar year), to be paid at the same time that such
incentive bonus would have been paid if such termination
had not occurred and to be no less than the Executive's
annual incentive bonus for the calendar year immediately
preceding the calendar year in which such termination
occurs;
(iii) An amount equal to one hundred ninety-five percent (195%)
of the Base Salary in effect on the effective date of such
termination, such amount to be paid, without interest, to
the extent of fifty percent (50%) one year after the
effective date of such termination and to the extent of the
remaining fifty percent (50%) two years after the effective
date of such termination.
(iv) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the effective date
of such termination;
(v) Continued participation in the following benefit plans or
programs of the Companies which may be in effect from time
to time and in which the Executive was participating as of
the effective date of such termination, to the extent that
such continued participation by the Executive is permitted
under the terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such plans),
until the first to occur of the Ending Date or (separately
with respect to the termination of each benefit) the
provision of a substantially equivalent
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benefit to the Executive by another employer of the
Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(vi) Any other benefits payable to the Executive upon his
termination without cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective date
of such termination.
(e) Termination Without Cause After a Change of Control. If, after the
---------------------------------------------------
occurrence of a Change of Control, the Companies or any Permitted Assignee
terminates the Executive's employment under this agreement for any reason other
than cause or the Executive's death or disability, then the Executive shall be
entitled to receive from the Companies and the Permitted Assignee, if any (all
of whom shall be jointly and severally liable therefor), all of the
compensation, benefits, and other payments from the Companies which are
described and provided for in subparagraph (d) of this Paragraph 10; provided,
however, that (i) the aggregate Base Salary payable under subparagraph (d)(i)
for all periods through the Ending Date shall be paid to the Executive in a lump
sum without regard to Other Employment not later than thirty (30) days after the
effective date of such termination, (ii) the minimum annual incentive bonus
payable under subparagraph (d)(ii) shall be paid to the Executive not later than
thirty (30) days after the effective date of such termination (with any balance
of such annual incentive bonus being payable as provided in such subparagraph
(d)(ii)), and (iii) the amount payable under subparagraph (d)(iii) shall be paid
to the Executive in a lump sum not later than thirty (30) days after the
effective date of such termination.
(f) Constructive Termination. If at any time during the term of this
------------------------
agreement the Board or a Permitted Assignee materially alters the duties and
responsibilities of the Executive provided for in Paragraph 1 or assigns to the
Executive duties and responsibilities inappropriate to the chief executive
officer of the Companies without the Executive's written consent, then, at the
election of the Executive (such election to be made by written notice from the
Executive to the Board or the Permitted Assignee, as may be appropriate in the
circumstances), (i) such action by the Board or such Permitted Assignee shall
constitute a constructive termination of the Executive's employment by the
Companies for a reason other than cause, (ii) the Executive thereupon may resign
from his offices and positions with the Companies and shall not be obligated to
perform any further services of any kind to or for the Companies, and (iii) the
Executive shall be entitled to receive from the Companies (and the Permitted
Assignee, if applicable) at the applicable times all of the compensation,
benefits, and other payments described in subparagraph (d) or subparagraph (e)
of this Paragraph 10 (whichever may be applicable), as if the effective date of
the Executive's resignation were the effective date of his termination of
employment for purposes of determining such compensation, benefits, and other
payments.
(g) Voluntary Resignation. If the Executive voluntarily resigns as an
---------------------
employee of the Companies and thereby voluntarily terminates his employment
under this agreement and if none of subparagraphs (a) through (f) of this
Paragraph 10 is applicable to such termination, then the Executive shall be
entitled to receive only the following compensation, benefits, and other
payments from the Companies:
(i) The Base Salary through the effective date of such
voluntary resignation;
(ii) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the effective date
of such voluntary resignation;
(iii) If (and only if) the Executive's voluntary resignation is
effective on December 31 of a particular calendar year, the
Executive's annual incentive bonus (if any) for such
calendar year, to be paid in accordance with the regular
schedule for its payment; and
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(iv) Any other benefits payable to the Executive upon his
voluntary resignation, or to which the Executive otherwise
may be entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such voluntary
resignation.
The Executive understands and agrees that if this subparagraph (g) is applicable
to the termination of the Executive's employment with the Companies, then,
unless his voluntary resignation is effective on December 31 of a particular
calendar year, the Executive will not be entitled to any annual incentive bonus
for the calendar year in which his voluntary resignation becomes effective.
(h) Liquidated Damages. The Executive agrees to accept the compensation,
------------------
benefits, and other payments provided for in subparagraph (d), subparagraph (e),
or subparagraph (f) of this Paragraph 10, as the case may be, as full and
complete liquidated damages for any breach of this agreement resulting from the
actual or constructive termination of the Executive's employment under this
agreement for a reason other than cause or the Executive's death or disability;
and the Executive shall not have and hereby waives and relinquishes any other
rights or claims in respect of such breach.
(i) Notice of Other Employment and of Benefits. The Executive promptly
------------------------------------------
shall notify the Companies in writing of (i) his acceptance of the Other
Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the
effective date of such Other Employment, and (iii) the amount of salary, cash
bonus, and consulting fees which the Executive receives or is entitled to
receive from the Other Employment for services performed by him during the
period from the commencement of the Other Employment through the Ending Date.
Whenever relevant for purposes of this Paragraph 10, the Executive also promptly
shall notify the Companies of his receipt from another employer of any benefits
of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph
10. Such information shall be updated by the Executive whenever necessary to
keep the Companies informed on a current basis.
(j) Modification of Benefit Plans or Programs. Nothing contained in this
-----------------------------------------
Paragraph 10 shall obligate the Companies to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan or program referred
to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such
actions are similarly applicable to senior executives of the Companies
generally.
(k) Rights of Estate. If the Executive dies prior to his receipt of all
----------------
of the cash payments to which he may be entitled pursuant to subparagraph (b),
(c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes
applicable, then the unpaid portion of such cash payments shall be paid by the
Companies to the personal representative of the Executive's estate at the same
time or times that the payments would have been made to the Executive if he
still were living.
(l) Excess Parachute Payments. If any of the payments required to be made
-------------------------
to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any regulations thereunder, and
the Executive becomes liable for any excise tax on such "excess parachute
payments" and any interest or penalties thereon (such excise tax, interest, and
penalties, collectively, the "Tax Penalties"), then the Companies (and the
Permitted Assignee, if applicable) promptly shall make a cash payment (the
"Additional Payment") to the Executive in an amount equal to the Tax Penalties.
The Companies also promptly shall make an additional cash payment to the
Executive in an amount rounded to the nearest $100.00 which is equal to any
additional income, excise, and other taxes (using the individual tax rates
applicable to the Executive for the year for which such Tax Penalties are owed)
for which the Executive will be liable as a result of the Executive's receipt of
the Additional Payment (the additional cash payment provided for in this
sentence being referred to as a "Gross-Up Payment"). In addition, the Executive
shall be entitled to promptly receive from the Companies (and the Permitted
Assignee, if applicable) a further Gross-Up Payment in respect of each prior
Gross-Up Payment until the amount of the last Gross-Up Payment is less than
$100.00.
11. Nondisclosure. During the term of this agreement and thereafter, the
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Executive shall not, without the prior written consent of the Board or a person
(other than the Executive) so authorized by the Board, disclose or use for
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any purpose (except in the course of his employment under this agreement and in
furtherance of the business of the Companies or any of their respective
subsidiaries) any confidential information, trade secrets, or proprietary data
of the Companies or any of their respective subsidiaries (collectively, for
purposes of this agreement, "Confidential Information"); provided, however, that
Confidential Information shall not include any information then known generally
to the public or ascertainable from public or published information (other than
as a result of unauthorized disclosure by the Executive) or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the Companies or their
respective subsidiaries, as the case may be.
12. Successors and Assigns. This agreement and all rights under this
----------------------
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and none of the parties to
this agreement shall, without the written consent of the others, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity, except as permitted by Paragraph 14.
13. Notices. For purposes of this agreement, notices and other
-------
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent either by next-business-day prepaid
express delivery by a recognized national express delivery service or by United
States certified mail, return receipt requested, postage prepaid, in either case
addressed as follows:
If to the Executive: Neal C. Hansen
c/o CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111
If to the Companies: CSG Systems International, Inc.
and CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger
-------------------------------------
of Systems with another corporation (other than CSGS) in a transaction in which
Systems is not the surviving corporation, (b) the consolidation of Systems into
a new corporation resulting from such consolidation, (c) the sale or other
disposition of all or substantially all of the assets of Systems, the Companies
may assign this agreement and all of the rights and obligations of the Companies
under this agreement to the surviving, resulting, or acquiring entity (for
purposes of this agreement, a "Permitted Assignee"); provided, that such
surviving, resulting, or acquiring entity shall in writing assume and agree to
perform all of the obligations of the Companies under this agreement; and
provided further, that the Companies shall remain jointly and severally liable
for the performance of the obligations of the Companies under this agreement in
the event of a failure of the Permitted Assignee to perform its obligations
under this agreement.
15. Change of Control. For purposes of this agreement, a "Change of
-----------------
Control" shall be deemed to have occurred upon the happening of any of the
following events:
(a) CSGS is merged or consolidated into another corporation, and
immediately after such merger or consolidation becomes effective the
holders of a majority of the outstanding shares of voting capital
stock of CSGS immediately prior to the effectiveness of such merger or
consolidation do not own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of the surviving or
resulting corporation in such merger or consolidation,
(b) CSGS ceases to own (directly or indirectly) a majority of the
outstanding shares of voting
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capital stock of Systems (unless such event results from the merger of
Systems into CSGS, with no change in the ownership of the voting
capital stock of CSGS, or from the dissolution of Systems and the
continuation of its business by CSGS),
(c) Systems is merged or consolidated into a corporation other than CSGS,
and at any time after such merger or consolidation becomes effective
CSGS does not own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of the surviving or
resulting corporation in such merger or consolidation,
(d) the stockholders of Systems vote (or act by written consent) to
dissolve Systems (unless the business of Systems will be continued by
CSGS) or to sell or otherwise dispose of all or substantially all of
the property and assets of Systems (other than to an entity or group
of entities which is then under common ownership (directly or
indirectly) with Systems),
(e) any person, entity, or group of persons within the meaning of Sections
13(d) or 14(d) of the Securities Exchange Act of 1934 (the "1934 Act")
and the rules promulgated thereunder becomes the beneficial owner
(within the meaning of Rule 13d-3 under the 1934 Act) of thirty
percent (30%) or more of the outstanding voting capital stock of CSGS,
or
(f) during any period of two consecutive years or less, individuals who at
the beginning of such period constituted the Board of Directors of
CSGS cease, for any reason, to constitute at least a majority of the
Board of Directors of CSGS, unless the election or nomination for
election of each new director of CSGS who took office during such
period was approved by a vote of at least seventy-five percent (75%)
of the directors of CSGS still in office at the time of such election
or nomination for election who were directors of CSGS at the beginning
of such period.
16. Miscellaneous. No provision of this agreement may be modified,
-------------
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and an officer of CSGS (other than
the Executive) so authorized by the Board. No waiver by any party to this
agreement at any time of any breach by any other party of, or compliance by any
other party with, any condition or provision of this agreement to be performed
by such other party shall be deemed to be a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this agreement have been made by any party that
are not expressly set forth in this agreement.
17. Representations of Companies. The Companies severally represent and
----------------------------
warrant to the Executive that they have full legal power and authority to enter
into this agreement, that the execution and delivery of this agreement by the
Companies have been duly authorized by their respective boards of directors, and
that the performance of their respective obligations under this agreement will
not violate any agreement between the Companies, or either of them, and any
other person, firm, or organization.
18. Non-Solicitation of Employees. For a period of one (1) year after
-----------------------------
the effective date of the termination of the Executive's employment under this
agreement for any reason, whether voluntarily or involuntarily and with or
without cause, without the prior written consent of CSGS the Executive agrees
(i) not to directly or indirectly employ, solicit for employment, assist any
other person in employing or soliciting for employment, or advise or recommend
to any other person that such other person employ or solicit for employment any
person who then is an employee of the Companies (or either of them) or any of
the respective subsidiaries of the Companies and (ii) not to recommend to any
then employee of the Companies (or either of them) or any of the respective
subsidiaries of the Companies that such employee leave the employ of such
employer.
19. Post-Termination Noncompetition. Because the Confidential
-------------------------------
Information known to or developed by the Executive during his employment by the
Companies encompasses at the highest level information concerning the plans,
strategies, products, operations, and existing and prospective customers of the
Companies and could not practically be disregarded by the Executive, the
Executive acknowledges that his provision of executive services to a competitor
of
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
the Companies or either of them soon after the termination of the Executive's
employment by the Companies would inevitably result in the use of the
Confidential Information by the Executive in his performance of such executive
services, even if the Executive were to use his best efforts to avoid such use
of the Confidential Information. To prevent such use of the Confidential
Information and the resulting unfair competition and wrongful appropriation of
the goodwill and other valuable proprietary interests of the Companies, the
Executive agrees that for a period of one (1) year after the termination of his
employment by the Companies for any reason, whether voluntarily or involuntarily
and with or without cause, the Executive will not, directly or indirectly:
(a) engage, whether as an employee, agent, consultant, independent
contractor, owner, partner, member, or otherwise, in a business
activity which then competes in a material way with a business
activity then being actively engaged in by the Companies or either of
them;
(b) solicit or recommend to any other person that such period solicit any
then customer of the Companies or either or them, which customer also
was a customer of the Companies or either of them at any time during
the one (1) year period prior to the termination of the Executive's
employment by the Companies, for the purpose of obtaining the business
of such customer in competition with the Companies or either of them;
or
(c) induce or attempt to induce any then customer or prospective customer
of the Companies or either of them to terminate or not commence a
business relationship with the Companies or either of them.
The Companies and the Executive acknowledge and agree that the restrictions
contained in this Paragraph 19 are both reasonable and necessary in view of the
Executive's positions with the Companies and that the Executive's compensation
and benefits under this agreement are sufficient consideration for the
Executive's acceptance of such restrictions. Nevertheless, if any of the
restrictions contained in this Paragraph 19 are found by a court having
jurisdiction to be unreasonable, or excessively broad as to geographic area or
time, or otherwise unenforceable, then the parties intend that the restrictions
contained in this Paragraph 19 be modified by such court so as to be reasonable
and enforceable and, as so modified by the court, be fully enforced. Nothing
contained in this paragraph shall be construed to preclude the investment by the
Executive of any of his assets in any publicly owned entity so long as the
Executive has no direct or indirect involvement in the business of such entity
and owns less than 2% of the voting equity securities of such entity. Nothing
contained in this paragraph shall be construed to preclude the Executive from
becoming employed by or serving as a consultant to or having dealings with a
publicly owned entity one of whose businesses is a competitor of the Companies
or either of them so long as such employment, consultation, or dealings do not
directly or indirectly involve or relate to the business of such entity which is
a competitor of the Companies or either of them.
20. Joint and Several Obligations. All of the obligations of the
-----------------------------
Companies under this agreement are joint and several; and neither the
bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization
nor the cessation of business or corporate existence of one of the Companies
shall affect, impair, or diminish the obligations under this agreement of the
other of the Companies. The compensation and benefits to which the Executive is
entitled under this agreement are aggregate compensation and benefits, and the
payment of such compensation or the provision of such benefits by one of the
Companies shall to the extent of such payment or provision satisfy the
obligations of the other of the Companies. The Companies may agree between
themselves as to which of them will be responsible for some or all of the
Executive's compensation and benefits under this agreement, but any such
agreement between the Companies shall not diminish to any extent the joint and
several liability of the Companies to the Executive for all of such compensation
and benefits.
21. Injunctive Relief. The Executive acknowledges that his violation of
-----------------
the provisions and restrictions contained in Paragraphs 11, 18, and 19 could
cause significant injury to the Companies for which the Companies would have no
adequate remedy at law. Accordingly, the Executive agrees that the Companies
will be entitled, in addition to any other rights and remedies that then may be
available to the Companies, to seek and obtain injunctive relief to prevent any
breach or potential breach of any of the provisions and restrictions contained
in Paragraph 11, 18, or 19.
22. Dispute Resolution. Subject to the provisions of Paragraph 21, any
------------------
claim by the Executive or the Companies
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THEIR RESPECTIVE COMPANIES
<PAGE>
arising from or in connection with this agreement, whether based on contract,
tort, common law, equity, statute, regulation, order, or otherwise (a
"Dispute"), shall be resolved as follows:
(a) Such Dispute shall be submitted to mandatory and binding arbitration
at the election of either the Executive or the particular Company
involved (the "Disputing Party"). Except as otherwise provided in this
Paragraph 22, the arbitration shall be pursuant to the Commercial
Arbitration Rules of the American Arbitration Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall notify the
other party in writing within 30 days after the occurrence of the
event or events which give rise to the Dispute (the "Arbitration
Demand"), which notice shall (i) describe in reasonable detail the
nature of the Dispute, (ii) state the amount of any claim, (iii)
specify the requested relief, and (iv) name an arbitrator who (A) has
been licensed to practice law in the U.S. for at least ten years, (B)
has no past or present relationship with either the Executive or the
Companies, and (C) is experienced in representing clients in
connection with employment related disputes (the "Basic
Qualifications"). Within fifteen (15) days after the other party's
receipt of the Arbitration Demand, such other party shall serve on the
Disputing Party a written statement (i) answering the claims set forth
in the Arbitration Demand and including any affirmative defenses of
such party, (ii) asserting any counterclaim, which statement shall (A)
describe in reasonable detail the nature of the Dispute relating to
the counterclaim, (B) state the amount of the counterclaim, and (C)
specify the requested relief, and (iii) naming a second arbitrator
satisfying the Basic Qualifications. Promptly, but in any event within
five (5) days thereafter, the two arbitrators so named shall select a
third neutral arbitrator from a list provided by the AAA of potential
arbitrators who satisfy the Basic Qualifications and who have no past
or present relationship with the parties' counsel, except as otherwise
disclosed in writing to and approved by the parties. The arbitration
will be heard by a panel of the three arbitrators so chosen (the
"Arbitration Panel"), with the third arbitrator so chosen serving as
the chairperson of the Arbitration Panel. Decisions of a majority of
the members of the Arbitration Panel shall be determinative.
(c) The arbitration hearing shall be held in Denver, Colorado. The
Arbitration Panel is specifically authorized to render partial or full
summary judgment as provided for in the Federal Rules of Civil
Procedure. The Arbitration Panel will have no power or authority,
under the Commercial Arbitration Rules of the AAA or otherwise, to
relieve the parties from their agreement hereunder to arbitrate or
otherwise to amend or disregard any provision of this agreement,
including, without limitation, the provisions of this Paragraph 22.
(d) If an arbitrator refuses or is unable to proceed with arbitration
proceedings as called for by this Paragraph 22, such arbitrator shall
be replaced by the party who selected such arbitrator or, if such
arbitrator was selected by the two party-appointed arbitrators, by
such two party-appointed arbitrators' selecting a new third arbitrator
in accordance with Paragraph 22(b), in either case within five (5)
days after such declining or withdrawing arbitrator's giving notice of
refusal or inability to proceed. Each such replacement arbitrator
shall satisfy the Basic Qualifications. If an arbitrator is replaced
pursuant to this Paragraph 22(d) after the arbitration hearing has
commenced, then a rehearing shall take place in accordance with the
provisions of this Paragraph 22(d) and the Commercial Arbitration
Rules of the AAA.
(e) Within ten (10) days after the closing of the arbitration hearing, the
Arbitration Panel shall prepare and distribute to the parties a
writing setting forth the Arbitration Panel's finding of facts and
conclusions of law relating to the Dispute, including the reason for
the giving or denial of any award. The findings and conclusions and
the award, if any, shall be deemed to be confidential information.
(f) The Arbitration Panel is instructed to schedule promptly all discovery
and other procedural steps and otherwise to assume case management
initiative and control to effect an efficient and
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<PAGE>
expeditious resolution of the Dispute. The Arbitration Panel is
authorized to issue monetary sanctions against either party if, upon a
showing of good cause, such party is unreasonably delaying the
proceeding.
(g) Any award rendered by the Arbitration Panel will be final, conclusive,
and binding upon the parties, and any judgment on such award may be
entered and enforced in any court of competent jurisdiction.
(h) Each party will bear a pro rata share of all fees, costs, and expenses
of the arbitrators; and, notwithstanding any law to the contrary, each
party will bear all of the fees, costs, and expenses of his or its own
attorneys, experts, and witnesses. However, in connection with any
judicial proceeding to compel arbitration pursuant to this agreement
or to enforce any award rendered by the Arbitration Panel, the
prevailing party in such a proceeding will be entitled to recover
reasonable attorneys' fees and expenses incurred in connection with
such proceedings, in addition to any other relief to which such party
may be entitled.
(i) Nothing contained in the preceding provisions of this Paragraph 22
shall be construed to prevent either party from seeking from a court a
temporary restraining order or other injunctive relief pending final
resolution of a Dispute pursuant to this Paragraph 22.
23. No Duty to Seek Employment. The Executive shall not be under any
--------------------------
duty or obligation to seek or accept other employment following the termination
of his employment by the Companies; and, except as expressly provided in
subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment,
or benefit due the Executive under this agreement shall be reduced, suspended,
or discontinued if the Executive accepts such other employment.
24. Withholding of Taxes. The Companies may withhold from any amounts
--------------------
payable to the Executive under this agreement all federal, state, and local
taxes which are required to be so withheld by any applicable law or governmental
regulation or ruling.
25. Termination of Prior Agreement. The Employment Agreement dated
------------------------------
November 30, 1994, between the Executive and the Companies (the "Prior
Agreement"), hereby is terminated, effective as of the date of this agreement;
provided, however, that the Companies shall remain liable to the Executive for
the payment of any compensation, benefits, or other amounts due the Executive
under the Prior Agreement through the date of this agreement which have not been
paid as of the date of this agreement.
26. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision.
27. Counterparts. This document may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
28. Headings. The headings of the paragraphs contained in this document
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
29. Applicable Law. This agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Colorado.
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CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
IN WITNESS WHEREOF, the Companies and the Executive have executed this
agreement on the day and year first above written.
CSG SYSTEMS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ John P. Pogge
--------------------------------
John P. Pogge, President
CSG SYSTEMS, INC., a Delaware
corporation
By: /s/ John P. Pogge
--------------------------------
John P. Pogge, President
/s/ Neal C. Hansen
------------------------------------
Neal C. Hansen
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.45
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into on the 17th day of
----
November, 1998, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware
corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and JOHN P.
POGGE (the "Executive"). CSGS and Systems collectively are referred to in this
Employment Agreement as the "Companies".
* * *
WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and
WHEREAS, the Executive currently is employed by Systems and serves as the
President and Chief Operating Officer of both of the Companies; and
WHEREAS, the Companies desire to provide for the continued employment of
the Executive as their President and Chief Operating Officer; and
WHEREAS, the Executive desires to accept such continued employment upon the
terms set forth in this agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Companies and the Executive agree as follows:
1. Employment and Duties. Each of the Companies hereby employs the
---------------------
Executive as its President and Chief Operating Officer throughout the term of
this agreement and agrees to cause the Executive from time to time to be elected
or appointed to such corporate offices or positions. The duties and
responsibilities of the Executive shall include the duties and responsibilities
of the Executive's corporate offices and positions referred to in the preceding
sentence which are set forth in the respective bylaws of the Companies from time
to time, overall responsibility for the day-to-day operations of the Companies,
and such other duties and responsibilities consistent with the Executive's
corporate offices and positions referred to in the preceding sentence and this
agreement which the Board of Directors of CSGS (the "Board") or the Chief
Executive Officer of CSGS from time to time may assign to the Executive. If the
Executive is elected or appointed as a director of CSGS or Systems or as an
officer or director of any of the respective subsidiaries of the Companies
during the term of this agreement, then he also shall serve in such capacity or
capacities but without additional compensation.
2. Term. The term of this agreement shall begin on the date of this
----
agreement and shall continue thereafter through December 31, 2001, unless the
Executive's employment under this agreement is sooner terminated in accordance
with this agreement. On December 31 of each year during the term of this
agreement, as extended from time to time pursuant to this sentence, beginning
December 31, 1999, the term of this agreement automatically and without further
action being required shall be extended by one (1) year unless, not later than
one (1) year prior to a particular December 31, either CSGS notifies the
Executive and Systems in writing or the Executive notifies the Companies in
writing that such extension shall not occur on such December 31, in which latter
case this agreement shall terminate upon the expiration of its then current
term, unless the Executive's employment under this agreement is sooner
terminated in accordance with this agreement. References in this agreement to
the "current term" of this agreement shall include both the original term of
this agreement and any automatic extensions of such term which actually have
occurred pursuant to this Paragraph 2.
3. Place of Employment. Regardless of the location of the executive
-------------------
offices of the Companies during the term of this agreement, the Companies shall
maintain a suitably staffed office for the Executive in the Denver, Colorado,
metropolitan area during the term of this agreement; and the Executive will not
be required without his consent to relocate or transfer his executive office or
principal residence from the immediate vicinity of the Denver,
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
Colorado, metropolitan area.
4. Base Salary. For all services to be rendered by the Executive
-----------
pursuant to this agreement, the Companies agree to pay the Executive during the
term of this agreement a base salary (the "Base Salary") at an annual rate of
$265,000 through December 31, 1998, and at an annual rate of not less than
$290,000 after December 31, 1998; provided, that the Base Salary as then in
effect shall be increased as of January 1 of each calendar year after 1999
during the term of this agreement by at least the same percentage that the
United States Department of Labor Consumer Price Index (All Items) for All Urban
Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such
January 1 increased over the CPI-U for the November one year earlier. The Board
shall review the Base Salary at least annually for the purpose of determining
whether a Base Salary increase greater than such CPI-U increase should be
granted to the Executive for a particular 12-month period. The Executive's
annual incentive bonus provided for in Paragraph 5 and all other compensation
and benefits to which the Executive is or may become entitled pursuant to this
agreement or under any plans or programs of the Companies shall be in addition
to the Base Salary.
5. Annual Incentive Bonus. As soon as practicable after the execution of
----------------------
this agreement, the Board and the Executive in good faith shall agree upon an
incentive bonus program for the Executive for 1999. Such incentive bonus
program shall be reflected either in a written supplement to this agreement
signed by the Companies and the Executive or in such other form as the Companies
and the Executive may agree upon. The same procedure shall be followed for
subsequent calendar years during the term of this agreement, so that an annual
incentive bonus program for the Executive will be in effect throughout the term
of this agreement. The Executive and the Companies understand and acknowledge
that, among other things, such incentive bonus program will involve achievement
by the Companies of various financial objectives, which may include but are not
limited to revenues and earnings, and also may include achievement by the
Companies of various non-financial objectives. Such incentive bonus program for
each calendar year shall provide the opportunity for the Executive to earn an
incentive bonus of not less than sixty percent (60%) of his Base Salary for such
calendar year if the agreed upon objectives are fully achieved. The Board from
time to time also may establish incentive compensation programs for the
Executive covering periods of more than one (1) year, and any such programs
shall be in addition to the annual incentive bonus program required by this
Paragraph 5. For 1998 the annual incentive bonus program previously established
by the Companies for the Executive shall remain in effect.
6. Expenses. During the term of this agreement, the Executive shall be
--------
entitled to prompt reimbursement by the Companies of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Companies for
their respective senior executive officers) in the performance of his duties and
responsibilities under this agreement; provided, that the Executive shall
properly account for such expenses in accordance with the policies and
procedures of the Companies, which may include but are not limited to itemized
accountings.
7. Other Benefits. During the term of this agreement, the Companies
--------------
shall provide to the Executive and his eligible dependents at the expense of the
Companies individual or group medical, hospital, dental, and long-term
disability insurance coverages and group life insurance coverage, in each case
at least as favorable as those coverages which are provided to the other senior
executive officers of the Companies. During the term of this agreement, the
Executive shall be entitled to receive a monthly automobile allowance from the
Companies in the amount of $1,000.00 and also shall be entitled to participate
in such other benefit plans or programs which the Companies from time to time
may make available to their employees generally or to some or all of their other
senior executive officers (except such programs, such as the 1996 Employee Stock
Purchase Plan of CSGS, in which executive officers of CSGS are not eligible to
participate because of securities law reasons). During the term of this
agreement, the Companies shall pay an initiation fee and the monthly dues and
assessments necessary to provide and maintain for the Executive a social
membership in a country club or social club in the Denver, Colorado,
metropolitan area selected by the Executive; usage charges (such as but not
limited to charges for meals) imposed by such club shall be paid or reimbursed
to the Executive to the extent they fall within the scope of Paragraph 6 and
shall be paid by the Executive without right of reimbursement to the extent they
are personal in nature.
8. Vacations and Holidays. During the term of this agreement, the
----------------------
Executive shall be entitled to paid vacations and holidays in accordance with
the policies of the Companies in effect from time to time for their respective
senior executive officers, but in no event shall the Executive be entitled to
less than four (4) weeks of vacation during
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
each calendar year.
9. Full-Time Efforts and Other Activities. During the term of this
--------------------------------------
agreement, to the best of his ability and using all of his skills, the Executive
shall devote substantially all of his working time and efforts during the normal
business hours of the Companies to the business and affairs of the Companies and
to the diligent and faithful performance of the duties and responsibilities
assigned to him pursuant to this agreement, except for vacations, holidays, and
sick days. However, the Executive may devote a reasonable amount of his time to
civic, community, or charitable activities, to service on the governing bodies
or committees of trade associations or similar organizations of which either or
both of the Companies are members, and, with the prior approval of the Board or
the Chief Executive Officer of CSGS, to service as a director of other
corporations and to other types of activities not expressly mentioned in this
paragraph, so long as the activities referred to in this sentence do not
materially interfere with the proper performance of the Executive's duties and
responsibilities under this agreement. The Executive also shall be free to
manage and invest his assets in such manner as will not require any substantial
services by the Executive in the conduct of the businesses or affairs of the
entities or in the management of the properties in which such investments are
made, so long as such activities do not materially interfere with the proper
performance of the Executive's duties and responsibilities under this agreement.
10. Termination of Employment.
-------------------------
(a) Termination Because of Death. The Executive's employment by the
----------------------------
Companies under this agreement shall terminate upon his death. If the
Executive's employment under this agreement terminates because of his death,
then the Executive's estate or his beneficiaries (as the case may be) shall be
entitled to receive the following compensation and benefits from the Companies:
(i) The Base Salary through the date of the Executive's
death;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which his death occurs
(computed as if the Executive were employed by the
Companies throughout such calendar year), based upon
the number of days in such calendar year elapsed
through the date of the Executive's death as a
proportion of 365, to be paid at the same time that
such incentive bonus would have been paid had the
Executive's death not occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
date of the Executive's death; and
(iv) Any other benefits payable by reason of the Executive's
death, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the date of the Executive's
death.
(b) Termination Because of Disability. If the Executive becomes incapable
---------------------------------
by reason of physical injury, disease, or mental illness of substantially
performing his duties and responsibilities under this agreement for a continuous
period of six (6) months or more or for more than one hundred eighty (180) days
in the aggregate (whether or not consecutive) during any 12-month period, then
at any time after the elapse of such six-month period or such 180 days, as the
case may be, the Board may terminate the Executive's employment by the Companies
under this agreement. If the Executive's employment under this agreement is
terminated by the Board because of such disability on the part of the Executive,
then the Executive shall be entitled to receive the following compensation and
benefits from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which such termination
occurs (computed as if the Executive were employed by
the Companies throughout such calendar year), based
upon the
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number of days in such calendar year elapsed through
the effective date of such termination as a proportion
of 365, to be paid at the same time that such incentive
bonus would have been paid if such termination had not
occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
(iv) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the cessation of
such disability, the Executive's death, the Executive's
attainment of age sixty-five (65), or (separately with
respect to the termination of each benefit) the
provision of a substantially equivalent benefit to the
Executive by another employer of the Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(v) Any other benefits payable by reason of the Executive's
disability, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such
termination.
For purposes of this subparagraph (b), decisions with respect to the Executive's
disability shall be made by the Board, using its reasonable good faith judgment;
and, in making any such decision, the Board shall be entitled to rely upon the
opinion of a duly licensed and qualified physician selected by a majority of the
members of the Board who are not employees of either of the Companies or any of
their respective subsidiaries.
(c) Termination for Cause. The Board may terminate the Executive's
---------------------
employment by the Companies under this agreement for cause; however, for
purposes of this agreement "cause" shall mean only (i) the Executive's
confession or conviction of theft, fraud, embezzlement, or other crime involving
dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of
physical injury, disease, or mental illness) without a reasonable justification,
(iii) material violation by the Executive of the provisions of Paragraph 11,
(iv) habitual and material negligence by the Executive in the performance of his
duties and responsibilities under or pursuant to this agreement and failure on
the part of the Executive to cure such negligence within twenty (20) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such negligence, (v)
material non-compliance by the Executive with his obligations under Paragraph 9
and failure to correct such non-compliance within twenty (20) days after his
receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such non-compliance,
(vi) material failure by the Executive to comply with a lawful directive of the
Board or the Chief Executive Officer of CSGS and failure to cure such non-
compliance within twenty (20) days after his receipt of a written notice from
the Board or the Chief Executive Officer of CSGS setting forth in reasonable
detail the particulars of such non-compliance, (vii) a material breach by the
Executive of any of his fiduciary duties to the Companies and, if such breach is
curable, the Executive's failure to cure such breach within ten (10) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such breach, or
(viii) willful misconduct or fraud on the part of the Executive in the
performance of his duties under this agreement. In no event shall the results
of operations of the Companies or any business judgment made in good faith by
the Executive constitute an independent basis for termination for cause of the
Executive's employment under this agreement. Any termination of the Executive's
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employment for cause must be authorized by a majority vote of the Board taken
not later than nine (9) months after a majority of the members of the Board
(other than the Executive) have actual knowledge of the occurrence of the event
or conduct constituting the cause for such termination. If the Executive's
employment under this agreement is terminated by the Board for cause, then the
Executive shall be entitled to receive the following compensation and benefits
from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination; and
(iii) Any other benefits payable to the Executive upon his
termination for cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(d) Termination Without Cause Prior to a Change of Control. If, prior to
------------------------------------------------------
the occurrence of a Change of Control, the Companies terminate the Executive's
employment under this agreement for any reason other than cause or the
Executive's death or disability, then the Executive shall be entitled to receive
the following compensation, benefits, and other payments from the Companies:
(i) The Base Salary through the last day of the then
current term of this agreement (the "Ending Date"), to
be paid at the same times that the Base Salary would
have been paid if such termination had not occurred;
provided, that if the Executive commences employment
with another employer, whether as an employee or as a
consultant, prior to the Ending Date (for purposes of
this Paragraph 10, the "Other Employment"), then such
payments of the Base Salary shall be reduced from time
to time by the aggregate amount of salary, cash bonus,
and consulting fees received or receivable by the
Executive from the Other Employment for services
performed by him during the period from the
commencement of the Other Employment through the Ending
Date;
(ii) The Executive's annual incentive bonus for the calendar
year in which such termination occurs (computed as if
the Executive were employed by the Companies throughout
such calendar year), to be paid at the same time that
such incentive bonus would have been paid if such
termination had not occurred and to be no less than the
Executive's annual incentive bonus for the calendar
year immediately preceding the calendar year in which
such termination occurs;
(iii) An amount equal to one hundred eighty percent (180%) of
the Base Salary in effect on the effective date of such
termination, such amount to be paid, without interest,
to the extent of fifty percent (50%) one year after the
effective date of such termination and to the extent of
the remaining fifty percent (50%) two years after the
effective date of such termination.
(iv) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
(v) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the Ending Date or
(separately with respect to
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the termination of each benefit) the provision of a
substantially equivalent benefit to the Executive by
another employer of the Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(vi) Any other benefits payable to the Executive upon his
termination without cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(e) Termination Without Cause After a Change of Control. If, after the
---------------------------------------------------
occurrence of a Change of Control, the Companies or any Permitted Assignee
terminates the Executive's employment under this agreement for any reason other
than cause or the Executive's death or disability, then the Executive shall be
entitled to receive from the Companies and the Permitted Assignee, if any (all
of whom shall be jointly and severally liable therefor), all of the
compensation, benefits, and other payments from the Companies which are
described and provided for in subparagraph (d) of this Paragraph 10; provided,
however, that (i) the aggregate Base Salary payable under subparagraph (d)(i)
for all periods through the Ending Date shall be paid to the Executive in a lump
sum without regard to Other Employment not later than thirty (30) days after the
effective date of such termination, (ii) the minimum annual incentive bonus
payable under subparagraph (d)(ii) shall be paid to the Executive not later than
thirty (30) days after the effective date of such termination (with any balance
of such annual incentive bonus being payable as provided in such subparagraph
(d)(ii)), and (iii) the amount payable under subparagraph (d)(iii) shall be paid
to the Executive in a lump sum not later than thirty (30) days after the
effective date of such termination.
(f) Constructive Termination. If at any time during the term of this
------------------------
agreement the Board, the Chief Executive Officer of CSGS, or a Permitted
Assignee materially alters the duties and responsibilities of the Executive
provided for in Paragraph 1 or assigns to the Executive duties and
responsibilities inappropriate to the chief operating officer of the Companies
without the Executive's written consent, then, at the election of the Executive
(such election to be made by written notice from the Executive to the Board or
the Permitted Assignee, as may be appropriate in the circumstances), (i) such
action by the Board, the Chief Executive Officer of CSGS, or such Permitted
Assignee shall constitute a constructive termination of the Executive's
employment by the Companies for a reason other than cause, (ii) the Executive
thereupon may resign from his offices and positions with the Companies and shall
not be obligated to perform any further services of any kind to or for the
Companies, and (iii) the Executive shall be entitled to receive from the
Companies (and the Permitted Assignee, if applicable) at the applicable times
all of the compensation, benefits, and other payments described in subparagraph
(d) or subparagraph (e) of this Paragraph 10 (whichever may be applicable), as
if the effective date of the Executive's resignation were the effective date of
his termination of employment for purposes of determining such compensation,
benefits, and other payments.
(g) Voluntary Resignation. If the Executive voluntarily resigns as an
---------------------
employee of the Companies and thereby voluntarily terminates his employment
under this agreement and if none of subparagraphs (a) through (f) of this
Paragraph 10 is applicable to such termination, then the Executive shall be
entitled to receive only the following compensation, benefits, and other
payments from the Companies:
(i) The Base Salary through the effective date of such
voluntary resignation;
(ii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such voluntary resignation;
(iii) If (and only if) the Executive's voluntary resignation
is effective on December 31 of a particular calendar
year, the Executive's annual incentive bonus (if any)
for such calendar year, to be paid in accordance with
the regular schedule for its
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payment; and
(iv) Any other benefits payable to the Executive upon his
voluntary resignation, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such voluntary resignation.
The Executive understands and agrees that if this subparagraph (g) is applicable
to the termination of the Executive's employment with the Companies, then,
unless his voluntary resignation is effective on December 31 of a particular
calendar year, the Executive will not be entitled to any annual incentive bonus
for the calendar year in which his voluntary resignation becomes effective.
(h) Liquidated Damages. The Executive agrees to accept the compensation,
------------------
benefits, and other payments provided for in subparagraph (d), subparagraph (e),
or subparagraph (f) of this Paragraph 10, as the case may be, as full and
complete liquidated damages for any breach of this agreement resulting from the
actual or constructive termination of the Executive's employment under this
agreement for a reason other than cause or the Executive's death or disability;
and the Executive shall not have and hereby waives and relinquishes any other
rights or claims in respect of such breach.
(i) Notice of Other Employment and of Benefits. The Executive promptly
------------------------------------------
shall notify the Companies in writing of (i) his acceptance of the Other
Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the
effective date of such Other Employment, and (iii) the amount of salary, cash
bonus, and consulting fees which the Executive receives or is entitled to
receive from the Other Employment for services performed by him during the
period from the commencement of the Other Employment through the Ending Date.
Whenever relevant for purposes of this Paragraph 10, the Executive also promptly
shall notify the Companies of his receipt from another employer of any benefits
of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph
10. Such information shall be updated by the Executive whenever necessary to
keep the Companies informed on a current basis.
(j) Modification of Benefit Plans or Programs. Nothing contained in this
-----------------------------------------
Paragraph 10 shall obligate the Companies to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan or program referred
to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such
actions are similarly applicable to senior executives of the Companies
generally.
(k) Rights of Estate. If the Executive dies prior to his receipt of all
----------------
of the cash payments to which he may be entitled pursuant to subparagraph (b),
(c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes
applicable, then the unpaid portion of such cash payments shall be paid by the
Companies to the personal representative of the Executive's estate at the same
time or times that the payments would have been made to the Executive if he
still were living.
(l) Excess Parachute Payments. If any of the payments required to be made
-------------------------
to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any regulations thereunder, and
the Executive becomes liable for any excise tax on such "excess parachute
payments" and any interest or penalties thereon (such excise tax, interest, and
penalties, collectively, the "Tax Penalties"), then the Companies (and the
Permitted Assignee, if applicable) promptly shall make a cash payment (the
"Additional Payment") to the Executive in an amount equal to the Tax Penalties.
The Companies also promptly shall make an additional cash payment to the
Executive in an amount rounded to the nearest $100.00 which is equal to any
additional income, excise, and other taxes (using the individual tax rates
applicable to the Executive for the year for which such Tax Penalties are owed)
for which the Executive will be liable as a result of the Executive's receipt of
the Additional Payment (the additional cash payment provided for in this
sentence being referred to as a "Gross-Up Payment"). In addition, the Executive
shall be entitled to promptly receive from the Companies (and the Permitted
Assignee, if applicable) a further Gross-Up Payment in respect of each prior
Gross-Up Payment until the amount of the last Gross-Up Payment is less than
$100.00.
11. Nondisclosure. During the term of this agreement and thereafter, the
-------------
Executive shall not, without the
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prior written consent of the Board or a person (other than the Executive) so
authorized by the Board, disclose or use for any purpose (except in the course
of his employment under this agreement and in furtherance of the business of the
Companies or any of their respective subsidiaries) any confidential information,
trade secrets, or proprietary data of the Companies or any of their respective
subsidiaries (collectively, for purposes of this agreement, "Confidential
Information"); provided, however, that Confidential Information shall not
include any information then known generally to the public or ascertainable from
public or published information (other than as a result of unauthorized
disclosure by the Executive) or any information of a type not otherwise
considered confidential by persons engaged in the same business or a business
similar to that conducted by the Companies or their respective subsidiaries, as
the case may be.
12. Successors and Assigns. This agreement and all rights under this
----------------------
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and none of the parties to
this agreement shall, without the written consent of the others, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity, except as permitted by Paragraph 14.
13. Notices. For purposes of this agreement, notices and other
-------
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent either by next-business-day prepaid
express delivery by a recognized national express delivery service or by United
States certified mail, return receipt requested, postage prepaid, in either case
addressed as follows:
If to the Executive: John P. Pogge
c/o CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111
If to the Companies: CSG Systems International, Inc.
and CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger
-------------------------------------
of Systems with another corporation (other than CSGS) in a transaction in which
Systems is not the surviving corporation, (b) the consolidation of Systems into
a new corporation resulting from such consolidation, (c) the sale or other
disposition of all or substantially all of the assets of Systems, the Companies
may assign this agreement and all of the rights and obligations of the Companies
under this agreement to the surviving, resulting, or acquiring entity (for
purposes of this agreement, a "Permitted Assignee"); provided, that such
surviving, resulting, or acquiring entity shall in writing assume and agree to
perform all of the obligations of the Companies under this agreement; and
provided further, that the Companies shall remain jointly and severally liable
for the performance of the obligations of the Companies under this agreement in
the event of a failure of the Permitted Assignee to perform its obligations
under this agreement.
15. Change of Control. For purposes of this agreement, a "Change of
-----------------
Control" shall be deemed to have occurred upon the happening of any of the
following events:
(a) CSGS is merged or consolidated into another corporation, and
immediately after such merger or consolidation becomes effective the
holders of a majority of the outstanding shares of voting capital
stock of CSGS immediately prior to the effectiveness of such merger or
consolidation do not own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of the surviving or
resulting corporation in such merger or consolidation,
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(b) CSGS ceases to own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of Systems (unless such
event results from the merger of Systems into CSGS, with no change
in the ownership of the voting capital stock of CSGS, or from the
dissolution of Systems and the continuation of its business by
CSGS),
(c) Systems is merged or consolidated into a corporation other than
CSGS, and at any time after such merger or consolidation becomes
effective CSGS does not own (directly or indirectly) a majority of
the outstanding shares of voting capital stock of the surviving or
resulting corporation in such merger or consolidation,
(d) the stockholders of Systems vote (or act by written consent) to
dissolve Systems (unless the business of Systems will be continued
by CSGS) or to sell or otherwise dispose of all or substantially all
of the property and assets of Systems (other than to an entity or
group of entities which is then under common ownership (directly or
indirectly) with Systems),
(e) any person, entity, or group of persons within the meaning of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934 (the
"1934 Act") and the rules promulgated thereunder becomes the
beneficial owner (within the meaning of Rule 13d-3 under the 1934
Act) of thirty percent (30%) or more of the outstanding voting
capital stock of CSGS, or
(f) during any period of two consecutive years or less, individuals who
at the beginning of such period constituted the Board of Directors
of CSGS cease, for any reason, to constitute at least a majority of
the Board of Directors of CSGS, unless the election or nomination
for election of each new director of CSGS who took office during
such period was approved by a vote of at least seventy-five percent
(75%) of the directors of CSGS still in office at the time of such
election or nomination for election who were directors of CSGS at
the beginning of such period.
16. Miscellaneous. No provision of this agreement may be modified,
-------------
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and an officer of CSGS (other than
the Executive) so authorized by the Board. No waiver by any party to this
agreement at any time of any breach by any other party of, or compliance by any
other party with, any condition or provision of this agreement to be performed
by such other party shall be deemed to be a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this agreement have been made by any party that
are not expressly set forth in this agreement.
17. Representations of Companies. The Companies severally represent and
----------------------------
warrant to the Executive that they have full legal power and authority to enter
into this agreement, that the execution and delivery of this agreement by the
Companies have been duly authorized by their respective boards of directors, and
that the performance of their respective obligations under this agreement will
not violate any agreement between the Companies, or either of them, and any
other person, firm, or organization.
18. Non-Solicitation of Employees. For a period of one (1) year after
-----------------------------
the effective date of the termination of the Executive's employment under this
agreement for any reason, whether voluntarily or involuntarily and with or
without cause, without the prior written consent of CSGS the Executive agrees
(i) not to directly or indirectly employ, solicit for employment, assist any
other person in employing or soliciting for employment, or advise or recommend
to any other person that such other person employ or solicit for employment any
person who then is an employee of the Companies (or either of them) or any of
the respective subsidiaries of the Companies and (ii) not to recommend to any
then employee of the Companies (or either of them) or any of the respective
subsidiaries of the Companies that such employee leave the employ of such
employer.
19. Post-Termination Noncompetition. Because the Confidential
-------------------------------
Information known to or developed by the Executive during his employment by the
Companies encompasses at the highest level information concerning the plans,
strategies, products, operations, and existing and prospective customers of the
Companies and could not practically be
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disregarded by the Executive, the Executive acknowledges that his provision of
executive services to a competitor of the Companies or either of them soon after
the termination of the Executive's employment by the Companies would inevitably
result in the use of the Confidential Information by the Executive in his
performance of such executive services, even if the Executive were to use his
best efforts to avoid such use of the Confidential Information. To prevent such
use of the Confidential Information and the resulting unfair competition and
wrongful appropriation of the goodwill and other valuable proprietary interests
of the Companies, the Executive agrees that for a period of one (1) year after
the termination of his employment by the Companies for any reason, whether
voluntarily or involuntarily and with or without cause, the Executive will not,
directly or indirectly:
(a) engage, whether as an employee, agent, consultant, independent
contractor, owner, partner, member, or otherwise, in a business
activity which then competes in a material way with a business
activity then being actively engaged in by the Companies or
either of them;
(b) solicit or recommend to any other person that such period solicit
any then customer of the Companies or either or them, which
customer also was a customer of the Companies or either of them
at any time during the one (1) year period prior to the
termination of the Executive's employment by the Companies, for
the purpose of obtaining the business of such customer in
competition with the Companies or either of them; or
(c) induce or attempt to induce any then customer or prospective
customer of the Companies or either of them to terminate or not
commence a business relationship with the Companies or either of
them.
The Companies and the Executive acknowledge and agree that the restrictions
contained in this Paragraph 19 are both reasonable and necessary in view of the
Executive's positions with the Companies and that the Executive's compensation
and benefits under this agreement are sufficient consideration for the
Executive's acceptance of such restrictions. Nevertheless, if any of the
restrictions contained in this Paragraph 19 are found by a court having
jurisdiction to be unreasonable, or excessively broad as to geographic area or
time, or otherwise unenforceable, then the parties intend that the restrictions
contained in this Paragraph 19 be modified by such court so as to be reasonable
and enforceable and, as so modified by the court, be fully enforced. Nothing
contained in this paragraph shall be construed to preclude the investment by the
Executive of any of his assets in any publicly owned entity so long as the
Executive has no direct or indirect involvement in the business of such entity
and owns less than 2% of the voting equity securities of such entity. Nothing
contained in this paragraph shall be construed to preclude the Executive from
becoming employed by or serving as a consultant to or having dealings with a
publicly owned entity one of whose businesses is a competitor of the Companies
or either of them so long as such employment, consultation, or dealings do not
directly or indirectly involve or relate to the business of such entity which is
a competitor of the Companies or either of them.
20. Joint and Several Obligations. All of the obligations of the
-----------------------------
Companies under this agreement are joint and several; and neither the
bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization
nor the cessation of business or corporate existence of one of the Companies
shall affect, impair, or diminish the obligations under this agreement of the
other of the Companies. The compensation and benefits to which the Executive is
entitled under this agreement are aggregate compensation and benefits, and the
payment of such compensation or the provision of such benefits by one of the
Companies shall to the extent of such payment or provision satisfy the
obligations of the other of the Companies. The Companies may agree between
themselves as to which of them will be responsible for some or all of the
Executive's compensation and benefits under this agreement, but any such
agreement between the Companies shall not diminish to any extent the joint and
several liability of the Companies to the Executive for all of such compensation
and benefits.
21. Injunctive Relief. The Executive acknowledges that his violation of
-----------------
the provisions and restrictions contained in Paragraphs 11, 18, and 19 could
cause significant injury to the Companies for which the Companies would have no
adequate remedy at law. Accordingly, the Executive agrees that the Companies
will be entitled, in addition to any other rights and remedies that then may be
available to the Companies, to seek and obtain injunctive relief to prevent any
breach or potential breach of any of the provisions and restrictions contained
in Paragraph 11, 18, or 19.
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22. Dispute Resolution. Subject to the provisions of Paragraph 21, any
------------------
claim by the Executive or the Companies arising from or in connection with this
agreement, whether based on contract, tort, common law, equity, statute,
regulation, order, or otherwise (a "Dispute"), shall be resolved as follows:
(a) Such Dispute shall be submitted to mandatory and binding
arbitration at the election of either the Executive or the
particular Company involved (the "Disputing Party"). Except as
otherwise provided in this Paragraph 22, the arbitration shall be
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall notify the
other party in writing within 30 days after the occurrence of the
event or events which give rise to the Dispute (the "Arbitration
Demand"), which notice shall (i) describe in reasonable detail
the nature of the Dispute, (ii) state the amount of any claim,
(iii) specify the requested relief, and (iv) name an arbitrator
who (A) has been licensed to practice law in the U.S. for at
least ten years, (B) has no past or present relationship with
either the Executive or the Companies, and (C) is experienced in
representing clients in connection with employment related
disputes (the "Basic Qualifications"). Within fifteen (15) days
after the other party's receipt of the Arbitration Demand, such
other party shall serve on the Disputing Party a written
statement (i) answering the claims set forth in the Arbitration
Demand and including any affirmative defenses of such party, (ii)
asserting any counterclaim, which statement shall (A) describe in
reasonable detail the nature of the Dispute relating to the
counterclaim, (B) state the amount of the counterclaim, and (C)
specify the requested relief, and (iii) naming a second
arbitrator satisfying the Basic Qualifications. Promptly, but in
any event within five (5) days thereafter, the two arbitrators so
named shall select a third neutral arbitrator from a list
provided by the AAA of potential arbitrators who satisfy the
Basic Qualifications and who have no past or present relationship
with the parties' counsel, except as otherwise disclosed in
writing to and approved by the parties. The arbitration will be
heard by a panel of the three arbitrators so chosen (the
"Arbitration Panel"), with the third arbitrator so chosen serving
as the chairperson of the Arbitration Panel. Decisions of a
majority of the members of the Arbitration Panel shall be
determinative.
(c) The arbitration hearing shall be held in Denver, Colorado. The
Arbitration Panel is specifically authorized to render partial or
full summary judgment as provided for in the Federal Rules of
Civil Procedure. The Arbitration Panel will have no power or
authority, under the Commercial Arbitration Rules of the AAA or
otherwise, to relieve the parties from their agreement hereunder
to arbitrate or otherwise to amend or disregard any provision of
this agreement, including, without limitation, the provisions of
this Paragraph 22.
(d) If an arbitrator refuses or is unable to proceed with arbitration
proceedings as called for by this Paragraph 22, such arbitrator
shall be replaced by the party who selected such arbitrator or,
if such arbitrator was selected by the two party-appointed
arbitrators, by such two party-appointed arbitrators' selecting a
new third arbitrator in accordance with Paragraph 22(b), in
either case within five (5) days after such declining or
withdrawing arbitrator's giving notice of refusal or inability to
proceed. Each such replacement arbitrator shall satisfy the Basic
Qualifications. If an arbitrator is replaced pursuant to this
Paragraph 22(d) after the arbitration hearing has commenced, then
a rehearing shall take place in accordance with the provisions of
this Paragraph 22(d) and the Commercial Arbitration Rules of the
AAA.
(e) Within ten (10) days after the closing of the arbitration
hearing, the Arbitration Panel shall prepare and distribute to
the parties a writing setting forth the Arbitration Panel's
finding of facts and conclusions of law relating to the Dispute,
including the reason for the giving or denial of any award. The
findings and conclusions and the award, if any, shall be deemed
to be confidential information.
(f) The Arbitration Panel is instructed to schedule promptly all
discovery and other procedural
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steps and otherwise to assume case management initiative and
control to effect an efficient and expeditious resolution of the
Dispute. The Arbitration Panel is authorized to issue monetary
sanctions against either party if, upon a showing of good cause,
such party is unreasonably delaying the proceeding.
(g) Any award rendered by the Arbitration Panel will be final,
conclusive, and binding upon the parties, and any judgment on
such award may be entered and enforced in any court of competent
jurisdiction.
(h) Each party will bear a pro rata share of all fees, costs, and
expenses of the arbitrators; and, notwithstanding any law to the
contrary, each party will bear all of the fees, costs, and
expenses of his or its own attorneys, experts, and witnesses.
However, in connection with any judicial proceeding to compel
arbitration pursuant to this agreement or to enforce any award
rendered by the Arbitration Panel, the prevailing party in such a
proceeding will be entitled to recover reasonable attorneys' fees
and expenses incurred in connection with such proceedings, in
addition to any other relief to which such party may be entitled.
(i) Nothing contained in the preceding provisions of this Paragraph
22 shall be construed to prevent either party from seeking from a
court a temporary restraining order or other injunctive relief
pending final resolution of a Dispute pursuant to this Paragraph
22.
23. No Duty to Seek Employment. The Executive shall not be under any
--------------------------
duty or obligation to seek or accept other employment following the termination
of his employment by the Companies; and, except as expressly provided in
subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment,
or benefit due the Executive under this agreement shall be reduced, suspended,
or discontinued if the Executive accepts such other employment.
24. Withholding of Taxes. The Companies may withhold from any amounts
--------------------
payable to the Executive under this agreement all federal, state, and local
taxes which are required to be so withheld by any applicable law or governmental
regulation or ruling.
25. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision.
26. Counterparts. This document may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
27. Headings. The headings of the paragraphs contained in this document
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
28. Applicable Law. This agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Colorado.
IN WITNESS WHEREOF, the Companies and the Executive have executed this
agreement on the day and year first above written.
CSG SYSTEMS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Neal C. Hansen
-----------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
CSG SYSTEMS, INC., a Delaware
corporation
By: /s/ Neal C. Hansen
-------------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
/s/ John P. Pogge
-----------------------------------------
John P. Pogge
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 10.46
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into on the 17th day of
----
November, 1998, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware
corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and EDWARD
NAFUS (the "Executive"). CSGS and Systems collectively are referred to in this
Employment Agreement as the "Companies".
* * *
WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and
WHEREAS, the Executive currently is employed by Systems and serves as an
Executive Vice President of both of the Companies; and
WHEREAS, the Companies desire to provide for the continued employment of
the Executive as an Executive Vice President; and
WHEREAS, the Executive desires to accept such continued employment upon the
terms set forth in this agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Companies and the Executive agree as follows:
1. Employment and Duties. Each of the Companies hereby employs the
---------------------
Executive as an Executive Vice President throughout the term of this agreement
and agrees to cause the Executive from time to time to be elected or appointed
to such corporate office or position. The duties and responsibilities of the
Executive shall include the duties and responsibilities of the Executive's
corporate office and position referred to in the preceding sentence which are
set forth in the respective bylaws of the Companies from time to time and such
other duties and responsibilities consistent with the Executive's corporate
office and position referred to in the preceding sentence and this agreement
which the Board of Directors of CSGS (the "Board"), the Chief Executive Officer
of CSGS, or the Chief Operating Officer of CSGS from time to time may assign to
the Executive. If the Executive is elected or appointed as a director of CSGS
or Systems or as an officer or director of any of the respective subsidiaries of
the Companies during the term of this agreement, then he also shall serve in
such capacity or capacities but without additional compensation.
2. Term. The term of this agreement shall begin on the date of this
----
agreement and shall continue thereafter through December 31, 1999, unless the
Executive's employment under this agreement is sooner terminated in accordance
with this agreement. On December 31 of each year during the term of this
agreement, as extended from time to time pursuant to this sentence, beginning
December 31, 1998, the term of this agreement automatically and without further
action being required shall be extended by one (1) year unless, not later than
one (1) year prior to a particular December 31, either CSGS notifies the
Executive and Systems in writing or the Executive notifies the Companies in
writing that such extension shall not occur on such December 31, in which latter
case this agreement shall terminate upon the expiration of its then current
term, unless the Executive's employment under this agreement is sooner
terminated in accordance with this agreement. References in this agreement to
the "current term" of this agreement shall include both the original term of
this agreement and any automatic extensions of such term which actually have
occurred pursuant to this Paragraph 2.
3. Place of Employment. Regardless of the location of the executive
-------------------
offices of the Companies during the term of this agreement, the Companies shall
maintain a suitably staffed office for the Executive in the Denver, Colorado,
metropolitan area during the term of this agreement; and the Executive will not
be required without his consent to relocate or transfer his executive office or
principal residence from the immediate vicinity of the Denver, Colorado,
metropolitan area.
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
4. Base Salary. For all services to be rendered by the Executive
-----------
pursuant to this agreement, the Companies agree to pay the Executive during the
term of this agreement a base salary (the "Base Salary") at an annual rate of
$250,000 through December 31, 1998, and at an annual rate of not less than
$262,500 after December 31, 1998; provided, that the Base Salary as then in
effect shall be increased as of January 1 of each calendar year after 1999
during the term of this agreement by at least the same percentage that the
United States Department of Labor Consumer Price Index (All Items) for All Urban
Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such
January 1 increased over the CPI-U for the November one year earlier. The Board
shall review the Base Salary at least annually for the purpose of determining
whether a Base Salary increase greater than such CPI-U increase should be
granted to the Executive for a particular 12-month period. The Executive's
annual incentive bonus provided for in Paragraph 5 and all other compensation
and benefits to which the Executive is or may become entitled pursuant to this
agreement or under any plans or programs of the Companies shall be in addition
to the Base Salary.
5. Annual Incentive Bonus. As soon as practicable after the execution of
----------------------
this agreement, the Board shall establish an incentive bonus program for the
Executive for 1999. Such incentive bonus program shall be reflected either in a
written supplement to this agreement signed by the Companies and the Executive
or in such other form as the Companies and the Executive may agree upon. The
same procedure shall be followed for subsequent calendar years during the term
of this agreement, so that an annual incentive bonus program for the Executive
will be in effect throughout the term of this agreement. The Executive and the
Companies understand and acknowledge that, among other things, such incentive
bonus program will involve achievement by the Companies of various financial
objectives, which may include but are not limited to revenues and earnings, and
also may include achievement by the Companies of various non-financial
objectives. Such incentive bonus program for each calendar year shall provide
the opportunity for the Executive to earn an incentive bonus of not less than
fifty-five percent (55%) of his Base Salary for such calendar year if the agreed
upon objectives are fully achieved. The Board from time to time also may
establish incentive compensation programs for the Executive covering periods of
more than one (1) year, and any such programs shall be in addition to the annual
incentive bonus program required by this Paragraph 5. For 1998 the annual
incentive bonus program previously established by the Companies for the
Executive shall remain in effect.
6. Expenses. During the term of this agreement, the Executive shall be
--------
entitled to prompt reimbursement by the Companies of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Companies for
their respective senior executive officers) in the performance of his duties and
responsibilities under this agreement; provided, that the Executive shall
properly account for such expenses in accordance with the policies and
procedures of the Companies, which may include but are not limited to itemized
accountings.
7. Other Benefits. During the term of this agreement, the Companies
--------------
shall provide to the Executive and his eligible dependents at the expense of the
Companies individual or group medical, hospital, dental, and long-term
disability insurance coverages and group life insurance coverage, in each case
at least as favorable as those coverages which are provided to other vice
presidents of the Companies. During the term of this agreement, the Executive
also shall be entitled to participate in such other benefit plans or programs
which the Companies from time to time may make available to their employees
generally (except such programs, such as the 1996 Employee Stock Purchase Plan
of CSGS, in which executive officers of CSGS are not eligible to participate
because of securities law reasons).
8. Vacations and Holidays. During the term of this agreement, the
----------------------
Executive shall be entitled to paid vacations and holidays in accordance with
the policies of the Companies in effect from time to time for their respective
senior executive officers, but in no event shall the Executive be entitled to
less than four (4) weeks of vacation during each calendar year.
9. Full-Time Efforts and Other Activities. During the term of this
--------------------------------------
agreement, to the best of his ability and using all of his skills, the Executive
shall devote substantially all of his working time and efforts during the normal
business hours of the Companies to the business and affairs of the Companies and
to the diligent and faithful performance of the duties and responsibilities
assigned to him pursuant to this agreement, except for vacations, holidays, and
sick days. However, the Executive may devote a reasonable amount of his time to
civic, community, or charitable activities, to service on the governing bodies
or committees of trade associations or similar organizations of
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
which either or both of the Companies are members, and, with the prior approval
of the Board or the Chief Executive Officer of CSGS, to service as a director of
other corporations and to other types of activities not expressly mentioned in
this paragraph, so long as the activities referred to in this sentence do not
materially interfere with the proper performance of the Executive's duties and
responsibilities under this agreement. The Executive also shall be free to
manage and invest his assets in such manner as will not require any substantial
services by the Executive in the conduct of the businesses or affairs of the
entities or in the management of the properties in which such investments are
made, so long as such activities do not materially interfere with the proper
performance of the Executive's duties and responsibilities under this agreement.
10. Termination of Employment.
-------------------------
(a) Termination Because of Death. The Executive's employment by the
----------------------------
Companies under this agreement shall terminate upon his death. If the
Executive's employment under this agreement terminates because of his death,
then the Executive's estate or his beneficiaries (as the case may be) shall be
entitled to receive the following compensation and benefits from the Companies:
(i) The Base Salary through the date of the Executive's
death;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which his death occurs
(computed as if the Executive were employed by the
Companies throughout such calendar year), based upon
the number of days in such calendar year elapsed
through the date of the Executive's death as a
proportion of 365, to be paid at the same time that
such incentive bonus would have been paid had the
Executive's death not occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
date of the Executive's death; and
(iv) Any other benefits payable by reason of the Executive's
death, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the date of the Executive's
death.
(b) Termination Because of Disability. If the Executive becomes incapable
---------------------------------
by reason of physical injury, disease, or mental illness of substantially
performing his duties and responsibilities under this agreement for a continuous
period of six (6) months or more or for more than one hundred eighty (180) days
in the aggregate (whether or not consecutive) during any 12-month period, then
at any time after the elapse of such six-month period or such 180 days, as the
case may be, the Board may terminate the Executive's employment by the Companies
under this agreement. If the Executive's employment under this agreement is
terminated by the Board because of such disability on the part of the Executive,
then the Executive shall be entitled to receive the following compensation and
benefits from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which such termination
occurs (computed as if the Executive were employed by
the Companies throughout such calendar year), based
upon the number of days in such calendar year elapsed
through the effective date of such termination as a
proportion of 365, to be paid at the same time that
such incentive bonus would have been paid if such
termination had not occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
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THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
(iv) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the cessation of
such disability, the Executive's death, the Executive's
attainment of age sixty-five (65), or (separately with
respect to the termination of each benefit) the
provision of a substantially equivalent benefit to the
Executive by another employer of the Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(v) Any other benefits payable by reason of the Executive's
disability, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such
termination.
For purposes of this subparagraph (b), decisions with respect to the Executive's
disability shall be made by the Board, using its reasonable good faith judgment;
and, in making any such decision, the Board shall be entitled to rely upon the
opinion of a duly licensed and qualified physician selected by a majority of the
members of the Board who are not employees of either of the Companies or any of
their respective subsidiaries.
(c) Termination for Cause. The Board may terminate the Executive's
---------------------
employment by the Companies under this agreement for cause; however, for
purposes of this agreement "cause" shall mean only (i) the Executive's
confession or conviction of theft, fraud, embezzlement, or other crime involving
dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of
physical injury, disease, or mental illness) without a reasonable justification,
(iii) material violation by the Executive of the provisions of Paragraph 11,
(iv) habitual and material negligence by the Executive in the performance of his
duties and responsibilities under or pursuant to this agreement and failure on
the part of the Executive to cure such negligence within twenty (20) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such negligence, (v)
material non-compliance by the Executive with his obligations under Paragraph 9
and failure to correct such non-compliance within twenty (20) days after his
receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such non-compliance,
(vi) material failure by the Executive to comply with a lawful directive of the
Board or the Chief Executive Officer of CSGS and failure to cure such non-
compliance within twenty (20) days after his receipt of a written notice from
the Board or the Chief Executive Officer of CSGS setting forth in reasonable
detail the particulars of such non-compliance, (vii) a material breach by the
Executive of any of his fiduciary duties to the Companies and, if such breach is
curable, the Executive's failure to cure such breach within ten (10) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such breach, or
(viii) willful misconduct or fraud on the part of the Executive in the
performance of his duties under this agreement. In no event shall the results
of operations of the Companies or any business judgment made in good faith by
the Executive constitute an independent basis for termination for cause of the
Executive's employment under this agreement. Any termination of the Executive's
employment for cause must be authorized by a majority vote of the Board taken
not later than nine (9) months after a majority of the members of the Board
(other than the Executive) have actual knowledge of the occurrence of the event
or conduct constituting the cause for such termination. If the Executive's
employment under this agreement is terminated by the Board for cause, then the
Executive shall be entitled to receive the following compensation and benefits
from the Companies:
(i) The Base Salary through the effective date of such
termination;
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<PAGE>
(ii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination; and
(iii) Any other benefits payable to the Executive upon his
termination for cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(d) Termination Without Cause Prior to a Change of Control. If, prior to
------------------------------------------------------
the occurrence of a Change of Control, the Companies terminate the Executive's
employment under this agreement for any reason other than cause or the
Executive's death or disability, then the Executive shall be entitled to receive
the following compensation, benefits, and other payments from the Companies:
(i) The Base Salary through that date which is one (1) year
after the effective date of such termination (the
"Ending Date"), to be paid at the same times that the
Base Salary would have been paid if such termination
had not occurred; provided, that if the Executive
commences employment with another employer, whether as
an employee or as a consultant, prior to the Ending
Date (for purposes of this Paragraph 10, the "Other
Employment"), then such payments of the Base Salary
shall be reduced from time to time by the aggregate
amount of salary, cash bonus, and consulting fees
received or receivable by the Executive from the Other
Employment for services performed by him during the
period from the commencement of the Other Employment
through the Ending Date;
(ii) The Executive's annual incentive bonus for the calendar
year in which such termination occurs (computed as if
the Executive were employed by the Companies throughout
such calendar year), to be paid at the same time that
such incentive bonus would have been paid if such
termination had not occurred and to be no less than the
Executive's annual incentive bonus for the calendar
year immediately preceding the calendar year in which
such termination occurs;
(iii) An amount equal to fifty-five percent (55%) of the Base
Salary in effect on the effective date of such
termination, such amount to be paid, without interest,
one year after the effective date of such termination.
(iv) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
(v) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the Ending Date or
(separately with respect to the termination of each
benefit) the provision of a substantially equivalent
benefit to the Executive by another employer of the
Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
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<PAGE>
(vi) Any other benefits payable to the Executive upon his
termination without cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(e) Termination Without Cause After a Change of Control. If, after the
---------------------------------------------------
occurrence of a Change of Control, the Companies or any Permitted Assignee
terminates the Executive's employment under this agreement for any reason other
than cause or the Executive's death or disability, then the Executive shall be
entitled to receive from the Companies and the Permitted Assignee, if any (all
of whom shall be jointly and severally liable therefor), all of the
compensation, benefits, and other payments from the Companies which are
described and provided for in subparagraph (d) of this Paragraph 10 (as modified
by this subparagraph (e)); provided, however, that (i) for purposes of this
subparagraph (e) the Ending Date shall be two (2) years after the effective date
of such termination, and the aggregate Base Salary payable under subparagraph
(d)(i) (as modified by this subparagraph (e)) for all periods through the Ending
Date shall be paid to the Executive in a lump sum without regard to Other
Employment not later than thirty (30) days after the effective date of such
termination, (ii) the minimum annual incentive bonus payable under subparagraph
(d)(ii) shall be paid to the Executive not later than thirty (30) days after the
effective date of such termination (with any balance of such annual incentive
bonus being payable as provided in such subparagraph (d)(ii)), and (iii) the
amount payable under subparagraph (d)(iii) (as modified by this subparagraph
(e)) shall be one hundred ten percent (110%) of the Base Salary in effect on the
effective date of such termination and shall be paid to the Executive in a lump
sum not later than thirty (30) days after the effective date of such
termination.
(f) Constructive Termination. If at any time during the term of this
------------------------
agreement the Board, the Chief Executive Officer of CSGS, the Chief Operating
Officer of CSGS, or a Permitted Assignee materially alters the duties and
responsibilities of the Executive provided for in Paragraph 1 or assigns to the
Executive duties and responsibilities materially inappropriate to an executive
vice president of the Companies without the Executive's written consent, then,
at the election of the Executive (such election to be made by written notice
from the Executive to the Board or the Permitted Assignee, as may be appropriate
in the circumstances), (i) such action by the Board, the Chief Executive Officer
of CSGS, the Chief Operating Officer of CSGS, or such Permitted Assignee shall
constitute a constructive termination of the Executive's employment by the
Companies for a reason other than cause (the "Constructive Termination"), (ii)
the Executive thereupon may resign from his offices and positions with the
Companies and shall not be obligated to perform any further services of any kind
to or for the Companies, and (iii) the Executive shall be entitled to receive
from the Companies (and the Permitted Assignee, if applicable) at the applicable
times all of the compensation, benefits, and other payments described in
subparagraph (d) or subparagraph (e) of this Paragraph 10 (whichever may be
applicable), as if the effective date of the Executive's resignation were the
effective date of his termination of employment for purposes of determining such
compensation, benefits, and other payments. Notwithstanding the foregoing
provisions of this subparagraph (f), before exercising any of his rights
pursuant to the preceding sentence, the Executive shall give written notice to
the Chief Executive Officer of CSGS setting forth the Executive's intent to
exercise such rights and specifying the Constructive Termination which the
Executive claims to be the basis for such intended exercise; and the Companies
shall have twenty (20) days after the Chief Executive Officer has received such
notice to take such actions, if any, as the Companies may deem appropriate to
eliminate such claimed Constructive Termination (without thereby admitting that
a Constructive Termination had occurred). If the Companies so act to eliminate
such claimed Constructive Termination, then the Executive shall not have any
rights under this subparagraph (f) with respect to such claimed Constructive
Termination.
(g) Voluntary Resignation. If the Executive voluntarily resigns as an
---------------------
employee of the Companies and thereby voluntarily terminates his employment
under this agreement and if none of subparagraphs (a) through (f) of this
Paragraph 10 is applicable to such termination, then the Executive shall be
entitled to receive only the following compensation, benefits, and other
payments from the Companies:
(i) The Base Salary through the effective date of such voluntary
resignation;
(ii) Any other amounts earned, accrued, or owed to the Executive
under this agreement but not paid as of the effective date
of such voluntary resignation;
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(iii) If (and only if) the Executive's voluntary resignation
is effective on December 31 of a particular calendar
year, the Executive's annual incentive bonus (if any)
for such calendar year, to be paid in accordance with
the regular schedule for its payment; and
(iv) Any other benefits payable to the Executive upon his
voluntary resignation, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such voluntary resignation.
The Executive understands and agrees that if this subparagraph (g) is applicable
to the termination of the Executive's employment with the Companies, then,
unless his voluntary resignation is effective on December 31 of a particular
calendar year, the Executive will not be entitled to any annual incentive bonus
for the calendar year in which his voluntary resignation becomes effective.
(h) Liquidated Damages. The Executive agrees to accept the compensation,
------------------
benefits, and other payments provided for in subparagraph (d), subparagraph (e),
or subparagraph (f) of this Paragraph 10, as the case may be, as full and
complete liquidated damages for any breach of this agreement resulting from the
actual or constructive termination of the Executive's employment under this
agreement for a reason other than cause or the Executive's death or disability;
and the Executive shall not have and hereby waives and relinquishes any other
rights or claims in respect of such breach.
(i) Notice of Other Employment and of Benefits. The Executive promptly
------------------------------------------
shall notify the Companies in writing of (i) his acceptance of the Other
Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the
effective date of such Other Employment, and (iii) the amount of salary, cash
bonus, and consulting fees which the Executive receives or is entitled to
receive from the Other Employment for services performed by him during the
period from the commencement of the Other Employment through the Ending Date.
Whenever relevant for purposes of this Paragraph 10, the Executive also promptly
shall notify the Companies of his receipt from another employer of any benefits
of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph
10. Such information shall be updated by the Executive whenever necessary to
keep the Companies informed on a current basis.
(j) Modification of Benefit Plans or Programs. Nothing contained in this
-----------------------------------------
Paragraph 10 shall obligate the Companies to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan or program referred
to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such
actions are similarly applicable to senior executives of the Companies
generally.
(k) Rights of Estate. If the Executive dies prior to his receipt of all
----------------
of the cash payments to which he may be entitled pursuant to subparagraph (b),
(c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes
applicable, then the unpaid portion of such cash payments shall be paid by the
Companies to the personal representative of the Executive's estate at the same
time or times that the payments would have been made to the Executive if he
still were living.
(l) Excess Parachute Payments. If any of the payments required to be made
-------------------------
to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any regulations thereunder, and
the Executive becomes liable for any excise tax on such "excess parachute
payments" and any interest or penalties thereon (such excise tax, interest, and
penalties, collectively, the "Tax Penalties"), then the Companies (and the
Permitted Assignee, if applicable) promptly shall make a cash payment (the
"Additional Payment") to the Executive in an amount equal to the Tax Penalties.
The Companies also promptly shall make an additional cash payment to the
Executive in an amount rounded to the nearest $100.00 which is equal to any
additional income, excise, and other taxes (using the individual tax rates
applicable to the Executive for the year for which such Tax Penalties are owed)
for which the Executive will be liable as a result of the Executive's receipt of
the Additional Payment (the additional cash payment provided for in this
sentence being referred to as a "Gross-Up Payment"). In addition, the Executive
shall be entitled to promptly receive from the Companies (and the Permitted
Assignee, if applicable) a further Gross-Up Payment in respect of each
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prior Gross-Up Payment until the amount of the last Gross-Up Payment is less
than $100.00.
11. Nondisclosure. During the term of this agreement and thereafter, the
-------------
Executive shall not, without the prior written consent of the Board or a person
(other than the Executive) so authorized by the Board, disclose or use for any
purpose (except in the course of his employment under this agreement and in
furtherance of the business of the Companies or any of their respective
subsidiaries) any confidential information, trade secrets, or proprietary data
of the Companies or any of their respective subsidiaries (collectively, for
purposes of this agreement, "Confidential Information"); provided, however, that
Confidential Information shall not include any information then known generally
to the public or ascertainable from public or published information (other than
as a result of unauthorized disclosure by the Executive) or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the Companies or their
respective subsidiaries, as the case may be.
12. Successors and Assigns. This agreement and all rights under this
----------------------
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and none of the parties to
this agreement shall, without the written consent of the others, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity, except as permitted by Paragraph 14.
13. Notices. For purposes of this agreement, notices and other
-------
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent either by next-business-day prepaid
express delivery by a recognized national express delivery service or by United
States certified mail, return receipt requested, postage prepaid, in either case
addressed as follows:
If to the Executive: Edward Nafus
c/o CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111
If to the Companies: CSG Systems International, Inc.
and CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger
-------------------------------------
of Systems with another corporation (other than CSGS) in a transaction in which
Systems is not the surviving corporation, (b) the consolidation of Systems into
a new corporation resulting from such consolidation, (c) the sale or other
disposition of all or substantially all of the assets of Systems, the Companies
may assign this agreement and all of the rights and obligations of the Companies
under this agreement to the surviving, resulting, or acquiring entity (for
purposes of this agreement, a "Permitted Assignee"); provided, that such
surviving, resulting, or acquiring entity shall in writing assume and agree to
perform all of the obligations of the Companies under this agreement; and
provided further, that the Companies shall remain jointly and severally liable
for the performance of the obligations of the Companies under this agreement in
the event of a failure of the Permitted Assignee to perform its obligations
under this agreement.
15. Change of Control. For purposes of this agreement, a "Change of
-----------------
Control" shall be deemed to have occurred upon the happening of any of the
following events:
(a) CSGS is merged or consolidated into another corporation, and
immediately after such merger or consolidation becomes effective the
holders of a majority of the outstanding shares of voting capital
stock of CSGS immediately prior to the effectiveness of such merger
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<PAGE>
or consolidation do not own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of the
surviving or resulting corporation in such merger or
consolidation,
(b) CSGS ceases to own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of Systems (unless
such event results from the merger of Systems into CSGS, with no
change in the ownership of the voting capital stock of CSGS, or
from the dissolution of Systems and the continuation of its
business by CSGS),
(c) Systems is merged or consolidated into a corporation other than
CSGS, and at any time after such merger or consolidation becomes
effective CSGS does not own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of the
surviving or resulting corporation in such merger or
consolidation,
(d) the stockholders of Systems vote (or act by written consent) to
dissolve Systems (unless the business of Systems will be
continued by CSGS) or to sell or otherwise dispose of all or
substantially all of the property and assets of Systems (other
than to an entity or group of entities which is then under common
ownership (directly or indirectly) with Systems),
(e) any person, entity, or group of persons within the meaning of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934
(the "1934 Act") and the rules promulgated thereunder becomes the
beneficial owner (within the meaning of Rule 13d-3 under the 1934
Act) of thirty percent (30%) or more of the outstanding voting
capital stock of CSGS, or
(f) during any period of two consecutive years or less, individuals
who at the beginning of such period constituted the Board of
Directors of CSGS cease, for any reason, to constitute at least a
majority of the Board of Directors of CSGS, unless the election
or nomination for election of each new director of CSGS who took
office during such period was approved by a vote of at least
seventy-five percent (75%) of the directors of CSGS still in
office at the time of such election or nomination for election
who were directors of CSGS at the beginning of such period.
16. Miscellaneous. No provision of this agreement may be modified,
-------------
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and an officer of CSGS (other than
the Executive) so authorized by the Board. No waiver by any party to this
agreement at any time of any breach by any other party of, or compliance by any
other party with, any condition or provision of this agreement to be performed
by such other party shall be deemed to be a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this agreement have been made by any party that
are not expressly set forth in this agreement.
17. Representations of Companies. The Companies severally represent and
----------------------------
warrant to the Executive that they have full legal power and authority to enter
into this agreement, that the execution and delivery of this agreement by the
Companies have been duly authorized by their respective boards of directors, and
that the performance of their respective obligations under this agreement will
not violate any agreement between the Companies, or either of them, and any
other person, firm, or organization.
18. Non-Solicitation of Employees. For a period of one (1) year after
-----------------------------
the effective date of the termination of the Executive's employment under this
agreement for any reason, whether voluntarily or involuntarily and with or
without cause, without the prior written consent of CSGS the Executive agrees
(i) not to directly or indirectly employ, solicit for employment, assist any
other person in employing or soliciting for employment, or advise or recommend
to any other person that such other person employ or solicit for employment any
person who then is an employee of the Companies (or either of them) or any of
the respective subsidiaries of the Companies and (ii) not to recommend to any
then employee of the Companies (or either of them) or any of the respective
subsidiaries of the Companies that such employee leave the employ of such
employer.
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19. Post-Termination Noncompetition. Because the Confidential Information
-------------------------------
known to or developed by the Executive during his employment by the Companies
encompasses at the highest level information concerning the plans, strategies,
products, operations, and existing and prospective customers of the Companies
and could not practically be disregarded by the Executive, the Executive
acknowledges that his provision of executive services to a competitor of the
Companies or either of them soon after the termination of the Executive's
employment by the Companies would inevitably result in the use of the
Confidential Information by the Executive in his performance of such executive
services, even if the Executive were to use his best efforts to avoid such use
of the Confidential Information. To prevent such use of the Confidential
Information and the resulting unfair competition and wrongful appropriation of
the goodwill and other valuable proprietary interests of the Companies, the
Executive agrees that for a period of one (1) year after the termination of his
employment by the Companies for any reason, whether voluntarily or involuntarily
and with or without cause, the Executive will not, directly or indirectly:
(a) engage, whether as an employee, agent, consultant, independent
contractor, owner, partner, member, or otherwise, in a business
activity which then competes in a material way with a business
activity then being actively engaged in by the Companies or
either of them;
(b) solicit or recommend to any other person that such period solicit
any then customer of the Companies or either or them, which
customer also was a customer of the Companies or either of them
at any time during the one (1) year period prior to the
termination of the Executive's employment by the Companies, for
the purpose of obtaining the business of such customer in
competition with the Companies or either of them; or
(c) induce or attempt to induce any then customer or prospective
customer of the Companies or either of them to terminate or not
commence a business relationship with the Companies or either of
them.
The Companies and the Executive acknowledge and agree that the restrictions
contained in this Paragraph 19 are both reasonable and necessary in view of the
Executive's positions with the Companies and that the Executive's compensation
and benefits under this agreement are sufficient consideration for the
Executive's acceptance of such restrictions. Nevertheless, if any of the
restrictions contained in this Paragraph 19 are found by a court having
jurisdiction to be unreasonable, or excessively broad as to geographic area or
time, or otherwise unenforceable, then the parties intend that the restrictions
contained in this Paragraph 19 be modified by such court so as to be reasonable
and enforceable and, as so modified by the court, be fully enforced. Nothing
contained in this paragraph shall be construed to preclude the investment by the
Executive of any of his assets in any publicly owned entity so long as the
Executive has no direct or indirect involvement in the business of such entity
and owns less than 2% of the voting equity securities of such entity. Nothing
contained in this paragraph shall be construed to preclude the Executive from
becoming employed by or serving as a consultant to or having dealings with a
publicly owned entity one of whose businesses is a competitor of the Companies
or either of them so long as such employment, consultation, or dealings do not
directly or indirectly involve or relate to the business of such entity which is
a competitor of the Companies or either of them.
20. Joint and Several Obligations. All of the obligations of the
-----------------------------
Companies under this agreement are joint and several; and neither the
bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization
nor the cessation of business or corporate existence of one of the Companies
shall affect, impair, or diminish the obligations under this agreement of the
other of the Companies. The compensation and benefits to which the Executive is
entitled under this agreement are aggregate compensation and benefits, and the
payment of such compensation or the provision of such benefits by one of the
Companies shall to the extent of such payment or provision satisfy the
obligations of the other of the Companies. The Companies may agree between
themselves as to which of them will be responsible for some or all of the
Executive's compensation and benefits under this agreement, but any such
agreement between the Companies shall not diminish to any extent the joint and
several liability of the Companies to the Executive for all of such compensation
and benefits.
21. Injunctive Relief. The Executive acknowledges that his violation of
-----------------
the provisions and restrictions contained in Paragraphs 11, 18, and 19 could
cause significant injury to the Companies for which the Companies would have no
adequate remedy at law. Accordingly, the Executive agrees that the Companies
will be entitled, in addition to any other
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rights and remedies that then may be available to the Companies, to seek and
obtain injunctive relief to prevent any breach or potential breach of any of the
provisions and restrictions contained in Paragraph 11, 18, or 19.
22. Dispute Resolution. Subject to the provisions of Paragraph 21, any
------------------
claim by the Executive or the Companies arising from or in connection with this
agreement, whether based on contract, tort, common law, equity, statute,
regulation, order, or otherwise (a "Dispute"), shall be resolved as follows:
(a) Such Dispute shall be submitted to mandatory and binding
arbitration at the election of either the Executive or the
particular Company involved (the "Disputing Party"). Except as
otherwise provided in this Paragraph 22, the arbitration shall be
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall notify the
other party in writing within 30 days after the occurrence of the
event or events which give rise to the Dispute (the "Arbitration
Demand"), which notice shall (i) describe in reasonable detail
the nature of the Dispute, (ii) state the amount of any claim,
(iii) specify the requested relief, and (iv) name an arbitrator
who (A) has been licensed to practice law in the U.S. for at
least ten years, (B) has no past or present relationship with
either the Executive or the Companies, and (C) is experienced in
representing clients in connection with employment related
disputes (the "Basic Qualifications"). Within fifteen (15) days
after the other party's receipt of the Arbitration Demand, such
other party shall serve on the Disputing Party a written
statement (i) answering the claims set forth in the Arbitration
Demand and including any affirmative defenses of such party, (ii)
asserting any counterclaim, which statement shall (A) describe in
reasonable detail the nature of the Dispute relating to the
counterclaim, (B) state the amount of the counterclaim, and (C)
specify the requested relief, and (iii) naming a second
arbitrator satisfying the Basic Qualifications. Promptly, but in
any event within five (5) days thereafter, the two arbitrators so
named shall select a third neutral arbitrator from a list
provided by the AAA of potential arbitrators who satisfy the
Basic Qualifications and who have no past or present relationship
with the parties' counsel, except as otherwise disclosed in
writing to and approved by the parties. The arbitration will be
heard by a panel of the three arbitrators so chosen (the
"Arbitration Panel"), with the third arbitrator so chosen serving
as the chairperson of the Arbitration Panel. Decisions of a
majority of the members of the Arbitration Panel shall be
determinative.
(c) The arbitration hearing shall be held in Denver, Colorado. The
Arbitration Panel is specifically authorized to render partial or
full summary judgment as provided for in the Federal Rules of
Civil Procedure. The Arbitration Panel will have no power or
authority, under the Commercial Arbitration Rules of the AAA or
otherwise, to relieve the parties from their agreement hereunder
to arbitrate or otherwise to amend or disregard any provision of
this agreement, including, without limitation, the provisions of
this Paragraph 22.
(d) If an arbitrator refuses or is unable to proceed with arbitration
proceedings as called for by this Paragraph 22, such arbitrator
shall be replaced by the party who selected such arbitrator or,
if such arbitrator was selected by the two party-appointed
arbitrators, by such two party-appointed arbitrators' selecting a
new third arbitrator in accordance with Paragraph 22(b), in
either case within five (5) days after such declining or
withdrawing arbitrator's giving notice of refusal or inability to
proceed. Each such replacement arbitrator shall satisfy the Basic
Qualifications. If an arbitrator is replaced pursuant to this
Paragraph 22(d) after the arbitration hearing has commenced, then
a rehearing shall take place in accordance with the provisions of
this Paragraph 22(d) and the Commercial Arbitration Rules of the
AAA.
(e) Within ten (10) days after the closing of the arbitration
hearing, the Arbitration Panel shall prepare and distribute to
the parties a writing setting forth the Arbitration Panel's
finding of facts and conclusions of law relating to the Dispute,
including the reason for the giving or denial of any award. The
findings and conclusions and the award, if any, shall be deemed
to be
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<PAGE>
confidential information.
(f) The Arbitration Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise to assume case
management initiative and control to effect an efficient and
expeditious resolution of the Dispute. The Arbitration Panel is
authorized to issue monetary sanctions against either party if,
upon a showing of good cause, such party is unreasonably delaying
the proceeding.
(g) Any award rendered by the Arbitration Panel will be final,
conclusive, and binding upon the parties, and any judgment on
such award may be entered and enforced in any court of competent
jurisdiction.
(h) Each party will bear a pro rata share of all fees, costs, and
expenses of the arbitrators; and, notwithstanding any law to the
contrary, each party will bear all of the fees, costs, and
expenses of his or its own attorneys, experts, and witnesses.
However, in connection with any judicial proceeding to compel
arbitration pursuant to this agreement or to enforce any award
rendered by the Arbitration Panel, the prevailing party in such a
proceeding will be entitled to recover reasonable attorneys' fees
and expenses incurred in connection with such proceedings, in
addition to any other relief to which such party may be entitled.
(i) Nothing contained in the preceding provisions of this Paragraph
22 shall be construed to prevent either party from seeking from a
court a temporary restraining order or other injunctive relief
pending final resolution of a Dispute pursuant to this Paragraph
22.
23. No Duty to Seek Employment. The Executive shall not be under any duty
--------------------------
or obligation to seek or accept other employment following the termination of
his employment by the Companies; and, except as expressly provided in
subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment,
or benefit due the Executive under this agreement shall be reduced, suspended,
or discontinued if the Executive accepts such other employment.
24. Withholding of Taxes. The Companies may withhold from any amounts
--------------------
payable to the Executive under this agreement all federal, state, and local
taxes which are required to be so withheld by any applicable law or governmental
regulation or ruling.
25. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision.
26. Counterparts. This document may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
27. Headings. The headings of the paragraphs contained in this document
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
28. Applicable Law. This agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Colorado.
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<PAGE>
IN WITNESS WHEREOF, the Companies and the Executive have executed this
agreement on the day and year first above written.
CSG SYSTEMS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Neal C. Hansen
--------------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
CSG SYSTEMS, INC., a Delaware
corporation
By: /s/ Neal C. Hansen
------------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
/s/ Edward C. Nafus
-------------------------------------
Edward Nafus
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<PAGE>
EXHIBIT 10.47
EMPLOYMENT AGREEMENT
--------------------
This Employment Agreement is made and entered into on the 17th day of
----
November, 1998, among CSG SYSTEMS INTERNATIONAL, INC. ("CSGS"), a Delaware
corporation, CSG SYSTEMS, INC. ("Systems"), a Delaware corporation, and GREG
PARKER (the "Executive"). CSGS and Systems collectively are referred to in this
Employment Agreement as the "Companies".
* * *
WHEREAS, Systems is a wholly-owned subsidiary of CSGS; and
WHEREAS, the Executive currently is employed by Systems and serves as a
Vice President and the Chief Financial Officer of both of the Companies; and
WHEREAS, the Companies desire to provide for the continued employment of
the Executive as a Vice President and their Chief Financial Officer; and
WHEREAS, the Executive desires to accept such continued employment upon the
terms set forth in this agreement;
NOW, THEREFORE, in consideration of the foregoing recitals and the
respective covenants and agreements of the parties contained in this document,
the Companies and the Executive agree as follows:
1. Employment and Duties. Each of the Companies hereby employs the
---------------------
Executive as a Vice President and their Chief Financial Officer throughout the
term of this agreement and agrees to cause the Executive from time to time to be
elected or appointed to such corporate offices or positions. The duties and
responsibilities of the Executive shall include the duties and responsibilities
of the Executive's corporate offices and positions referred to in the preceding
sentence which are set forth in the respective bylaws of the Companies from time
to time, general supervision of the financial affairs of the Companies, and such
other duties and responsibilities consistent with the Executive's corporate
offices and positions referred to in the preceding sentence and this agreement
which the Board of Directors of CSGS (the "Board") or the Chief Executive
Officer of CSGS from time to time may assign to the Executive. If the Executive
is elected or appointed as a director of CSGS or Systems or as an officer or
director of any of the respective subsidiaries of the Companies during the term
of this agreement, then he also shall serve in such capacity or capacities but
without additional compensation.
2. Term. The term of this agreement shall begin on the date of this
----
agreement and shall continue thereafter through December 31, 1999, unless the
Executive's employment under this agreement is sooner terminated in accordance
with this agreement. On December 31 of each year during the term of this
agreement, as extended from time to time pursuant to this sentence, beginning
December 31, 1998, the term of this agreement automatically and without further
action being required shall be extended by one (1) year unless, not later than
one (1) year prior to a particular December 31, either CSGS notifies the
Executive and Systems in writing or the Executive notifies the Companies in
writing that such extension shall not occur on such December 31, in which latter
case this agreement shall terminate upon the expiration of its then current
term, unless the Executive's employment under this agreement is sooner
terminated in accordance with this agreement. References in this agreement to
the "current term" of this agreement shall include both the original term of
this agreement and any automatic extensions of such term which actually have
occurred pursuant to this Paragraph 2.
3. Place of Employment. Regardless of the location of the executive
-------------------
offices of the Companies during the term of this agreement, the Companies shall
maintain a suitably staffed office for the Executive in the Denver, Colorado,
metropolitan area during the term of this agreement; and the Executive will not
be required without his consent to relocate or transfer his executive office or
principal residence from the immediate vicinity of the Denver,
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<PAGE>
Colorado, metropolitan area.
4. Base Salary. For all services to be rendered by the Executive
-----------
pursuant to this agreement, the Companies agree to pay the Executive during the
term of this agreement a base salary (the "Base Salary") at an annual rate of
$170,000 through December 31, 1998, and at an annual rate of not less than
$205,000 after December 31, 1998; provided, that the Base Salary as then in
effect shall be increased as of January 1 of each calendar year after 1999
during the term of this agreement by at least the same percentage that the
United States Department of Labor Consumer Price Index (All Items) for All Urban
Consumers, 1982-84=100 ("CPI-U") for the November immediately preceding such
January 1 increased over the CPI-U for the November one year earlier. The Board
shall review the Base Salary at least annually for the purpose of determining
whether a Base Salary increase greater than such CPI-U increase should be
granted to the Executive for a particular 12-month period. The Executive's
annual incentive bonus provided for in Paragraph 5 and all other compensation
and benefits to which the Executive is or may become entitled pursuant to this
agreement or under any plans or programs of the Companies shall be in addition
to the Base Salary.
5. Annual Incentive Bonus. As soon as practicable after the execution of
----------------------
this agreement, the Board shall establish an incentive bonus program for the
Executive for 1999. Such incentive bonus program shall be reflected either in a
written supplement to this agreement signed by the Companies and the Executive
or in such other form as the Companies and the Executive may agree upon. The
same procedure shall be followed for subsequent calendar years during the term
of this agreement, so that an annual incentive bonus program for the Executive
will be in effect throughout the term of this agreement. The Executive and the
Companies understand and acknowledge that, among other things, such incentive
bonus program will involve achievement by the Companies of various financial
objectives, which may include but are not limited to revenues and earnings, and
also may include achievement by the Companies of various non-financial
objectives. Such incentive bonus program for each calendar year shall provide
the opportunity for the Executive to earn an incentive bonus of not less than
fifty percent (50%) of his Base Salary for such calendar year if the agreed upon
objectives are fully achieved. The Board from time to time also may establish
incentive compensation programs for the Executive covering periods of more than
one (1) year, and any such programs shall be in addition to the annual incentive
bonus program required by this Paragraph 5. For 1998 the annual incentive bonus
program previously established by the Companies for the Executive shall remain
in effect.
6. Expenses. During the term of this agreement, the Executive shall be
--------
entitled to prompt reimbursement by the Companies of all reasonable ordinary and
necessary travel, entertainment, and other expenses incurred by the Executive
(in accordance with the policies and procedures established by the Companies for
their respective senior executive officers) in the performance of his duties and
responsibilities under this agreement; provided, that the Executive shall
properly account for such expenses in accordance with the policies and
procedures of the Companies, which may include but are not limited to itemized
accountings.
7. Other Benefits. During the term of this agreement, the Companies
--------------
shall provide to the Executive and his eligible dependents at the expense of the
Companies individual or group medical, hospital, dental, and long-term
disability insurance coverages and group life insurance coverage, in each case
at least as favorable as those coverages which are provided to other vice
presidents of the Companies. During the term of this agreement, the Executive
also shall be entitled to participate in such other benefit plans or programs
which the Companies from time to time may make available to their employees
generally (except such programs, such as the 1996 Employee Stock Purchase Plan
of CSGS, in which executive officers of CSGS are not eligible to participate
because of securities law reasons).
8. Vacations and Holidays. During the term of this agreement, the
----------------------
Executive shall be entitled to paid vacations and holidays in accordance with
the policies of the Companies in effect from time to time for their respective
senior executive officers, but in no event shall the Executive be entitled to
less than four (4) weeks of vacation during each calendar year.
9. Full-Time Efforts and Other Activities. During the term of this
--------------------------------------
agreement, to the best of his ability and using all of his skills, the Executive
shall devote substantially all of his working time and efforts during the normal
business hours of the Companies to the business and affairs of the Companies and
to the diligent and faithful performance of the duties and responsibilities
assigned to him pursuant to this agreement, except for vacations, holidays, and
sick days. However, the Executive may devote a reasonable amount of his time to
civic, community, or
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charitable activities, to service on the governing bodies or committees of trade
associations or similar organizations of which either or both of the Companies
are members, and, with the prior approval of the Board or the Chief Executive
Officer of CSGS, to service as a director of other corporations and to other
types of activities not expressly mentioned in this paragraph, so long as the
activities referred to in this sentence do not materially interfere with the
proper performance of the Executive's duties and responsibilities under this
agreement. The Executive also shall be free to manage and invest his assets in
such manner as will not require any substantial services by the Executive in the
conduct of the businesses or affairs of the entities or in the management of the
properties in which such investments are made, so long as such activities do not
materially interfere with the proper performance of the Executive's duties and
responsibilities under this agreement.
10. Termination of Employment.
-------------------------
(a) Termination Because of Death. The Executive's employment by the
----------------------------
Companies under this agreement shall terminate upon his death. If the
Executive's employment under this agreement terminates because of his death,
then the Executive's estate or his beneficiaries (as the case may be) shall be
entitled to receive the following compensation and benefits from the Companies:
(i) The Base Salary through the date of the Executive's
death;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which his death occurs
(computed as if the Executive were employed by the
Companies throughout such calendar year), based upon
the number of days in such calendar year elapsed
through the date of the Executive's death as a
proportion of 365, to be paid at the same time that
such incentive bonus would have been paid had the
Executive's death not occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
date of the Executive's death; and
(iv) Any other benefits payable by reason of the Executive's
death, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the date of the Executive's
death.
(b) Termination Because of Disability. If the Executive becomes incapable
---------------------------------
by reason of physical injury, disease, or mental illness of substantially
performing his duties and responsibilities under this agreement for a continuous
period of six (6) months or more or for more than one hundred eighty (180) days
in the aggregate (whether or not consecutive) during any 12-month period, then
at any time after the elapse of such six-month period or such 180 days, as the
case may be, the Board may terminate the Executive's employment by the Companies
under this agreement. If the Executive's employment under this agreement is
terminated by the Board because of such disability on the part of the Executive,
then the Executive shall be entitled to receive the following compensation and
benefits from the Companies:
(i) The Base Salary through the effective date of such
termination;
(ii) A pro rata portion of the Executive's annual incentive
bonus for the calendar year in which such termination
occurs (computed as if the Executive were employed by
the Companies throughout such calendar year), based
upon the number of days in such calendar year elapsed
through the effective date of such termination as a
proportion of 365, to be paid at the same time that
such incentive bonus would have been paid if such
termination had not occurred;
(iii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
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(iv) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the cessation of
such disability, the Executive's death, the Executive's
attainment of age sixty-five (65), or (separately with
respect to the termination of each benefit) the
provision of a substantially equivalent benefit to the
Executive by another employer of the Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
and
(v) Any other benefits payable by reason of the Executive's
disability, or to which the Executive otherwise may be
entitled, under any benefit plans or programs of the
Companies in effect on the effective date of such
termination.
For purposes of this subparagraph (b), decisions with respect to the Executive's
disability shall be made by the Board, using its reasonable good faith judgment;
and, in making any such decision, the Board shall be entitled to rely upon the
opinion of a duly licensed and qualified physician selected by a majority of the
members of the Board who are not employees of either of the Companies or any of
their respective subsidiaries.
(c) Termination for Cause. The Board may terminate the Executive's
---------------------
employment by the Companies under this agreement for cause; however, for
purposes of this agreement "cause" shall mean only (i) the Executive's
confession or conviction of theft, fraud, embezzlement, or other crime involving
dishonesty, (ii) the Executive's excessive absenteeism (other than by reason of
physical injury, disease, or mental illness) without a reasonable justification,
(iii) material violation by the Executive of the provisions of Paragraph 11,
(iv) habitual and material negligence by the Executive in the performance of his
duties and responsibilities under or pursuant to this agreement and failure on
the part of the Executive to cure such negligence within twenty (20) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such negligence, (v)
material non-compliance by the Executive with his obligations under Paragraph 9
and failure to correct such non-compliance within twenty (20) days after his
receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such non-compliance,
(vi) material failure by the Executive to comply with a lawful directive of the
Board or the Chief Executive Officer of CSGS and failure to cure such non-
compliance within twenty (20) days after his receipt of a written notice from
the Board or the Chief Executive Officer of CSGS setting forth in reasonable
detail the particulars of such non-compliance, (vii) a material breach by the
Executive of any of his fiduciary duties to the Companies and, if such breach is
curable, the Executive's failure to cure such breach within ten (10) days after
his receipt of a written notice from the Board or the Chief Executive Officer of
CSGS setting forth in reasonable detail the particulars of such breach, or
(viii) willful misconduct or fraud on the part of the Executive in the
performance of his duties under this agreement. In no event shall the results
of operations of the Companies or any business judgment made in good faith by
the Executive constitute an independent basis for termination for cause of the
Executive's employment under this agreement. Any termination of the Executive's
employment for cause must be authorized by a majority vote of the Board taken
not later than nine (9) months after a majority of the members of the Board
(other than the Executive) have actual knowledge of the occurrence of the event
or conduct constituting the cause for such termination. If the Executive's
employment under this agreement is terminated by the Board for cause, then the
Executive shall be entitled to receive the following compensation and benefits
from the Companies:
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(i) The Base Salary through the effective date of such
termination;
(ii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination; and
(iii) Any other benefits payable to the Executive upon his
termination for cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(d) Termination Without Cause Prior to a Change of Control. If, prior to
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the occurrence of a Change of Control, the Companies terminate the Executive's
employment under this agreement for any reason other than cause or the
Executive's death or disability, then the Executive shall be entitled to receive
the following compensation, benefits, and other payments from the Companies:
(i) The Base Salary through that date which is one (1) year
after the effective date of such termination (the
"Ending Date"), to be paid at the same times that the
Base Salary would have been paid if such termination
had not occurred; provided, that if the Executive
commences employment with another employer, whether as
an employee or as a consultant, prior to the Ending
Date (for purposes of this Paragraph 10, the "Other
Employment"), then such payments of the Base Salary
shall be reduced from time to time by the aggregate
amount of salary, cash bonus, and consulting fees
received or receivable by the Executive from the Other
Employment for services performed by him during the
period from the commencement of the Other Employment
through the Ending Date;
(ii) The Executive's annual incentive bonus for the calendar
year in which such termination occurs (computed as if
the Executive were employed by the Companies throughout
such calendar year), to be paid at the same time that
such incentive bonus would have been paid if such
termination had not occurred and to be no less than the
Executive's annual incentive bonus for the calendar
year immediately preceding the calendar year in which
such termination occurs;
(iii) An amount equal to fifty percent (50%) of the Base
Salary in effect on the effective date of such
termination, such amount to be paid, without interest,
one year after the effective date of such termination.
(iv) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such termination;
(v) Continued participation in the following benefit plans
or programs of the Companies which may be in effect
from time to time and in which the Executive was
participating as of the effective date of such
termination, to the extent that such continued
participation by the Executive is permitted under the
terms and conditions of such plans (unless such
continued participation is restricted or prohibited by
applicable governmental regulations governing such
plans), until the first to occur of the Ending Date or
(separately with respect to the termination of each
benefit) the provision of a substantially equivalent
benefit to the Executive by another employer of the
Executive:
(1) Group medical and hospital insurance,
(2) Group dental insurance,
(3) Group life insurance, and
(4) Group long-term disability insurance;
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and
(vi) Any other benefits payable to the Executive upon his
termination without cause, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such termination.
(e) Termination Without Cause After a Change of Control. If, after the
---------------------------------------------------
occurrence of a Change of Control, the Companies or any Permitted Assignee
terminates the Executive's employment under this agreement for any reason other
than cause or the Executive's death or disability, then the Executive shall be
entitled to receive from the Companies and the Permitted Assignee, if any (all
of whom shall be jointly and severally liable therefor), all of the
compensation, benefits, and other payments from the Companies which are
described and provided for in subparagraph (d) of this Paragraph 10 (as modified
by this subparagraph (e)); provided, however, that (i) for purposes of this
subparagraph (e) the Ending Date shall be two (2) years after the effective date
of such termination, and the aggregate Base Salary payable under subparagraph
(d)(i) (as modified by this subparagraph (e)) for all periods through the Ending
Date shall be paid to the Executive in a lump sum without regard to Other
Employment not later than thirty (30) days after the effective date of such
termination, (ii) the minimum annual incentive bonus payable under subparagraph
(d)(ii) shall be paid to the Executive not later than thirty (30) days after the
effective date of such termination (with any balance of such annual incentive
bonus being payable as provided in such subparagraph (d)(ii)), and (iii) the
amount payable under subparagraph (d)(iii) (as modified by this subparagraph
(e)) shall be one hundred percent (100%) of the Base Salary in effect on the
effective date of such termination and shall be paid to the Executive in a lump
sum not later than thirty (30) days after the effective date of such
termination.
(f) Constructive Termination. If at any time during the term of this
------------------------
agreement the Board, the Chief Executive Officer of CSGS, or a Permitted
Assignee materially alters the duties and responsibilities of the Executive
provided for in Paragraph 1 or assigns to the Executive duties and
responsibilities materially inappropriate to the chief financial officer of the
Companies without the Executive's written consent, then, at the election of the
Executive (such election to be made by written notice from the Executive to the
Board or the Permitted Assignee, as may be appropriate in the circumstances),
(i) such action by the Board, the Chief Executive Officer of CSGS, or such
Permitted Assignee shall constitute a constructive termination of the
Executive's employment by the Companies for a reason other than cause (the
"Constructive Termination"), (ii) the Executive thereupon may resign from his
offices and positions with the Companies and shall not be obligated to perform
any further services of any kind to or for the Companies, and (iii) the
Executive shall be entitled to receive from the Companies (and the Permitted
Assignee, if applicable) at the applicable times all of the compensation,
benefits, and other payments described in subparagraph (d) or subparagraph (e)
of this Paragraph 10 (whichever may be applicable), as if the effective date of
the Executive's resignation were the effective date of his termination of
employment for purposes of determining such compensation, benefits, and other
payments. Notwithstanding the foregoing provisions of this subparagraph (f),
before exercising any of his rights pursuant to the preceding sentence, the
Executive shall give written notice to the Chief Executive Officer of CSGS
setting forth the Executive's intent to exercise such rights and specifying the
Constructive Termination which the Executive claims to be the basis for such
intended exercise; and the Companies shall have twenty (20) days after the Chief
Executive Officer has received such notice to take such actions, if any, as the
Companies may deem appropriate to eliminate such claimed Constructive
Termination (without thereby admitting that a Constructive Termination had
occurred). If the Companies so act to eliminate such claimed Constructive
Termination, then the Executive shall not have any rights under this
subparagraph (f) with respect to such claimed Constructive Termination.
(g) Voluntary Resignation. If the Executive voluntarily resigns as an
---------------------
employee of the Companies and thereby voluntarily terminates his employment
under this agreement and if none of subparagraphs (a) through (f) of this
Paragraph 10 is applicable to such termination, then the Executive shall be
entitled to receive only the following compensation, benefits, and other
payments from the Companies:
(i) The Base Salary through the effective date of such
voluntary resignation;
(ii) Any other amounts earned, accrued, or owed to the
Executive under this agreement but not paid as of the
effective date of such voluntary resignation;
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(iii) If (and only if) the Executive's voluntary resignation
is effective on December 31 of a particular calendar
year, the Executive's annual incentive bonus (if any)
for such calendar year, to be paid in accordance with
the regular schedule for its payment; and
(iv) Any other benefits payable to the Executive upon his
voluntary resignation, or to which the Executive
otherwise may be entitled, under any benefit plans or
programs of the Companies in effect on the effective
date of such voluntary resignation.
The Executive understands and agrees that if this subparagraph (g) is applicable
to the termination of the Executive's employment with the Companies, then,
unless his voluntary resignation is effective on December 31 of a particular
calendar year, the Executive will not be entitled to any annual incentive bonus
for the calendar year in which his voluntary resignation becomes effective.
(h) Liquidated Damages. The Executive agrees to accept the compensation,
------------------
benefits, and other payments provided for in subparagraph (d), subparagraph (e),
or subparagraph (f) of this Paragraph 10, as the case may be, as full and
complete liquidated damages for any breach of this agreement resulting from the
actual or constructive termination of the Executive's employment under this
agreement for a reason other than cause or the Executive's death or disability;
and the Executive shall not have and hereby waives and relinquishes any other
rights or claims in respect of such breach.
(i) Notice of Other Employment and of Benefits. The Executive promptly
------------------------------------------
shall notify the Companies in writing of (i) his acceptance of the Other
Employment referred to in subparagraph (d) of this Paragraph 10, (ii) the
effective date of such Other Employment, and (iii) the amount of salary, cash
bonus, and consulting fees which the Executive receives or is entitled to
receive from the Other Employment for services performed by him during the
period from the commencement of the Other Employment through the Ending Date.
Whenever relevant for purposes of this Paragraph 10, the Executive also promptly
shall notify the Companies of his receipt from another employer of any benefits
of the types referred to in subparagraphs (b)(iv) and (d)(v) of this Paragraph
10. Such information shall be updated by the Executive whenever necessary to
keep the Companies informed on a current basis.
(j) Modification of Benefit Plans or Programs. Nothing contained in this
-----------------------------------------
Paragraph 10 shall obligate the Companies to institute, maintain, or refrain
from changing, amending, or discontinuing any benefit plan or program referred
to in subparagraph (b)(iv) or (d)(v) of this Paragraph 10 so long as such
actions are similarly applicable to senior executives of the Companies
generally.
(k) Rights of Estate. If the Executive dies prior to his receipt of all
----------------
of the cash payments to which he may be entitled pursuant to subparagraph (b),
(c), (d), (e), (f), or (g) of this Paragraph 10 if any such subparagraph becomes
applicable, then the unpaid portion of such cash payments shall be paid by the
Companies to the personal representative of the Executive's estate at the same
time or times that the payments would have been made to the Executive if he
still were living.
(l) Excess Parachute Payments. If any of the payments required to be made
-------------------------
to the Executive pursuant to subparagraph (d), (e), or (f) of this Paragraph 10
constitute "excess parachute payments" within the meaning of Section 280G of the
Internal Revenue Code of 1986, as amended, and any regulations thereunder, and
the Executive becomes liable for any excise tax on such "excess parachute
payments" and any interest or penalties thereon (such excise tax, interest, and
penalties, collectively, the "Tax Penalties"), then the Companies (and the
Permitted Assignee, if applicable) promptly shall make a cash payment (the
"Additional Payment") to the Executive in an amount equal to the Tax Penalties.
The Companies also promptly shall make an additional cash payment to the
Executive in an amount rounded to the nearest $100.00 which is equal to any
additional income, excise, and other taxes (using the individual tax rates
applicable to the Executive for the year for which such Tax Penalties are owed)
for which the Executive will be liable as a result of the Executive's receipt of
the Additional Payment (the additional cash payment provided for in this
sentence being referred to as a "Gross-Up Payment"). In addition, the Executive
shall be entitled to promptly receive from the Companies (and the Permitted
Assignee, if applicable) a further Gross-Up Payment in respect of each
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prior Gross-Up Payment until the amount of the last Gross-Up Payment is less
than $100.00.
11. Nondisclosure. During the term of this agreement and thereafter, the
-------------
Executive shall not, without the prior written consent of the Board or a person
(other than the Executive) so authorized by the Board, disclose or use for any
purpose (except in the course of his employment under this agreement and in
furtherance of the business of the Companies or any of their respective
subsidiaries) any confidential information, trade secrets, or proprietary data
of the Companies or any of their respective subsidiaries (collectively, for
purposes of this agreement, "Confidential Information"); provided, however, that
Confidential Information shall not include any information then known generally
to the public or ascertainable from public or published information (other than
as a result of unauthorized disclosure by the Executive) or any information of a
type not otherwise considered confidential by persons engaged in the same
business or a business similar to that conducted by the Companies or their
respective subsidiaries, as the case may be.
12. Successors and Assigns. This agreement and all rights under this
----------------------
agreement shall be binding upon, inure to the benefit of, and be enforceable by
the parties hereto and their respective personal or legal representatives,
executors, administrators, heirs, distributees, devisees, legatees, successors,
and assigns. This agreement is personal in nature, and none of the parties to
this agreement shall, without the written consent of the others, assign or
transfer this agreement or any right or obligation under this agreement to any
other person or entity, except as permitted by Paragraph 14.
13. Notices. For purposes of this agreement, notices and other
-------
communications provided for in this agreement shall be deemed to be properly
given if delivered personally or sent either by next-business-day prepaid
express delivery by a recognized national express delivery service or by United
States certified mail, return receipt requested, postage prepaid, in either case
addressed as follows:
If to the Executive: Greg Parker
c/o CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111
If to the Companies: CSG Systems International, Inc.
and CSG Systems, Inc.
7887 East Belleview Avenue, Suite 1000
Englewood, Colorado 80111,
or to such other address as either party may have furnished to the other party
in writing in accordance with this paragraph. Such notices or other
communications shall be effective only upon receipt.
14. Merger, Consolidation, Sale of Assets. In the event of (a) a merger
-------------------------------------
of Systems with another corporation (other than CSGS) in a transaction in which
Systems is not the surviving corporation, (b) the consolidation of Systems into
a new corporation resulting from such consolidation, (c) the sale or other
disposition of all or substantially all of the assets of Systems, the Companies
may assign this agreement and all of the rights and obligations of the Companies
under this agreement to the surviving, resulting, or acquiring entity (for
purposes of this agreement, a "Permitted Assignee"); provided, that such
surviving, resulting, or acquiring entity shall in writing assume and agree to
perform all of the obligations of the Companies under this agreement; and
provided further, that the Companies shall remain jointly and severally liable
for the performance of the obligations of the Companies under this agreement in
the event of a failure of the Permitted Assignee to perform its obligations
under this agreement.
15. Change of Control. For purposes of this agreement, a "Change of
-----------------
Control" shall be deemed to have occurred upon the happening of any of the
following events:
(a) CSGS is merged or consolidated into another corporation, and
immediately after such merger or consolidation becomes effective
the holders of a majority of the outstanding shares of voting
capital stock of CSGS immediately prior to the effectiveness of
such merger
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or consolidation do not own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of the
surviving or resulting corporation in such merger or
consolidation,
(b) CSGS ceases to own (directly or indirectly) a majority of the
outstanding shares of voting capital stock of Systems (unless
such event results from the merger of Systems into CSGS, with no
change in the ownership of the voting capital stock of CSGS, or
from the dissolution of Systems and the continuation of its
business by CSGS),
(c) Systems is merged or consolidated into a corporation other than
CSGS, and at any time after such merger or consolidation becomes
effective CSGS does not own (directly or indirectly) a majority
of the outstanding shares of voting capital stock of the
surviving or resulting corporation in such merger or
consolidation,
(d) the stockholders of Systems vote (or act by written consent) to
dissolve Systems (unless the business of Systems will be
continued by CSGS) or to sell or otherwise dispose of all or
substantially all of the property and assets of Systems (other
than to an entity or group of entities which is then under common
ownership (directly or indirectly) with Systems),
(e) any person, entity, or group of persons within the meaning of
Sections 13(d) or 14(d) of the Securities Exchange Act of 1934
(the "1934 Act") and the rules promulgated thereunder becomes the
beneficial owner (within the meaning of Rule 13d-3 under the 1934
Act) of thirty percent (30%) or more of the outstanding voting
capital stock of CSGS, or
(f) during any period of two consecutive years or less, individuals
who at the beginning of such period constituted the Board of
Directors of CSGS cease, for any reason, to constitute at least a
majority of the Board of Directors of CSGS, unless the election
or nomination for election of each new director of CSGS who took
office during such period was approved by a vote of at least
seventy-five percent (75%) of the directors of CSGS still in
office at the time of such election or nomination for election
who were directors of CSGS at the beginning of such period.
16. Miscellaneous. No provision of this agreement may be modified,
-------------
waived, or discharged unless such waiver, modification, or discharge is agreed
to in writing and is signed by the Executive and an officer of CSGS (other than
the Executive) so authorized by the Board. No waiver by any party to this
agreement at any time of any breach by any other party of, or compliance by any
other party with, any condition or provision of this agreement to be performed
by such other party shall be deemed to be a waiver of similar or dissimilar
provisions or conditions at the same or any prior or subsequent time. No
agreements or representations, oral or otherwise, express or implied, with
respect to the subject matter of this agreement have been made by any party that
are not expressly set forth in this agreement.
17. Representations of Companies. The Companies severally represent and
----------------------------
warrant to the Executive that they have full legal power and authority to enter
into this agreement, that the execution and delivery of this agreement by the
Companies have been duly authorized by their respective boards of directors, and
that the performance of their respective obligations under this agreement will
not violate any agreement between the Companies, or either of them, and any
other person, firm, or organization.
18. Non-Solicitation of Employees. For a period of one (1) year after
-----------------------------
the effective date of the termination of the Executive's employment under this
agreement for any reason, whether voluntarily or involuntarily and with or
without cause, without the prior written consent of CSGS the Executive agrees
(i) not to directly or indirectly employ, solicit for employment, assist any
other person in employing or soliciting for employment, or advise or recommend
to any other person that such other person employ or solicit for employment any
person who then is an employee of the Companies (or either of them) or any of
the respective subsidiaries of the Companies and (ii) not to recommend to any
then employee of the Companies (or either of them) or any of the respective
subsidiaries of the Companies that such employee leave the employ of such
employer.
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19. Post-Termination Noncompetition. Because the Confidential
-------------------------------
Information known to or developed by the Executive during his employment by the
Companies encompasses at the highest level information concerning the plans,
strategies, products, operations, and existing and prospective customers of the
Companies and could not practically be disregarded by the Executive, the
Executive acknowledges that his provision of executive services to a competitor
of the Companies or either of them soon after the termination of the Executive's
employment by the Companies would inevitably result in the use of the
Confidential Information by the Executive in his performance of such executive
services, even if the Executive were to use his best efforts to avoid such use
of the Confidential Information. To prevent such use of the Confidential
Information and the resulting unfair competition and wrongful appropriation of
the goodwill and other valuable proprietary interests of the Companies, the
Executive agrees that for a period of one (1) year after the termination of his
employment by the Companies for any reason, whether voluntarily or involuntarily
and with or without cause, the Executive will not, directly or indirectly:
(a) engage, whether as an employee, agent, consultant, independent
contractor, owner, partner, member, or otherwise, in a business
activity which then competes in a material way with a business
activity then being actively engaged in by the Companies or
either of them;
(b) solicit or recommend to any other person that such period solicit
any then customer of the Companies or either or them, which
customer also was a customer of the Companies or either of them
at any time during the one (1) year period prior to the
termination of the Executive's employment by the Companies, for
the purpose of obtaining the business of such customer in
competition with the Companies or either of them; or
(c) induce or attempt to induce any then customer or prospective
customer of the Companies or either of them to terminate or not
commence a business relationship with the Companies or either of
them.
The Companies and the Executive acknowledge and agree that the restrictions
contained in this Paragraph 19 are both reasonable and necessary in view of the
Executive's positions with the Companies and that the Executive's compensation
and benefits under this agreement are sufficient consideration for the
Executive's acceptance of such restrictions. Nevertheless, if any of the
restrictions contained in this Paragraph 19 are found by a court having
jurisdiction to be unreasonable, or excessively broad as to geographic area or
time, or otherwise unenforceable, then the parties intend that the restrictions
contained in this Paragraph 19 be modified by such court so as to be reasonable
and enforceable and, as so modified by the court, be fully enforced. Nothing
contained in this paragraph shall be construed to preclude the investment by the
Executive of any of his assets in any publicly owned entity so long as the
Executive has no direct or indirect involvement in the business of such entity
and owns less than 2% of the voting equity securities of such entity. Nothing
contained in this paragraph shall be construed to preclude the Executive from
becoming employed by or serving as a consultant to or having dealings with a
publicly owned entity one of whose businesses is a competitor of the Companies
or either of them so long as such employment, consultation, or dealings do not
directly or indirectly involve or relate to the business of such entity which is
a competitor of the Companies or either of them.
20. Joint and Several Obligations. All of the obligations of the
-----------------------------
Companies under this agreement are joint and several; and neither the
bankruptcy, insolvency, dissolution, merger, consolidation, or reorganization
nor the cessation of business or corporate existence of one of the Companies
shall affect, impair, or diminish the obligations under this agreement of the
other of the Companies. The compensation and benefits to which the Executive is
entitled under this agreement are aggregate compensation and benefits, and the
payment of such compensation or the provision of such benefits by one of the
Companies shall to the extent of such payment or provision satisfy the
obligations of the other of the Companies. The Companies may agree between
themselves as to which of them will be responsible for some or all of the
Executive's compensation and benefits under this agreement, but any such
agreement between the Companies shall not diminish to any extent the joint and
several liability of the Companies to the Executive for all of such compensation
and benefits.
21. Injunctive Relief. The Executive acknowledges that his violation of
-----------------
the provisions and restrictions contained in Paragraphs 11, 18, and 19 could
cause significant injury to the Companies for which the Companies would have no
adequate remedy at law. Accordingly, the Executive agrees that the Companies
will be entitled, in addition to any other
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rights and remedies that then may be available to the Companies, to seek and
obtain injunctive relief to prevent any breach or potential breach of any of the
provisions and restrictions contained in Paragraph 11, 18, or 19.
22. Dispute Resolution. Subject to the provisions of Paragraph 21, any
------------------
claim by the Executive or the Companies arising from or in connection with this
agreement, whether based on contract, tort, common law, equity, statute,
regulation, order, or otherwise (a "Dispute"), shall be resolved as follows:
(a) Such Dispute shall be submitted to mandatory and binding
arbitration at the election of either the Executive or the
particular Company involved (the "Disputing Party"). Except as
otherwise provided in this Paragraph 22, the arbitration shall be
pursuant to the Commercial Arbitration Rules of the American
Arbitration Association (the "AAA").
(b) To initiate the arbitration, the Disputing Party shall notify the
other party in writing within 30 days after the occurrence of the
event or events which give rise to the Dispute (the "Arbitration
Demand"), which notice shall (i) describe in reasonable detail
the nature of the Dispute, (ii) state the amount of any claim,
(iii) specify the requested relief, and (iv) name an arbitrator
who (A) has been licensed to practice law in the U.S. for at
least ten years, (B) has no past or present relationship with
either the Executive or the Companies, and (C) is experienced in
representing clients in connection with employment related
disputes (the "Basic Qualifications"). Within fifteen (15) days
after the other party's receipt of the Arbitration Demand, such
other party shall serve on the Disputing Party a written
statement (i) answering the claims set forth in the Arbitration
Demand and including any affirmative defenses of such party, (ii)
asserting any counterclaim, which statement shall (A) describe in
reasonable detail the nature of the Dispute relating to the
counterclaim, (B) state the amount of the counterclaim, and (C)
specify the requested relief, and (iii) naming a second
arbitrator satisfying the Basic Qualifications. Promptly, but in
any event within five (5) days thereafter, the two arbitrators so
named shall select a third neutral arbitrator from a list
provided by the AAA of potential arbitrators who satisfy the
Basic Qualifications and who have no past or present relationship
with the parties' counsel, except as otherwise disclosed in
writing to and approved by the parties. The arbitration will be
heard by a panel of the three arbitrators so chosen (the
"Arbitration Panel"), with the third arbitrator so chosen serving
as the chairperson of the Arbitration Panel. Decisions of a
majority of the members of the Arbitration Panel shall be
determinative.
(c) The arbitration hearing shall be held in Denver, Colorado. The
Arbitration Panel is specifically authorized to render partial or
full summary judgment as provided for in the Federal Rules of
Civil Procedure. The Arbitration Panel will have no power or
authority, under the Commercial Arbitration Rules of the AAA or
otherwise, to relieve the parties from their agreement hereunder
to arbitrate or otherwise to amend or disregard any provision of
this agreement, including, without limitation, the provisions of
this Paragraph 22.
(d) If an arbitrator refuses or is unable to proceed with arbitration
proceedings as called for by this Paragraph 22, such arbitrator
shall be replaced by the party who selected such arbitrator or,
if such arbitrator was selected by the two party-appointed
arbitrators, by such two party-appointed arbitrators' selecting a
new third arbitrator in accordance with Paragraph 22(b), in
either case within five (5) days after such declining or
withdrawing arbitrator's giving notice of refusal or inability to
proceed. Each such replacement arbitrator shall satisfy the Basic
Qualifications. If an arbitrator is replaced pursuant to this
Paragraph 22(d) after the arbitration hearing has commenced, then
a rehearing shall take place in accordance with the provisions of
this Paragraph 22(d) and the Commercial Arbitration Rules of the
AAA.
(e) Within ten (10) days after the closing of the arbitration
hearing, the Arbitration Panel shall prepare and distribute to
the parties a writing setting forth the Arbitration Panel's
finding of facts and conclusions of law relating to the Dispute,
including the reason for the giving or denial of any award. The
findings and conclusions and the award, if any, shall be deemed
to be
71
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
confidential information.
(f) The Arbitration Panel is instructed to schedule promptly all
discovery and other procedural steps and otherwise to assume case
management initiative and control to effect an efficient and
expeditious resolution of the Dispute. The Arbitration Panel is
authorized to issue monetary sanctions against either party if,
upon a showing of good cause, such party is unreasonably delaying
the proceeding.
(g) Any award rendered by the Arbitration Panel will be final,
conclusive, and binding upon the parties, and any judgment on
such award may be entered and enforced in any court of competent
jurisdiction.
(h) Each party will bear a pro rata share of all fees, costs, and
expenses of the arbitrators; and, notwithstanding any law to the
contrary, each party will bear all of the fees, costs, and
expenses of his or its own attorneys, experts, and witnesses.
However, in connection with any judicial proceeding to compel
arbitration pursuant to this agreement or to enforce any award
rendered by the Arbitration Panel, the prevailing party in such a
proceeding will be entitled to recover reasonable attorneys' fees
and expenses incurred in connection with such proceedings, in
addition to any other relief to which such party may be entitled.
(i) Nothing contained in the preceding provisions of this Paragraph
22 shall be construed to prevent either party from seeking from a
court a temporary restraining order or other injunctive relief
pending final resolution of a Dispute pursuant to this Paragraph
22.
23. No Duty to Seek Employment. The Executive shall not be under any duty
--------------------------
or obligation to seek or accept other employment following the termination of
his employment by the Companies; and, except as expressly provided in
subparagraphs (b)(iv), (d)(i), and (d)(v) of Paragraph 10, no amount, payment,
or benefit due the Executive under this agreement shall be reduced, suspended,
or discontinued if the Executive accepts such other employment.
24. Withholding of Taxes. The Companies may withhold from any amounts
--------------------
payable to the Executive under this agreement all federal, state, and local
taxes which are required to be so withheld by any applicable law or governmental
regulation or ruling.
25. Validity. The invalidity or unenforceability of any provision or
--------
provisions of this agreement shall not affect the validity or enforceability of
any other provision of this agreement, which other provision shall remain in
full force and effect; nor shall the invalidity or unenforceability of a portion
of any provision of this agreement affect the validity or enforceability of the
balance of such provision.
26. Counterparts. This document may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute a single agreement.
27. Headings. The headings of the paragraphs contained in this document
--------
are for reference purposes only and shall not in any way affect the meaning or
interpretation of any provision of this agreement.
28. Applicable Law. This agreement shall be governed by and construed in
--------------
accordance with the internal substantive laws, and not the choice of law rules,
of the State of Colorado.
72
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
IN WITNESS WHEREOF, the Companies and the Executive have executed this
agreement on the day and year first above written.
CSG SYSTEMS INTERNATIONAL, INC.,
a Delaware corporation
By: /s/ Neal C. Hansen
-------------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
CSG SYSTEMS, INC., a Delaware
corporation
By: /s/ Neal C. Hansen
------------------------------------
Neal C. Hansen, Chairman of the
Board and Chief Executive Officer
/s/ G. A. Parker
--------------------------------------
Greg Parker
73
CONFIDENTIAL AND PROPRIETARY INFORMATION - FOR USE BY AUTHORIZED EMPLOYEES OF
THE PARTIES HERETO ONLY AND IS NOT FOR GENERAL DISTRIBUTION WITHIN OR OUTSIDE
THEIR RESPECTIVE COMPANIES
<PAGE>
EXHIBIT 21.01
CSG SYSTEMS INTERNATIONAL, INC.
SUBSIDIARIES OF THE REGISTRANT
AS OF DECEMBER 31, 1998
STATE OR COUNTRY
SUBSIDIARY OF INCORPORATION
- ---------- ----------------
CSG Systems, Inc. Delaware
CSG International Limited (formerly Bytel Limited) United Kingdom
<PAGE>
EXHIBIT 23.01
CONSENT OF INDEPENDENT PUBLIC ACCOUNTS
As independent public accounts, we hereby consent to the incorporation of
our reports included in this Annual Report on Form 10-K into the Company's
previously filed Registration Statement File No.'s 333-10315, 333-32951 and
333-04286.
ARTHUR ANDERSEN LLP
Omaha, Nebraska
March 26, 1999
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Annual
Report on Form 10-K and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 39,593
<SECURITIES> 0
<RECEIVABLES> 66,587
<ALLOWANCES> 2,051
<INVENTORY> 0
<CURRENT-ASSETS> 108,207
<PP&E> 48,476
<DEPRECIATION> 23,765
<TOTAL-ASSETS> 271,496
<CURRENT-LIABILITIES> 101,157
<BONDS> 109,125
0
0
<COMMON> 515
<OTHER-SE> 60,483
<TOTAL-LIABILITY-AND-EQUITY> 271,496
<SALES> 0
<TOTAL-REVENUES> 236,640
<CGS> 0
<TOTAL-COSTS> 107,246
<OTHER-EXPENSES> 27,485
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 9,771
<INCOME-PRETAX> 45,995
<INCOME-TAX> 39,643
<INCOME-CONTINUING> 85,638
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 85,638
<EPS-PRIMARY> 1.67<F1>
<EPS-DILUTED> 1.62<F1>
<FN>
<F1>Adjusted to give effect to a two-for-one stock split, effected as a stock
dividend, completed on March 5, 1999 for shareholders of record on February 8,
1999.
</FN>
</TABLE>
<PAGE>
EXHIBIT 99.01
SAFE HARBOR FOR FORWARD-LOOKING STATEMENTS UNDER THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995
CERTAIN CAUTIONARY STATEMENTS AND
RISK FACTORS
CSG Systems International, Inc. and its subsidiaries (collectively, the
Company) or their representatives from time to time may make or may have made
certain forward-looking statements, whether orally or in writing, including
without limitation, any such statements made or to be made in the Management's
Discussion and Analysis of Financial Condition and Results of Operations
contained in its various SEC filings or orally in conferences or
teleconferences. The Company wishes to ensure that such statements are
accompanied by meaningful cautionary statements, so as to ensure to the
fullest extent possible the protections of the safe harbor established in the
Private Securities Litigation Reform Act of 1995.
ACCORDINGLY, THE FORWARD-LOOKING STATEMENTS ARE QUALIFIED IN THEIR ENTIRETY
BY REFERENCE TO AND ARE ACCOMPANIED BY THE FOLLOWING MEANINGFUL CAUTIONARY
STATEMENTS IDENTIFYING CERTAIN IMPORTANT FACTORS THAT COULD CAUSE ACTUAL
RESULTS TO DIFFER MATERIALLY FROM THOSE IN SUCH FORWARD-LOOKING STATEMENTS.
This list of factors is likely not exhaustive. The Company operates in a
rapidly changing and evolving business involving the converging communications
markets, and new risk factors will likely emerge. Management cannot predict
all of the important risk factors, nor can it assess the impact, if any, of
such risk factors on the Company's business or the extent to which any factor,
or combination of factors, may cause actual results to differ materially from
those in any forward-looking statements.
ACCORDINGLY, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING STATEMENTS WILL
BE ACCURATE INDICATORS OF FUTURE ACTUAL RESULTS, AND IT IS LIKELY THAT ACTUAL
RESULTS WILL DIFFER FROM RESULTS PROJECTED IN FORWARD-LOOKING STATEMENTS AND
THAT SUCH DIFFERENCES MAY BE MATERIAL.
NET LOSSES
For 1998, the Company recorded net income of $85.6 million. For the years
since inception (October 17, 1994) through December 31, 1997, the Company
recorded annual net losses. These net losses have resulted from several
factors, including: (i) amortization of intangible assets (acquired software,
client contracts and related intangibles, and noncompete agreements and
goodwill); (ii) charge for purchased research and development; (iii) charge
for impairment of software development costs; (iv) charge for impairment of
intangible assets; (v) interest expense; (vi) stock-based employee
compensation expense; (vii) extraordinary losses from early extinguishment of
debt; and (viii) discontinued operations. There can be no assurance that the
Company will sustain profitability in the future.
RELIANCE ON CCS
The Company derived approximately 78% and 77% of its total revenues from its
primary product, Communications Control System ("CCS"), and related products
and services in the years ended December 31, 1998 and 1997, respectively. CCS
and related products and services are expected to provide the substantial
majority of the Company's total revenues in the foreseeable future. The
Company's results will depend upon continued market acceptance of CCS and
related products and services, as well as the Company's ability to continue to
adapt and modify them to meet the changing needs of its clients. Any reduction
in demand for CCS would have a material adverse effect on the financial
condition and results of operations of the Company.
1
<PAGE>
DEPENDENCE ON MAJOR CLIENTS
During the years ended December 31, 1998 and 1997, revenues from TCI
represented approximately 37.4% and 32.9% of total revenues, respectively, and
revenues from Time Warner represented approximately 14.1% and 20.1% of total
revenues, respectively. The loss of all or a significant part of the business
of either TCI or Time Warner would have a material adverse effect on the
financial condition and results of operations of the Company.
REQUIREMENTS OF THE TCI CONTRACT
The TCI Contract requires the conversion of additional TCI customers onto
the Company's customer care and billing system. The TCI Contract provides
certain performance criteria and other obligations to be met by the Company.
The Company is subject to various remedies and penalties if it fails to meet
the performance criteria or other obligations. The Company is also subject to
an annual technical audit to determine whether the Company's products and
services include innovations in features and functions that have become
standard in the wireline video industry. If an audit determines the Company is
not providing such an innovation and it fails to do so in the manner and time
period dictated by the contract, then TCI would be released from its
exclusivity obligation to the extent necessary to obtain the innovation from a
third party. To fulfill the TCI Contract and to remain competitive, the
Company believes it will be required to develop new and advanced features to
existing products and services, as well as new products and services, all of
which will require substantial research and development. TCI also would have
the right to terminate the TCI Contract in the event of certain defaults by
the Company. The termination of the TCI Contract or of any of TCI's
commitments under the contract would have a material adverse effect on the
financial condition and results of operations of the Company.
TCI AND AT&T MERGER
The TCI Contract has minimum financial commitments over the 15-year life of
the contract and includes exclusive rights to provide customer care and
billing products and services for TCI's offerings of wireline video, all
Internet/high speed data services, residential wireline telephony services,
and print and mail services. As discussed above, the TCI Contract provides
certain performance criteria and other obligations to be met by the Company.
To date, the Company believes it has complied with the terms of the contract,
and has converted onto its processing system approximately 8 million of the
over 9 million TCI customers originally scheduled to be converted under the
TCI Contract. The remaining customers are scheduled to be converted to the
Company's processing system by the second quarter of 1999.
AT&T completed its merger with TCI in March 1999. At this time, it is too
early to determine the near- and long-term impact, if any, the merger will have
on the Company's relationship with the combined entity. However, the Company
expects to continue performing successfully under the TCI Contract, and is
hopeful that it can continue to sell products and services to the combined
entity that are in excess of the minimum financial commitments included in the
contract.
RENEWAL OF TIME WARNER CONTRACTS
The Company provides services to Time Warner under multiple, separate
contracts with various Time Warner affiliates. These contracts are scheduled
to expire on various dates. The failure of Time Warner to renew contracts
representing a significant part of its business with the Company would have a
material adverse effect on the financial condition and results of operations
of the Company.
CONVERSION TO THE COMPANY'S SYSTEMS
The Company's ability to convert new client sites to its customer care and
billing systems on a timely and accurate basis is necessary to meet the
Company's contractual commitments and to achieve its business objectives.
Converting multiple sites under the schedules required by contracts or
business requirements is a difficult and complex process. One of the
difficulties in the conversion process is that competition for the
2
<PAGE>
necessary qualified personnel is intense and the Company may not be successful
in attracting and retaining the personnel necessary to complete conversions on
a timely and accurate basis. The inability of the Company to perform the
conversion process timely and accurately would have a material adverse effect
on the results of operations of the Company.
DEPENDENCE ON CABLE TELEVISION AND DBS INDUSTRIES
The Company's business is concentrated in the cable television and Direct
Broadcast Satellite ("DBS") industries, making the Company susceptible to a
downturn in those industries. During the years ended December 31, 1998 and
1997, the Company derived 78% and 73%, and 13% and 11% of its total revenues
from companies in the U.S. cable television and U.S. DBS industries,
respectively. A decrease in the number of customers served by the Company's
clients, loss of business due to non-renewal of client contracts, industry
consolidation, and/or changing consumer demand for services would adversely
effect the results of operations of the Company.
There can be no assurance that new entrants into the cable television market
will become clients of the Company. Also, there can be no assurance that cable
television providers will be successful in expanding into other segments of
the converging communications markets. Even if major forays into new markets
are successful, the Company may be unable to meet the special billing and
customer care needs of that market. The cable television industry is
undergoing significant ownership changes at an accelerated pace. In addition,
cable television providers are consolidating, decreasing the potential number
of buyers for the Company's products and services. Consolidation in the
industry may put at risk the Company's ability to leverage its existing
relationships. Should this consolidation result in a concentration of cable
television customer accounts being owned by companies with whom the Company
does not have a relationship, or with whom competitors are entrenched, it
could negatively effect the Company's ability to maintain or expand its market
share, thereby adversely effecting the results of operations.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
The market for customer care and billing systems is characterized by rapid
changes in technology and is highly competitive with respect to the need for
timely product innovations and new product introductions. The Company believes
that its future success in sustaining and growing the annual revenue per
customer account depends upon continued market acceptance of its current
products, including CCS and related products and services, and its ability to
enhance its current products and develop new products that address the
increasingly complex and evolving needs of its clients. Substantial research
and development will be required to maintain the competitiveness of the
Company's products and services in the market. Development projects can be
lengthy and costly, and are subject to changing requirements, programming
difficulties, a shortage of qualified personnel, and unforeseen factors which
can result in delays. There can be no assurance of continued market acceptance
of the Company's current products or that the Company will be successful in
the timely development of product enhancements or new products that respond to
technological advances or changing client needs. Also, the introduction and
consumer acceptance of billing statements that are presented and paid
electronically over the Internet may happen more rapidly than the Company
anticipates. If electronic bill presentation and payment proliferates and the
Company is unable to respond with a solution quickly, such failure could have
a material adverse effect on the Company's results of operations.
CONVERGING COMMUNICATIONS MARKETS
The Company's growth strategy is based in large part on the continuing
convergence and growth of the cable television, DBS, telecommunications, and
on-line services markets. If these markets fail to converge, grow more slowly
than anticipated, or if providers in the converging markets do not accept the
Company's solution for presenting multiple communications services on a single
bill, there could be a material adverse effect on the Company's growth.
COMPETITION
The market for the Company's products and services is highly competitive.
The Company directly competes with both independent providers of products and
services and in-house systems developed by existing and
3
<PAGE>
potential clients. Many of the Company's current and potential competitors
have significantly greater financial, marketing, technical, and other
competitive resources than the Company, and many already have significant
international operations. There can be no assurance that the Company will be
able to compete successfully with its existing competitors or with new
competitors.
ATTRACTION AND RETENTION OF PERSONNEL
The Company's future success depends in large part on the continued service
of its key management, sales, product development, and operational personnel.
The Company is particularly dependent on its executive officers. The Company
believes that its future success also depends on its ability to attract and
retain highly skilled technical, managerial, and marketing personnel,
including, in particular, additional personnel in the areas of research and
development and technical support. Competition for qualified personnel is
intense, particularly in the areas of research and development and technical
support. The Company may not be successful in attracting and retaining the
personnel it requires, which would adversely effect the Company's ability to
meet its commitments and new product delivery objectives.
VARIABILITY OF QUARTERLY RESULTS
The Company's quarterly revenues and results, particularly relating to
software and professional services, may fluctuate depending on various
factors, including the timing of executed contracts and the delivery of
contracted services or products, the cancellation of the Company's services
and products by existing or new clients, the hiring of additional staff, new
product development and other expenses, and changes in sales commission
policies. No assurance can be given that results will not vary due to these
factors. Fluctuations in quarterly results may result in volatility in the
market price of the Company's Common Stock.
DEPENDENCE ON PROPRIETARY TECHNOLOGY
The Company relies on a combination of trade secret and copyright laws,
nondisclosure agreements, and other contractual and technical measures to
protect its proprietary rights in its products. The Company also holds a
limited number of patents on some of its newer products, and does not rely
upon patents as a primary means of protecting its rights in its intellectual
property. There can be no assurance that these provisions will be adequate to
protect its proprietary rights. Although the Company believes that its
intellectual property rights do not infringe upon the proprietary rights of
third parties, there can be no assurance that third parties will not assert
infringement claims against the Company or the Company's clients.
INTERNATIONAL OPERATIONS
The Company's business strategy includes a commitment to the marketing of
its products and services internationally, and the Company has acquired and
established operations outside of the U.S. The Company is subject to certain
inherent risks associated with operating internationally. Risks include
product development to meet local requirements such as the conversion to EURO
currency, difficulties in staffing and management, reliance on independent
distributors or strategic alliance partners, fluctuations in foreign currency
exchange rates, compliance with foreign regulatory requirements, variability
of foreign economic conditions, changing restrictions imposed by U.S. export
laws, and competition from U.S.-based companies which have firmly established
significant international operations. There can be no assurance that the
Company will be able to manage successfully the risks related to selling its
products and services in international markets.
INTEGRATION OF ACQUISITIONS
As part of its growth strategy, the Company seeks to acquire assets,
technology, and businesses which would provide the technology and technical
personnel to expedite the Company's product development efforts, provide
complementary products or services or provide access to new markets and
clients. Acquisitions involve a number of risks and difficulties, including
expansion into new geographic markets and business areas, the requirement to
4
<PAGE>
understand local business practices, the diversion of management's attention
to the assimilation of acquired operations and personnel, potential adverse
short-term effects on the Company's operating results, and the amortization of
acquired intangible assets.
YEAR 2000
The Company's business is dependent upon various computer software programs
and operating systems that utilize dates and process data beyond the year
2000. If the actions taken by the Company to mitigate its risks associated
with the year 2000 are inadequate, there could be a material adverse effect on
the financial condition and results of operations of the Company. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" for additional discussion of the Company's efforts to address the
year 2000 risks.
RELATIONSHIP WITH FIRST DATA CORPORATION
The Company has entered into a data processing services agreement with FDC.
The Company is dependent upon FDC to perform these services for the operation
of CCS. The inability of FDC to perform these services satisfactorily could
have a material adverse effect on the financial condition and results of
operations of the Company. The existing agreement is scheduled to expire in
December 2001.
5
