<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______________ to _________________
Commission file number 0-27512
CSG SYSTEMS INTERNATIONAL, INC.
(Exact name of registrant as specified in its charter)
Delaware 47-0783182
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
7887 East Belleview, Suite 1000
Englewood, Colorado 80111
(Address of principal executive offices, including zip code)
(303) 796-2850
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---- ----
Shares of common stock outstanding at August 11, 1999: 51,784,556
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
FORM 10-Q For the Quarter Ended June 30, 1999
INDEX
<TABLE>
<CAPTION>
Page No.
--------
<S> <C>
Part I - FINANCIAL INFORMATION
Item 1. Condensed Consolidated Balance Sheets as of June 30, 1999
and December 31, 1998....................................................... 3
Condensed Consolidated Statements of Income for the Three and Six
Months Ended June 30, 1999 and 1998 ........................................ 4
Condensed Consolidated Statements of Cash Flows for the Three and Six
Months Ended June 30, 1999 and 1998......................................... 5
Notes to Condensed Consolidated Financial Statements........................ 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations....................................................... 8
Item 3. Quantitative and Qualitative Disclosures About Market Risk............... 17
Part II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders......................... 18
Item 6. Exhibits and Reports on Form 8-K............................................ 18
Signatures.................................................................. 20
Index to Exhibits........................................................... 21
</TABLE>
2
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(in thousands, except share and per share amounts)
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
----------- ------------
ASSETS (unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents................................................................. $ 34,066 $ 39,593
Accounts receivable-
Trade-
Billed, net of allowance of $2,852 and $2,051...................................... 59,047 60,529
Unbilled........................................................................... 8,100 2,828
Other.................................................................................. 914 1,179
Deferred income taxes..................................................................... 2,070 1,803
Other current assets...................................................................... 2,479 2,275
----------- ------------
Total current assets................................................................... 106,676 108,207
----------- ------------
Property and equipment, net of depreciation of $28,505 and $23,765.......................... 24,107 24,711
Software, net of amortization of $36,321 and $35,391........................................ 8,422 9,422
Noncompete agreements and goodwill, net of amortization of $27,436 and $24,878.............. 4,861 7,596
Client contracts and related intangibles, net of amortization of $21,268 and $17,671........ 57,644 59,791
Deferred income taxes....................................................................... 54,208 59,389
Other assets................................................................................ 1,812 2,380
----------- ------------
Total assets.......................................................................... $ 257,730 $ 271,496
=========== ============
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current maturities of long-term debt...................................................... $ 18,710 $ 19,125
Customer deposits......................................................................... 9,892 10,018
Trade accounts payable.................................................................... 11,266 10,471
Accrued employee compensation............................................................. 11,233 12,276
Deferred revenue.......................................................................... 9,163 13,470
Conversion incentive payments............................................................. 15,277 22,032
Accrued income taxes...................................................................... 8,958 6,756
Other current liabilities................................................................. 8,055 7,009
----------- ------------
Total current liabilities.............................................................. 92,554 101,157
----------- ------------
Non-current liabilities:
Long-term debt, net of current maturities................................................. 72,290 109,125
Deferred revenue.......................................................................... 714 216
----------- ------------
Total non-current liabilities.......................................................... 73,004 109,341
----------- ------------
Stockholders' equity:
Preferred stock, par value $.01 per share; 10,000,000 shares authorized;
zero shares issued and outstanding..................................................... - -
Common stock, par value $.01 per share; 100,000,000 shares authorized;
51,778,380 shares and 51,465,646 shares outstanding.................................... 518 515
Common stock warrants; 3,000,000 warrants outstanding..................................... 26,145 26,145
Additional paid-in capital................................................................ 126,629 120,599
Deferred employee compensation............................................................ (182) (328)
Notes receivable from employee stockholders............................................... (216) (478)
Accumulated other comprehensive income (loss)-cumulative translation adjustments.......... (269) 38
Treasury stock, at cost, 66,986 shares and 66,000 shares.................................. (132) (97)
Accumulated deficit....................................................................... (60,321) (85,396)
----------- ------------
Total stockholders' equity ............................................................ 92,172 60,998
----------- ------------
Total liabilities and stockholders' equity............................................. $ 257,730 $ 271,496
=========== ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
3
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME - UNAUDITED
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
-------------------------- ---------------------------
June 30, June 30, June 30, June 30,
1999 1998 1999 1998
---------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
Total revenues....................................................... $ 76,510 $ 54,244 $ 147,597 $ 103,552
Expenses:
Cost of revenues:
Direct costs.................................................. 29,839 23,916 57,935 45,998
Amortization of client contracts.............................. 1,871 1,176 3,660 2,244
---------- ----------- ------------ ------------
Total cost of revenues.................................. 31,710 25,092 61,595 48,242
---------- ----------- ------------ ------------
Gross margin (exclusive of depreciation)............................. 44,800 29,152 86,002 55,310
---------- ----------- ------------ ------------
Operating expenses:
Research and development......................................... 8,217 6,781 15,837 13,306
Selling and marketing............................................ 3,729 2,639 7,002 5,036
General and administrative:
General and administrative.................................... 6,252 5,616 12,534 11,218
Amortization of noncompete agreements and goodwill............ 1,318 1,347 2,636 2,688
Stock-based employee compensation............................. 73 74 146 148
Depreciation..................................................... 2,495 1,988 4,904 3,830
---------- ----------- ------------ ------------
Total operating expenses................................ 22,084 18,445 43,059 36,226
---------- ----------- ------------ ------------
Operating income..................................................... 22,716 10,707 42,943 19,084
---------- ----------- ------------ ------------
Other income (expense):
Interest expense.............................................. (1,809) (2,462) (4,033) (5,008)
Interest income............................................... 816 473 1,457 1,133
Other......................................................... 4 (67) (17) (74)
---------- ----------- ------------ ------------
Total other............................................. (989) (2,056) (2,593) (3,949)
---------- ----------- ------------ ------------
Income before income taxes........................................... 21,727 8,651 40,350 15,135
Income tax provision............................................. (8,234) - (15,275) -
---------- ----------- ------------ ------------
Net income........................................................... $ 13,493 $ 8,651 $ 25,075 $ 15,135
========== =========== ============ ============
Basic net income per common share:
Net income available to common stockholders........................ $ 0.26 $ 0.17 $ 0.49 $ 0.30
========== =========== ============ ============
Weighted average common shares..................................... 51,710 51,125 51,637 51,075
========== =========== ============ ============
Diluted net income per common share:
Net income available to common stockholders........................ $ 0.25 $ 0.16 $ 0.46 $ 0.29
========== =========== ============ ============
Weighted average common shares..................................... 54,031 52,840 54,123 52,789
========== =========== ============ ============
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
4
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS - UNAUDITED
(in thousands)
<TABLE>
<CAPTION>
Six months ended
--------------------------
June 30, June 30,
1999 1998
----------- ------------
<S> <C> <C>
Cash flows from operating activities:
Net income..................................................................................... $ 25,075 $ 15,135
Adjustments to reconcile net income to net cash provided by operating activities-
Depreciation................................................................................ 4,904 3,830
Amortization................................................................................ 7,764 5,897
Deferred income taxes....................................................................... 4,911 (5,402)
Stock-based employee compensation........................................................... 146 148
Changes in operating assets and liabilities:
Trade accounts and other receivables, net................................................. (3,662) (9,685)
Other current and noncurrent assets....................................................... (231) (1,180)
Accounts payable and accrued liabilities.................................................. 1,546 5,194
----------- ------------
Net cash provided by operating activities............................................... 40,453 13,937
----------- ------------
Cash flows from investing activities:
Purchases of property and equipment, net....................................................... (4,346) (6,647)
Additions to software.......................................................................... - (1,410)
Conversion and other incentive payments........................................................ (8,205) (640)
----------- ------------
Net cash used in investing activities................................................... (12,551) (8,697)
----------- ------------
Cash flows from financing activities:
Proceeds from issuance of common stock......................................................... 3,888 2,741
Repurchase of common stock..................................................................... - (2)
Payments on notes receivable from employee stockholders........................................ 325 -
Payments on long-term debt..................................................................... (37,250) (2,250)
----------- ------------
Net cash provided by (used in) financing activities..................................... (33,037) 489
----------- ------------
Effect of exchange rate fluctuations on cash..................................................... (392) 28
----------- ------------
Net increase (decrease) in cash and cash equivalents............................................. (5,527) 5,757
Cash and cash equivalents, beginning of period................................................... 39,593 20,417
----------- ------------
Cash and cash equivalents, end of period......................................................... $ 34,066 $ 26,174
=========== ============
Supplemental disclosures of cash flow information:
Cash paid during the period for-
Interest..................................................................................... $ 3,689 $ 4,534
Income taxes................................................................................. $ 6,029 $ 828
</TABLE>
The accompanying notes are an integral part of these condensed
consolidated financial statements.
5
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
1. GENERAL
The condensed consolidated financial statements at June 30, 1999, and for the
three and six months then ended are unaudited and reflect all adjustments
(consisting only of normal recurring adjustments) which are, in the opinion of
management, necessary for a fair presentation of the financial position and
operating results for the interim period. The condensed consolidated financial
statements should be read in conjunction with the consolidated financial
statements and notes thereto, together with management's discussion and analysis
of financial condition and results of operations, contained in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998, filed with the
Securities and Exchange Commission (the Company's 1998 10-K). The results of
operations for the three and six months ended June 30, 1999, are not necessarily
indicative of the results for the entire year ending December 31, 1999.
2. STOCK SPLIT
On March 5, 1999, the Company completed a two-for-one stock split, effected as a
stock dividend, for stockholders of record on February 8, 1999. Share and per
share data for all periods presented herein reflect the effect of the split.
3. NET INCOME PER COMMON SHARE
Basic net income per common share is computed by dividing income available to
common stockholders by the weighted average number of common shares outstanding
during the period. Diluted net income per common share is consistent with the
calculation of basic net income per common share while giving effect to dilutive
potential common shares outstanding during the period. For all periods
presented, dilutive potential common shares consisted entirely of stock options.
For the quarters ended June 30, 1999 and 1998, weighted average outstanding
stock options of 564,285 and 76,244 have been excluded from the computation of
diluted net income per common share because the exercise prices of these options
were greater than the average market price of the common shares for the
respective quarters.
For the three and six months ended June 30, 1999 and 1998, the weighted average
dilutive potential common shares (calculated using the treasury stock method)
from Common Stock Warrants are excluded from the diluted net income per common
share calculation as the events necessary to allow the exercise of the warrants
had not been satisfied as of June 30, 1999 or 1998. For the three and six month
periods ended June 30, 1999 and 1998, the weighted average diluted potential
common shares from Common Stock Warrants excluded from diluted net income per
common share are as follows:
<TABLE>
<CAPTION>
For the Three For the Six
Months Ended Months Ended
------------- ------------
<S> <C> <C>
June 30, 1999........................ 1,934,766 1,973,647
June 30, 1998........................ 1,343,540 1,284,463
</TABLE>
The Company expects certain of these warrants to become exercisable during 1999.
See additional discussion of the Common Stock Warrants in the Company's 1998
10-K.
6
<PAGE>
4. COMPREHENSIVE INCOME
The Company's components of comprehensive income were as follows (in thousands):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
------------------------------------ ------------------------------------
June 30, 1999 June 30, 1998 June 30, 1999 June 30, 1998
----------------- ----------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Net income............................. $13,493 $8,651 $25,075 $15,135
Foreign currency translation
adjustments.......................... (143) (11) (307) 69
------- ------ ------- -------
Comprehensive income................... $13,350 $8,640 $24,768 $15,204
======= ====== ======= =======
</TABLE>
5. RECLASSIFICATION OF PRIOR PERIOD AMOUNTS
Certain June 30, 1998 amounts have been reclassified to conform with the June
30, 1999 presentation.
6. SUBSEQUENT EVENT - STOCK REPURCHASE PLAN
Effective August 4, 1999, the Company's Board of Directors approved a stock
repurchase plan which authorizes the Company at its discretion to purchase up to
a total of 5.0 million shares of its Common Stock from time to time as market
and business conditions warrant. This program represents approximately 10% of
the Company's outstanding shares.
The stock repurchase plan will be in effect until terminated by the Board of
Directors of the Company. The stock may be used in connection with stock option
and warrant exercises, employee stock purchases, possible acquisitions, and
other corporate purposes.
7. ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT YET EFFECTIVE
In June 1998, SFAS No. 133, "Accounting for Derivative Instruments and for
Hedging Activities" (SFAS 133) was issued. The Statement establishes accounting
and reporting standards requiring every derivative instrument, as defined, to be
recorded in the balance sheet as either an asset or liability measured at its
fair value. The Statement requires that changes in the derivative's fair value
be recognized currently in earnings unless specific hedge accounting criteria
are met. In June 1999, SFAS No. 137, "Accounting for Derivative Instruments and
Hedging Activities-Deferral of the Effective Date of FASB Statement No. 133"
(SFAS 137) was issued. SFAS 137 defers the effective date of SFAS 133. The
Company expects to adopt SFAS 133 no later than fiscal year 2001, and does not
expect the adoption of this Statement to have a significant effect on the
Company's consolidated financial statements.
7
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Results of Operations
The following table sets forth certain financial data and the percentage of
total revenues of the Company for the periods indicated (in thousands):
<TABLE>
<CAPTION>
Three months ended June 30, Six months ended June 30,
--------------------------------------- ---------------------------------------
1999 1998 1999 1998
-------------------- ----------------- ------------------ -------------------
% of % of % of % of
Amount Revenue Amount Revenue Amount Revenue Amount Revenue
---------- --------- --------- ------- --------- ------- --------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Total revenues ................................ $ 76,510 100.0% $ 54,244 100.0% $ 147,597 100.0% $ 103,552 100.0%
Expenses:
Cost of revenues:
Direct costs ............................. 29,839 39.0 23,916 44.1 57,935 39.2 45,998 44.4
Amortization of client contracts ......... 1,871 2.4 1,176 2.2 3,660 2.5 2,244 2.2
--------- ----- --------- ----- --------- ----- --------- -----
Total cost of revenues ............. 31,710 41.4 25,092 46.3 61,595 41.7 48,242 46.6
--------- ----- --------- ----- --------- ----- --------- -----
Gross margin (exclusive of depreciation) ... 44,800 58.6 29,152 53.7 86,002 58.3 55,310 53.4
--------- ----- --------- ----- --------- ----- --------- -----
Operating expenses:
Research and development ................. 8,217 10.7 6,781 12.5 15,837 10.7 13,306 12.9
Selling and marketing .................... 3,729 4.9 2,639 4.9 7,002 4.8 5,036 4.9
General and administrative:
General and administrative .............. 6,252 8.2 5,616 10.3 12,534 8.5 11,218 10.8
Amortization of noncompete agreements
and goodwill ........................... 1,318 1.7 1,347 2.5 2,636 1.8 2,688 2.6
Stock-based employee compensation ....... 73 0.1 74 0.1 146 0.1 148 0.1
Depreciation ............................. 2,495 3.3 1,988 3.7 4,904 3.3 3,830 3.7
--------- ----- --------- ----- --------- ----- --------- -----
Total operating expenses ................ 22,084 28.9 18,445 34.0 43,059 29.2 36,226 35.0
--------- ----- --------- ----- --------- ----- --------- -----
Operating income .............................. 22,716 29.7 10,707 19.7 42,943 29.1 19,084 18.4
--------- ----- --------- ----- --------- ----- --------- -----
Other income (expense):
Interest expense ......................... (1,809) (2.4) (2,462) (4.5) (4,033) (2.8) (5,008) (4.8)
Interest income .......................... 816 1.1 473 0.8 1,457 1.0 1,133 1.1
Other .................................... 4 -- (67) (0.1) (17) -- (74) (0.1)
--------- ----- --------- ----- --------- ----- --------- -----
Total other ............................. (989) (1.3) (2,056) (3.8) (2,593) (1.8) (3,949) (3.8)
--------- ----- --------- ----- --------- ----- --------- -----
Income before income taxes .................... 21,727 28.4 8,651 15.9 40,350 27.3 15,135 14.6
Income tax provision ....................... (8,234) (10.8) -- -- (15,275) (10.3) -- --
--------- ----- --------- ----- --------- ----- --------- -----
Net income .................................... $ 13,493 17.6% $ 8,651 15.9% $ 25,075 17.0% $ 15,135 14.6%
========= ===== ========= ===== ========= ===== ========= =====
</TABLE>
8
<PAGE>
Three Months Ended June 30, 1999 Compared to Three Months Ended June 30, 1998
Revenues. Total revenues for the three months ended June 30, 1999, increased
41.0% to $76.5 million, from $54.2 million for the three months ended June 30,
1998.
Revenues from processing and related services for the three months ended June
30, 1999, increased 39.5% to $61.5 million, from $44.1 million for the three
months ended June 30, 1998. Of the total increase in revenue, approximately 61%
resulted from an increase in the number of customers of the Company's clients
which were serviced by the Company and approximately 39% was due to increased
revenue per customer. Customers serviced as of June 30, 1999 and 1998,
respectively, were 31.2 million and 25.4 million, an increase of 22.7%. The
increase in the number of customers serviced was due to the conversion of
additional customers by new and existing clients to the Company's systems, and
internal customer growth experienced by existing clients. From April 1, 1999
through June 30, 1999, the Company converted and processed approximately 0.8
million new customers on its systems.
Revenues from software and related product sales and professional consulting
services for the three months ended June 30, 1999, increased 47.8% to $15.0
million, from $10.1 million for the three months ended June 30, 1998. This
increase relates primarily to the continued penetration of sales of the
Company's software products and services to the Company's existing client base,
as well as sales to new clients.
Total annualized domestic revenue per customer account for the second quarter of
1999 was $9.49, compared to $8.25 for the same period in 1998, an increase of
15.0%. Revenue per customer increased primarily due to (i) a greater percentage
of processing revenues in 1999 being generated under the AT&T Broadband and
Internet Services (BIS) processing contract (the AT&T Contract), (ii) increased
usage of ancillary processing services, (iii) price increases included in client
contracts, and (iv) increased software sales to new and exisiting clients.
Cost of Revenues. Direct costs as a percentage of related revenues were 39.0%
for the three months ended June 30, 1999, compared to 44.1% for the three months
ended June 30, 1998. The improvement between periods relates primarily to better
overall leveraging of processing costs as a result of the continued growth of
the customer base processed on the Company's system. Amortization of client
contracts for the three months ended June 30, 1999, increased 59.1% to $1.9
million, from $1.2 million for the three months ended June 30, 1998. The
increase in expense is due primarily to an increase in amortization of the value
assigned to the AT&T Contract. The value assigned to the AT&T Contract is being
amortized over the life of the contract in proportion to the financial minimums
included in the contract.
Gross Margin. Gross margin for the three months ended June 30, 1999, increased
53.7% to $44.8 million, from $29.2 million for the three months ended June 30,
1998, due primarily to revenue growth. The gross margin percentage increased to
58.6% for the three months ended June 30, 1999, compared to 53.7% for the three
months ended June 30, 1998. The overall increase in the gross margin percentage
is due primarily to the increase in processing and related services revenue per
customer while controlling the cost of delivering such services.
Research and Development Expense. Research and development (R&D) expense for
the three months ended June 30, 1999, increased 21.1% to $8.2 million, from $6.8
million for the three months ended June 30, 1998. As a percentage of total
revenues, R&D expense decreased to 10.7% for the three months ended June 30,
1999, from 12.5% for the three months ended June 30, 1998.
The Company did not capitalize any software development costs during the three
months ended June 30, 1999. During the three months ended June 30, 1998, the
Company capitalized third party, contracted programming costs of approximately
$0.8 million, related primarily to enhancements to existing products. As a
result, total R&D development expenditures (i.e., the total R&D costs expensed,
plus the capitalized development costs) for the three months ended June 30, 1999
and 1998, were $8.2 million, or 10.7% of total revenues, and $7.6 million, or
14.1% of total revenues, respectively. The overall increase in the R&D
expenditures between periods is due primarily to increased efforts on several
products which are in
9
<PAGE>
development and enhancements of the Company's existing products. The increased
R&D expenditures consist primarily of increases in salaries, benefits, and other
programming-related expenses.
Selling and Marketing Expense. Selling and marketing (S&M) expense for the
three months ended June 30, 1999, increased 41.3% to $3.7 million, from $2.6
million for the three months ended June 30, 1998. As a percentage of total
revenues, S&M expense remained the same at 4.9% for both periods. The overall
increase in S&M expenses is due primarily to increased sales activities.
General and Administrative Expense. General and administrative (G&A) expense
for the three months ended June 30, 1999, increased 11.3% to $6.3 million, from
$5.6 million for the three months ended June 30, 1998. As a percentage of total
revenues, G&A expense decreased to 8.2% for the three months ended June 30,
1999, from 10.3% for the three months ended June 30, 1998. The increase in G&A
expenses relates primarily to the continued expansion of the Company's
administrative staff and other administrative costs to support the Company's
overall growth. The decrease in G&A expenses as a percentage of total revenues
is due primarily to increased revenues, while controlling G&A costs.
Depreciation Expense. Depreciation expense for the three months ended June 30,
1999, increased 25.5% to $2.5 million, from $2.0 million for the three months
ended June 30, 1998. The increase in expense relates to capital expenditures
made during 1998 and the first six months of 1999 in support of the overall
growth of the Company, consisting principally of computer hardware and related
equipment and statement processing equipment and related facilities.
Depreciation expense for all property and equipment is reflected separately in
the aggregate and is not included in the other components of operating expenses.
Operating Income. Operating income for the three months ended June 30, 1999,
was $22.7 million or 29.7% of total revenues, compared to $10.7 million or 19.7%
of total revenues for the three months ended June 30, 1998. The increase
between years relates to the factors discussed above.
Interest Expense. Interest expense for the three months ended June 30, 1999,
decreased 26.5% to $1.8 million, from $2.5 million for the three months ended
June 30, 1998, with the decrease attributable primarily to (i) scheduled
principal payments on the Company's long-term debt (ii) an optional prepayment
on long-term debt of $15 million made on March 31, 1999, and (iii) a decrease in
interest rates between periods.
Income Tax Provision. As of December 31, 1997, the Company had recorded a
valuation allowance against certain deferred tax assets since realization of
future tax benefits was not sufficiently assured as of that date. During 1998,
the Company realized a portion of the deferred tax assets such that the overall
income tax provision for the quarter was zero. During the fourth quarter of
1998, the Company concluded that it was more likely than not that it would
realize the entire tax benefit from its deferred tax assets and eliminated the
entire valuation allowance as of December 31, 1998.
For the three months ended June 30, 1999, the Company recorded an income tax
provision of $8.2 million, or an effective income tax rate of approximately 38%,
which represents the Company's estimate of the effective book income tax rate
for 1999.
Six Months Ended June 30, 1999 Compared to Six Months Ended June 30, 1998
Revenues. Total revenues for the six months ended June 30, 1999, increased
42.5% to $147.6 million, from $103.6 million for the six months ended June 30,
1998.
Revenues from processing and related services for the six months ended June 30,
1999, increased 43.5% to $120.5 million, from $83.9 million for the six months
ended June 30, 1998. Of the total increase in revenue, approximately 65%
resulted from an increase in the number of customers of the Company's clients
which were serviced by the Company and approximately 35% was due to increased
revenue per customer. The
10
<PAGE>
increase in the number of customers serviced was due to the conversion of
additional customers by new and existing clients to the Company's systems, and
internal customer growth experienced by existing clients. From January 1, 1999
through June 30, 1999, the Company converted and processed approximately 1.8
million new customers on its systems.
Revenues from software and related product sales and professional consulting
services for the six months ended June 30, 1999, increased 38.2% to $27.1
million, from $19.7 million for the six months ended June 30, 1998. This
increase relates primarily to the continued penetration of sales of the
Company's software products and services to the Company's existing client base,
as well as sales to new clients.
Total annualized domestic revenue per customer account for the six months ended
June 30, 1999 was $9.30, compared to $8.19 for the same period in 1998, an
increase of 13.5%. Revenue per customer increased primarily due to (i) a greater
percentage of processing revenues in 1999 being generated under the AT&T
Contract, (ii) increased usage of ancillary processing services, (iii) price
increases included in client contracts, and (iv) increased software sales to new
and existing clients.
Cost of Revenues. Direct costs as a percentage of related revenues were 39.2%
for the six months ended June 30, 1999, compared to 44.4% for the six months
ended June 30, 1998. The improvement between periods relates primarily to better
overall leveraging of processing costs as a result of the continued growth of
the customer base processed on the Company's system. Amortization of client
contracts for the six months ended June 30, 1999, increased 63.1% to $3.7
million, from $2.2 million for the six months ended June 30, 1998. The increase
in expense is due primarily to an increase in amortization of the value assigned
to the AT&T Contract. The value assigned to the AT&T Contract is being amortized
over the life of the contract in proportion to the financial minimums included
in the contract.
Gross Margin. Gross margin for the six months ended June 30, 1999, increased
55.5% to $86.0 million, from $55.3 million for the six months ended June 30,
1998, due primarily to revenue growth. The gross margin percentage increased to
58.3% for the six months ended June 30, 1999, compared to 53.4% for the six
months ended June 30, 1998. The overall increase in the gross margin percentage
is due primarily to the increase in processing and related services revenue per
customer while controlling the cost of delivering such services.
Research and Development Expense. R&D expense for the six months ended June 30,
1999, increased 19.0% to $15.8 million, from $13.3 million for the six months
ended June 30, 1998. As a percentage of total revenues, R&D expense decreased
to 10.7% for the six months ended June 30, 1999, from 12.9% for the six months
ended June 30, 1998.
The Company did not capitalize any software development costs during the six
months ended June 30, 1999. During the six months ended June 30, 1998, the
Company capitalized third party, contracted programming costs of approximately
$1.4 million, related primarily to enhancements to existing products. As a
result, total R&D development expenditures (i.e., the total R&D costs expensed,
plus the capitalized development costs) for the six months ended June 30, 1999
and 1998, were $15.8 million, or 10.7% of total revenues, and $14.7 million, or
14.2% of total revenues, respectively. The overall increase in the R&D
expenditures between periods is due primarily to increased efforts on several
products which are in development and enhancements of the Company's existing
products. The increased R&D expenditures consist primarily of increases in
salaries, benefits, and other programming-related expenses.
Selling and Marketing Expense. S&M expense for the six months ended June 30,
1999, increased 39.0% to $7.0 million, from $5.0 million for the six months
ended June 30, 1998. As a percentage of total revenues, S&M expense decreased
to 4.8% for the six months ended June 30, 1999, from 4.9% for the six months
ended June 30, 1998. The overall increase in S&M expenses is due primarily to
increased sales activities.
General and Administrative Expense. G&A expense for the six months ended June
30, 1999, increased 11.7% to $12.5 million, from $11.2 million for the six
months ended June 30, 1998. As a percentage of total revenues, G&A expense
decreased to 8.5% for the six months ended June 30, 1999, from 10.8% for the six
months ended June 30, 1998. The increase in G&A expenses relates primarily to
the continued expansion of the Company's administrative staff and other
administrative costs to support the Company's overall growth.
11
<PAGE>
The decrease in G&A expenses as a percentage of total revenues is due primarily
to increased revenues, while controlling G&A costs.
Depreciation Expense. Depreciation expense for the six months ended June 30,
1999, increased 28.0% to $4.9 million, from $3.8 million for the six months
ended June 30, 1998. The increase in expense relates to capital expenditures
made during 1998 and the first six months of 1999 in support of the overall
growth of the Company, consisting principally of computer hardware and related
equipment and statement processing equipment and related facilities.
Depreciation expense for all property and equipment is reflected separately in
the aggregate and is not included in the other components of operating expenses.
Operating Income. Operating income for the six months ended June 30, 1999, was
$42.9 million or 29.1% of total revenues, compared to $19.1 million or 18.4% of
total revenues for the six months ended June 30, 1998. The increase between
years relates to the factors discussed above.
Interest Expense. Interest expense for the six months ended June 30, 1999,
decreased 19.5% to $4.0 million, from $5.0 million for the six months ended June
30, 1998, with the decrease attributable primarily to (i) scheduled principal
payments on the Company's long-term debt (ii) an optional prepayment on long-
term debt of $15 million made on March 31, 1999, and (iii) a decrease in
interest rates between periods.
Income Tax Provision. Due to the factors discussed above, the Company's income
tax expense for the first six months of 1998 was zero. For the six months ended
June 30, 1999, the Company recorded an income tax provision of $15.3 million,
or an effective income tax rate of approximately 38%, which represents the
Company's estimate of the effective book income tax rate for 1999.
Adjusted Results of Operations
- ------------------------------
The Company incurred certain one-time or acquisition-related charges
(Acquisition Charges) in connection with the CSG Acquisition in November 1994.
The Acquisition Charges include amortization of acquired software, client
contracts and related intangibles, noncompete agreement, goodwill, and stock-
based compensation. These charges totaled $2.0 million and $2.1 million for the
three months ended June 30, 1999 and 1998, and $4.1 million and $4.1 million for
the six months ended June 30, 1999 and 1998, respectively. The Company's
adjusted results of operations excluding the impact of these items are shown in
the following table. In addition to the exclusion of these expenses from the
calculation, the adjusted results of operations were computed using an effective
income tax rate of 38% for all periods, and outstanding shares on a diluted
basis. See the Company's "Management's Discussion and Analysis of Financial
Condition and Results of Operations" contained in the Company's 1998 10-K for
additional discussion regarding the Acquisition Charges and the impact of such
charges on operations.
<TABLE>
<CAPTION>
For the Three Months For the Six Months
Ended June 30, Ended June 30,
------------------------------------ ------------------------------------
1999 1998 1999 1998
----------------- ----------------- ----------------- -----------------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
Adjusted Results of Operations:
Operating income..................... $24,742 $12,760 $46,993 $23,188
Operating income margin.............. 32.3% 23.5% 31.8% 22.4%
Income before income taxes........... 23,753 10,704 44,400 19,239
Net income........................... 14,727 6,636 27,528 11,928
Earnings per diluted common share.... 0.27 0.13 0.51 0.23
Weighted average diluted common
shares............................. 54,031 52,840 54,123 52,789
</TABLE>
12
<PAGE>
AT&T Contract and Merger
- ------------------------
AT&T completed its merger with TCI in March 1999 and has consolidated the TCI
operations into AT&T Broadband and Internet Services (BIS). During the six
months ended June 30, 1999 and 1998, revenues from AT&T and affiliated companies
generated under the AT&T Contract represented approximately 43.0% and 38.5% of
total revenues, respectively. The AT&T Contract has a 15-year term and expires
in 2012. The AT&T Contract has minimum financial commitments over the term of
the contract and includes exclusive rights to provide customer care and billing
products and services for AT&T's offerings of wireline video, all Internet/high-
speed data services, residential wireline telephony services, and print and mail
services. The AT&T Contract provides certain performance criteria and other
obligations to be met by the Company. The Company is required to perform certain
remedial efforts and is subject to certain penalties if it fails to meet the
performance criteria or other obligations. The Company is also subject to an
annual technical audit to determine whether the Company's products and services
include innovations in features and functions that have become standard in the
wireline video industry. To date, the Company believes it has complied with the
terms of the contract. Since execution of the AT&T Contract in September 1997
through June 30, 1999, the Company has successfully converted approximately 9.2
million AT&T cable television customers onto its system.
At this time, it is too early to determine the near- and long-term impact, if
any, the AT&T and TCI merger will have on the Company's relationship with the
combined entity. AT&T has announced its planned efforts to provide convergent
communications services in several United States cities during 1999. The Company
is participating in those convergent trials and is working closely with AT&T to
provide customer care and billing services to customers in those cities. The
Company expects to continue performing successfully under the AT&T Contract, and
is hopeful that it can continue to sell products and services to the combined
entity that are in excess of the minimum financial commitments and exclusive
rights included in the contract.
AT&T holds 3.0 million warrants to purchase the Company's Common Stock at an
exercise price of $12 per share. AT&T will be able to exercise 2.0 million of
the warrants when the Company processes a total of 13.0 million AT&T customers
on its system. The remaining 1.0 million warrants are exercisable at various
increments as additional qualifying AT&T customers are converted to the
Company's system in excess of the 13.0 million customers (the Excess Customers).
Dependent upon the source of the Excess Customers, the 1.0 million warrants
may be exercisable with a minimum of 1.25 million Excess Customers, but require
no more than 2.5 million Excess Customers to become fully exercisable. The
Company expects certain of these warrants to become exercisable during 1999.
The warrants expire in September 2002.
Liquidity and Capital Resources
- -------------------------------
As of June 30, 1999, the Company's principal sources of liquidity included cash
and cash equivalents of $34.1 million. The Company also has a revolving credit
facility in the amount of $40.0 million, of which there were no borrowings
outstanding. The Company's ability to borrow under the revolving credit
facility is subject to maintenance of certain levels of eligible receivables.
At June 30, 1999, all of the $40.0 million revolving credit facility was
available to the Company. The revolving credit facility expires in September
2002.
As of June 30, 1999 and December 31, 1998, respectively, the Company had $59.0
million and $60.5 million in net trade accounts receivable, a decrease of $1.5
million. The Company's trade accounts receivable balance includes billings for
several non-revenue items, such as postage, communication lines, travel and
entertainment reimbursements, sales tax, and deferred items. As a result, the
Company evaluates its performance in collecting its accounts receivable through
its calculation of days billings outstanding (DBO) rather than a typical days
sales outstanding (DSO) calculation. DBO is calculated based on the billings
for the period (including non-revenue items) divided by the average net trade
accounts receivable balance for the period. The Company's DBO calculations for
the quarters ended June 30, 1999 and 1998 were 55 days and 58 days,
respectively.
During the six months ended June 30, 1999, the Company generated $40.5 million
of net cash flow from operating activities. Cash generated from these sources
and the proceeds of $3.9 million from the issuance of common stock through the
Company's stock incentive plans were used to (i) fund capital expenditures of
$4.3 million, (ii) pay conversion and other incentive payments of $8.2 million,
and (iii) repay long-term debt of $37.3 million, which includes $7.3 million of
scheduled payments and optional prepayments totaling $30.0 million.
13
<PAGE>
Earnings before interest, taxes, depreciation and amortization (EBITDA) for the
six months ended June 30, 1999 was $55.2 million or 37.4% of total revenues,
compared to $28.4 million or 27.4% of total revenues for the six months ended
June 30, 1998. EBITDA is presented here as a measure of the Company's debt
service ability and is not intended to represent cash flows for the periods.
Interest rates for the term and revolving credit facilities are chosen at the
option of the Company and are based on the LIBOR rate or the prime rate, plus an
additional spread, with the spread dependent upon the Company's leverage ratio.
Effective April 1, 1999, the spread on the LIBOR rate and the prime rate was
0.50% and 0%, respectively. As of June 30, 1999, the entire amount of the debt
was under either three or six-month LIBOR contracts with an overall weighted
average interest rate of 5.67% (i.e., LIBOR at 5.17% plus spread of 0.50%),
compared to 5.89% as of December 31, 1998.
In December 1997, the Company entered into a three-year interest rate collar
with a major bank to manage its risk from its variable rate long-term debt. The
underlying notional amount covered by the collar agreement is $66.9 million as
of June 30, 1999, and decreases over the three-year term in relation to the
scheduled principal payments on the long-term debt. Any payment on the 4.9%
(LIBOR) interest rate floor, or receipt on the 7.5% (LIBOR) interest rate cap
component of the collar, would be recognized as an adjustment to interest
expense in the period incurred. There are no amounts due or receivable under
this agreement as of June 30, 1999, and the agreement had no effect on the
Company's interest expense for 1999 or 1998.
The Company is required to make certain conversion incentive payments under the
AT&T Contract, with the amounts and the timing of the payments based principally
upon the number of AT&T customers converted to, and the total number of AT&T
customers processed on, the Company's customer care and billing system. Total
payments as of June 30, 1999 have been approximately $10.7 million. Based on the
conversions performed to date and the future conversions scheduled as of June
30, 1999, the Company expects to pay the remaining $15.3 million in the third
quarter of 1999.
The Company continues to make significant investments in capital equipment,
facilities, and research and development, and recently approved a discretionary
stock repurchase plan (see Note 6 to the Condensed Consolidated Financial
Statements). The Company had no significant capital commitments as of June 30,
1999. The Company believes that cash generated from operations, together with
the current cash and cash equivalents and the amount available under its current
revolving credit facility will be sufficient to meet its anticipated cash
requirements for operations, income taxes, debt service, conversion incentive
payments, capital expenditures, and stock repurchases for both its short and
long-term purposes. The Company also believes it has significant unused
borrowing capacity and could obtain additional cash resources by amending its
current credit facility and/or establishing a new credit facility.
Year 2000
- ---------
The Company's business is dependent upon various computer software programs and
operating systems that utilize dates and process data beyond the year 2000. The
Company's actions to address the risks associated with the year 2000 are as
follows:
The Company's State of Readiness. The Company has established a corporate
program to coordinate its year 2000 (Y2K) compliance efforts across all business
functions and geographic areas. The scope of the program includes addressing
the risks associated with the Company's (i) information technology (IT) systems
(including the Company's products and services), (ii) non-IT systems that
include embedded technology, and (iii) significant vendors and their Y2K
readiness. The Company is utilizing the following steps in executing its Y2K
compliance program: (1) awareness, (2) assessment, (3) renovation (including
upgrades and enhancements to the Company's products), (4) validation and
testing, and (5) implementation. The Company has completed the awareness and
assessment steps for all areas.
Products and Services. The renovation step has been substantially completed
---------------------
for all significant products and services, and the Company now is focusing its
efforts on validation and testing. The Company's most significant renovation
effort involved its core product Communications Control System (CCS). CCS
utilizes one subroutine for calculating dates, with the various computer
programs within CCS with date dependent calculations accessing this
subroutine. As a result, all date calculations are performed in one location.
The renovation of this subroutine and the related interfaces to the various
date dependent programs has been completed. The Company has completed the
testing of the CCS application using its standard testing methodologies, while
adding date simulation to specifically address the Y2K risk. Such date
simulation considered
14
<PAGE>
pre-2000, cross over, and post-2000 time frames, including year 2000 leap year
considerations. The renovated and tested version of CCS has been implemented
into the production environment.
The Company has substantially completed its testing of third party interfaces
(e.g., addressable devices) to CCS. The Company is dependent upon the third
parties for such testing, and expects to complete the remaining testing by the
end of the third quarter of 1999. The interfaces are not complex and are
considered low risk by the Company.
For the Company's software products, no significant renovation was necessary,
as the products are relatively new and were designed to be Y2K compliant. The
Company is testing these products with similar date simulation techniques
discussed above to ensure they are Y2K compliant. Such testing is
substantially completed, with the remaining testing expected to be done by the
end of the third quarter of 1999.
The Company has developed a process to manage further updates or enhancements
to any product related software code which has been tested and internally
certified as Y2K compliant, and intends to "freeze" all changes to mission
critical product related software during November 1999. The Company also plans
to retest CCS (through an initial program load of the CCS system) in the
fourth quarter of 1999 to ensure continued Y2K compliance. Several CSG clients
are conducting tests of the Company's products in conjunction with their own
operating environments. Several test phases have been completed (beginning in
December 1998), with additional phases continuing into the third quarter of
1999, including participation by AT&T in such testing.
Internal Systems. Renovation and testing of the Company's significant
-----------------
internal use IT Systems (e.g., payroll systems, accounting systems, etc.) is
substantially complete, with the two remaining applications scheduled to be
tested and implemented by the end of the third quarter of 1999. The Company
has a substantial number of non-IT systems that include embedded technology
(e.g., buildings, plant, equipment and other infrastructure) that are owned
and managed by the lessors of the buildings in which the Company is located.
The Company has sent letters to its lessors requesting certifications of the
Y2K compliance of the embedded systems. The Company has received
substantially all of the certifications from lessors and expects to receive
the six remaining certifications (considered low risk by the Company) by the
end of the third quarter of 1999. Letters have also been sent to third
parties providing other internal non-IT systems with embedded technology
(e.g., statement insertion machines, copy machines, etc.). All of these Y2K
certifications and/or upgrades have been completed.
Significant Vendors. As part of the Company's Y2K compliance program, the
--------------------
Company has contacted its significant vendors to assess their Y2K readiness.
For substantially all mission critical third party software embedded in or
specified for use in conjunction with the Company's IT systems and products,
the Company's communications with the vendors indicates that the vendors
believe they are fully Y2K compliant. The remaining vendors indicate that
they are substantially Y2K compliant. The Company expects to receive further
enhancements from these vendors as they become available throughout 1999 to
bring the products into full Y2K compliance. Such third party software has
been or is being tested in conjunction with the testing of the IT systems and
products discussed above. All other significant vendors (including the
Company's vendor who provides data processing services for CCS) have indicated
they are Y2K compliant. There can be no assurance that (i) the Company's
significant vendors will succeed in their Y2K compliance efforts, or (ii) the
failure of vendors to address Y2K compliance will not have a material adverse
effect on the Company's business or results of operations.
The Costs to Address the Company's Year 2000 Issues. Since inception of its
program in 1995 through June 30, 1999, the Company has incurred and expensed
costs of approximately $3.6 million related to Y2K compliance efforts. The
total estimated costs to complete the Company's Y2K compliance effort are
approximately $0.5 million. The estimated costs to complete, which does not
include any costs which may
15
<PAGE>
be incurred by the Company if its significant vendors fail to timely address Y2K
compliance, is based on currently known circumstances and various assumptions
regarding future events. However, there can be no assurance that these estimates
will be achieved and actual results could differ materially from those
anticipated.
The Risks of the Company's Year 2000 Issues. The Company's failure to timely
resolve the Y2K risks could result in system failures, the generation of
erroneous information, and other significant disruptions of business activities,
including among others, access to CCS and the use of related software products,
and timely printing and delivery of clients' customers' statements. Although
the Company believes it will be successful in its Y2K compliance efforts, there
can be no assurance that the Company's systems and products contain all
necessary date code changes. In addition, the Company's operations may be at
risk if its vendors and other third parties (including public and private
infrastructure services, such as electricity, water, gas, transportation, and
communications) fail to adequately address the Y2K issue or if software
conversions result in system incompatibilities with these third parties. To the
extent that either the Company or a third party vendor or service provider on
which the Company relies does not achieve Y2K compliance, the Company's results
of operations could be materially adversely affected. Furthermore, it has been
widely reported that a significant amount of litigation surrounding business
interruption will arise out of Y2K issues. It is uncertain whether, or to what
extent, the Company may be affected by such litigation.
As is the case with many software companies and service providers, if the
Company's current or future clients experience significant business
interruptions due to their failure to achieve Y2K compliance, the Company's
results of operations could be materially adversely affected. There can be no
assurance that the Company's current or future clients will adequately and
successfully address their Y2K risk and not experience any business
interruptions.
The Company's Contingency Plan. The Company is addressing the need for any Y2K
specific contingency plan as part of its overall business continuity planning,
with modifications to the plan where Y2K specific exposures are identified as
the Company continues to execute its Y2K compliance project during 1999. The
Company has established a Y2K task force for all mission critical operations of
the Company which will provide dedicated personnel to escalate the resolution of
any Y2K specific matters that may occur. The Company has implemented a
restricted vacation policy for December 1999 and January 2000 to ensure all
mission critical personnel are available if any Y2K specific matters occur.
The (i) inability to timely implement a contingency plan, if deemed necessary,
and (ii) the cost to develop and implement such a plan, may have a material
adverse effect on the Company's results of operations.
Certain Factors That May Affect Future Results of Operations. Except for
statements of existing or historical facts, the foregoing discussion of Y2K
consists of forward-looking statements and assumptions relating to forward-
looking statements, including without limitation the statements relating to
future costs, the timetable for completion of Y2K compliance efforts, potential
problems relating to Y2K, the Company's state of readiness, third party
representations, and the Company's plans and objectives for addressing Y2K
problems. Certain factors could cause actual results to differ materially from
the Company's expectations, including without limitation (i) the failure of
vendors and service providers to timely achieve Y2K compliance, (ii) system
incompatibilities with third parties resulting from software conversions, (iii)
the Company's systems and products not containing all necessary date code
changes, (iv) the failure of existing or future clients to achieve Y2K
compliance, (v) potential litigation arising out of Y2K issues, the risk of
which may be greater for information technology based service providers such as
the Company, (vi) the failure of the Company's validation and testing phase to
detect operational problems internal to the Company, in the Company's products
or services or in the Company's interface with service providers, vendors or
clients, whether such failure results from the technical inadequacy of the
Company's validation and testing efforts, the technological infeasibility of
testing certain non-IT systems, the perceived cost-benefit constraints against
conducting all available testing, or the unavailability of third
16
<PAGE>
parties to participate in testing, or (vii) the failure to timely implement a
contingency plan to the extent Y2K compliance is not achieved.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
There have been no material changes to the Company's market risks during the six
months ended June 30, 1999. See the Company's 1998 10-K for additional
discussion regarding the Company's market risks.
17
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
PART II. OTHER INFORMATION
Item 1-3. None.
Item 4. Submission of Matters to a Vote of Security Holders.
(a) The 1999 annual meeting (the "Annual Meeting") of stockholders of
CSG Systems International, Inc. was held on May 20, 1999.
(b) The following persons were elected as directors at the Annual
Meeting:
Class II (term expiring in 2002)
--------------------------------
Royce J. Holland
Bernard W. Reznicek
The following directors' term of office continued after the Annual
Meeting:
Janice I. Obuchowski
John P. Pogge
Rockwell A. Schnabel
George F. Haddix
Neal C. Hansen
Frank V. Sica
(c) Votes were cast or withheld at the Annual Meeting as follows:
<TABLE>
<CAPTION>
<S> <C> <C>
(i) Election of directors:
Director For Withheld
-------- --- --------
Royce, J. Holland 44,727,662 1,091,462
Bernard W. Reznicek 45,647,074 172,050
</TABLE>
(ii) Increase the 1996 Stock Incentive Plan by 3,000,000 shares of
Common Stock:
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
23,106,600 18,766,198 38,884
</TABLE>
Item 5. None
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.19I* Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Seventh,
Twenty-Eighth, Thirtieth, Thirty-Fourth Amendments and
Schedule Q to Restated and Amended CSG Master Subscriber
Management System Agreement between CSG Systems, Inc. and
TCI Cable Management Corporation.
10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan
18
<PAGE>
27.01 Financial Data Schedule (EDGAR Version only)
99.01 Safe Harbor for Forward-Looking Statements Under the Private
Securities Litigation Reform Act of 1995-Certain Cautionary
Statements and Risk Factors
(b) Reports on Form 8-K
None
__________________
* Portions of the exhibit have been omitted pursuant to an application for
confidential treatment, and the omitted portions have been filed separately
with the Commission.
19
<PAGE>
SIGNATURES
- ----------
Pursuant to the requirements of the Securities and Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Dated: August 16, 1999
CSG SYSTEMS INTERNATIONAL, INC.
/s/ Neal C. Hansen
------------------------------------------
Neal C. Hansen
Chairman and Chief Executive Officer
(Principal Executive Officer)
/s/ Greg A. Parker
------------------------------------------
Greg A. Parker
Vice President and Chief Financial Officer
(Principal Financial Officer)
/s/ Randy R. Wiese
------------------------------------------
Randy R. Wiese
Vice President and Controller
(Principal Accounting Officer)
20
<PAGE>
CSG SYSTEMS INTERNATIONAL, INC.
INDEX TO EXHIBITS
Exhibit
Number Description
- ------ -----------
2.19I* Twenty-Third, Twenty-Fourth, Twenty-Fifth, Twenty-Seventh, Twenty-
Eighth, Thirtieth, Thirty-Fourth Amendments and Schedule Q to Restated
and Amended CSG Master Subscriber Management System Agreement between
CSG Systems, Inc. and TCI Cable Management Corporation.
10.03 CSG Systems International, Inc. 1996 Stock Incentive Plan
27.01 Financial Data Schedule (EDGAR Version only)
99.01 Safe Harbor for Forward-Looking Statements Under the Private Securities
Litigation Reform Act of 1995-Certain Cautionary Statements and Risk
Factors
__________________
* Portions of the exhibit have been omitted pursuant to an application for
confidential treatment, and the omitted portions have been filed separately
with the Commission.
21
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
TWENTY-THIRD AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Twenty-Third Amendment (the "Amendment") is executed this 8th day of June,
1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Customer desires to utilize CSG's "auto-attendant" application in
connection with its use of CSG InfoExpress. Therefore, the definition of
"Products" and all references thereto in the Agreement shall be amended
to include this application. The auto-attendant application automatically
routes callers to a particular extension or department, avoiding human
intervention and related personnel costs. Customer shall use the auto-
attendant application in the same Designated Environment as CSG
InfoExpress, for the fees set forth below.
2. Schedule D shall be amended to include the following fees to be paid by
Customer for the auto-attendant application of CSG InfoExpress:
A. Software License Fees:
--------------------------
Perpetual License Fee for auto-attendant application $(***) per IVR
(minimum initial purchase of 10 licenses)
B. Software License Annual Maintenance Fees: (*****) percent ((***)%)
--------------------------------------------
of License Fee
C. Software License and Maintenance Payment Terms:
---------------------------------------------------
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
(for initial purchase of 10 licenses and related maintenance fees)
. Software License Fees:
- $(***) due upon Execution of this Agreement.
. Software License Annual Maintenance Fees:
- $(***) due upon Execution of this Agreement in relation to the
maintenance period through December 31, 1999.
. Subsequent year's annual maintenance fees, at the rate set forth
in item B above, shall be due on each January 1, beginning January 1,
2000, and continuing throughout the term of the Agreement.
D. Implementation Services:
----------------------------
. Initial menu build $(***) per menu build
. Subsequent menu builds $(***) per menu build
E. Additional Consulting or Training Services:
-----------------------------------------------
(fees set forth in Schedule D).
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
-------------------------------- ---------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
---------------------------- -------------------------------
Title: V. P. & General Counsel Title: EVP Fulfillment Operations
----------------------------- -------------------------------
2
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
TWENTY-FOURTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Twenty-Fourth Amendment (the "Amendment") is executed this 13th day of
April, 1999, and is made by and between CSG Systems, Inc., a Delaware
corporation ("CSG") and TCI Cable Management Corporation ("Customer"). CSG and
Customer entered into a certain Restated and Amended CSG Master Subscriber
Management System Agreement dated August 10, 1997, which has subsequently been
amended pursuant to separately executed amendments (collectively, the
"Agreement"), and now desire to amend the Agreement in accordance with the terms
and conditions set forth in this Amendment. If the terms and conditions set
forth in this Amendment shall be in conflict with the Agreement, the terms and
conditions of this Amendment shall control. Any terms in initial capital
letters or all capital letters used as a defined term but not defined in this
Amendment, shall have the meaning set forth in the Agreement. Upon execution of
this Amendment by the parties, any subsequent reference to the Agreement between
the parties shall mean the Agreement as amended by this Amendment. Except as
amended by this Amendment, the terms and conditions set forth in the Agreement
shall continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. To help ensure the accuracy of phone number data for subscribers who
order Pay-Per-View movies and events through CSG Ticket Express, Customer
desires to have CSG utilize the "phone scrub" process. The phone scrub process
will compare the subscriber's phone number to the phone number in the vendor's
data files and overlay incorrect or incomplete subscriber phone number data with
CSG's vendor telephone data. Neither CSG or its vendor makes any warranty,
express or implied, with respect to the data selected from CSG's vendor's
database, including, but not limited to, warranties of accuracy, completeness,
currentness, merchantability or fitness for a particular purpose.
2. Customer desires to utilize CSG's Product and Service Ordering System,
which will provide the ability for a potential customer to call a centralized
toll-free number and be directed through an IVR prompt to place an order for a
specified product or service. The IVR will gather necessary information from
the caller and will produce an output file to be made available to Customer for
manual processing of the order. This system will use the existing CSG Ticket
Express service and centralized IVR system.
3. Schedule D of the Agreement shall be amended to include the following
fees for the phone scrub process and the non Pay-Per-View Ordering service:
<TABLE>
<S> <C>
I. Fees for Phone Scrub Process:
. Initial data analysis and exception reporting $(***) per request
. Database update from the exception report $(***) per database update
II. Fees for the non Pay-Per-View Ordering Service:
a. One-time Setup Fee: $(***) per promotion
</TABLE>
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
Note: The One-time Set-up Fee for Customer's initial
promotion of Cable Guide (**********************).
b. Transaction Fees*:
0-20 seconds $(***) per call
21-25 seconds $(***) per call
26-30 seconds $(***) per call
31-35 seconds $(***) per call
36-40 seconds $(***) per call
41-45 seconds $(***) per call
46-50 seconds $(***) per call
51-55 seconds $(***) per call
56 seconds or greater $(***) per call
* Based on the average call duration for a specific
month (e.g., the total number of seconds of all calls
received during the month divided by the total number
of calls received during the month).
c. Transcription Fee: $(***) per completed order
d. Script Change Fee: $(***) per page of typed script
Note: The Script Change Fee for Customer's initial promotion
of Cable Guide (**********************).
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Robyn L. Renicke
------------------------------- ---------------------------------------
Name: Joseph T. Ruble Name: Robyn L. Renicke
----------------------------- -------------------------------------
Title: V.P. & General Counsel Title: Director of Partnership Mktg. & PPV
---------------------------- ------------------------------------
2
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
TWENTY-FIFTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Twenty-Fifth Amendment (the "Amendment") is executed this 8th day of June,
1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. For the fees set forth in paragraph 4 below, Customer desires to license
CSG Screen Express(TM), a computer software program that Customer shall use with
ACSR, which provides automated call services to cable television and
telecommunications companies. Therefore, the definition of "Products" in the
Agreement shall be amended to include CSG Screen Express(TM), which Customer
shall be licensed to use on one hundred eighty (180) workstations at Customer's
System Site in Pittsburgh, PA. Customer shall also receive one (1) license to
use CSG's AOI product, which is an application interface that allows third party
applications to be used in conjunction with ACSR. Customer agrees that it will
only use AOI to operate CSG Screen Express, and for no other purpose. The
installation services to be provided by CSG in connection with CSG Screen
Express, and the Designated Environment for CSG Screen Express are set forth in
paragraphs 2 and 3 below.
2. The Designated Environment for CSG Screen Express is as follows:
Servers & Workstations:
1. CTI Server for Sun: Sun Microsystems Sparc 5 workstation, 128MB RAM,
minimum 2 GB HD available.
*For Y2K compliance, the operating system needs to be Solaris 2.6 or
greater.
2. CTI Server for Windows NT: Pentium II, 200 Mhz or greater, 128 MB RAM,
minimum 200MB available HD.
*For Y2K compliance, all appropriate NT service packs must be
installed.
3. Desktop Workstation: Windows 95 or NT. No minimum requirements for
memory, minimum 3MB HD.
4. Desktop workstation should have current designated environment for
ACSR
ACDs:
1. Aspect ACD: Requires Application Bridge Link (Ethernet).
*Aspect Operating System must be version 6.2 or greater for Y2K.
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
2. Lucent G3: To be determined
3. Rolm: To be determined.
3. Customer shall receive the following installation services in connection
with CSG Screen Express:
Installation
Installation of CTI server
Configuration between CTI server and phone switch
Installation of client application, on-site, excluding Reimbursable
Expenses (as defined in the Agreement)
End-to-end testing
1 day on-site training
4. Schedule D of the Agreement shall be amended to include the following fees
for CSG Screen Express:
A. CSG Screen Express(TM)
----------------------
Perpetual License Fee $(***) per CSR workstation
Annual Software Maintenance $(***) per CSR workstation
Installation Services Fee $(***) per server installation plus
Reimbursable Expenses
B. Pilot System Site
-----------------
The following terms shall apply with respect to Customer's Pittsburgh
System Site, during the periods described below. At all times
thereafter, the terms and conditions of the Agreement shall govern
Customer's use of CSG Screen Express.
(i) Customer shall purchase a minimum of one hundred eighty (180)
licenses of CSG Screen Express at a price of $(***) per CSR
workstation. CSG shall invoice Customer for such licenses on
the "Commencement Date."
(ii) (***************) the annual software maintenance on the one
hundred and eighty (180) (**********************************).
Annual software maintenance on the one hundred eighty (180)
licenses (**********************************************) at
the rates set forth in paragraph 4.A above.
(iii) (***************) the Installation Services Fee for the Pilot
Site only.
(iv) For purposes of this Amendment, the term "Commencement Date"
shall be deemed to be the date upon which CSG Screen Express
and other Products and Services contemplated by this Amendment
are fully installed and operational.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By:/s/ Joseph T. Ruble By:/s/ Ann Montgomery
----------------------------- -------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
--------------------------- -----------------------------
Title: V.P. & General Counsel Title: EVP Fulfillment Operations
-------------------------- ----------------------------
2
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
TWENTY-SEVENTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Twenty-Seventh Amendment (the "Amendment") is executed this 30th day of
June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Section 7 of Schedule D shall be amended to provide as follows:
Effective April 1, 1999, Basic Vantage Reporting shall be amended to
increase the included CPU minutes per 1,000 Basic Subscribers from 0.5
CPU minutes to 0.65 CPU minutes. Additionally, the One-Time Setup Fee and
the monthly fees for Scheduling Calendar for one monthly schedule stored
is included in the Basic Vantage Reporting. Additional months of monthly
schedules stored are additional.
2. Effective April 1, 1999, Section 6, Item I.D. of Schedule D is amended to
change the per data frame fee as follows:
0 to 24,000,000 Total Data Frames per month - $(***) per data
frame
24,000,001 and greater Total Data Frames per month - $(***) per data
frame
3. Section 10 of Schedule D shall be amended to add the following language:
Effective April 1, 1999, each party for itself, its attorneys, officers,
directors, agents, representatives, employees, successors and assigns,
does hereby fully release and forever discharge the other parties, any
parent corporations of the other parties, and their subsidiaries,
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
affiliates, attorneys, officers, directors, agents, representatives,
employees, successors and assigns, and their heirs, executors and
administrators of and from any and all debts, claims, contracts, suits or
causes of action of any nature whatsoever, whether known, unknown, or
unforseen, arising out of or relating to or in connection with the
Agreement as it pertains to CSG's Vantage Point product and the parties'
obligations in connection therewith.
4. Effective April 1, 1999, Section 1 of Schedule D shall be amended to
include in the CCS Ancillary Service Fees the following:
II. AD. Infoquest Transmission - Off Production
Option I - Current Transmission Schedule* $(***) per
sub/per month
Option II - Weekly Transmission Schedule $(***) per
sub/per month
*Combination of weekly and bi-weekly schedule by system.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
------------------------------ ------------------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
---------------------------- -----------------------------------------
Title: V.P. & General Counsel Title: Exec. V.P. Fulfillment & Operations
--------------------------- ---------------------------------------
2
<PAGE>
EXHIBIT 2.19I
TWENTY-EIGHTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Twenty-Eighth Amendment (the "Amendment") is executed this 12th day of
May, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Pursuant to Schedule T of the Agreement, Customer is licensed to use CSG
Statement Express on one hundred sixty (160) ACSR integrated workstations. For
the fees set forth in Schedule D, and under the terms and conditions of the
Agreement (including, but not limited to, Schedule T), Customer now desires to
license an additional sixty (60) ACSR integrated workstations of Statement
Express. Therefore, the total number of Customer's Statement Express licenses
shall be increased from one hundred sixty (160) to two hundred twenty (220).
2. Exhibit T-1 of the Agreement states that Customer's Pilot System Site
shall be determined by Customer. Exhibit T-1 shall be amended to provide that
Customer's Pilot System Site shall be located at Livermore, CA.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Jerry Kulin
---------------------------------- ----------------------------------
Name: Joseph T. Ruble Name: Jerry Kulin
------------------------------ --------------------------------
Title: V.P. & General Counsel Title: V.P., Billing & Info. Syst.
----------------------------- -------------------------------
1
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
THIRTIETH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Thirtieth Amendment (the "Amendment") is executed this 30th day of June,
1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Customer desires to receive from CSG, and CSG is willing to provide to
Customer, certain products and services as part of Customer's Workforce
Package (the "Workforce Package"), subject to the terms and conditions of
the Agreement, including, but not limited to, Schedule Q and the fees set
forth in paragraph 2 below. The fees set forth below shall be added to
Schedule D of the Agreement, but will only be made available to Customer in
connection with products and/or services provided in connection with the
Workforce Package. If, between the date of execution of this Amendment and
December 31, 2000, Customer desires to receive additional products and/or
services as part of the Workforce Package, CSG and Customer shall execute
separate amendments to the Agreement which expressly identify the products
and/or services as being provided as part of the Workforce Package, in
which case such products and/or services will be provided for the fees set
forth in this Amendment. Further, between the date of execution of this
Amendment and December 31, 2000, Customer and CSG agree to negotiate in
good faith regarding any additional volume discounts beyond the fees set
forth below. With respect to Products and Services set forth in this
Amendment, CSG and Customer agree that, except as otherwise expressly
agreed in writing between the parties, their rights and obligations
relating thereto are set forth in the Master Agreement, and the execution
of this Amendment shall not be deemed or construed to alter, impair create
or evidence such rights or obligations.
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
2. Fees for CSG Workforce Express(TM)
------------------------------
Software License Fees: (Prices include third party software)
----------------------
CSG Workforce Management(TM)
----------------------------
Server Perpetual License for (***) subscribers $ (***) per subscriber
$(***)
Dispatch Perpetual License for (***) workstations $(***)/ workstation
$(***)
CSG TechNet(TM)
---------------
TechNet Perpetual License for (***) TechNet $(***) per TechNet $(***)
Software Maintenance Fees:
--------------------------
CSG Workforce Management(TM)
----------------------------
Annual Server Software Maintenance for (***) subscribers $ (***)
Annual Dispatch Software Maintenance for (***) workstations $ (***)
CSG TechNet(TM)
---------------
Annual TechNet Software Maintenance for (***) TechNet $ (***)
Note: Initial software maintenance fees will be for the period from date
of execution through December 31, 2000. Thereafter, beginning on
January 1, 2001, the software maintenance fees will be for calendar years.
Software License and Maintenance Payment Terms
----------------------------------------------
Software License Fees
---------------------
Due August 15, 1999 $ (***)
Due November 15, 1999 $ (***)
Due February 15, 2000 $ (***)
Initial Annual Software Maintenance Fees
----------------------------------------
Due November 15, 1999 $ (***)
Due March 15, 1999 $ (***)
Due September 15, 2000 $ (***)
Subsequent Annual Software Maintenance Fees will be billed in the month
prior to the start of the maintenance period.
CSG Workforce Express(TM) Operations Fee:
-----------------------------------------
Monthly per Subscriber Fee $ (***) per Subscriber
(CSG Workforce Express(TM) Operations Fee includes the hardware and third
party software located at CSG or its agents' site.)
2
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
Monthly Operations Fee Minimums:
Contract Execution through June 30, 2000 $ (***)
July 1, 2000 through December 31, 2002 $ (***)
Implementation Services:
------------------------
Implementation services will be set forth in separate Statements of Work
for each System Site, as mutually agreed upon and executed by CSG and
Customer. Any such Statement of Work will set forth all relevant terms and
conditions in connection with the implementation of products and services
provided under the Workforce Package, including, but not limited to,
software installation, training and performance of CSG's implementation
services.
3. Upon execution of this Amendment, that certain "Proposal & Agreement
For CSG Workforce Express" signed by Customer and CSG on April 1, 1999 (the
"Proposal") shall be terminated and of no further force or effect.
Accordingly, each party for itself, its attorneys, officers, directors,
agents, representatives, employees, successors and assigns, does hereby
fully release and forever discharge the other party, any parent
corporations of the other parties, and their subsidiaries, affiliates,
attorneys, officers, directors, agents, representatives, employees,
successors and assigns, and their heirs, executors and administrators of
and from any and all debts, claims, contracts, suits or causes of action of
any nature whatsoever, whether known, unknown, or unforeseen, arising out
of or relating to or in connection with the Proposal.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
------------------------- ----------------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
------------------------ --------------------------------------
Title: V.P. & General Counsel Title: EVP Fulfillment Services & Operations
---------------------- -------------------------------------
3
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been separately filed with the Commission,"
and places where information has been redacted
have been marked with (***).
THIRTY-FOURTH AMENDMENT
TO
RESTATED AND AMENDED CSG MASTER
SUBSCRIBER MANAGEMENT SYSTEM AGREEMENT
BETWEEN
CSG SYSTEMS, INC.
AND
TCI CABLE MANAGEMENT CORPORATION
This Thirty-Fourth Amendment (the "Amendment") is executed this 30th day of
June, 1999, and is made by and between CSG Systems, Inc., a Delaware corporation
("CSG") and TCI Cable Management Corporation ("Customer"). CSG and Customer
entered into a certain Restated and Amended CSG Master Subscriber Management
System Agreement dated August 10, 1997, which has subsequently been amended
pursuant to separately executed amendments (collectively, the "Agreement"), and
now desire to amend the Agreement in accordance with the terms and conditions
set forth in this Amendment. If the terms and conditions set forth in this
Amendment shall be in conflict with the Agreement, the terms and conditions of
this Amendment shall control. Any terms in initial capital letters or all
capital letters used as a defined term but not defined in this Amendment, shall
have the meaning set forth in the Agreement. Upon execution of this Amendment
by the parties, any subsequent reference to the Agreement between the parties
shall mean the Agreement as amended by this Amendment. Except as amended by
this Amendment, the terms and conditions set forth in the Agreement shall
continue in full force and effect according to their terms.
CSG and Customer agree as follows:
1. Customer desires to receive from CSG, and CSG is willing to provide to
Customer, certain products and services as part of Customer's HFC Release 1
Call Center Package (the "Package"), subject to the terms and conditions of
the Agreement, including, but not limited to, the fees set forth below. The
fees set forth below shall be added to Schedule D of the Agreement, but
will only be made available to Customer in connection with products and/or
services provided in connection with the Package. Paragraphs 2, 3, 4, 5,
and 6 below sets forth the products and/or services that Customer desires
to receive as of the date of execution of this Amendment. If, between the
date of execution of this Amendment and December 31, 2000, Customer desires
to receive additional products and/or services as part of the Package, CSG
and Customer shall execute separate amendments to the Agreement which
expressly identify the products and/or services as being provided as part
of the Package, in which case such products and/or services will be
provided for the fees set forth in this Amendment. Further, between the
date of execution of this Amendment and December 31, 2000, Customer and CSG
agree to negotiate in good faith regarding any volume discounts beyond the
fees set forth below. With respect to the products and services set forth
in paragraphs 3, 4, 5 and 6 below, CSG acknowledges and agrees that it is
not the sole or exclusive provider of such products or services to
Customer. With respect to the products and services set forth in paragraph
2 below, CSG and Customer agree that their obligations and rights relating
thereto are set forth in the Agreement, and that the execution of this
Amendment and its performance shall not alter, impair or create such rights
or obligations.
2. For the fees set forth below, Customer desires to receive, and CSG is
willing to grant, a perpetual license to use ACSR(R) Telephony on an
additional (***) workstations.
ACSR Telephony
--------------
Perpetual license for (***) workstations $ (***)
Prices exclude third party software, hardware, implementation,
installation and customization (outlined in the Agreement).
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
Annual Maintenance for (***) workstations $ (***)
Initial maintenance period is between the date of execution
of this Amendment and December 31, 2000. Thereafter,
maintenance fees will apply to calendar years. Implementation
includes the implementation services set forth in the
Agreement.
3. For the fees set forth below, Customer desires to receive, and CSG is
willing to grant, a perpetual license to use CIT(R) with CBT on (***)
workstations. In accordance with the terms and conditions of the 9th
Amendment to the Agreement, Customer's license to use CIT on (***)
workstations terminated on January 31, 1999. However, the description of
CIT and the Designated Environment set forth in paragraphs 2 and 6,
respectively, shall remain in full force and effect.
CIT with CBT
------------
Perpetual license for (***) workstations $ (***)
Price includes third party software but excludes hardware,
implementation, installation and customization.
Annual Maintenance for (***) workstations $ (***)
Initial maintenance period is between the date of execution of this
Amendment and December 31, 2000. Thereafter, maintenance
fees will apply to calendar years.
Price includes third party software maintenance.
Implementation services will be outlined in a Statement of
Work mutually agreed upon and executed by CSG and Customer.
4. For the fees set forth below, Customer desires to receive, and CSG is
willing to grant, a perpetual license to use CSG Screen Express(TM) on an
additional (***) workstations.
Screen Express
--------------
Perpetual license for (***) workstations $ (***)
Price excludes third party software, hardware, implementation,
installation and customization.
Annual maintenance for (***) workstations $ (***)
Initial maintenance period is between the date of execution of this
Amendment and December 31, 2000. Thereafter, maintenance
fees will apply to calendar years.
Implementation - per Screen Express Server $ (***)
Implementation includes the services outlined in paragraph 3
of the 25th Amendment to the Agreement.
Reimbursable Expenses are additional.
5. For the fees set forth below, Customer desires to receive, and CSG is
willing to grant, a perpetual license to use CSG Statement Express(TM) on
an additional (***) workstations.
2
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
separately filed with the Commission."
Statement Express
-----------------
Perpetual license for (***) workstations $ (***)
Price excludes third party software, hardware, implementation,
installation and customization.
Annual maintenance for (***) workstations $ (***)
Initial maintenance period is between the date of execution
of this Amendment through December 31, 2000. Thereafter,
maintenance fees will apply to calendar years.
Implementation - per site $ (***)
Implementation includes services outlined in Exhibit T-3 of
the Agreement. Reimbursable Expenses are additional.
Statement Archive Fee - per data frame $ (***)
--------------------------------------
Monthly Statement Archive Fee Minimums:
Contract execution through December 31, 1999 $ (***)
January 1, 2000 through June 30, 2000 $ (***)
July 1, 2000 through December 31, 2004 $ (***)
6. In addition to the implementation services described above as part of
annual maintenance, Customer shall receive one (1) annual refresher T3
(train-the-trainer) session per System Site at which the products or
services provided as part of the Package are installed, not to exceed a
total of fifteen (15) sessions per year. If any such session is held at a
location other than a CSG training facility, Customer shall be responsible
for CSG's Reimbursable Expenses.
7. Payment Terms
-------------
Except as noted in this paragraph 7, the terms and conditions set forth in
the Agreement shall apply with respect to products or services provided as
part of the Package. Payment of the license fees and maintenance fees for
the initial maintenance term shall be as follows:
Due 45 days from date of execution of this
Amendment by Customer $ (***)
Due October 15, 1999 $ (***)
Due January 15, 2000 $ (***)
Due March 15, 2000 $ (***)
Due June 15, 2000 $ (***)
Implementation services will be invoiced upon completion of work.
Statement archive fees will be invoiced monthly.
THIS AMENDMENT is executed on the day and year first shown above.
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
-------------------------- -------------------------------------
Name: Joseph T. Ruble Name: Ann Montgomery
-------------------------- -------------------------------------
Title: V.P. & General Counsel Title: EVP Fulfillment Services & Operations
-------------------------- --------------------------------------
3
<PAGE>
EXHIBIT 2.19I
Pages where confidential treatment has
been requested are stamped "Confidential
Treatment Requested and the Redacted Material
has been seperately filed with the Commission"
and places where information has been radacted
have been marked with (***).
SCHEDULE Q
CSG WORKFORCE EXPRESS
---------------------
This Schedule Q is made as of this 30th day of June, 1999, between CSG Systems,
----------
Inc. ("CSG"), and TCI Cable Management Corporation ("Customer"), pursuant to the
CSG Systems Master Subscriber Management Agreement executed as of August 8, 1997
(the "Master Agreement"), and of which this Schedule Q forms an integral part.
----------
1. License. Subject to Section 26 of the Master Agreement, CSG hereby grants
Customer, and Customer hereby accepts from CSG, a non-exclusive, non-
transferable and perpetual right to use the software products known as CSG
TechNet and CSG Workforce Management (collectively, the "CSG Workforce ExpressSM
Products"), which are end-user software products that may be utilized by
Customer in conjunction with CSG's CCS or ACSR billing products in the
designated environment described in Section 3 below (the "Designated
Environment"), for the fees set forth in Schedule D, at the System Sites and
----------
number of workstations described in Exhibit Q-2, and subject to the terms and
conditions specified below and in the Master Agreement. "CSG Workforce Express "
includes (i) the CSG Workforce Express Products servers resident on CSG's
centralized equipment and (ii) the CSG Workforce Express Products clients which
run on the designated client equipment specified in Section 3 below. Customer
will not permit any person other than Customer's employees, consultants or
designees (such as other contract installers or third party dispatchers) to
access the CSG Workforce Express Products. Customer will not download or
otherwise copy or decompile, disassemble or otherwise reverse engineer the CSG
Workforce Express Products or any software accessed through CSG Workforce
Express Products. Nothing in this Schedule Q will entitle Customer to receive
----------
the source code of the CSG Workforce Express Products or Enhancements, in whole
or in part. With respect to Products and Services set forth in this Schedule Q
and/or the 30th Amendment, CSG and Customer agree that, except as otherwise
expressly agreed in writing between the parties, their rights and obligations
relating thereto are set forth in the Master Agreement, and the execution of
this Schedule Q and/or the 30th Amendment shall not be deemed or construed to
alter, impair create or evidence such rights or obligations.
2. Communication Lines. Customer shall be responsible for the installation and
use of data communications lines from Customer's applications to the CSG
Workforce Express Products and all associated fees and charges.
3. Designated Environment. "Designated Environment" means the combination of
the other computer programs and hardware equipment as specified by CSG. CSG
will be solely responsible for upgrading the server portion of the Designated
Environment to the certified specifications that CSG provides. If Customer
alters the client portion of the Designated Environment, CSG will have no
obligation to continue maintaining and supporting the CSG Workforce Express
Products. CSG shall certify the Designated Environment prior to the commencement
of CSG's obligations under this Schedule Q, including its obligations to
----------
maintain and support the CSG Workforce Express Products. Any other use or
transfer of the CSG Workforce Express Products will require CSG's prior
approval, which may be subject to additional charges.
4. Support. For the fees set forth in Schedule D, CSG will provide
----------
Customer its standard support and maintenance of the then-current version of the
CSG Workforce Express Products (the "Support Services"). Customer agrees to pay
the fees set forth in Schedule D, which are identified in Schedule D as
----------- ----------
maintenance fees, for the Support Services for the term of this Master
Agreement. Included in the Support Services is support of the then-current
version of the CSG Workforce Express Products via the Product Support Center,
publication updates, and the fixes and updates that CSG may make generally
available as part of its maintenance and support packages (the "Updates"). The
Updates will not include any upgrade or new version of the CSG Workforce Express
Products that CSG decides, in its sole discretion, to make generally available
as a separately priced item. In such a case, Customer may decide, at its sole
option, whether to install an
1
<PAGE>
Update. This Section will not be interpreted to require CSG to (i) develop and
release Updates or (ii) customize the Updates to satisfy Customers' particular
requests.
5. Monthly Operations Services. For the fees set forth in Schedule D, CSG
shall provide and Customer shall purchase the CSG Workforce Express monthly
operations services set forth in Exhibit Q-3.
6. Term. The term of this Schedule Q shall begin on the date set forth above
----------
and shall continue in effect for the term of the Master Agreement, unless
terminated pursuant to Section 16 thereof.
Agreed and accepted this 30th day of June, 1999, by:
CSG SYSTEMS, INC. ("CSG") TCI CABLE MANAGEMENT CORPORATION
("Customer")
By: /s/ Joseph T. Ruble By: /s/ Ann Montgomery
------------------------------ ----------------------------
EXHIBIT Q-1 DESIGNATED ENVIRONMENT
EXHIBIT Q-2 SYSTEM SITES AND WORKSTATIONS
EXHIBIT Q-3 MONTHLY OPERATIONS SERVICES
2
<PAGE>
EXHIBIT Q-1
-----------
DESIGNATED ENVIRONMENT FOR THE CSG WORKFORCE EXPRESS PRODUCTS
--------------------------------------------------------------
The Support Services do not include support of the CSG Workforce Express
Products if the Product Components are used outside the certified Designated
Environment (i.e. other hardware, software, or other modifications have been
introduced by Customer that are outside the certified Designated Environment).
In such a case, CSG may agree to provide customized technical support for CSG's
then-current fees for such services.
OPERATING SYSTEM SUPPORT & NETWORK SUPPORT
- ------------------------------------------
NT 4.0 (or a later version as supported by CSG at CSG's sole discretion)
PocketNet(TM) (CSG TechNet) handheld device or other device supported by CSG
<TABLE>
<S> <C>
Processor: Intel Pentium II, 166 MHz or higher (200MHz recommended)
Operating System: Windows NT 4.0 with Service Pack 3
Memory: 96 MB or higher
Network Connection: Ethernet 10/100 Card
Monitor: 17" display minimum (19" recommended)
Must support 1024 x 768 screen resolution and 65,536 colors
Video Card: Must support 1024 x 768 screen resolution and 65,536 colors
Recommended card: Matrox Millenium II Graphics Controller, 4 MB,
Part No. 270246-B21
Hard Drive Space Required: 500 MB
CD-ROM: 4X minimum
Other Equipment: Keyboard and mouse
Postscript printer (24 ppm), which can be shared with other
Work Force Management workstations
</TABLE>
3
<PAGE>
"Confidential Treatment Requested
and the Redacted Material has been
seperately filed with the Commission."
EXHIBIT Q-2
-----------
SYSTEM SITES AND WORKSTATIONS
-----------------------------
System Sites:
- -------------
Denver, CO
TBD
Number of Licenses:
- --------------------
<TABLE>
<S> <C>
Workforce Express Subscribers: (***)
Workforce Express Workstations: (***)
TechNet: (***)
</TABLE>
4
<PAGE>
EXHIBIT Q-3
-----------
CSG WORKFORCE EXPRESS MONTHLY OPERATIONS SERVICES
-------------------------------------------------
Database Administration
Database Backup and Recovery - CSG will be responsible for the integrity of
the database and backing up client data stored in the database.
Backup Tape Management - CSG will provide the capability to place client
data on magnetic tape for archival purposes.
Offsite Tape Storage - CSG will be responsible for providing a process by
which database backups are stored offsite. The methodology and frequency are at
the discretion of the CSG Operations department.
Database Tuning - CSG will be responsible for engineering database
solutions that allow our customers to meet their business needs. Functions
included under this category are tablespace maintenance, buffer efficiencies,
user maintenance which includes password security, user creation and user
profile management.
Database Performance Monitoring - CSG will provide automated monitoring
solutions that will allow CSG to proactively respond to problems before they
lead to an outage situation. An example of a monitored function would be
tablespace extent allocations.
System Administration
User Administration - CSG will be responsible for all user id's and
passwords for all CSG application and UNIX server accounts.
Application and Server Security - CSG will closely manage the access to all
servers in the service bureau environment. Only CSG certified System
Administrators will have root access.
Application Engineering and Configuration - CSG will be responsible for
overall system usability and availability. CSG will be responsible for
maintaining the currency of any vendor software required by the application.
Hardware Configuration Management - CSG is responsible for hardware
configuration of the server , network access to the server, and server
peripheral hardware.
OS Configuration Management - CSG is responsible for maintaining the
currency of the server operating system by installing fixes and upgrading to new
levels of the operating system when required.
Operating System Backup and Recovery - CSG will be responsible for
maintaining operating system backups. A backup would include the operating
system itself as well as all pertinent application configuration elements.
Offsite Tape Storage - CSG will be responsible for providing a process by
which operating system backups are stored offsite. The methodology and
frequency are at the discretion of the CSG Operations department.
Resource Analysis and Capacity Planning - CSG will be responsible for
server and disk sizing to meet current and future customer volume requirements.
5
<PAGE>
Operations Support
Operations - CSG will be responsible for 24x7 monitoring of the server
hardware, operating system and applications. CSG will proactively detect issues
with any failing component and contact the appropriate support personnel to
return the failing component to operation.
Service Level Reporting - CSG will provide service level reporting server
hardware, software and application on a monthly basis to be made available to
the customer.
6
<PAGE>
EXHIBIT 10.03
[As amended
through 5-20-99]
CSG SYSTEMS INTERNATIONAL, INC.
1996 STOCK INCENTIVE PLAN
1. Purpose. The purpose of the CSG Systems International, Inc. 1996
Stock Incentive Plan (the "Plan") is to foster and promote the long-term
financial success of the Company and its Subsidiaries and thereby increase
stockholder value by providing incentives to those officers and other key
employees who are likely to be responsible for achieving such success.
2. Certain Definitions.
"Board" means the Board of Directors of the Company.
"Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor thereto. References to a particular section of the Code
shall include any regulations issued under such section.
"Committee" shall have the meaning provided in Section 3 of the Plan.
"Common Stock" means the Common Stock, $0.01 par value per share, of the
Company.
"Company" means CSG Systems International, Inc., a Delaware corporation.
"Disability" means (i) with respect to the exercise of an Incentive Stock
Option after termination of employment, a disability within the meaning of
Section 22(e)(3) of the Code and (ii) for all other purposes, a mental or
physical condition which, in the opinion of the Committee, renders a grantee
unable or incompetent to carry out the job responsibilities which such grantee
held or the tasks to which such grantee was assigned at the time the disability
was incurred and which is expected to be permanent or for an indefinite duration
exceeding one year.
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"Fair Market Value" means, as determined by the Committee, the last sale
price of the Common Stock as quoted on the Nasdaq National Market System on the
trading day for which the determination is being made, or, in the event that no
such sale takes place on such day, the average of the reported closing bid and
asked prices on such day, or, if the Common Stock of the Company is listed on a
national securities exchange, the last reported sale price on the principal
national securities exchange on which the Common Stock is listed or admitted to
trading on the
<PAGE>
trading day for which the determination is being made, or, if no such reported
sale takes place on such day, the average of the closing bid and asked prices on
such day on the principal national securities exchange on which the Common Stock
is listed or admitted to trading, or, if the Common Stock is not quoted on such
National Market System nor listed or admitted to trading on a national
securities exchange, the average of the closing bid and asked prices in the
over-the-counter market on the day for which the determination is being made as
reported through Nasdaq, or, if bid and asked prices for the Common Stock on
such day are not reported through Nasdaq, the average of the bid and asked
prices for such day as furnished by any New York Stock Exchange member firm
regularly making a market in the Common Stock selected for such purpose by the
Committee, or, if none of the foregoing is applicable, then the fair market
value of the Common Stock as determined in good faith by the Committee in its
sole discretion.
"Incentive Stock Option" means any stock option intended to qualify as an
"incentive stock option" within the meaning of Section 422 of the Code.
"Non-Qualified Stock Option" means any stock option that is not intended to
be an Incentive Stock Option, including any stock option that provides (as of
the time such option is granted) that it will not be treated as an Incentive
Stock Option.
"Parent Corporation" means any corporation (other than the Company) in an
unbroken chain of corporations ending with the Company if, at the time of the
granting of the option, each of the corporations other than the Company owns
stock possessing 50% or more of the total combined voting power of all classes
of stock in one of the other corporations in such chain.
"Performance Unit Award" means an award granted pursuant to Section 8.
"Plan Year" means the twelve-month period beginning on January 1 and ending
on December 31; provided, that the first Plan Year shall be a short Plan Year
beginning on January 3, 1996, and ending on December 31, 1996.
"Restricted Stock Award" means an award of Common Stock granted pursuant to
Section 9.
"Rule 16b-3" means Rule 16b-3 under the Exchange Act, as in effect from
time to time.
"Stock Appreciation Right" means an award granted pursuant to Section 7.
"Stock Bonus Award" means an award of Common Stock granted pursuant to
Section 10.
"Stock Option" means any option to purchase Common Stock granted pursuant
to Section 6.
"Subsidiary" means (i) as it relates to Incentive Stock Options, any
corporation (other than the Company) in an unbroken chain of corporations
beginning with the Company if, at the time of the granting of the option, each
of the corporations (other than the last corporation in the unbroken chain) owns
stock possessing 50% or more of the total combined voting power of all
2
<PAGE>
classes of stock in one of the other corporations in such chain and (ii) for all
other purposes, a corporation, domestic or foreign, of which not less than 50%
of the voting shares are held by the Company or by a Subsidiary, whether or not
such corporation now exists or hereafter is organized or acquired by the Company
or by a Subsidiary.
3. Administration. The Plan shall be administered by a committee
composed solely of two or more members of the Board (the "Committee") selected
by the Board, each of whom shall qualify as a "Non-Employee Director" within the
meaning of Rule 16b-3 and as an "outside director" within the meaning of Section
162(m) of the Code.
The Committee shall have authority to grant to eligible employees of the
Company or its Subsidiaries, pursuant to the terms of the Plan, (a) Stock
Options, (b) Stock Appreciation Rights, (c) Restricted Stock Awards, (d)
Performance Unit Awards, (e) Stock Bonus Awards, or (f) any combination of the
foregoing.
Subject to the applicable provisions of the Plan, the Committee shall have
authority to interpret the provisions of the Plan and to decide all questions of
fact arising in the application of such provisions; to select the officers and
other key employees to whom awards or options shall be granted under the Plan;
to determine whether and to what extent awards or options shall be granted under
the Plan; to determine the types of awards and options to be granted under the
Plan and the amount, size, terms and conditions of each such award or option; to
determine the time when awards or options shall be granted under the Plan; to
determine whether, to what extent and under what circumstances the payment of
Common Stock and other amounts payable with respect to an award granted under
the Plan shall be deferred either automatically or at the election of the
grantee; to determine the Fair Market Value of the Common Stock from time to
time; to authorize persons to execute on behalf of the Company any agreement
required to be entered into under the Plan; to adopt, alter and repeal such
administrative rules, guidelines and practices governing the Plan as the
Committee from time to time shall deem advisable; and to make all other
determinations necessary or advisable for the administration of the Plan.
Unless otherwise expressly provided in the Plan, all decisions and
determinations made by the Committee pursuant to the provisions of the Plan
shall be made in the sole discretion of the Committee and shall be final and
binding on all persons, including but not limited to the Company and its
Subsidiaries, the officers and other key employees to whom awards and options
are granted under the Plan, the heirs and legal representatives of such officers
and key employees, and the personal representatives and beneficiaries of the
estates of such officers and key employees.
The Committee may delegate to any officer or officers of the Company any of
the Committee's duties, powers, and authorities under the Plan upon such
conditions and with such limitations as the Committee may determine; provided,
that only the Committee may select for awards or options under the Plan, and
make grants of awards or options under the Plan to, officers and other key
employees of the Company or any Subsidiary who are subject to Section 16 of the
Exchange Act at the time of such selection or the making of such a grant.
3
<PAGE>
4. Common Stock Subject to the Plan. Subject to adjustment pursuant to
Section 19, the maximum number of shares of Common Stock which may be issued
under the Plan on and after May 20, 1999, is the sum of (a) the number of shares
of Common Stock which were subject to outstanding Stock Options as of May 19,
1999, plus (b) the number of shares of Common Stock available for, but not yet
subject to, the grant of an award or option under the Plan as of May 19, 1999,
plus (c) 3,000,000 shares of Common Stock; and the Company shall reserve and
keep available for issuance under the Plan such maximum number of shares,
subject to adjustment pursuant to Section 19. Such shares may consist in whole
or in part of authorized and unissued shares or treasury shares or any
combination thereof. The aggregate number of shares of Common Stock subject to
or issuable in payment of (i) Stock Options, (ii) Stock Appreciation Rights,
(iii) Stock Bonus Awards, (iv) Restricted Stock Awards or (v) Performance Unit
Awards granted under the Plan in any Plan Year to any individual may not exceed
480,000, subject to adjustment pursuant to Section 19. Except as otherwise
provided in the Plan, any shares subject to an option or right which expires for
any reason or terminates unexercised as to such shares shall again be available
for the grant of awards or options under the Plan. If any shares of Common
Stock have been pledged as collateral for indebtedness incurred by an optionee
in connection with the exercise of a Stock Option and such shares are returned
to the Company in satisfaction of such indebtedness, then such shares shall
again be available for the grant of awards or options under the Plan.
5. Eligibility to Receive Awards and Options. Awards and options may be
granted under the Plan to those officers and other key employees of the Company
or any Subsidiary who are responsible for or contribute to, or are likely to be
responsible for or contribute to, the management, growth and success of the
Company or any Subsidiary. The granting of an award or option under the Plan to
an officer or other key employee of the Company or any Subsidiary shall
conclusively evidence the Committee's determination that such grantee meets one
or more of the criteria referred to in the preceding sentence. Directors of the
Company or of any Subsidiary who are not employees of the Company or any
Subsidiary shall not be eligible to participate in the Plan.
6. Stock Options. A Stock Option may be an Incentive Stock Option or a
Non-Qualified Stock Option. To the extent that any Stock Option does not
qualify as an Incentive Stock Option, it shall constitute a separate Non-
Qualified Stock Option. Stock Options may be granted alone or in addition to
other awards made under the Plan. Stock Options shall be evidenced by
agreements in such form as the Committee shall approve from time to time. The
agreements shall contain in substance the following terms and conditions and may
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:
(a) Type of Option. Each option agreement shall identify the Stock
Option represented thereby as an Incentive Stock Option or a Non-Qualified
Stock Option, as the case may be.
(b) Option Price. The option exercise price per share shall not be
less than the Fair Market Value of the Common Stock on the date the Stock
Option is granted and in no event shall be less than the par value of the
Common Stock.
4
<PAGE>
(c) Term. Each option agreement shall state the period or periods of
time within which the Stock Option may be exercised, in whole or in part,
which shall be such period or periods of time as the Committee may
determine at the time of the Stock Option grant; provided, that no Stock
Option granted under the Plan shall be exercisable more than ten years
after the date of its grant; and provided further, that each Stock Option
granted under the Plan shall become exercisable one year after the date of
its grant, unless the option agreement specifically provides otherwise.
The Committee shall have authority to accelerate previously established
exercise rights, subject to the requirements set forth in the Plan, under
such circumstances and upon such terms and conditions as the Committee
shall deem appropriate.
(d) Payment for Shares. The Committee may permit all or part of the
payment of the option exercise price to be made (i) in cash, by check or by
wire transfer or (ii) in shares of Common Stock (A) which already are owned
by the optionee and which are surrendered to the Company in good form for
transfer or (B) which are retained by the Company from the shares of the
Common Stock which would otherwise be issued to the optionee upon the
optionee's exercise of the Stock Option. Such shares shall be valued at
their Fair Market Value on the date of exercise of the Stock Option. In
lieu of payment in fractions of shares, payment of any fractional share
amount shall be made in cash or check payable to the Company. The
Committee also may provide that the exercise price may be paid by
delivering a properly executed exercise notice in a form approved by the
Committee together with irrevocable instructions to a broker to promptly
deliver to the Company the amount of the applicable sale or loan proceeds
required to pay the exercise price. No shares of Common Stock shall be
issued to any optionee upon the exercise of a Stock Option until the
Company receives full payment therefor as described above.
(e) Rights upon Termination of Employment. In the event that an
optionee ceases to be employed by the Company and all of its Subsidiaries
for any reason other than such optionee's death or Disability, any rights
of the optionee under any Stock Option then in effect immediately shall
terminate; provided, that the optionee (or the optionee's legal
representative) shall have the right to exercise the Stock Option during
its term within a period of three (3) months after such termination of
employment to the extent that the Stock Option was exercisable at the time
of such termination or within such other period and subject to such other
terms and conditions as may be specified by the Committee. Notwithstanding
the foregoing provisions of this Section 6(e), the optionee (and the
optionee's legal representative) shall not have any rights under any Stock
Option, and the Company shall not be obligated to sell or deliver shares of
Common Stock (or have any other obligation or liability) under any Stock
Option, if the Committee shall determine that (i) the employment of the
optionee with the Company or any Subsidiary has been terminated for cause
or (ii) the optionee has engaged or may engage in employment or activities
competitive with the Company or any Subsidiary or contrary, in the opinion
of the Committee, to the best interests of the Company or any Subsidiary.
In the event of such determination, the optionee (and the optionee's legal
representative) shall have no right under any Stock Option to purchase any
shares of
5
<PAGE>
Common Stock regardless of whether the optionee (or the optionee's legal
representative) shall have delivered a notice of exercise prior to the
Committee's making of such determination. Any Stock Option may be
terminated entirely by the Committee at the time of or at any time
subsequent to a determination by the Committee under this Section 6(e)
which has the effect of eliminating the Company's obligation to sell or
deliver shares of Common Stock under such Stock Option.
In the event that an optionee ceases to be employed by the Company and
all of its Subsidiaries by reason of such optionee's Disability, prior to
the expiration of a Stock Option and without such optionee's having fully
exercised such Stock Option, such optionee or such optionee's legal
representative shall have the right to exercise such Stock Option during
its term within a period of six (6) months after such termination of
employment to the extent that such Stock Option was exercisable at the time
of such termination or within such other period and subject to such other
terms and conditions as may be specified by the Committee.
In the event that an optionee ceases to be employed by the Company and
all of its Subsidiaries by reason of such optionee's death, prior to the
expiration of a Stock Option and without such optionee's having fully
exercised such Stock Option, the personal representative of such optionee's
estate or the person who acquired the right to exercise such Stock Option
by bequest or inheritance from such optionee shall have the right to
exercise such Stock Option during its term within a period of twelve (12)
months after the date of such optionee's death to the extent that such
Stock Option was exercisable at the time of such death or within such other
period and subject to such other terms and conditions as may be specified
by the Committee.
To the extent that the aggregate Fair Market Value (determined as of the time
the option is granted) of the Common Stock with respect to which Incentive Stock
Options granted under the Plan (and all other plans of the Company and its
Subsidiaries) become exercisable for the first time by any individual in any
calendar year exceeds $100,000, such Stock Options shall be treated as Non-
Qualified Stock Options. No Incentive Stock Option shall be granted to any
employee if, at the time the option is granted, the employee (in his or her own
right or by reason of the attribution rules applicable under Section 424(d) of
the Code) owns more than 10% of the total combined voting power of all classes
of stock of the Company or any Parent Corporation or Subsidiary unless at the
time such option is granted the option price is at least 110% of the Fair Market
Value of the stock subject to such Stock Option and such Stock Option by its
terms is not exercisable after the expiration of five years from the date of its
grant.
7. Stock Appreciation Rights. Stock Appreciation Rights shall enable the
grantees thereof to benefit from increases in the Fair Market Value of shares of
Common Stock and shall be evidenced by agreements in such form as the Committee
shall approve from time to time. The agreements shall contain in substance the
following terms and conditions and may contain such additional terms and
conditions, not inconsistent with the terms of the Plan, as the Committee shall
deem appropriate:
6
<PAGE>
(a) Award. A Stock Appreciation Right shall entitle the grantee,
subject to such terms and conditions as the Committee may prescribe, to
receive upon the exercise thereof an award equal to all or a portion of the
excess of (i) the Fair Market Value of a specified number of shares of
Common Stock at the time of the exercise of such right over (ii) a
specified price which shall not be less than the Fair Market Value of the
Common Stock at the time the right is granted or, if connected with a
previously granted Stock Option, not less than the Fair Market Value of the
Common Stock at the time such Stock Option was granted. Subject to the
limitations set forth in Section 4, such award may be paid by the Company
in cash, shares of Common Stock (valued at their then Fair Market Value) or
any combination thereof, as the Committee may determine. Stock
Appreciation Rights may be, but are not required to be, granted in
connection with a previously or contemporaneously granted Stock Option. In
the event of the exercise of a Stock Appreciation Right, the number of
shares reserved for issuance under the Plan shall be reduced by the number
of shares covered by the Stock Appreciation Right as to which such exercise
occurs.
(b) Term. Each agreement shall state the period or periods of time
within which the Stock Appreciation Right may be exercised, in whole or in
part, subject to such terms and conditions prescribed for such purpose by
the Committee; provided, that no Stock Appreciation Right shall be
exercisable more than ten years after the date of its grant; and provided
further, that each Stock Appreciation Right granted under the Plan shall
become exercisable one year after the date of its grant, unless the
agreement specifically provides otherwise. The Committee shall have
authority to accelerate previously established exercise rights, subject to
the requirements set forth in the Plan, under such circumstances and upon
such terms and conditions as the Committee shall deem appropriate.
(c) Rights upon Termination of Employment. In the event that a
grantee of a Stock Appreciation Right ceases to be employed by the Company
and all of its Subsidiaries for any reason other than such grantee's death
or Disability, any rights of the grantee under any Stock Appreciation Right
then in effect immediately shall terminate; provided, that the grantee (or
the grantee's legal representative) shall have the right to exercise the
Stock Appreciation Right during its term within a period of three (3)
months after such termination of employment to the extent that the Stock
Appreciation Right was exercisable at the time of such termination or
within such other period and subject to such other terms and conditions as
may be specified by the Committee. Notwithstanding the foregoing
provisions of this Section 7(c), the grantee (and the grantee's legal
representative) shall not have any rights under any Stock Appreciation
Right, and the Company shall not be obligated to pay or deliver any cash,
Common Stock or any combination thereof (or have any other obligation or
liability) under any Stock Appreciation Right, if the Committee shall
determine that (i) the employment of the grantee with the Company or any
Subsidiary has been terminated for cause or (ii) the grantee has engaged or
may engage in employment or activities competitive with the Company or any
Subsidiary or contrary, in the opinion of the Committee, to the best
interests of the Company or any Subsidiary. In the event of such
determination, the grantee (and the grantee's legal representative) shall
have no right under any Stock
7
<PAGE>
Appreciation Right regardless of whether the grantee (or the grantee's
legal representative) shall have delivered a notice of exercise prior to
the Committee's making of such determination. Any Stock Appreciation Right
may be terminated entirely by the Committee at the time of or at any time
subsequent to a determination by the Committee under this Section 7(c)
which has the effect of eliminating the Company's obligations under such
Stock Appreciation Right.
In the event that a grantee of a Stock Appreciation Right ceases to be
employed by the Company and all of its Subsidiaries by reason of such
grantee's Disability, prior to the expiration of a Stock Appreciation Right
and without such grantee's having fully exercised such Stock Appreciation
Right, such grantee or such grantee's legal representative shall have the
right to exercise such Stock Appreciation Right during its term within a
period of six (6) months after such termination of employment to the extent
that such Stock Appreciation Right was exercisable at the time of such
termination or within such other period and subject to such other terms and
conditions as may be specified by the Committee.
In the event that a grantee ceases to be employed by the Company and
all of its Subsidiaries by reason of such grantee's death, prior to the
expiration of a Stock Appreciation Right and without such grantee's having
fully exercised such Stock Appreciation Right, the personal representative
of the grantee's estate or the person who acquired the right to exercise
such Stock Appreciation Right by bequest or inheritance from such grantee
shall have the right to exercise such Stock Appreciate Right during its
term within a period of twelve (12) months after the date of such grantee's
death to the extent that such Stock Appreciation Right was exercisable at
the time of such death or within such other period and subject to such
other terms and conditions as may be specified by the Committee.
8. Performance Unit Awards. Performance Unit Awards shall entitle the
grantees thereof to receive future payments based upon and subject to the
achievement of preestablished long-term performance targets and shall be
evidenced by agreements in such form as the Committee shall approve from time to
time. The agreements shall contain in substance the following terms and
conditions and may contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem
appropriate:
(a) Performance Period. The Committee shall establish with respect to
each Performance Unit Award a performance period of not fewer than two
years nor more than five years.
(b) Unit Value. The Committee shall establish with respect to each
Performance Unit Award a value for each unit which shall not change
thereafter or which may vary thereafter on the basis of criteria specified
by the Committee.
(c) Performance Targets. The Committee shall establish with respect
to each Performance Unit Award maximum and minimum performance targets to
be achieved during the applicable performance period. The achievement of
the maximum targets
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<PAGE>
shall entitle a grantee to payment with respect to the full value of a
Performance Unit Award. The achievement of less than the maximum targets,
but in excess of the minimum targets, shall entitle a grantee to payment
with respect to a portion of a Performance Unit Award according to the
level of achievement of the applicable targets as specified by the
Committee. To the extent the Committee deems necessary or appropriate to
protect against the loss of deductibility pursuant to Section 162(m) of the
Code, such targets shall be established in conformity with the requirements
of Section 162(m) of the Code.
(d) Performance Measures. Performance targets established by the
Committee shall relate to corporate, division, subsidiary, group or unit
performance in terms of objective financial criteria or performance goals
which satisfy the requirements of Section 162(m) of the Code or, with
respect to grantees not subject to Section 162(m) of the Code, such other
measures or standards of performance as the Committee may determine.
Multiple targets may be used and may have the same or different weighting,
and the targets may relate to absolute performance or relative performance
measured against other companies, businesses or indexes.
(e) Adjustments. At any time prior to the payment of a Performance
Unit Award, the Committee may adjust previously established performance
targets or other terms and conditions of such Performance Unit Award,
including the Company's or another company's financial performance for Plan
purposes, in order to reduce or eliminate, but not to increase, the payment
with respect to a Performance Unit Award that otherwise would be due upon
the attainment of such previously established performance targets. Such
adjustments shall be made to reflect major unforeseen events such as
changes in laws, regulations or accounting practices, mergers, acquisitions
or divestitures or other extraordinary, unusual or nonrecurring items or
events.
(f) Payment of Performance Unit Awards. Upon the conclusion of each
performance period, the Committee shall determine the extent to which the
applicable performance targets have been attained and any other terms and
conditions have been satisfied for such period and shall provide such
certification thereof as may be necessary to satisfy the requirements of
Section 162(m) of the Code. The Committee shall determine what, if any,
payment is due on a Performance Unit Award and, subject to the limitations
set forth in Section 4, whether such payment shall be made in cash, shares
of Common Stock (valued at their then Fair Market Value) or a combination
thereof. Payment of a Performance Unit Award shall be made in a lump sum or
in installments, as determined by the Committee, commencing as promptly as
practicable after the end of the performance period unless such payment is
deferred upon such terms and conditions as may be specified by the
Committee.
(g) Termination of Employment. In the event that a grantee of a
Performance Unit Award ceases to be employed by the Company and all of its
Subsidiaries for any reason other than such grantee's death or Disability,
any rights of such grantee under any Performance Unit Award then in effect
whose performance period has not ended shall terminate immediately;
provided, that the Committee may authorize the partial payment
9
<PAGE>
of any such Performance Unit Award if the Committee determines such action
to be equitable.
In the event that a grantee of a Performance Unit Award ceases to be
employed by the Company and all of its Subsidiaries by reason of such
grantee's death or Disability, any rights of such grantee under any
Performance Unit Award then in effect whose performance period has not
ended shall terminate immediately; provided, that the Committee may
authorize the payment to such grantee or such grantee's legal
representative of all or any portion of such Performance Unit Award to the
extent earned under the applicable performance targets, even though the
applicable performance period has not ended, upon such terms and conditions
as may be specified by the Committee.
9. Restricted Stock Awards. Restricted Stock Awards shall consist of
shares of Common Stock restricted against transfer, subject to a substantial
risk of forfeiture and to other terms and conditions intended to further the
purpose of the Plan as the Committee may determine, and shall be evidenced by
agreements in such form as the Committee shall approve from time to time. The
agreements shall contain in substance the following terms and conditions and may
contain such additional terms and conditions, not inconsistent with the terms of
the Plan, as the Committee shall deem appropriate:
(a) Restriction Period. The Common Stock covered by Restricted Stock
Awards shall be subject to the applicable restrictions established by the
Committee over such period as the Committee shall determine. To the extent
the Committee deems necessary or appropriate to protect against the loss of
deductibility pursuant to Section 162(m) of the Code, Restricted Stock
Awards also may be subject to the attainment of one or more preestablished
performance objectives which relate to corporate, subsidiary, division,
group or unit performance in terms of objective financial criteria or
performance goals which satisfy the requirements of Section 162(m) of the
Code; provided, that any such preestablished financial criteria or
performance goals subsequently may be adjusted by the Committee to reduce
or eliminate, but not to increase, a Restricted Stock Award in order to
take into account unforeseen events or changes in circumstances.
(b) Restriction upon Transfer. Shares of Common Stock covered by
Restricted Stock Awards may not be sold, assigned, transferred, exchanged,
pledged, hypothecated or otherwise encumbered, except as provided in the
Plan or in any Restricted Stock Award agreement entered into between the
Company and a grantee, during the restriction period applicable to such
shares. Notwithstanding the foregoing provisions of this Section 9(b), and
except as otherwise provided in the Plan or the applicable Restricted Stock
Award agreement, a grantee of a Restricted Stock Award shall have all of
the other rights of a holder of Common Stock including but not limited to
the right to receive dividends and the right to vote such shares.
(c) Payment. The Committee shall determine the amount, form and time
of payment, if any, that shall be required from the grantee of a Restricted
Stock Award in consideration of the issuance and delivery of the shares of
Common Stock covered by such Restricted Stock Award.
10
<PAGE>
(d) Certificates. Each certificate issued in respect of shares of
Common Stock covered by a Restricted Stock Award shall be registered in the
name of the grantee and shall bear the following legend (in addition to any
other legends which may be appropriate):
"This certificate and the shares of stock
represented hereby are subject to the terms and
conditions (including forfeiture provisions and
restrictions against transfer) contained in the CSG
Systems International, Inc. 1996 Stock Incentive
Plan and a Restricted Stock Award Agreement entered
into between the registered owner and CSG Systems
International, Inc. Release from such terms and
conditions may be obtained only in accordance with
the provisions of such Plan and Agreement, a copy of
each of which is on file in the office of the
Secretary of CSG Systems International, Inc."
The Committee may require the grantee of a Restricted Stock Award to enter
into an escrow agreement providing that the certificates representing the
shares covered by such Restricted Stock Award will remain in the physical
custody of an escrow agent until all restrictions are removed or expire.
The Committee also may require that the certificates held in such escrow be
accompanied by a stock power, endorsed in blank by the grantee, relating to
the Common Stock covered by such certificates.
(e) Lapse of Restrictions. Except for preestablished performance
objectives established with respect to Restricted Stock Awards to grantees
subject to Section 162(m) of the Code, the Committee may provide for the
lapse of restrictions applicable to Common Stock subject to Restricted
Stock Awards in installments and may waive such restrictions in whole or in
part based upon such factors and such circumstances as the Committee shall
determine. Upon the lapse of such restrictions, certificates for shares of
Common Stock, free of the restrictive legend set forth in Section 9(c),
shall be issued to the grantee or the grantee's legal representative. The
Committee shall have authority to accelerate the expiration of the
applicable restriction period with respect to all or any portion of the
shares of Common Stock covered by a Restricted Stock Award except, with
respect to grantees subject to Section 162(m) of the Code, to the extent
such acceleration would result in the loss of the deductibility of such
Restricted Stock Award pursuant to Section 162(m) of the Code.
(f) Termination of Employment. In the event that a grantee of a
Restricted Stock Award ceases to be employed by the Company and all of its
Subsidiaries for any reason, any rights of such grantee with respect to
shares of Common Stock that remain subject to restrictions under such
Restricted Stock Award shall terminate immediately, and any shares of
Common Stock covered by a Restricted Stock Award with unlapsed restrictions
shall be subject to reacquisition by the Company upon the terms set forth
in the applicable agreement with such grantee. The Committee may provide
for complete or partial exceptions to such employment requirement if the
Committee determines such action to be equitable.
11
<PAGE>
10. Stock Bonus Awards. The Committee may grant a Stock Bonus Award to an
eligible grantee under the Plan based upon corporate, division, subsidiary,
group or unit performance in terms of preestablished objective financial
criteria or performance goals or, with respect to participants not subject to
Section 162(m) of the Code, such other measures or standards of performance
(including but not limited to performance already accomplished) as the Committee
may determine; provided, that any such preestablished financial criteria or
performance goals subsequently may be adjusted to reduce or eliminate, but not
to increase, a Stock Bonus Award in order to take into account unforeseen events
or changes in circumstances.
If appropriate in the sole discretion of the Committee, Stock Bonus Awards
shall be evidenced by agreements in such form as the Committee shall approve
from time to time. In addition to any applicable performance goals or standards
and subject to the terms of the Plan, shares of Common Stock which are the
subject of a Stock Bonus Award may be (i) subject to additional restrictions
(including but not limited to restrictions on transfer) or (ii) granted directly
to a grantee free of any restrictions, as the Committee shall deem appropriate.
11. General Restrictions. Each award or grant under the Plan shall be
subject to the requirement that if at any time the Committee shall determine
that (i) the listing, registration or qualification of the shares of Common
Stock subject or related thereto upon any securities exchange or under any state
or federal law, (ii) the consent or approval of any governmental regulatory
body, or (iii) an agreement by the grantee of an award or grant with respect to
the disposition of the shares of Common Stock subject or related thereto is
necessary or desirable as a condition of, or in connection with, such award or
grant or the issuance or purchase of shares of Common Stock thereunder, then
such award or grant may not be consummated and any rights thereunder may not be
exercised in whole or in part unless such listing, registration, qualification,
consent, approval or agreement shall have been effected or obtained upon
conditions acceptable to the Committee. Awards or grants under the Plan shall
be subject to such additional terms and conditions, not inconsistent with the
Plan, as the Committee in its sole discretion deems necessary or desirable,
including but not limited to such terms and conditions as are necessary to
enable a grantee to avoid any short-swing profit recapture liability under
Section 16 of the Exchange Act.
12. Single or Multiple Agreements. Multiple forms of awards or grants or
combinations thereof may be evidenced either by a single agreement or by
multiple agreements, as determined by the Committee.
13. Rights of a Stockholder. Unless otherwise provided by the Plan, the
grantee of any award or grant under the Plan shall have no rights as a
stockholder of the Company with respect to the shares of Common Stock subject or
related to such award or grant unless and until certificates for such shares of
Common Stock are issued to such grantee.
14. No Right to Continue Employment. Nothing in the Plan or in any
agreement entered into pursuant to the Plan shall confer upon any grantee the
right to continue in the employment of the Company or any Subsidiary or affect
any right which the Company or any Subsidiary may have to terminate the
employment of any grantee with or without cause.
12
<PAGE>
15. Withholding. The Company's obligation to (i) deliver shares of Common
Stock or pay cash upon the exercise of any Stock Option or Stock Appreciation
Right, (ii) deliver shares of Common Stock or pay cash in payment of any
Performance Unit Award, (iii) deliver stock certificates upon the vesting of any
Restricted Stock Award, and (iv) deliver shares of Common Stock upon the grant
of any Stock Bonus Award shall be subject to applicable federal, state and local
tax withholding requirements. In the discretion of the Committee, amounts
required to be withheld for taxes may be paid by the grantee in cash or shares
of Common Stock (either through the surrender of previously held shares of
Common Stock or the withholding of shares of Common Stock otherwise issuable
upon the exercise or payment of such Stock Option, Stock Appreciation Right or
Award) having a Fair Market Value equal to the required tax withholding amount
and upon such other terms and conditions as the Committee shall determine;
provided, that any election by a grantee subject to Section 16(b) of the
Exchange Act to pay any tax withholding in shares of Common Stock shall be
subject to and must comply with any applicable rules under Section 16(b) of the
Exchange Act.
16. Indemnification. No member of the Board or the Committee, nor any
officer or employee of the Company or a Subsidiary acting on behalf of the Board
or the Committee, shall be personally liable for any action, determination or
interpretation taken or made in good faith with respect to the Plan; and all
members of the Board or the Committee and each and any officer or employee of
the Company or any Subsidiary acting on their behalf shall, to the extent
permitted by law, be fully indemnified and protected by the Company in respect
of any such action, determination or interpretation.
17. Non-Assignability. No award or grant under the Plan shall be
assignable or transferable by the recipient thereof except by will, by the laws
of descent and distribution or, in the case of awards or grants other than
Incentive Stock Options, pursuant to a qualified domestic relations order or by
such other means (if any) as the Committee may approve from time to time with
respect to holders whose transactions in the Common Stock are not subject to
Section 16(b) of the Exchange Act. No right or benefit under the Plan shall in
any manner be subject to the debts, contracts, liabilities or torts of the
person entitled to such right or benefit.
18. Nonuniform Determinations. The Committee's determinations under the
Plan (including but not limited to determinations of the persons to receive
awards or grants, the form, amount and timing of such awards or grants, the
terms and provisions of such awards or grants and the agreements evidencing them
and the establishment of values and performance targets) need not be uniform and
may be made by the Committee selectively among the persons who receive, or are
eligible to receive, awards or grants under the Plan, whether or not such
persons are similarly situated.
19. Adjustments. In the event of any change in the outstanding shares of
Common Stock, by reason of a stock dividend or distribution, stock split,
recapitalization, merger, reorganization, consolidation, split-up, spin-off,
combination of shares, exchange of shares or other change in corporate structure
affecting the Common Stock, the Committee shall make appropriate adjustments in
(a) the aggregate number of shares of Common Stock (i) reserved for issuance
under the Plan, (ii) for which grants or awards may be made to an individual
grantee
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<PAGE>
and (iii) covered by outstanding awards and grants denominated in shares or
units of Common Stock, (b) the exercise or other applicable price related to
outstanding awards or grants and (c) the appropriate Fair Market Value and other
price determinations relevant to outstanding awards or grants and shall make
such other adjustments as may be equitable under the circumstances; provided,
that the number of shares subject to any award or grant always shall be a whole
number.
20. Terms of Payment. Subject to any other applicable provisions of the
Plan and to any applicable laws, whenever payment by a grantee is required with
respect to shares of Common Stock which are the subject of an award or grant
under the Plan, the Committee shall determine the time, form and manner of such
payment, including but not limited to lump-sum payments and installment payments
upon such terms and conditions as the Committee may prescribe. Installment
payment obligations of a grantee may be evidenced by full-recourse, limited-
recourse or non-recourse promissory notes or other instruments, with or without
interest and with or without collateral or other security as the Committee may
determine.
21. Termination and Amendment. The Board may terminate the Plan or amend
the Plan or any portion thereof at any time, including but not limited to
amendments to the Plan necessary to comply with the requirements of Section
16(b) of the Exchange Act, Section 162(m) of the Code, Section 422 of the Code
or regulations issued under any of such statutory provisions. The termination
or any amendment of the Plan shall not, without the consent of a grantee,
adversely affect such grantee's rights under an award or grant previously made
to such grantee under the Plan. The Committee may amend the terms of any award
or grant previously made under the Plan, prospectively or retroactively; but,
except as otherwise expressly permitted by the Plan and subject to the
provisions of Section 19, no such amendment shall adversely affect the rights of
the grantee of such award or grant without such grantee's consent.
Notwithstanding the foregoing provisions of this Section 21, stockholder
approval of any action referred to in this Section 21 shall be required whenever
necessary to satisfy the applicable requirements of Section 16(b) of the
Exchange Act, Section 162(m) of the Code, Section 422 of the Code or any
regulations issued under any of such statutory provisions.
22. Severability. With respect to participants subject to Section 16 of
the Exchange Act, (i) the Plan is intended to comply with all applicable
conditions of Rule 16b-3 or any successor to such rule, (ii) all transactions
involving grantees who are subject to Section 16(b) of the Exchange Act are
subject to such conditions, regardless of whether the conditions are expressly
set forth in the Plan and (iii) any provision of the Plan that is contrary to a
condition of Rule 16b-3 shall not apply to grantees who are subject to Section
16(b) of the Exchange Act. If any of the terms or provisions of the Plan, or
awards or grants made under the Plan, conflict with the requirements of Section
162(m) or Section 422 of the Code with respect to awards or grants subject to or
governed by Section 162(m) or Section 422 of the Code, as the case may be, then
such terms or provisions shall be deemed inoperative to the extent they so
conflict with the requirements of Section 162(m) or Section 422 of the Code, as
the case may be. With respect to an Incentive Stock Option, if the Plan does not
contain any provision required to be included in the Plan under Section 422 of
the Code (as amended from time to time) or any successor to such section, then
such provision shall be deemed to be incorporated in the Plan with the same
force and effect as if such provision had been expressly set out in the Plan.
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<PAGE>
23. Effect on Other Plans. Participation in the Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan of
the Company or any Subsidiary. Any awards made pursuant to the Plan shall not be
taken into account in determining the benefits provided or to be provided under
any other plan of the Company or any Subsidiary unless otherwise specifically
provided in such other plan.
24. Term of Plan. The Plan shall become effective on January 3, 1996, and
shall terminate for purposes of further grants on the first to occur of (i)
December 31, 2005, or (ii) the effective date of the termination of the Plan by
the Board pursuant to Section 21. No awards or options may be granted under the
Plan after the termination of the Plan, but such termination shall not affect
any awards or options outstanding at the time of such termination or the
authority of the Committee to continue to administer the Plan apart from the
making of further grants.
25. Governing Law. The Plan shall be governed by and construed in
accordance with the laws of Delaware.
15
<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.
RELIANCE ON CCS
- ---------------
The Company derived approximately 78% and 77% of its total revenues from its
primary product, Communications Control System (CCS), and related products and
services in the years ended December 31, 1998 and 1997, respectively. CCS and
related products and services are expected to provide the substantial majority
of the Company's total revenues in the foreseeable future. The Company's results
will depend upon continued market acceptance of CCS and related products and
services, as well as the Company's ability to continue to adapt and modify them
to meet the changing needs of its clients. Any reduction in demand for CCS would
have a material adverse effect on the financial condition and results of
operations of the Company.
REQUIREMENTS OF THE AT&T CONTRACT
- ---------------------------------
The AT&T Contract requires the conversion of additional AT&T customers onto the
Company's customer care and billing system. The AT&T Contract provides certain
performance criteria and other obligations to be met by the Company. The Company
is subject to various remedies and penalties if it fails to meet the
<PAGE>
performance criteria or other obligations. The Company is also subject to an
annual technical audit to determine whether the Company's products and services
include innovations in features and functions that have become standard in the
wireline video industry. If an audit determines the Company is not providing
such an innovation and it fails to do so in the manner and time period dictated
by the contract, then AT&T would be released from its exclusivity obligation to
the extent necessary to obtain the innovation from a third party. To fulfill the
AT&T Contract and to remain competitive, the Company believes it will be
required to develop new and advanced features to existing products and services,
as well as new products and services, all of which will require substantial
research and development. AT&T also would have the right to terminate the AT&T
Contract in the event of certain defaults by the Company. The termination of the
AT&T Contract or of any of AT&T's commitments under the contract would have a
material adverse effect on the financial condition and results of operations of
the Company.
AT&T CONTRACT AND MERGER
- ------------------------
AT&T completed its merger with TCI in March 1999 and has consolidated the TCI
operations into AT&T Broadband and Internet Services (BIS). During the six
months ended June 30, 1999 and 1998, revenues from AT&T and affiliated companies
represented approximately 43.0% and 38.5% of total revenues, respectively. The
AT&T Contract has minimum financial commitments over the 15-year life of the
contract and includes exclusive rights to provide customer care and billing
products and services for AT&T's offerings of wireline video, all Internet/high
speed data services, residential wireline telephony services, and print and mail
services. As discussed above, the AT&T Contract provides certain performance
criteria and other obligations to be met by the Company. To date, the Company
believes it has complied with the terms of the contract. Since execution of the
AT&T Contract in September 1997 through June 30, 1999, the Company has
successfully converted approximately 9.2 million AT&T cable television customers
onto its system.
At this time, it is too early to determine the near- and long-term impact, if
any, the AT&T and TCI merger will have on the Company's relationship with the
combined entity. AT&T has announced its planned efforts to provide convergent
communications services in several United States cities during 1999.
The Company is participating in those convergent trials and is working closely
with AT&T to provide customer care and billing services to customers in those
cities. The Company expects to continue performing successfully under the AT&T
Contract, but its failure to do so would have a material adverse effect on the
financial condition and results of operations of the Company.
CONVERSION TO THE COMPANY'S SYSTEMS
- -----------------------------------
The Company's ability to convert new client sites to its customer care and
billing systems on a timely and accurate basis is necessary to meet the
Company's contractual commitments and to achieve its business objectives.
Converting multiple sites under the schedules required by contracts or business
requirements is a difficult and complex process. One of the difficulties in the
conversion process is that competition for the necessary qualified personnel is
intense and the Company may not be successful in attracting and retaining the
personnel necessary to complete conversions on a timely and accurate basis. The
inability of the Company to perform the conversion process timely and accurately
would have a material adverse effect on the results of operations of the
Company.
DEPENDENCE ON CABLE TELEVISION AND DBS INDUSTRIES
- -------------------------------------------------
<PAGE>
The Company's business is concentrated in the cable television and Direct
Broadcast Satellite (DBS) industries, making the Company susceptible to a
downturn in those industries. During the years ended December 31, 1998 and 1997,
the Company derived 78% and 73%, and 13% and 11% of its total revenues from
companies in the U.S. cable television and U.S. DBS industries, respectively. A
decrease in the number of customers served by the Company's clients, loss of
business due to non-renewal of client contracts, industry consolidation, and/or
changing consumer demand for services would adversely effect the results of
operations of the Company.
There can be no assurance that new entrants into the cable television market
will become clients of the Company. Also, there can be no assurance that cable
television providers will be successful in expanding into other segments of the
converging communications markets. Even if major forays into new markets are
successful, the Company may be unable to meet the special billing and customer
care needs of that market. The cable television industry is undergoing
significant ownership changes at an accelerated pace. In addition, cable
television providers are consolidating, decreasing the potential number of
buyers for the Company's products and services. Consolidation in the industry
may put at risk the Company's ability to leverage its existing relationships.
Should this consolidation result in a concentration of cable television customer
accounts being owned by companies with whom the Company does not have a
relationship, or with whom competitors are entrenched, it could negatively
effect the Company's ability to maintain or expand its market share, thereby
adversely effecting the results of operations.
NEW PRODUCTS AND RAPID TECHNOLOGICAL CHANGE
- -------------------------------------------
The market for customer care and billing systems is characterized by rapid
changes in technology and is highly competitive with respect to the need for
timely product innovations and new product introductions. The Company believes
that its future success in sustaining and growing the annual revenue per
customer account depends upon continued market acceptance of its current
products, including CCS and related products and services, and its ability to
enhance its current products and develop new products that address the
increasingly complex and evolving needs of its clients. Substantial research and
development will be required to maintain the competitiveness of the Company's
products and services in the market. Development projects can be lengthy and
costly, and are subject to changing requirements, programming difficulties, a
shortage of qualified personnel, and unforeseen factors which can result in
delays. There can be no assurance of continued market acceptance of the
Company's current products or that the Company will be successful in the timely
development of product enhancements or new products that respond to
technological advances or changing client needs. Also, the introduction and
consumer acceptance of billing statements that are presented and paid
electronically over the Internet may happen more rapidly than the Company
anticipates. If electronic bill presentation and payment proliferates and the
Company is unable to respond with a solution quickly, such failure could have a
material adverse effect on the Company's results of operations.
CONVERGING COMMUNICATIONS MARKETS
- ---------------------------------
The Company's growth strategy is based in large part on the continuing
convergence and growth of the cable television, DBS, telecommunications, and on-
line services markets. If these markets fail to converge, grow more slowly than
anticipated, or if providers in the converging markets do not accept the
Company's solution for presenting multiple communications services on a single
bill, there could be a material adverse effect on the Company's growth.
COMPETITION
- -----------
The market for the Company's products and services is highly competitive. The
Company directly competes with both independent providers of products and
services and in-house systems developed by existing and potential clients. Many
of the Company's current and potential competitors have significantly
<PAGE>
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.
<PAGE>
INTEGRATION OF ACQUISITIONS
- ---------------------------
As part of its growth strategy, the Company seeks to acquire assets, technology,
and businesses which would provide the technology and technical personnel to
expedite the Company's product development efforts, provide complementary
products or services or provide access to new markets and clients. Acquisitions
involve a number of risks and difficulties, including expansion into new
geographic markets and business areas, the requirement to understand local
business practices, the diversion of management's attention to the assimilation
of acquired operations and personnel, potential adverse short-term effects on
the Company's operating results, and the amortization of acquired intangible
assets.
YEAR 2000
- ---------
The Company's business is dependent upon various computer software programs and
operating systems that utilize dates and process data beyond the year 2000. If
the actions taken by the Company to mitigate its risks associated with the year
2000 are inadequate, there could be a material adverse effect on the financial
condition and results of operations of the Company. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations" for
additional discussion of the Company's efforts to address the year 2000 risks.
RELATIONSHIP WITH FIRST DATA CORPORATION
- ----------------------------------------
The Company has entered into a data processing services agreement with FDC. The
Company is dependent upon FDC to perform these services for the operation of
CCS. The inability of FDC to perform these services satisfactorily could have a
material adverse effect on the financial condition and results of operations of
the Company. The existing agreement is scheduled to expire in December 2001.
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FORM 10-Q AS
OF JUNE 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000<F1>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 34,066
<SECURITIES> 0
<RECEIVABLES> 70,913
<ALLOWANCES> 2,852
<INVENTORY> 0
<CURRENT-ASSETS> 106,676
<PP&E> 52,612
<DEPRECIATION> 28,505
<TOTAL-ASSETS> 257,730
<CURRENT-LIABILITIES> 92,554
<BONDS> 72,290
0
0
<COMMON> 518
<OTHER-SE> 91,654
<TOTAL-LIABILITY-AND-EQUITY> 257,730
<SALES> 147,597
<TOTAL-REVENUES> 147,597
<CGS> 61,595
<TOTAL-COSTS> 61,595
<OTHER-EXPENSES> 15,837
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,033
<INCOME-PRETAX> 40,350
<INCOME-TAX> 15,275
<INCOME-CONTINUING> 25,075
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 25,075
<EPS-BASIC> 0.49
<EPS-DILUTED> 0.46
<FN>
<F1>*In thousands except per share amounts.
</FN>
</TABLE>
