<PAGE>
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act
of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [ ]
Check the appropriate box:
[ ] Preliminary Proxy Statement
[ ] Confidential, for Use of the Commission Only (as permitted by Rule
14a-6(e)(2))
[X] Definitive Proxy Statement [ ] Definitive Additional Materials [ ]
Soliciting Material Pursuant to ss.240.14a-11(c) or ss.240.14a-12
CFI PROSERVICES, INC.
(Exact Name of Registrant as Specified In Its Charter)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required
[ ] Fee computed on table below per Exchange Act Rules 14a-6(i)(1)
and 0-11
1) Title of each class of securities to which transaction applies:
2) Aggregate number of securities to which transaction applies:
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (set forth the amount on which the
filing fee is calculated and state how it was determined):
4) Proposed maximum aggregate value of transaction:
5) Total fee paid:
[ ] Fee paid previously with preliminary materials.
[ ] Check box if any part of the fee is offset as provided by Exchange Act
Rule 0-11(a)(2) and identify the filing for which the offsetting fee was
paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
1) Amount Previously Paid:
2) Form, Schedule or Registration Statement No.:
3) Filing Party:
4) Date Filed:
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CFI ProServices, Inc.
400 SW Sixth Avenue
Portland, Oregon 97204
(503) 274-7280
NOTICE OF 1999 ANNUAL MEETING OF SHAREHOLDERS
To the Shareholders:
The 1999 annual meeting of shareholders of CFI ProServices, Inc. (the "Company")
will be held at the Mayfair Room of the Benson Hotel, located at 309 S.W.
Broadway, Portland, Oregon 97205, on Friday, May 14, 1999, at 10:00 a.m.,
Pacific Daylight Time, for the following purposes:
(1) to elect three (3) Class 3 directors with terms expiring in 2002 (Proposal
1);
(2) to consider and act upon the Second Amendment to the 1995 Consolidated and
Restated Stock Option Plan (Proposal 2);
(3) to consider and act upon the First Amendment to the Restated Outside
Director Compensation and Stock Option Plan (Proposal 3);
(4) to ratify the selection of Arthur Andersen LLP as the Company's auditors
for the year ending December 31, 1999 (Proposal 4); and
(5) to transact such other business as may properly come before the meeting or
any adjournment thereof.
Holders of Common Stock of record at the close of business on March 31, 1999 are
entitled to vote upon all matters properly submitted to shareholder vote at the
meeting.
The Board of Directors of the Company is soliciting the proxies of all holders
of the Common Stock who may be unable to attend the meeting in person. A proxy
and a stamped return envelope are enclosed herewith for your use. No postage is
needed if mailed in the United States.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THIS MEETING.
WE URGE YOU TO EXERCISE YOUR RIGHT TO VOTE BY PROMPTLY MARKING, SIGNING, DATING
AND RETURNING THE ENCLOSED PROXY CARD. THE PROMPT RETURN OF YOUR PROXY WILL SAVE
THE COMPANY THE ADDITIONAL EXPENSE OF FURTHER REQUESTS TO ENSURE THE PRESENCE OF
A QUORUM. YOU MAY VOTE IN PERSON AT THE MEETING, WHETHER OR NOT YOU PREVIOUSLY
HAVE RETURNED YOUR PROXY.
By Order of the Board of Directors,
Robert T. Jett
Secretary
Portland, Oregon
April 7, 1999
<PAGE>
CFI ProServices, Inc.
400 SW Sixth Avenue
Portland, Oregon 97204
(503) 274-7280
-------------------
PROXY STATEMENT
1999 ANNUAL MEETING OF SHAREHOLDERS
TO BE HELD ON MAY 14, 1999
SOLICITATION AND REVOCATION OF PROXIES
The Board of Directors of CFI ProServices, Inc. (the "Company") is soliciting
the proxies of all holders of the Company's Common Stock who may be unable to
personally attend the annual meeting of shareholders to be held at The Benson
Hotel, Mayfair Room, located at 309 S. W. Broadway, Portland, Oregon 97205, on
Friday, May 14, 1999, at 10:00 a.m., Pacific Daylight Time. The Company requests
that you sign and return the enclosed proxy promptly.
This Proxy Statement, together with the accompanying proxy card and the
Company's 1998 Annual Report, are being mailed to shareholders commencing April
9, 1999. The Annual Report includes the Company's audited financial statements
for the fiscal year ended December 31, 1998.
All shares represented by proxies, which have been properly executed and
returned to the Company, will be voted at the meeting. Where a shareholder
eligible to vote specifies a choice by means of the ballot space provided in the
proxy, the shares will be voted in accordance with the specification so made. If
no specification is made, such shares will be voted FOR each Item. The proxy may
be revoked by you at any time before it is exercised by (i) delivering to the
Company a later dated proxy; (ii) giving written notice of revocation to the
Secretary of the Company at the Company's address shown above; or (iii)
attending the meeting and voting your shares in person.
The solicitation of proxies by mail may be followed by personal solicitation of
certain shareholders, by officers or regular employees of the Company. All
expenses of the Company associated with this solicitation will be borne by the
Company. In addition, the Company reserves the right to utilize the services of
an independent proxy solicitation firm to assist with the solicitation of
proxies. If the services of an independent proxy solicitation firm are used, the
cost is estimated not to exceed $5,000.
VOTING SECURITIES OF THE COMPANY
The Company had 5,083,527 shares of Common Stock outstanding on March 31, 1999.
Each holder of Common Stock of record at the close of business on March 31,
1999, will be entitled to one vote on all matters properly submitted at the
meeting for each share of Common Stock held of record. A majority of shares of
Common Stock outstanding at the close of business on March 31, 1999 must be
represented at the meeting, in person or by proxy, to constitute a quorum for
the transaction of business.
IT IS IMPORTANT THAT YOUR SHARES BE REPRESENTED AT THE MEETING. YOU ARE
URGED, REGARDLESS OF THE NUMBER OF SHARES YOU HOLD, TO SIGN AND RETURN
YOUR PROXY.
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PROPOSAL 1
ELECTION OF DIRECTORS
The Company's Articles of Incorporation provide that the Board of Directors
shall be fixed as provided by the Bylaws, but the number of directors shall be
not less than three (3). The Company's Bylaws provide that the Board of
Directors shall consist of not less than three (3) nor more than nine (9)
directors. The Articles and Bylaws also provide that at any time when the Board
of Directors consists of six (6) or more members, in lieu of electing the entire
Board of Directors annually, the Board shall be divided into three (3) classes,
with the method of classification made by the director then serving as Chairman
of the Board. Members of each of the three classes of directors generally are
elected to serve a three-year term, with the terms of office of each class
ending in successive years.
Currently the Board of Directors consists of eight (8) directors divided into
three classes. Of these, five (5) Directors are continuing their terms after the
Company's 1999 Annual Meeting and three (3) Directors are standing for
reelection at the Company's 1999 Annual Meeting.
Class 3 Directors. The Chairman has designated J. Kenneth Brody, Robert T. Jett
and Lorraine O. Legg as Class 3 Directors. Mr. Brody, Mr. Jett and Ms. Legg were
elected to the Board of Directors by the Company's shareholders at the 1996
annual meeting and are serving three-year terms which terminate at the 1999
annual meeting. These three Directors are nominees for election to the Board as
Class 3 Directors to serve until the 2002 annual meeting, or until their
successors have been duly elected and qualified.
In case any of the Class 3 Director nominees should become unavailable for
election for any reason, the persons named in the proxy will have discretionary
authority to vote for a substitute. Management knows of no reason why any of the
nominees would be unable to serve if elected.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR ELECTION OF EACH NOMINEE LISTED.
Directors are elected by a plurality of the votes of the shareholders present or
represented by proxies at the annual meeting. Abstentions and broker non-votes
are counted for purposes of determining whether a quorum exists at the annual
meeting but are not counted and have no effect on the determination of whether a
plurality exists with respect to a given nominee.
CLASS 3
(TERM ENDING 2002)
J. KENNETH BRODY
Chairman
ComPix Incorporated Age: 76
Portland, Oregon Director Since: 1990
Mr. Brody has served as a director of the Company since May 1990 and a
consultant to the Company since 1988. Since 1984, he has been the Chairman of
ComPix Incorporated, a manufacturer of infrared thermal analysis devices. Mr.
Brody is also a Director of the U.S. Navy Memorial Foundation. From 1992 until
December 1996, he served as a consultant to First Portland Corporation and as a
member of the management committee of Intercoastal Manufacturing, Co., a golf
cart parts sales and services company.
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ROBERT T. JETT
Executive Vice President, Product Development Division and Secretary
CFI ProServices, Inc. Age: 54
Portland, Oregon Director Since: 1987
Mr. Jett has served as Executive Vice President and Secretary of the Company
since April 1984. Mr. Jett is responsible for managing the Product Development
Division. Prior to joining the Company, he managed the legal department of Evans
Products Company, a diversified manufacturing company.
LORRAINE O. LEGG
President and Chief Executive Officer
TIS Financial Services, Inc. Age: 59
San Francisco, California Director Since: 1995
Ms. Legg has served as President and Chief Executive Officer of TIS Financial
Services, Inc., an asset securitization and management company, since its
formation in 1984. Ms. Legg also serves as President, Chief Executive Officer
and a director of TIS Mortgage Investment Company, a real estate investment
trust. Prior to her involvement with TIS, Ms. Legg served as Vice President and
Treasurer of Boise Cascade Corp, a Fortune 500 forest products manufacturer, and
in various management roles with affiliates of Boise Cascade Corp. From 1967
through 1970, Ms. Legg was Vice President of the Federal National Mortgage
Association, and was a principal architect of the GNMA mortgage-backed security.
Ms. Legg also serves as Chairman of The Planned Giving Foundation, Inc., a
charitable organization.
MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE
CLASS 1
(TERM ENDING 2000)
MATTHEW W. CHAPMAN
Chairman and Chief Executive Officer
CFI ProServices, Inc. Age 48
Portland, Oregon Director Since: 1987
Mr. Chapman has served as the Company's Chief Executive Officer since February
1988 and as its Chairman since February 1991. Mr. Chapman was President of the
Company from August 1987 to April 1992 and became a director in September 1987.
Prior to joining the Company, Mr. Chapman was outside counsel to the Company,
and was a founding partner of the law firm of Farleigh, Wada & Witt, P.C. Mr.
Chapman has previously served as a faculty member of the American Bankers
Association National Graduate Compliance School and the Credit Union National
Association Regulatory Compliance School. Mr. Chapman is a director of Microchip
Technology, Incorporated, a Chandler, Arizona manufacturer and supplier of
programmable microchips. Mr. Chapman is also a Trustee of the University of
Portland.
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FRANK E. BRAWNER
Retired Age: 65
Neskowin, Oregon Director Since: 1998
Mr. Brawner served as the Chief Executive Officer of the Oregon Bankers
Association and the Independent Community Banks of Oregon from 1975 until his
retirement in 1998. He became President of the Oregon Bankers Association in
1992. From 1991 through 1998, Mr. Brawner also served as Executive Vice
President of the Oregon Mortgage Bankers Association. Mr. Brawner has also
served as Secretary of the Northwest Intermediate Banking Schools and as a
member of the Board of Directors of the Pacific Coast Banking School and the
Oregon Society of Association Executives.
CLASS 2
(TERM ENDING 2001)
ERAN S. ASHANY
Director
Allen & Company Incorporated Age: 36
New York, New York Director Since: 1993
Mr. Ashany has been employed by Allen & Company Incorporated, an investment
banking company, since August 1988, and has been a Vice President and Director
of that firm since September 1990 and February 1995, respectively. Mr. Ashany is
also a director of Eco-Bat Technologies, plc, a lead smelter and battery
recycler with operations in the United Kingdom, Germany, France, Italy and
Austria.
ROBERT P. CHAMNESS
President and Chief Operating Officer
CFI ProServices, Inc. Age: 46
Portland, Oregon Director Since: 1993
Mr. Chamness has served as President and Chief Operating Officer of the Company
since July 1995 and served as Executive Vice President and General Counsel of
the Company from April 1993 until he was appointed as President and Chief
Operating Officer. From 1985 to March 1993, Mr. Chamness was a partner with the
law firm of McKenna & Fitting, Los Angeles, California, and its predecessor.
From 1990 to 1994, Mr. Chamness served as the Chair of the Consumer Financial
Services Committee of the American Bar Association. Mr. Chamness has authored
numerous compliance manuals for the American Bankers Association, including
manuals relating to the Truth in Savings Act and consumer lending.
L. B. DAY
President and Director
L.B. Day & Company, Inc. Age: 54
Portland, Oregon Director Since: 1999
Since 1995, Mr. Day has been President and a director of L.B. Day & Company,
Inc., a consulting firm which provides organization development, design and
planning services to clients at senior and executive levels. From 1983 to 1994
he served as Vice President and then President of Day-Floren Associates, Inc., a
consulting firm specializing in strategic planning for high-technology
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companies. Mr. Day is a director of Microchip Technology, Incorporated, a
Chandler, Arizona manufacturer and supplier of programmable microchips.
MEETINGS AND COMMITTEES OF THE BOARD OF DIRECTORS
The Board of Directors held four regular meetings, four special meetings and
took action pursuant to two unanimous written consents during the year ended
December 31, 1998. There are five standing committees of the Board: the Audit,
Compensation, Nominating, Executive and Proxy Committees. No Director attended
fewer than 75 percent of all Board Meetings and Committee Meetings for which
they served as members.
Until May 1998, the Audit Committee of the Board was comprised of Eran S. Ashany
(Chair), David Golden and Lorraine O. Legg, none of whom was otherwise employed
by the Company. In May 1998, Mr. Golden resigned from the committee and, in
September 1998, Frank Brawner was added as a member. Current membership of the
Audit Committee includes Mr. Ashany (Chair), Mr. Brawner and Ms. Legg, none of
whom is otherwise employed by the Company. The Audit Committee reviews the
results and scope of the audit and other services provided by the Company's
independent auditors, and reports regularly to the Board. The Audit Committee
held two meetings during 1998.
During 1998, the Compensation Committee was comprised of Eran S. Ashany, J.
Kenneth Brody (Chair) and Lorraine O. Legg, none of whom was otherwise employed
by the Company. This Committee reviews the performance of the executive officers
and considers executive compensation data in making recommendations to the Board
relating to salaries and incentive compensation for executives. The Compensation
Committee also administers the Company's Stock Option Plans and approves stock
option grants and contributions to the Company's 401(k) profit sharing plan. The
Compensation Committee held one meeting during 1998. See "Executive Compensation
- - Compensation Committee Interlocks and Insider Participation."
During 1998, the Nominating Committee was comprised of J. Kenneth Brody, Robert
P. Chamness, Matthew W. Chapman and Lorraine O. Legg (Chair). This Committee
recommends to the Board of Directors nominees for election as directors.
Shareholders' suggestions for director nominees may be submitted to the
Secretary of the Company for consideration by the Nominating Committee. The
Nominating Committee held one meeting during 1998.
During 1998, the Executive Committee was comprised of J. Kenneth Brody, Matthew
W. Chapman (Chair) and Lorraine O. Legg. This Committee is empowered to exercise
all of the authority of the Board in the management of the Company except as
otherwise may be provided by law. The Executive Committee held one meeting
during 1998.
During 1998, the Proxy Committee was comprised of Robert P. Chamness, Matthew W.
Chapman (Chair) and Robert T. Jett. This Committee votes shareholder proxies at
the annual meeting and at any special meetings if appointed by shareholders in a
written proxy. The Proxy Committee held one meeting during 1998.
5
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BOARD COMPENSATION
In accordance with the terms of the Outside Directors Compensation and Stock
Option Plan for 1998, all outside directors received an annual retainer of
$5,000 for serving as members of the Board of Directors, and a stock option to
purchase 2,000 shares, granted on the first business day following the annual
meeting of shareholders, with an exercise price equal to the fair market value
of the Company's Common Stock at the close of trading on the last trading day
prior to the issuance of the option, in each case pro rated for service during a
partial year.
During 1998, management evaluated the director compensation package to ensure
competitiveness and the Company's ability to attract and retain qualified
outside directors, including a survey of the director compensation offered by
similar companies. Based upon this evaluation, commencing in 1999, each outside
director shall be paid $7,000 for serving as a member of the Board of Directors
and $1,000 for each Board of Directors meeting attended. If the shareholders
approve the First Amendment to the Restated Outside Director Compensation and
Stock Option Plan, each outside director will receive 4,000 option shares per
year, granted on the first business day following the annual meeting of
shareholders, with an exercise price equal to the fair market value of the
Company's Common Stock at the close of trading on the last trading day prior to
the issuance of the option.
All options granted under the Outside Directors Compensation and Stock Option
Plan are fully vested upon grant.
During 1998 the Company paid J. Kenneth Brody the sum of $12,000 for services as
a consultant. Mr. Brody has served the Company as a consultant since 1988. The
Company expects to retain Mr. Brody's services as a consultant in 1999 at
approximately the same level of business for the same level of compensation.
During 1998 the Company paid L.B. Day the sum of $29,770.25 for services as a
consultant. Mr. Day has served the Company as a consultant since 1991. The
Company does not expect to retain Mr. Day's services as a consultant in 1999.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO
THE 1995 CONSOLIDATED AND RESTATED STOCK OPTION PLAN
The Company's Board of Directors is seeking shareholder approval of an amendment
to the 1995 Consolidated and Restated Stock Option Plan (the "Consolidated
Plan") that would have the effect of increasing by 500,000 the number of shares
of Common Stock authorized for issuance upon the exercise of stock options
granted under the Consolidated Plan (the "Additional Stock Options") to a total
of 1,465,641 shares (the "Employee Plan Amendment"). The Employee Plan Amendment
is necessary to continue to offer stock options under the Consolidated Plan,
which the Board of Directors believes is an important and necessary element in
attracting and retaining employees essential to the Company's future growth and
success.
The Board's resolution adopting the Employee Plan Amendment provides that the
Employee Plan Amendment shall have no force or effect unless approved at the
1999 annual shareholders' meeting. The Board of Directors is seeking shareholder
approval of the Employee Plan Amendment to permit the issuance of "qualified"
option shares under Section 422 of the Internal
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Revenue Code, to bring these Additional Stock Options within the provisions of
SEC Rule 16b-3 so that grants to insiders are not deemed to be purchases under
Section 16(b) of the Securities Exchange Act of 1934, and to comply with NASDAQ
Rules 4310(c)(25)(H) and 4460(i) for option grants to officers and directors.
On January 30, 1995, the Company's Board of Directors adopted the Consolidated
Plan, which combined and restated four separate plans, all of which had
previously been approved by the Company's shareholders (collectively, the "Prior
Plans"). As a result, participants in the Prior Plans were thereafter deemed
participants in the Consolidated Plan and the Consolidated Plan governs any and
all outstanding unexercised stock options granted under such Prior Plans.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 2.
If a quorum is present at the annual meeting, the Employee Plan Amendment
(Proposal 2) will be approved if a majority of the votes cast with respect to
the proposal are voted "for" approval of the proposal. Abstentions and broker
non-votes are counted for purposes of determining whether a quorum exists at the
annual meeting but are not counted as votes cast, and have no effect on the
results of the vote on Proposal 2.
NEW PLAN BENEFITS
Consolidated Plan
In January 1999, the Compensation Committee of the Board of Directors granted
options representing 96,500 shares to the principal executive officers of the
Company (see table below). At that time, and prior to the Board's authorization
of Additional Stock Options, there were only 68,847 shares available for future
grant under the Consolidated Plan. As such, 27,985 of the January 1999 options
were granted contingent upon shareholder approval of Proposal 2, as indicated in
the table below. Should Proposal 2 fail to be approved by the shareholders at
the annual meeting, the contingent options granted in January 1999 will
automatically be canceled.
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The following options have been granted in 1999 pursuant to the Consolidated
Plan:
<TABLE>
<CAPTION>
------------------- ------------------- --------
Contingent Non-Contingent
Grants Grants
(29%) (71%)
------------------- -------------------
Name and Position Non- Non-
Qualified qualified Qualified qualified Total(1)
--------- --------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Matthew W. Chapman 5,800 14,200 20,000
Chairman and Chief Executive Officer
Robert P. Chamness 4,785 11,715 16,500
Director, President and Chief
Operating Officer
Robert T. Jett 2,900 7,100 10,000
Director, Executive Vice President
and Secretary, and Director
Nominee
Lois M. Roberts 1,450 518 3,032 5,000
Senior Vice President
Eric T. Wagner 0 0 0 0 0
Executive Vice President
Executive Group (13 persons (2)) 16,385 11,600 41,330 27,185 96,500
Non-Executive Director Group 0 0 0 0 0
(Outside Directors)(5 persons)
Non-Executive Officer 0 0 0 0 0
Employee Group3 (652 persons)
<FN>
1 All of the options granted under the Consolidated Plan in January of 1999
were granted at $12.25 per share, the fair market value of the Company's
Common Stock on the date of grant. The options can only be exercised in
accordance with a five year vesting schedule at 20% after each twelve
months of continuous service.
2 Includes four officers who are not "executive officers" for purposes of
Section 16(b) of the Securities Exchange Act of 1934.
3 No options have been granted in 1999 to non-executive employees under the
Consolidated Plan; however, this group did receive nonqualified option
grants for 78,500 shares in January of 1999. These options were granted at
$12.25 per share with a five year vesting schedule.
</FN>
</TABLE>
PLAN SUMMARY
GENERAL
The Consolidated Plan is designed to attract and retain employees of the Company
and is intended to encourage capital accumulation and Common Stock ownership by
employees in order to increase the proprietary interest of such employees in the
success of the Company. The Board of Directors' reason for approving the
Additional Stock Options was to enable it to continue to attract key employees
in the future and retain those employees essential to the Company's future
growth and success.
The Consolidated Plan authorizes the granting of either "incentive stock
options" within the meaning of Section 422 of the Internal Revenue Code of 1986,
as amended (the "Code"), or "nonqualified stock options". The Compensation
Committee of the Company's Board of Directors determines the type of options and
the option terms when the options are first granted.
The following table reflects, as of February 26, 1999, the aggregate number of
unissued shares held in reserve under the Consolidated Plan, the number of
shares subject to outstanding options under the Consolidated Plan, and the
number of shares available for the grant of future options under the
Consolidated Plan:
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Total Number of Shares Available for
Unissued Shares Shares Subject to Grant of Future
Held in Reserve(1) Outstanding Options(1) Options
- --------------------------------------------------------------------------------
965,641 965,309 332
In addition to the 332 shares available for grant of future options, the
Employee Plan Amendment proposes that 500,000 shares be added to the
Consolidated Plan ("Additional Stock Options"), making an aggregate of 500,332
shares available for the grant of future options. The Company also has 10,000
shares authorized for nonqualified grants under a prior plan and 11,400 shares
authorized for grants to outside directors, all of which are subject to
outstanding but unexercised grants. In addition, the Company granted
nonqualified options for 78,500 shares to non-executive employees in January of
1999.
ADMINISTRATION/AMENDMENT
The Compensation Committee of the Board of Directors of the Company manages the
Consolidated Plan. Members of the Compensation Committee are appointed by the
Board of Directors of the Company. The Compensation Committee is authorized to
interpret the provisions of the Consolidated Plan, although only the Board of
Directors is authorized to amend or terminate the Consolidated Plan. The Board
of Directors can amend the Consolidated Plan without shareholder approval except
for material amendments such as: the option price, the aggregate number of
shares which may be issued under the Consolidated Plan, eligibility
requirements, or the maximum term of the options grants.
ELIGIBILITY
Options may be granted under the Plans to any employee of the Company who, in
the judgment of the Compensation Committee, is in a position to contribute to
the success of the Company. Each employee who is granted an option under the
Consolidated Plan is required to enter into an option agreement with the Company
setting forth the terms and conditions of the option. The Company has
approximately 665 employees who are potentially eligible for stock option grants
under the Consolidated Plan (of these, thirteen employees are executive officers
of the Company). In addition, five non-executive directors are eligible for
option grants under the Consolidated Plan.
EXERCISE PRICE
The exercise price for all options granted under the Consolidated Plan is
determined by the Compensation Committee at the time of grant and is stated in
each option agreement. The exercise price of incentive stock options may not be
less than the fair market value per share of the underlying Common Stock on the
date of grant. As of February 26, 1999, the fair market value of the Common
Stock was $11.00 per share, the NASDAQ closing price on that date. In the case
of incentive stock options granted to employees who own more than 10% of the
voting power of the Common Stock on the date of grant, the price per share must
be at least 110% of the fair market value of the Common Stock on that date. The
exercise price of nonqualified stock
- ---------------
(1) Options to purchase 28,940 of these shares have been granted to outside
directors pursuant to the Company's Restated Outside Director Compensation and
Stock Option Plan and up to 2,655 of those shares of Common Stock will be issued
pursuant to the Company's Employee Stock Purchase Plan.
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options may be above or below the fair market value of the underlying Common
Stock on the date of grant.
Upon exercise of an option, in whole or in part, the exercise price for the
shares to be acquired must be paid in cash (or in other property if agreed to in
writing by the Board of Directors at the time of exercise). This payment
procedure includes broker-assisted cashless exercises.
EXERCISE OF OPTIONS
Options may be exercised during the periods and for the number of shares
specified in each option agreement. In no event may the expiration date of an
option be more than 10 years from the date of grant of the option, except that
with respect to options granted to employees who own more than 10% of the voting
power of the Company on the date of grant, the expiration date of those options
cannot be more than 5 years from the date of grant.
Certain of the Prior Plans and individual option agreements provide that options
are exercisable in installments that vest at various rates and times between the
date of grant and the termination or expiration of the option. Usually, options
vest at the rate of 20% per year on the anniversary of the date of grant. After
becoming exercisable, each installment remains exercisable until the expiration
of the option, provided that the optionee remains an employee of the Company.
Special rules apply to the exercise of options upon termination of employment or
death. See "Termination of Options and Transferability."
Vesting is accelerated for options granted under the Consolidated Plan in the
event of a change of control of the Company, which is defined as any event or
circumstance whereby an entity, an individual, or an affiliated group acquires
control, directly or indirectly, of 50% or more of the Company's Common Stock.
After a change of control of the Company, any and all stock options granted
under the Consolidated Plan may be exercised in whole or in part immediately
prior to or after (i) the Company terminates the participant's employment with
the Company, (ii) the Company reduces the participant's annual compensation
(including base salary, bonuses, and incentive compensation programs) from the
participant's annual compensation for the calendar year ended prior to the
change of control, (iii) the Company requires the participant to transfer to a
new job location which necessitates a change in residence or increased travel,
(iv) the Company materially alters the participant's responsibilities to the
Company, including a change in title, status, or job description, or (v) any of
the Company's shareholders are entitled under Oregon law to dissenters' rights.
The Company may, in certain circumstances, substitute an option granted under
the Consolidated Plan for an option issued under another plan, or assume under
the Consolidated Plan an option issued under another plan, if the other plan was
the plan of another corporation (or the parent of such corporation) and the new
option is substituted, or the old option is assumed, by reason of a corporate
merger, consolidation, acquisition of property or stock, or certain
reorganizations or liquidations.
Upon disposition of any stock issued on the exercise of an incentive stock
option within two years of the granting of the incentive stock option or within
one year of its exercise, the Consolidated Plan requires the holder to notify
the Company as to the amount that the holder will recognize as compensation
income due to the disqualifying disposition of the underlying shares.
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TERMINATION OF OPTIONS AND TRANSFERABILITY
Options are not transferable except by will or by the laws of descent and
distribution. Options may be exercised only by the optionee during his or her
lifetime.
If an optionee's service as an employee of the Company is terminated, for any
reason other than death, his or her options generally terminate 60 days
following the date of termination. Options generally terminate 90 days following
the death of an optionee. Options are generally exercisable during such periods
to the extent exercisable on the date of termination of employment.
If an outstanding option expires or terminates for any reason, the unpurchased
shares allocable to the unexercised portion of that option become available for
the grant of additional options under the Consolidated Plan.
The foregoing summary is hereby qualified in its entirety by reference to the
Consolidated Plan and the option agreements entered into pursuant to the
Consolidated Plan.
FEDERAL TAX CONSEQUENCES
The following description of federal income tax consequences is intended merely
to provide basic information with respect to the tax treatment applied to
various grants and awards under the Consolidated Plan. Although the Company
believes the following statements are correct based on the existing provisions
of the Internal Revenue Code and the legislative interpretations thereof, no
assurance can be given that legislative, administrative, or judicial changes or
interpretations will not occur which would modify such statements. Each
participant is advised to consult his or her own tax advisor concerning the tax
consequences of the grant, award, exercise, surrender or sale of any options or
shares of Common Stock acquired because individual financial and federal tax
situations may vary, and state and local tax considerations may be significant.
Participants are also advised to be aware that an alternative minimum tax may be
imposed even in those situations where there are no other federal, state, or
local tax consequences.
INCENTIVE STOCK OPTIONS. Certain options authorized to be granted under the
Consolidated Plan are intended to qualify as "incentive stock options" for
federal income tax purposes. Under U.S. federal income tax law in effect as of
the date of this Proxy Statement, a grantee will recognize no income upon grant
or exercise of an incentive stock option. If a grantee exercises an incentive
stock option and does not dispose of any of the shares thereby acquired within
two years following the date of grant and within one year following the date of
exercise, capital gain or loss will be realized upon the subsequent disposition
of the shares. If a grantee disposes of shares acquired upon exercise of an
incentive stock option before the expiration of either the one-year or the
two-year holding period specified in the foregoing sentence (a "disqualifying
disposition"), the grantee will realize ordinary income in an amount equal to
the lesser of (i) the excess of the fair market value of the shares on the date
of exercise over the option price or (ii) the excess of the fair market value of
the shares on the date of disposition over the option price. Any additional gain
realized upon the disqualifying disposition will constitute capital gain.
The Company will not be allowed any deduction for federal income tax purposes at
either the time of grant or the time of exercise of an incentive stock option.
Upon any disqualifying disposition by a grantee, the Company will be entitled to
a deduction in the year in which the disposition occurs to the extent the
grantee realizes ordinary income.
11
<PAGE>
Because of the tax consequences, in the event that a participant causes any of
his/her shares acquired upon exercise of an incentive stock option to be
transferred in a disqualifying disposition, the participant must notify the
Company of his/her disposition immediately and inform the Company of the amount
the participant realized upon disposition of his/her shares.
NONSTATUTORY STOCK OPTIONS. Certain options authorized to be granted under the
Consolidated Plan will be treated as nonstatutory stock options for U.S. federal
income tax purposes. Generally, under federal income tax law currently in
effect, no income is realized by the holder of a nonstatutory stock option until
the option is exercised. At the time of exercise, the grantee will realize
income, and the Company will be entitled to a deduction, in the amount by which
the fair market value of the shares subject to the option exceeds the exercise
price. Upon the sale of shares acquired upon exercise of a nonstatutory stock
option, the grantee will realize capital gain or loss equal to the difference
between the amount realized from the sale and the fair market value of the
shares on the date of exercise.
PROPOSAL 3
APPROVAL OF AN AMENDMENT TO
THE OUTSIDE DIRECTOR COMPENSATION PLAN
The Company's Board of Directors is seeking shareholder approval of an amendment
to the Restated Outside Director Compensation and Stock Option Plan ("Outside
Director Plan") that will have the effect of increasing by 100,000 the number of
shares of Common Stock to be issued from the exercise of stock options
("Additional Stock Options") to a total of 150,000 shares (the "Director Plan
Amendment"). The Director Plan Amendment will not be effective unless it is
approved by the Company's shareholders at the 1999 Annual Shareholder Meeting.
The Board of Directors is seeking shareholder approval to bring these additional
stock options within the provisions of SEC Rule 16b-3 so that grants to
directors are not deemed to be purchases under Section 16b of the Securities
Exchange Act of 1934, and to comply with NASDAQ Rules 4310(c)(25)(H) and 4460(i)
for option grants to directors.
At February 26, 1999, the Company had 50,000 shares reserved for issuance under
the Outside Director Plan and no shares were available for grant. Unless the
shareholders approve this Director Plan Amendment, the Company will have no
option shares available to compensate its outside directors for services
rendered subsequent to the 1999 annual meeting.
The Outside Director Plan is intended to provide fair compensation to the
Company's directors who are not also employees of the Company, to encourage them
to have ownership in the Common Stock of the Company, to provide them with an
incentive to continue in the service of the Company and to promote the success
of the Company's business. In addition to providing cash payments for services
rendered (currently a $7,000 annual retainer and $1,000 for each Board of
Directors meeting attended), the Outside Director Plan previously granted each
director annual stock options for the right to purchase up to 2,000 shares of
the Company's Common Stock. The options are awarded annually on the first
business day after each annual meeting of shareholders. As of February 26, 1999,
there were no longer any shares available for grant under the Outside Director
Plan. If the Director Plan Amendment is approved, 100,000 shares will be held in
reserve for issuance to the Company's outside directors in the future with 4,000
option shares granted to each outside director each year.
12
<PAGE>
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 3.
If a quorum is present at the annual meeting, the Director Plan Amendment
(Proposal 3) will be approved if a majority of the votes cast with respect to
the proposal are voted "for" approval of the proposal. Abstentions and broker
non-votes are counted for purposes of determining whether a quorum exists at the
annual meeting but are not counted as votes cast, and have no effect on the
results of the vote on Proposal 3.
NEW PLAN BENEFITS
OUTSIDE DIRECTOR PLAN
If the Company's shareholders approve the Director Plan Amendment, the following
options will be granted in 1999 under the Outside Director Plan:
OUTSIDE DIRECTOR PLAN
Options for Shares
Name and Position of Common Stock(1)
-------------------------------------------------------------------
Eran S. Ashany, Director 4,000
Frank E. Brawner, Director 4,000
J. Kenneth Brody, Director and Director 4,000
Nominee
Lorraine O. Legg, Director and Director 4,000
Nominee
L.B. Day, Director 4,000
Executive Group(2) (None) 0
Non-Executive Director Group 20,000
(Outside Director) (5 Persons)
Non-Executive Officer Employee Group (None) 0
1 All options under the Outside Director Plan will be granted at the fair
market value of the Company's Common Stock as of the date of grant, and
will be immediately vested.
2 The Named Executive Officers are not listed above since they are not
eligible to receive benefits under this plan.
PLAN SUMMARY
GENERAL
The Outside Director Plan is designed to provide fair compensation to the
Company's directors who are not also employees of the Company, to encourage them
to have ownership in the Common Stock of the Company, to provide them with an
incentive to continue in the service of the Company and to promote the success
of the Company's business.
The Outside Director Plan authorizes the granting of "nonqualified stock
options" only. Options are granted to the outside directors annually, the first
business day after each annual meeting of shareholders of the Company.
13
<PAGE>
ELIGIBILITY
The only directors eligible to participate in the Outside Director Plan are
those directors who are not otherwise employees of the Company. The current
outside directors include Eran S. Ashany, J. Kenneth Brody, Frank E. Brawner,
Lorraine O. Legg, and L.B. Day.
Any new directors appointed to the Board who were not granted options following
the preceding annual meeting of shareholders will be granted options on the last
business day of the month in which the director is first appointed with the
number of options granted to be determined on a pro rata basis.
EXERCISE PRICE
The option price for options under the Outside Director Plan is the fair market
value of the Common Stock as of the close of trading on the last trading day
prior to issuance of the option as reported on the NASDAQ National Market System
or, if no closing price is reported, the mean of the bid and the ask price as of
the close of trading on such day.
EXERCISE OF OPTIONS
The options are exercisable immediately upon grant, but the underlying shares
cannot be resold during the six month period following the date the option is
granted. The purchase price of the shares purchased upon exercise of an option
must be paid either in cash at the time of the exercise or with Common Stock of
the Company or with any combination of cash and Common Stock of the Company.
TERMINATION OF OPTIONS AND TRANSFERABILITY
Of the new share reserve set forth in the Director Plan Amendment, if any
outstanding option for any reason expires or is terminated without having been
exercised in full, the shares allocable to the unexercised portion of the option
shall again become available for options pursuant to the plan. Options are
exercisable for a period of five years from the date of grant. The Board may, at
any time, suspend or terminate the Outside Director Plan, provided that no such
termination or suspension will impair any outstanding options.
AMENDMENT
The Board may amend the Outside Director Plan without shareholder approval,
except that shareholder approval is required to (i) increase the maximum number
of shares which may be granted under the Plan; (ii) permit options to be granted
at less than fair market value; (iii) permit the option to be exercised without
full payment for the shares; (iv) extend the five year option period; or (v)
permit repricing of options granted previously.
FEDERAL INCOME TAX CONSEQUENCES
Options granted under the Outside Director Plan are treated as nonstatutory
stock options for U.S. federal income tax purposes. Generally, under current tax
laws, no income is realized by the holder of such an option until the option is
exercised. At the time of exercise, the director will realize income and the
Company will be entitled to a deduction, in the amount by which the fair
14
<PAGE>
market value of the shares subject to the option exceeds the exercise price.
Upon the sale of the shares acquired upon exercise of a nonstatutory stock
option, the director will receive capital gain or loss equal to the difference
between the amount realized from the sale and the fair market value of the
shares when the option was exercised.
PROPOSAL 4
RATIFY THE SELECTION OF AUDITORS
Shareholders are requested to ratify the selection by the Board of Directors of
the firm of Arthur Andersen LLP as independent public accountant for the Company
for the 1999 fiscal year. Arthur Andersen LLP has served as the Company's
independent public accountant since 1987. A representative of the firm of Arthur
Andersen LLP is expected to attend the annual meeting and will have the
opportunity to make a statement to the Company's shareholders and will be
available to respond to appropriate questions. If shareholders do not ratify the
appointment of Arthur Andersen LLP, this advisory vote will be taken into
account by the Board of Directors in appointing auditors for the following
fiscal year.
If a quorum is present at the Annual Meeting, Proposal 4, to ratify the
appointment of Arthur Andersen LLP as independent accountants for the Company,
will be approved if the number of votes cast in favor of the proposal exceeds
the number of votes cast against it.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE FOR PROPOSAL 4.
OTHER MATTERS
Management does not know of any other matters to be presented at the annual
meeting. If other matters should be properly presented at the meeting, the
persons named in the accompanying proxy will vote the shares represented by such
proxy with respect to such matters in accordance with their best judgment.
15
<PAGE>
NON-DIRECTOR EXECUTIVE OFFICERS
MICHAEL J. CLEMENT Age: 51
Senior Vice President, Customer Support & Quality
Assurance Division
Mr. Clement joined the Company in October 1984 and has served as Senior Vice
President, Customer Support & Quality Assurance Division since January 1998.
From January 1993 until October 1995, Mr. Clement served as Senior Vice
President of Customer Service. From October 1995 until May 1996 he served as
Senior Vice President of the Standard Products Group. From June 1996 until
January 1998 he served as Vice President of the Electronic Products Delivery
Group. Prior to joining the Company, Mr. Clement was a Regional Vice President
for Evans Financial Corp., a mortgage banking company.
DANIEL C. LARLEE Age: 47
Senior Vice President, Technology & Research Division and
Chief Technology Officer
Mr. Larlee joined the Company in April 1992 as its Director of Technology and
became a Vice President and Chief Technology Officer of the Company in September
1994. In January 1998, Mr. Larlee was elected Vice President, Technology &
Research Division and Chief Technology Officer and promoted to Senior Vice
President in January 1999. From May 1989 until he joined the Company, Mr. Larlee
was Director of Technology for World Trade Services, a software and data
processing services provider to businesses engaged in international trade.
LOIS M. ROBERTS Age: 53
Senior Vice President, Sales, Marketing &
Customer Services Division
Ms. Roberts joined the Company in May 1993 as its Operations Software Product
Manager and was elected Vice President of Marketing and Corporate Communications
in October 1995. In January 1998, Ms. Roberts was elected Senior Vice President,
Sales, Marketing & Customer Services Division. Prior to joining the Company in
1993, Ms. Roberts served as the President of Quickor Net, Inc., a privately held
data processing company located in Portland, Oregon.
KURT W. RUTTUM Age: 39
Vice President, Finance & Administration Division and
Chief Financial Officer and Treasurer
Mr. Ruttum joined the Company in November 1997 as Vice President, Finance &
Administration Division and Chief Financial Officer. In January 1999 Mr. Ruttum
was appointed Treasurer of the Company. From October 1996 until November 1997,
Mr. Ruttum was Vice President and General Counsel for Phoenix Gold
International, Inc., a manufacturer of car audio equipment. From February 1997
until November 1997, Mr. Ruttum also served as Secretary of Phoenix Gold
International, Inc. Mr. Ruttum was an attorney with the law firm Tonkon Torp LLP
in Portland, Oregon, where he emphasized corporate finance and securities
matters, from 1986 through August 1996
16
<PAGE>
JEFFREY P. STRICKLER Age: 41
Vice President, Legal, Risk Management & Corporate Development Division,
General Counsel and Assistant Secretary
Mr. Strickler joined the Company in August 1994 as Corporate Counsel. He was
elected General Counsel and Assistant Secretary in January 1996 and Vice
President, Legal, Risk Management and Corporate Development Division, General
Counsel and Assistant Secretary in January 1998. From January 1991 until joining
the Company, Mr. Strickler served as Corporate Counsel for Cadre Technologies,
Inc., a developer and manufacturer of software development automation products
formerly located in Beaverton, Oregon. Mr. Strickler was an attorney with the
law firm Perkins Coie in Portland, Oregon from 1985 to January 1991.
ERIC T. WAGNER Age: 49
Senior Vice President, Custom Products Division
Mr. Wagner joined the Company as Senior Vice President in November 1995 in
connection with the Company's acquisition of Culverin Corporation, a developer
and distributor of financial institution sales and service delivery software
products ("Culverin"). In January 1998, Mr. Wagner was elected Senior Vice
President, Product & Corporate Integration Division, with responsibility for
managing CFI's Retail Delivery Products Group and integration of the Company's
products and corporate organization. Mr. Wagner joined Culverin in 1979, and
served as its President and Director until its acquisition by the Company.
17
<PAGE>
SECURITY OWNERSHIP
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The following
table sets forth, as of February 26, 1999, certain information furnished to the
Company with respect to ownership of the Company's Common Stock of (i) each
director, (ii) the "Named Executive Officers" (as defined under "Executive
Compensation"), (iii) all persons known by the Company, based upon review of
Schedules 13D and 13G filed with the Securities and Exchange Commission, to be
beneficial owners of more than 5% of its Common Stock, and (iv) all current
executive officers and directors as a group. The Company had 5,083,527 shares
issued and outstanding on February 26, 1999.
Common Stock (A)
-------------------------------------
Number of Percent of Shares
Name and Address of Beneficial Owner Shares Outstanding
- ---------------------------------------- -------------------------------------
Brown Capital Management
809 Cathedral Street
Baltimore, MD 21201 (B) 628,600 12.4%
Becker Capital Management (C)
1211 SW 5th Avenue, Suite 2185
Portland, Oregon 97204 474,300 9.3%
Brinson Partners Inc. (D)
209 South Lasalle Street
Chicago, Illinois 60604 465,600 9.2%
Wellington Management Co. (E)
75 State Street
Boston, Massachusetts 02109 420,000 8.3%
Matthew W. Chapman (F) (G) 337,190 6.6%
Robert T. Jett (H) 160,180 3.2%
Robert P. Chamness (I) 158,000 3.1%
Eran S. Ashany (J) 91,919 1.8%
J. Kenneth Brody (K) 25,000 *
Lois M. Roberts (L) 14,487 *
Eric T. Wagner 10,704 *
Lorraine O. Legg (M) 8,484 *
Frank E. Brawner (N) 1,293 *
L. B. Day (O) 663 *
All directors and executive officers
as a group (14 persons) (P) 873,804 17.2%
- ------------------------
* Less than one percent
18
<PAGE>
(A) Applicable percentage of ownership is based on 5,083,527 shares of Common
Stock outstanding as of February 26, 1999 together with applicable options
for such shareholders. Beneficial ownership is determined in accordance
with the rules of the Securities and Exchange Commission, and includes
voting and investment power with respect to shares. Shares of Common Stock
subject to options or warrants currently exercisable or exercisable within
60 days after February 26, 1999 are deemed outstanding for computing the
percentage ownership of the person holding such options or warrants, but
are not deemed outstanding for computing the percentage of any other
person.
(B) Brown Capital Management ("Brown") is an investment adviser registered with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended. As of December 31, 1998, Brown, in its capacity as
investment adviser, may be deemed to have beneficial ownership of 628,600
shares of common stock of CFI ProServices, Inc. that are owned by numerous
investment advisory clients, none of which is known to have such interest
with respect to more than five percent of the class. As of December 31,
1998, Brown had sole voting power with respect to 577,800 shares and sole
dispositive power with respect to all 628,600 shares.
(C) Becker Capital Management ("Becker") is an investment adviser registered
with the Securities and Exchange Commission under the Investment Advisers
Act of 1940, as amended. As of December 31, 1998, Becker, in its capacity
as investment adviser, may be deemed to have beneficial ownership of
474,300 shares of common stock of CFI ProServices, Inc. that are owned by
numerous investment advisory clients, none of which is known to have such
interest with respect to more than five percent of the class. As of
December 31, 1998, Becker had sole voting and dispositive power with
respect to all 474,300 shares.
(D) Brinson Partners Inc. ("Brinson") is an investment adviser registered with
the Securities and Exchange Commission under the Investment Advisers Act of
1940, as amended. As of December 31, 1998, Brinson, in its capacity as
investment adviser, may be deemed to have beneficial ownership of 465,600
shares of common stock of CFI ProServices, Inc. that are owned by numerous
investment advisory clients, none of which is known to have such interest
with respect to more than five percent of the class. As of December 31,
1998, Brinson had shared voting and dispositive power with respect to all
465,600 shares.
(E) Wellington Management Company, LLP, ("WMC") is an investment adviser
registered with the Securities and Exchange Commission under the Investment
Advisers Act of 1940, as amended. As of December 31, 1998, WMC, in its
capacity as investment adviser, may be deemed to have beneficial ownership
of 420,000 shares of common stock of CFI ProServices, Inc. that are owned
by numerous investment advisory clients, none of which is known to have
such interest with respect to more than five percent of the class. As of
December 31, 1998, WMC had shared voting power with respect to 97,900
shares and shared dispositive power with respect to all 420,000 shares.
(F) The address for such person is 400 S.W. 6th Avenue, Portland, Oregon 97204.
(G) Includes 66,000 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(H) Includes 33,000 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(I) Includes 143,000 shares issuable upon exercise of options exercisable
within 60 days of February 26, 1999.
(J) Includes 78,419 shares held in the name of Allen Investments III, a venture
capital investment partnership. Mr. Ashany is an officer and director of
Allen & Company Incorporated ("ACI"), the general partner of Allen
Investments III, but he disclaims beneficial ownership of those 78,419
shares. Of the remaining 13,500 shares, 3,500 are owned of record by Mr.
Ashany and 10,000 are issuable to Mr. Ashany upon exercise of options
exercisable within 60 days of February 26, 1999. Does not include shares
held of record by other officers and directors of ACI.
(K) Includes 10,000 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(L) Includes 13,825 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(M) Includes 8,384 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(N) Includes 1,293 shares issuable upon exercise of options exercisable within
60 days of February 26, 1999.
(O) Includes 663 shares issuable upon the exercise of options exercisable
within 60 days of February 26, 1999.
(P) Includes 428,813 shares issuable upon exercise of options exercisable
within 60 days of February 26, 1999.
19
<PAGE>
EXECUTIVE COMPENSATION
COMPENSATION SUMMARY
Shown below is information concerning the annual and long-term compensation for
services in all capacities to the Company for the years ended December 31, 1998,
1997, and 1996, of the following persons: (i) the chief executive officer of the
Company as of December 31, 1998 and (ii) the other four most highly compensated
executive officers of the Company who were serving in that capacity as of
December 31, 1998. The individuals described in (i) and (ii) above are referred
to as the "Named Executive Officers".
<TABLE>
SUMMARY COMPENSATION TABLE
<CAPTION>
Long Term
Compensation
Annual Compensation Awards
-------------------- -------------------------
Securities All Other
Name and Principal Underlying Compensation
Position Year Salary($)(1) Bonus($) Options (#) ($) (2)
- ---------------------- ---- ------------ -------- ----------- ------------
<S> <C> <C> <C> <C> <C>
Matthew W. Chapman 1998 226,000 226,000 30,000 11,180
Chairman and Chief 1997 205,000 -- -- 11,180
Executive Officer 1996 172,500 172,500 100,000 10,750
Robert P. Chamness 1998 203,150 192,993 25,000 12,800
Director, 1997 184,500 -- -- 12,800
President and Chief 1996 152,000 121,600 50,000 12,250
Operating Officer
Robert T. Jett 1998 180,000 108,000 15,000 12,800
Director, 1997 162,500 -- -- 12,800
Executive Vice 1996 137,000 78,090 50,000 10,939
President and
Secretary
Lois M. Roberts 1998 160,000 80,000 16,000 12,800
Senior Vice 1997 138,750 -- 5,000 3,915
President 1996 100,000 39,600 10,000 2,468
Eric T. Wagner 1998 160,000 80,000 -- 3,980
Senior Vice 1997 150,000 -- -- 3,980
President 1996 120,000 1,200 -- 2,437
<FN>
(1) Includes amounts deferred by executive officers under the Company's 401(k)
profit sharing plan.
(2) Stated amounts include Company contributions to the Company's 401(k) profit
sharing plan, life insurance premiums, and parking and automobile allowance
as follows:
DESCRIPTION OF "ALL OTHER COMPENSATION" AMOUNTS
1998 1997 1996 Description
---- ---- ---- -----------
Matthew W. Chapman $3,200 $3,200 $3,000 401(k) Plan contribution
780 780 550 Life insurance premium
7,200 7,200 7,200 Parking and automobile
allowance
Robert P. Chamness 3,200 3,200 3,000 401(k) Plan contribution
780 780 550 Life insurance premium
8,820 8,820 8,700 Parking and automobile
allowance
Robert T. Jett 3,200 3,200 1,689 401(k) Plan contribution
780 780 550 Life insurance premium
8,820 8,820 8,700 Parking and automobile
allowance
Lois M. Roberts 3,200 3200 2044 401(k) Plan contribution
780 715 424 Life Insurance premium
8,820 -- -- Parking and automobile
allowance
Eric T. Wagner 3,200 3,200 2,437 401(k) Plan contribution
780 780 -- Life Insurance premium
</FN>
</TABLE>
20
<PAGE>
STOCK OPTIONS GRANTED
The following table contains information concerning the grant of stock options
under the Company's 1995 Consolidated Stock Option Plan (the "1995 Plan") to the
named executive officers in 1998.
<TABLE>
OPTION GRANTS IN LAST FISCAL YEAR
<CAPTION>
Potential
Realizable Value
At Assumed Annual
Rates of Stock Price
Appreciation for
Individual Grants Option Term (2)
----------------------------------------- ------------------
Number of %of Total
Securities Options
Underlying Granted to
Options Employees Exercise Expira-
Granted in Fiscal Price tion
Name (1) Year ($/Sh.) Date 5% ($) 10% ($)
- ------------------ ---------------------------------------- ------------------
<S> <C> <C> <C> <C> <C> <C>
Matthew W. Chapman 30,000 14% $12.25 1/9/08 $231,117 $585,699
Robert P. Chamness 25,000 12% $12.25 1/9/08 $192,597 $488,082
Robert T. Jett 15,000 7% $12.25 1/9/08 $115,558 $292,849
Lois M. Roberts 16,000 7.5% $12.25 1/9/08 $123,262 $312,373
Eric T. Wagner -- -- -- -- -- --
<FN>
(1) The option grants listed above all vest 20 percent per year on each of the
five anniversary dates following the date of grant.
(2) These calculations are based on certain assumed annual rates of
appreciation as required by rules adopted by the Securities and Exchange
Commission requiring additional disclosure regarding executive
compensation. Under these rules, an assumption is made that the shares
underlying the stock options shown in this table could appreciate at rates
of 5% and 10% per annum on a compounded basis over the ten-year term of the
stock options. Actual gains, if any, on stock option exercises are
dependent on the future performance of the Company's Common Stock and
overall stock market conditions. There can be no assurance that amounts
reflected in this table will be achieved.
</FN>
</TABLE>
21
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table provides information concerning the exercise of options
during 1998 and unexercised options held as of December 31, 1998, with respect
to the named executive officers.
<TABLE>
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR
AND FISCAL YEAR-END OPTION VALUES
<CAPTION>
Number of
Securities Value of
Underlying Unexercised
Unexercised In-The-Money
Shares Options Options
Acquired Value At FY-End (#) At FY-End ($)(1)
On Exercise Realized Exercisable/ Exercisable/
Name (#) ($) Unexercisable Unexercisable
---------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Matthew W. Chapman -- -- 40,000 / 90,000 -- / --
Robert P. Chamness -- -- 128,000 / 77,000 $173,500 / --
Robert T. Jett -- -- 20,000 / 45,000 -- / --
Lois M. Roberts -- -- 7,625 / 27,600 $1,951 / --
Eric T. Wagner -- -- -- / -- -- / --
<FN>
(1)Market value of the underlying securities at December 31, 1998, $11.625 per
share, minus the exercise price of the unexercised options.
</FN>
</TABLE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
During 1998, the Compensation Committee was comprised of Eran S. Ashany, J.
Kenneth Brody (Chair) and Lorraine O. Legg, none of whom was otherwise employed
by the Company.
In 1997, the Company formed Lori Mae, L.L.C., an Oregon limited liability
company ("Lori Mae"), with Pacific Securitization, Inc., a California
corporation involved in asset securitization. The Company and Pacific
Securitization, Inc. each own 50 percent of the Lori Mae. Lori Mae was formed to
acquire and securitize standardized small business loans and credit lines
originated by the Company's client banks and other regulated financial
institutions. Lorraine Legg, a member of the Company's Board of Directors, owns
a 39.25 percent interest in Pacific Securitization.
22
<PAGE>
STOCK PERFORMANCE GRAPH
The SEC requires that registrants include in their proxy statement a line-graph
presentation comparing cumulative five-year shareholder returns on an indexed
basis, assuming a $100 initial investment and reinvestment of dividends, of (a)
the registrant, (b) a broad-based equity market index and (c) an
industry-specific index. The following graph includes the required information
from December 31, 1993 through the end of the last fiscal year (December 31,
1998). The broad-based market index used is the Russell 2000 market index
("Russell 2000") and the industry-specific index used is the Standard & Poors
Computer Software & Services Index.
<TABLE>
<CAPTION>
Annual Percentage Return
Years Ended
--------------------------------------------------
Company/Index 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- --------------------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C>
CFI ProServices, Inc. (6.09) 10.19 (4.20) (14.04) (5.10)
S&P Software & Services 18.21 40.53 55.46 39.30 81.19
Russell 2000 (1.82) 28.44 16.49 22.36 (2.55)
</TABLE>
<TABLE>
<CAPTION>
Indexed Returns
Base Years Ended
Period --------------------------------------------------
Company/Index 12/31/93 12/31/94 12/31/95 12/31/96 12/31/97 12/31/98
- --------------------- --------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
CFI ProServices, Inc. $100.00 $93.91 $103.48 $99.13 $85.22 $80.87
S&P Software & Services 100.00 118.21 166.12 258.25 359.75 651.84
Russell 2000 100.00 98.18 126.10 146.90 179.74 175.16
</TABLE>
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EMPLOYMENT CONTRACTS, TERMINATION OF EMPLOYMENT
AND CHANGE-IN-CONTROL ARRANGEMENTS
The Company entered into an Employment Agreement (the "Agreement") with Eric T.
Wagner on November 21, 1995 when it acquired Culverin Corporation. The Agreement
expires on November 20, 2000. The agreement provided Mr. Wagner with an initial
annual base salary of $120,000, with adjustments made annually as determined by
the Company's President, and incentive compensation based upon the achievement
of certain performance objectives (determined in the manner described under
"Report of the Compensation Committee on Executive Management Compensation
Incentive Compensation"). In the event that the Agreement is terminated by the
Company for convenience or by Mr. Wagner for good reason, then Mr. Wagner is
entitled to severance in an amount not more than the amount he would have
received during the remaining term of the Agreement, but not less than the
lesser of (i) the amount he received during the twelve month period immediately
preceding the termination or (ii) the amount he would have received during the
remaining term of the Agreement.
The Company has entered into Executive Retention Agreements, currently with 13
officers of the Company, including the Named Executive Officers. The Executive
Retention Agreements provide favorable severance benefits for the officers
should their positions be diminished or terminated due to a change in control.
Specifically, they authorize, upon the occurrence of a change-in-control, a
severance payment to the officer of a single payment in cash equal to one and
one half times the officer's annual compensation, including base, bonus and
incentive compensation (three times annual compensation for nine executive
officers, including all of the Named Executive Officers), at the rate in effect
immediately prior to termination or at the rate in effect immediately prior to
the change in control of the Company, whichever is greater. The officers may
also receive certain other benefits in the event of a change in control, all of
which are described in the Executive Retention Agreement.
REPORT OF THE COMPENSATION COMMITTEE ON
EXECUTIVE MANAGEMENT COMPENSATION
EXECUTIVE COMPENSATION PRINCIPLES
In administering the Company's executive compensation management program, the
Compensation Committee is guided by the following principles:
1. The principal purpose of the program is to attract, retain and motivate
key employees.
2. The program is based upon the achievement of measurable results, both
short term and long term.
3. The program must therefore be composed of short-term and long-term
elements based upon short-term and long-term goals.
4. A principal purpose of the program is to maximize the interest of the
shareholders.
24
<PAGE>
5. Meaningful stock ownership by key employees and stock performance are
important components of the plan.
6. The base elements of the plan should be comparable to compensation paid by
like companies for like responsibilities, but should provide opportunities
for superior rewards based upon exceptional results.
7. Exceeding plan goals should materially increase rewards.
8. The plan should reward not only Company performance, but also excellent
individual performance.
9. The plan should provide internal equity.
ELEMENTS OF THE PROGRAM
The primary elements of the compensation program are the short-term components
of base pay and incentive compensation and the long-term component of stock
options.
BASE PAY
The Company's executive compensation is based on the annual Financial Plan
prepared by Company management and reviewed and adopted by its Board of
Directors. The Plan provides the benchmark for the measurement of performance.
Surveys of companies in comparable industries are then used to set base pay. In
establishing 1998 base pay, the Compensation Committee relied upon a report by
Arthur Andersen LLP, which included certain published surveys and Arthur
Andersen internal data. Some of the companies included in such surveys are also
included in the industry specific index used by the Company in its stock
performance graph. This process resulted in increases averaging ten percent from
1997 to 1998.
INCENTIVE COMPENSATION
A critical principle here is the greater the responsibility and ability to
affect results, the higher the proportion of salary paid as incentive
compensation. For 1998, the incentive compensation for the Company's Named
Executive Officers was based upon the achievement of Plan Performance
Objectives, consisting of Personal Objectives and Financial Plan Objectives.
Personal Objectives for each of the Named Executive Officers other than the
Chief Executive Officer were set by the Chief Executive Officer. Personal
Objectives for the Chief Executive Officer were set by the Compensation
Committee.
For 100% achievement of Plan Performance Objectives, each of the Named Executive
Officers was to receive a percentage of his/her base salary as set forth below
(the "Plan Bonus Amount"):
Matthew W. Chapman 100% of base salary
Robert P. Chamness 95% of base salary
Robert T. Jett 60% of base salary
Lois M. Roberts 50% of base salary
Eric T. Wagner 50% of base salary
25
<PAGE>
Entitlement to incentive compensation begins upon achievement of least 70% of
Plan Performance Objectives, provided that no incentive compensation may be
awarded unless the Company achieves at least 70% of the Financial Plan
Objectives. In the event the Company achieves between 70% and 100% of the
Financial Plan Objectives, the Named Executive Officers would be entitled to
receive a proportional amount of the incentive compensation they would be
entitled to receive for achieving 100% of the Plan Performance Objectives
(3-1/3% for each 1% increase between 70% and 100% of the Financial Plan
Objectives). In the event that the Company achieves in excess of 100% of the
Financial Plan Objectives, the Named Executive Officers may be awarded an
additional bonus in an amount equal to 1% (2% for the Named Executive Officers
who are also Directors of the Company) of such officer's Plan Bonus Amount for
each 1% that the Company's financial performance exceeds Financial Plan
Objectives; provided, however, that in no event shall any incentive compensation
be paid with respect to financial performance in excess of 120% of the Company's
Financial Plan Objectives.
While the Company's program is intended to provide competitive base pay for its
executives, it is designed to provide higher than competitive rewards for
outstanding performance.
The Company achieved 100% of the 1998 Financial Plan Objectives. As a result,
the Board of Directors determined that full bonuses be paid to the Named
Executive Officers under this bonus plan related to 1998 performance.
STOCK OPTION PLANS
Stock options provide the long-term element of the compensation program. The
Compensation Committee also administers the Company's stock option plans. The
largest number of stock option shares are granted to those executive officers of
the Company who are in a position to most significantly advance the Company's
long-term goals. Except in the case of initial hires, such grants are made
annually, following annual focal point reviews and salary adjustments. Most of
the Company's option agreements include a five-year vesting schedule, which
furthers retention of key executives. A stock option grant is intended to
encourage substantial stock ownership by executive officers and to make the
risks and rewards of stock ownership a principal determinant in the motivation
and performance of management. Stock ownership and prospective stock ownership
related to the stock ownership program are intended to insure the unity of the
interests of management and the shareholders.
Since its inception, the Company has followed a policy of extending stock
options to a broad base of employees below the executive management level for
the purpose of strengthening employee loyalty to and identity with the Company,
and motivating employee interest in the Company's success. The Company has never
repriced its stock options.
COMPANY PERFORMANCE AND CEO COMPENSATION
For 1998, Matthew W. Chapman's base salary, as approved by the Compensation
Committee, was $226,000. The base salary was determined using the same method as
for other executive officers as discussed above under "Base Pay." As discussed
under the heading "Incentive Compensation" above, the Company achieved 100% of
the 1998 Financial Plan Objectives and Mr. Chapman achieved 100% of his personal
objectives (as determined by the Company's Board of Directors). Therefore, Mr.
Chapman received a bonus in the amount of $226,000 related to 1998 performance.
26
<PAGE>
DEDUCTIBILITY LIMITATIONS UNDER SECTION 162(M) OF INTERNAL REVENUE CODE The
Company has not adopted a policy with respect to executive compensation in
excess of $1,000,000 a year and has not paid such compensation. The Company will
continue to review existing limitations on the tax deductibility of such
compensation.
COMPENSATION COMMITTEE
J. Kenneth Brody (Chair) Eran S. Ashany Lorraine O. Legg
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company engaged the services of Michaels Printing, Inc. for purposes of
printing and related services, for which the Company paid an aggregate of
approximately $130,000 during 1998. Robert T. Jett, Executive Vice President,
Secretary and a member of the Board of Directors of the Company, is the brother
of Michael Jett, an equity owner of Michaels Printing, Inc. The Company believes
that the terms and conditions under which printing orders have been made with
Michaels Printing, Inc. have been based on competitive prices for similar
services available within the Portland metropolitan area. The Company expects to
continue this business relationship in 1999.
In 1997, the Company formed Lori Mae, L.L.C., an Oregon limited liability
company ("Lori Mae"), with Pacific Securitization, Inc., a California
corporation involved in asset securitization. The Company and Pacific
Securitization, Inc. each own 50 percent of the Lori Mae. Lori Mae was formed to
acquire and securitize standardized small business loans and credit lines
originated by the Company's client banks and other regulated financial
institutions. Lorraine Legg, a member of the Company's Board of Directors, owns
a 39.25 percent interest in Pacific Securitization.
Pursuant to a Stock Sale and Purchase Agreement (the "Agreement") entered into
by the Company in connection with its acquisition of all of the issued and
outstanding common stock of Culverin Corporation in November 1995, Eric Wagner,
a former Culverin shareholder and a Named Executive Officer, received $1,177,877
cash paid in installments through December 31, 1998, and 10,704 shares of the
Company's Common Stock on January 1, 1998. Certain other contingent payments
will be made on an annual basis through December 31, 2000. The contingent
payments will be equal to specified percentages of the Company's revenues (as
such term is defined in the Agreement) attributable to the licensing of certain
products in each fiscal year during such period. Contingent payments made
through December 31, 1998 total $785,203 and were made in cash. Contingent
payments earned in 1999 and 2000 may be made, at the Company's option, either in
cash or in combination of cash and the Company's Common Stock. The aggregate
payments to be made by the Company pursuant to the Agreement to all former
Culverin shareholders, including Mr. Wagner, cannot exceed $10 million.
The Company has pledged a certificate of deposit in the amount of $200,000 with
a bank, securing a loan by the bank to Robert P. Chamness in connection with
construction of Mr. Chamness' principal residence. The loan is scheduled to be
repaid upon the sale of Mr. Chamness' current residence.
27
<PAGE>
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Section 16(a) of the Securities Exchange Act of 1934 (the "Act") requires the
Company's directors and officers and persons owning more than 10% of the
Company's Common Stock to file reports of initial ownership and changes in
ownership of the Company's Common Stock with the Securities and Exchange
Commission. The Company is required to disclose in this proxy statement any late
filings of those reports made during the past fiscal year. To the Company's
knowledge, based solely on review of the copies of such reports furnished to the
Company or otherwise in its files and on written representations from its
directors, executive officers and ten percent shareholders that no other reports
were required, during the fiscal year ended December 31, 1998, the Company's
officers, directors and ten percent shareholders complied with all applicable
Section 16(a) filing requirements.
SHAREHOLDER PROPOSALS
Proposals by shareholders intended to be presented at the Company's 2000 Annual
Meeting must be received by the Company at its principal executive office no
later than December 8, 1999 in order to be included in the Company's 2000 Proxy
Statement and proxy card. In the case of a shareholder proposal not included in
the proxy statement but nonetheless raised at the annual meeting, unless the
Company receives notice of the proposal not later than February 21, 2000, then
the enclosed proxy allows the Company's management to use discretionary voting
authority in connection with such a proposal.
By Order of the Board of Directors,
Robert T. Jett
Secretary
Portland, Oregon
April 7, 1999
28
<PAGE>
CFI PROSERVICES, INC.
Proxy for Annual Meeting of Shareholders to be Held on May 14, 1999
The undersigned hereby names, constitutes and appoints Matthew W. Chapman and
Robert P. Chamness, and each of them with the power of substitution, my true and
lawful attorneys and Proxies for me and in my place and stead to attend the
Annual Meeting of the Shareholders of CFI ProServices, Inc. (the "Company") to
be held at 10:00 a.m. Pacific Daylight Time on Friday, May 14, 1999, and at any
adjournment thereof, and to vote all the shares of Common Stock held of record
in the name of the undersigned, with all the powers that the undersigned would
possess if he were personally present.
1. PROPOSAL 1--Election of Directors |_| FOR all nominees, except as marked to
the contrary in the list below.
|_| WITHHOLD AUTHORITY to vote for all
nominees listed below.
To withhold authority to vote for any individual nominee, strike a line through
nominee's name in the list below:
J. Kenneth Brody Robert T. Jett Lorraine O. Legg
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR EACH OF
THE NOMINEES NAMED ABOVE.
2. PROPOSAL 2--To consider and act upon the Second Amendment to the 1995
Consolidated and Restated Stock Option Plan.
FOR PROPOSAL 2 |_| AGAINST PROPOSAL 2 |_| ABSTAIN ON PROPOSAL 2 |_|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF PROPOSAL 2
3. PROPOSAL 3--To consider and act upon the First Amendment to the Restated
Outside Director Compensation and Stock Option Plan.
FOR PROPOSAL 3 |_| AGAINST PROPOSAL 3 |_| ABSTAIN ON PROPOSAL 3 |_|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF PROPOSAL 3
4. PROPOSAL 4--To ratify the appointment of Arthur Andersen LLP as the Company's
independent accountants for the year ending December 31, 1999.
FOR PROPOSAL 4 |_| AGAINST PROPOSAL 4 |_| ABSTAIN ON PROPOSAL 4 |_|
THE BOARD OF DIRECTORS UNANIMOUSLY RECOMMENDS A VOTE FOR THE
APPROVAL OF PROPOSAL 4
5. Upon such other matters as may properly come before, or incident to the
conduct of the Annual Meeting, the Proxy holders shall vote at their
discretion and in such manner as they determine to be in the best interests
of the Company. Management is not presently aware of any such matters to be
presented for action at the meeting.
THIS PROXY IS SOLICITED BY THE MANAGEMENT OF THE COMPANY. IF NO SPECIFIC
DIRECTION IS GIVEN AS TO ANY OF THE ABOVE ITEMS, THIS PROXY WILL BE VOTED FOR
EACH OF THE NOMINEES NAMED IN PROPOSAL 1 AND FOR PROPOSALS 2, 3 AND 4.
-----------------------------
Shares held
-----------------------------
Social Security Number
-----------------------------
Shareholder (sign name)
I do ( ) do not ( ) plan to attend the
(Please check) meeting.
The shareholder signed above reserves the
right to revoke this Proxy at any time prior
to its exercise by written notice delivered
to the Company's Secretary at the Company's
corporate offices at 400 S.W. Sixth Avenue,
Portland, Oregon 97204, prior to the Annual
Meeting. The power of the Proxy holder shall
also be suspended if the shareholder signed
above appears at the Annual Meeting and
elects in writing to vote in person.
Signature(s) Dated_______, 1999
NOTE:Please sign as name appears hereon. Joint owners should each sign. When
signing as attorney, executor, administrator, trustee or guardian, please
give full title as such.
