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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Fiscal Year Ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
COMMISSION FILE NUMBER 0-21980
CFI PROSERVICES, INC.
(Exact name of registrant as specified in its charter)
OREGON 93-0704365
(State or other jurisdiction of incorporation (I.R.S. Employer Identification
or organization) No.)
400 SW SIXTH AVENUE, PORTLAND, OREGON 97204
(Address of principal executive offices) (Zip Code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: 503-274-7280
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
COMMON STOCK, NO PAR VALUE
(Title of Class)
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Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K, or any amendment to
this Form 10-K. [ ]
The aggregate market value of the voting stock held by non-affiliates of the
Registrant was $30,352,440 as of February 29, 2000 based upon the last closing
price as reported by the Nasdaq National Market System ($8.00 per share). The
number of shares outstanding of the Registrant's Common Stock as of February 29,
2000 was 5,253,972 shares.
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DOCUMENTS INCORPORATED BY REFERENCE
The Registrant has incorporated by reference portions of its Proxy Statement for
its 2000 Annual Meeting to be filed on or about April 20, 2000 into Part III of
this Form 10-K.
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CFI PROSERVICES, INC.
DBA CONCENTREX INCORPORATED
1999 FORM 10-K ANNUAL REPORT
TABLE OF CONTENTS
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PART I
Item 1. Business 2
Item 2. Properties 14
Item 3. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 15
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters 15
Item 6. Selected Financial Data 16
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations 18
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 26
Item 8. Financial Statements and Supplementary Data 26
Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure 26
PART III
Item 10. Directors and Executive Officers of the Registrant 27
Item 11. Executive Compensation 27
Item 12. Security Ownership of Certain Beneficial Owners and Management 27
Item 13. Certain Relationships and Related Transactions 27
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K 28
Signatures 34
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PART I
ITEM 1. BUSINESS
OVERVIEW
CFI ProServices, Inc. (doing business as Concentrex Incorporated
pending change in the legal name of the company) is a leading provider of
technology-powered solutions to the financial services industry. During 1999 we
reorganized ourselves into two product groups: the Software Products and
Services group and the e-Commerce group. We offer a broad range of traditional
software products and services, which is the product group that we are both
growing and using to finance our innovative business-to-business e-commerce
solutions.
Our Software Products and Services group supports a financial
institution's mission critical functions including back office "core"
processing, loan origination, new account opening, branch automation and cross
selling. We support the key sales functions a financial institution
traditionally relies on to make money, which are usually delivered face-to-face
or over the telephone. We believe that financial institutions will need to offer
those same functions over the Internet. Thus, we have focused our efforts on
both Internet banking software for account servicing and Internet-enabled
versions of our traditional software for lending and account opening. These
integrate with other points of customer contact and enable a financial
institution to serve its customers, both in person and over the Internet, with
consistent, integrated solutions.
We believe our focus on the aspects of the Internet that enable a
financial institution to make money, and our integration of our products with
traditional points of customer contact, will provide us with a competitive
advantage. Further, we believe our ability to perform loan origination and new
account opening functions in compliance with the extremely complex laws that
apply to a financial institution will enable us to increase our market share in
the Internet delivery channel as we were able to do in traditional settings.
There is no exception to the regulatory requirements of a financial institution
because it is doing business over the Internet. Indeed, early signs indicate
that issues such as privacy will make that burden even greater. We believe we
are uniquely positioned to address that legally mandated need. Integrated within
our business is a "dot.com" product group that will enable financial
institutions to offer true banking transactions over the Internet. We also have
developed, and plan to begin offering during the second quarter of 2000, a
private business-to-business portal for our financial institution customers that
will allow them to offer additional products, such as insurance, leasing and
Internet-based training, to their customers via the Internet and in face-to-face
sessions supported by the Internet.
Our products and technologies are designed to address critical
functions of a financial institution at key points of customer contact. These
products and technologies help financial institutions of all types and sizes
continue to thrive in the face of increasing competition. We intend to continue
our long history of using new technologies to build profitable businesses. We
combine our technology, banking, and legal expertise to deliver knowledge-based
solutions that enable financial institutions to simplify key business processes,
improve productivity, strengthen customer relationships, and maintain compliance
with both internal business policies and external government regulations.
Measured at the holding company level, there are over 5,000 financial
institutions using one or more of our products, ranging in size from the very
largest commercial banks to independent community banks, thrifts, and credit
unions.
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SOFTWARE PRODUCTS AND SERVICES GROUP
The software products and services group consists of our core
processing, application software and ancillary products that we sell to
financial institutions. The core or "host" processing function serves as the
software backbone of a financial institution. The key data of a financial
institution resides within the core processing system. Core processing also
includes functions such as loan accounting, account processing, general ledger,
and similar enterprise-wide systems. Our leading core processing system offers
real-time, database-oriented processing for all the critical back office
functions of a financial institution. Our current system is oriented toward
larger credit unions but it is capable of replacing the older core processing
systems that community banks and thrifts use. We are in the process of revising
our core processing system to meet the requirements of community banks and
thrifts.
We entered the core processing business in 1999 through two
acquisitions. In January 1999 we acquired Modern Computer Systems, Inc. (MCS)
which provides an in-house PC-based solution for small commercial banks and
small credit unions. In August 1999 we acquired ULTRADATA Corporation
(ULTRADATA) which provides real-time information management software for larger
credit unions.
Additionally, within the software products and services group we
offer software applications focusing on loan origination and branch automation.
We offer Windows(R)-based solutions for teller functions, new account opening,
cross selling, call centers, and origination of consumer, commercial, and real
estate loans. Because these products are very knowledge-intensive, there is a
major barrier to entry in these markets and we have been able to obtain either
dominant or leading market positions in many of these areas.
E-COMMERCE PRODUCT GROUP
Our second product group is e-commerce, which includes a new
generation of Internet banking products for both consumer and small business
customers, plus a business-to-business portal that will enable us to connect to
our over 5,000 financial institution customers and allow us to offer
supplemental services and products through the Internet.
Concentrex was an early player in the area of home banking, a key
element of our e-commerce product group, entering the market in 1992 and
enabling the first Internet transaction between a financial institution and its
customer in 1994. We also own a bill payment service, which serves our online
banking customers. In May 1999 we acquired MECA Software L.L.C. (MECA), which
had launched the personal financial management software business with its
Managing Your Money(R) product and which recently has focused on research and
development of Internet components for financial institutions. By combining the
technologies we acquired from MECA with what we have developed internally, we
offer Internet banking software, either in-house at the institution or through
our own Internet service bureau. We are in the process of web-enabling versions
of our loan origination, new account opening and various other software
products.
Relying on technology developed by MECA, we have developed a
business-to-business Internet portal for our customers, called the Concentrex
Intelliportal Network. Starting in the second quarter of 2000, we anticipate
that this network will offer multiple "channels" of products and services.
Initial channels will be offered free and will include customer support and
compliance advice. We intend to offer additional fee-based product channels
later in 2000, including products and services such as insurance, leasing and
Internet-based training.
We believe that banks, credit unions and thrifts are looking for
integrated solutions that address a broad range of their needs. We are going to
be offering the industry's only integrated, comprehensive suite of software
solutions that provides true Internet banking functionality supported by a
complete suite of traditional application and core processing software. We
believe a significant opportunity exists to market our fully integrated,
end-to-end solutions, including our new e-commerce products and services, to our
existing base of over 5,000 customers and to new customers. More than 1,000,000
consumers now use Concentrex e-commerce products.
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RECURRING REVENUE AND FINANCIAL STRATEGY
We generate recurring revenue from software maintenance agreements
and by providing application services. In 1999 service and support fees
accounted for approximately 45% of total revenue. Substantially all of our
customers subscribe to service and support programs, which provide ongoing
product enhancements and updates to facilitate compliance with changing
regulations. In our e-commerce product group, we are increasingly focusing on
our service bureau offering so that we can increase the percentage of revenue
attributable to our application service provider ("ASP") business. Although
these revenues are minimal at this time (the service bureau went live in
November 1999), we believe that our ASP business model represents a substantial
opportunity to grow predictable revenues and earnings.
Prior to 1995 the vast majority of our revenues were generated from
the license of standard versions of our loan origination and account opening
software applications. These products were usually not customized except through
a separate contract with the customer. Since that time we have derived an
increasing percentage of revenue from projects that are of greater scope,
including implementation of projects for new core processing customers and from
sales to large financial institutions. We believe that the project business will
continue to contribute a significant and increasing percentage of total revenue
and should provide added visibility to revenue as we build a backlog of upcoming
projects. Over time, we believe recurring revenues from e-commerce and other ASP
products, and revenues from project business, will generate greater
predictability in revenues and earnings.
THE FINANCIAL SERVICES INDUSTRY
The financial services industry is undergoing a period of rapid
change characterized by consolidation, changing regulations, focus on Internet
delivery of financial services in addition to traditional branch delivery, and a
desire to offer new types of financial services. In response to this rapidly
changing market, commercial banks are consolidating in order to achieve
operational efficiencies and increased revenues. In addition, all types of
financial institutions are embracing technological solutions that enable them to
automate operations, redirect routine transactions to more cost-effective
channels such as electronic banking and call centers, and develop new service
and sales delivery channels with new products. Further, as the consolidation of
large institutions continues, the community bank and credit union sectors have
shown renewed vitality, including an increasing number of new start-up community
banks and thrifts.
CONSOLIDATION. Consolidation continues at a rapid pace within the
financial services industry, particularly among large banks. We believe that
this trend is leading to an increasingly two-tiered market consisting of very
large, multi-bank holding companies and smaller community banks, thrifts, and
credit unions. Each size of organization faces unique challenges.
Large banks that have grown through acquisition must integrate
disparate core processing systems, which often lack the flexibility needed to
easily use and deliver information across different systems. Bank customer
service representatives often are limited in their ability to access
comprehensive customer information on one screen, which limits their ability to
cross-sell products and services. Banks must also be able to support customer
transactions in a number of channels, such as electronic banking and telephone
call centers. Accordingly, large banks increasingly find it necessary to
centralize data from several disparate core processing systems. Interstate
banking presents these institutions with additional and costly administrative
and legal issues relating to compliance with complex and changing regulatory
requirements across states. We believe large institutions will increasingly look
to outside providers for critical functions that can be implemented within the
overall technology strategy of the institution, such as the loan origination and
branch automation solutions we offer.
Smaller community institutions, including both commercial banks and
credit unions, face similar operational difficulties. Lacking the economies of
scale of larger banks, smaller institutions find it increasingly necessary to
exploit technological solutions that enable them to reduce operating costs,
generate additional revenues from existing customers and focus on specific
market niches. In addition, compliance with regulatory requirements
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can be more burdensome to these smaller institutions given their resource
limitations. We believe that these institutions will continue to look toward
outside providers such as Concentrex to obtain the technology they need.
CHANGING REGULATIONS. Financial institutions in the United States
remain highly regulated with respect to all functions, but especially with
respect to transactions with their customers. These regulations exist at
federal, state and local levels, and an institution must comply with each level.
Requirements include complex disclosures for consumer loans, substantive rules
covering the decision making for all loans, filing and type size requirements
for documents, constraints on the relationships an institution can form with
respect to related products such as title insurance on a home mortgage, privacy
rules for the use of information (especially with respect to third parties and
even affiliates), and limitations on interest and other charges that an
institution can impose. Even as commercial banks have gained greater ability to
have offices in multiple states, the new interstate banking laws have imposed
additional constraints on the rules for lending across state lines. To
understand and remain in compliance with the numerous, complex and changing
regulations, a financial institution must invest significant resources in
developing a compliance infrastructure. We believe our long-standing expertise
in providing software that incorporates compliance with various regulatory
constraints will continue to set us apart in this market.
The Financial Modernization Act of 1999 presents both opportunities
and challenges for financial institutions in terms of powers and regulations.
Clearly, it is now possible for a financial institution to offer a wide range of
products without the artificial constraints that have separated the business of
investment banking, commercial banking and insurance since the 1930s. However,
each aspect of the institution must still meet the requirements for the product
group being offered or underwritten. This presents a particular challenge for
community sized institutions, and a significant part of Concentrex's strategy is
to act as a "concentrator" bringing together a variety of these services on a
group basis. This strategy is best reflected in our business-to-business portal,
the Concentrex Intelliportal Network, which will offer a variety of insurance
and other products that most community-sized institutions would not, in our
view, be able to offer on their own. Perhaps the greatest challenge, however,
comes from the serious concerns being raised over privacy and the sharing of
information outside the institution and its third party processors. Based on our
lengthy and extensive relationship with many of our customers, we have an
opportunity to further assist our customers by also providing privacy-sensitive
services that do not require the institution to share sensitive information on
customers with other third parties. These rules are not yet clear, but we
believe they will present a further market opportunity to combine our expertise
in banking, technology, and regulatory issues to create a solution to benefit
our customers.
ADDING INTERNET DELIVERY CHANNELS. Financial institutions of all
sizes are increasingly recognizing that the value-added role of branch offices
lies not in their traditional capacity as a service center, but as a sales
channel for financial products and services. In order to make these new delivery
channels attractive and user-friendly, we believe that consumers require access
to consolidated information and services that are consistent across all delivery
channels. To accomplish this, institutions will need software, such as the
middleware we provide, to connect their products to each other and to the
various host systems they use. Further, we believe the market will require most
financial institutions to add some type of Internet access for their customers,
creating a significant opportunity for Concentrex and similar providers of such
software. Bankers already appear to be concerned that they may lose their best,
upscale customers if they fail to offer robust online banking. Operating costs
are expected to be reduced as online banking increases and operating
efficiencies grow. We believe the integration of our software provides better
cost savings, more consistent delivery and gives us a market advantage. Further,
as Internet banking moves beyond the current approach and toward account
servicing, we believe our ability to perform fully compliant lending and account
opening functions through the Internet will offer us a unique market opportunity
to serve our heavily regulated customers.
Because regulatory requirements are often triggered simply by
interaction between a financial institution and its customer, institutions
remain subject to compliance regulations even as they migrate their sales
efforts to new delivery channels such as Internet banking. Increasingly, these
regulations extend beyond simple disclosure or form content requirements and
focus on customer data collection and analysis as well as internal business
procedures. This data collection and analysis must be obtained from, and
available to, multiple delivery channels. Data collection and analysis is
complicated by the emergence of new channels for interacting with customers and
potential customers. We believe that financial institutions will continue to
benefit from our products and services,
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especially our newer generation of Internet products and services, because the
institutions must still comply with the complex regulatory burden even if a
service is delivered online rather than in person. Indeed, we anticipate that
privacy and related concerns will increase the regulatory burden as financial
institutions move services onto the Internet.
NEW FINANCIAL SERVICES PRODUCTS. Recognizing the profit potential in
expanding their product offerings, financial institutions are no longer content
to offer solely the loan and deposit account products they traditionally have
sold to customers, although those products will remain central to their
profitability. They also seek to add other types of financial services products
such as insurance and leasing. Such combinations of services are no longer rare
among larger institutions. Financial reform recently passed by Congress is
expected to make it even easier for large institutions to provide these
offerings.
The products sold by credit unions and thrifts have been less
regulated than those sold by other financial institutions. Credit unions in
particular have demonstrated an ability to sell a wide variety of financial
services through cooperative efforts. We believe that most community banks will
not have the resources needed to offer such combinations of services and
products on their own. As these products become an increasing focus of community
banks, we believe that a market opportunity for service center offerings to
multiple institutions will exist. We have opened a service center to offer
Internet banking to our customers, including community banks, so that they are
not required to maintain hardware and software in-house. We believe that we can
fulfill the needs of community banks to offer more products to their customers
by adding additional financial service products to our service center and, that
by acting as an application service provider, we will enhance our recurring
revenues, which we believe will increase the predictability of our revenues and
earnings.
THE CONCENTREX SOLUTIONS
We offer solutions tailored to the various market product groups and
market needs of financial institutions. Although regulatory and technology
issues facing financial institutions overlap a great deal, the approach taken by
a particular institution, and therefore the correct solution for that
institution, depends on the size and type of institution.
Each of our solutions includes a significant focus on the regulatory
issues facing financial institutions of all types. Particularly in the area of
loan origination and new account opening, we believe we have a competitive
advantage by virtue of our ability to incorporate regulatory compliance into the
software solution. Further, as lending and account opening become more common on
the Internet, we believe that this advantage will increase. Transactions
conducted over the Internet are not exempt from the customary regulatory
requirements financial institutions must comply with, including Federal Truth in
Lending and Truth in Savings disclosures and a myriad of often conflicting state
and local requirements.
A key aspect to our success has been and will likely continue to be
our ability to build our technology, regulatory and financial institution
expertise into our solutions and to integrate these solutions so that they
function effectively together. We rely on a variety of knowledge-based and
technical core competencies. Our vertical market focus on the financial services
industry has enabled us to develop specialized knowledge and expertise
pertaining to business processes and regulations affecting the industry.
LARGE FINANCIAL INSTITUTIONS. For large commercial banks, we offer
solutions that fit within the overall strategic technology plan of the
institution. Large banks develop and implement their own technology plans, but
rely on suppliers such as Concentrex for key elements including loan
origination, branch automation, call centers, and e-commerce products and
services. We offer large financial institutions solutions in each of these areas
and segregate our sales force to address this market.
Our software applications and e-commerce products enable large
financial institutions to use data among disparate and often incompatible host
processor platforms. Our ability to integrate among and between our suite of
products also allows large institutions to work with fewer vendors, specifically
ones that provide comprehensive
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software solutions. We also believe that our market presence in over 70% of U.S.
banks above $2 billion in asset size provides an excellent opportunity to
cross-sell additional products and systems.
CREDIT UNIONS. The credit union market, unlike large banks, is
characterized by real-time processing. Our acquisition of ULTRADATA, with its
competitive core processing solution and over 400 credit union customers, allows
us to be a player in this market. We will continue to support this market,
including offering expanded capabilities through our other solutions for
commercial loans. Credit unions are now entering the commercial loan market, and
this expansion presents an opportunity for us to rely on our other solutions to
enhance our presence in the credit union market. Similarly, our credit union
Internet banking product will be enhanced due to the expertise of our e-commerce
group.
COMMUNITY BANKS AND THRIFTS. The community bank and thrift
marketplace offers several opportunities for our solutions. First, we will
continue to sell our traditional software applications to all sizes of banks and
thrifts, including lending, mortgage, sales and service and e-commerce. For
these solutions we will rely on our ability to connect our products to a variety
of host processing systems used by community banks and thrifts. Where possible,
we will attempt to form alliances with other host companies to augment the
offerings of those companies with our solutions. We have grown, and expect to
continue to grow, in significant part through the sale of software applications.
In addition to our traditional software applications, we plan to
offer our real time host processing to community banks and thrifts. We plan to
augment the ULTRADATA solution to meet the needs of commercial banks and
thrifts, and believe that the real-time nature of that system will give it an
advantage over batch processing systems our competitors offer to community
banks. Further, we will offer this core processing solution tightly coupled with
the other software applications already marketed by us, especially our
e-commerce solutions.
Our products provide a number of benefits to financial institutions
by addressing regulatory requirements, system connectivity issues and internal
business process challenges faced by institutions in their increasingly
competitive business environment. Using our solutions, financial institutions
are able to simplify sales and service processes and improve productivity
through reduced operating costs and expanded capacity. The ability to view an
entire customer account relationship on-screen, for example, enables financial
institutions to cross sell their products to customers and to strengthen
relationships with their customers at each point of contact and across multiple
delivery channels.
With respect to each of our solutions, we offer implementation and
training services and customer support. Essentially all customers subscribe to
these services, and we derive a substantial portion of our recurring revenue
from the relationship created when a financial institution selects and installs
one of our products.
THE CONCENTREX STRATEGY
Our strategic objective is to be the leading full service provider of
innovative technology solutions that enable our customers to succeed. In doing
so, we strive to achieve rapid, predictable, and consistent growth in both
revenues and earnings. We intend to achieve this objective by combining our
expertise in regulatory issues, banking and technology. Primary elements of our
strategy include:
PRODUCT QUALITY. Financial institutions require that their software
and hardware solutions function at very high levels of quality. We have been
able to meet the demands of many of the largest financial institutions in the
country and believe that a significant focus on product quality is a necessary
element of our success. Further, as systems become more complex and the
interrelationship among systems becomes more critical, we believe our ability to
develop and implement systems with high quality standards will become a
competitive advantage.
INTEGRATION OF SOLUTIONS. Financial institutions are no longer able
to run disparate systems that do not communicate with each other. We are in the
process of integrating our solutions so that they are able to communicate
effectively among themselves, creating an advantage for financial institutions
that purchase a suite of solutions rather than just one application. For
example, the branch automation and Internet banking solutions
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contain modules that will collect the data needed for our loan origination
software to enable it to produce required loan documents in compliance with
applicable laws and regulations. Each of our solutions for loan origination,
teller, new account opening, and Internet banking rely on the same general
system setup, enabling customers to add new solutions quickly once they have set
up any of our key software applications.
Our acquisition strategy has not been focused on a traditional
"roll-up" of competing solutions. Instead, we have sought the best solution we
can develop or acquire for each aspect of our target markets, and then proceeded
to integrate that solution with the other software already acquired or
developed. We believe this approach to integration best satisfies our market's
need. Further, we believe this approach enhances our ability to cross sell
additional products into our customer base.
INTEGRATION OF CONCENTREX. We do not operate as a series of
independent business units, but as an integrated company. We believe this is a
critical factor in order to enable us to integrate products, and to present an
integrated image and reality to our customers. Because we believe that financial
institutions are looking for a smaller number of key vendors, we feel that it is
critical not to have competing business units, but rather to focus efforts on
integration of solutions for and at our various customers. Further, this allows
us to leverage our various corporate functions, technology research, sales and
marketing efforts.
LEGAL AND INDUSTRY KNOWLEDGE. We are focused on a very large vertical
market: software solutions for the financial services industry. To serve that
market, we have developed an extensive base of knowledge about the industry and
the forces that shape it. This includes knowledge of the key functions that
software must perform, such as teller transactions, and key areas of extensive
regulation, such as loan origination. Further, through our 1999 acquisitions of
MCS and ULTRADATA, we now have expertise in the back office core ("host")
processing world of information management, giving us a comprehensive
understanding of the various technology needs of a financial institution. We
believe that this knowledge base, especially in the regulatory area, is a key
competitive advantage over companies that focus solely on the technology aspects
of financial institutions.
CUSTOMER SUPPORT AND IMPLEMENTATION. The license or sale of our
products includes customer support services and, in many instances,
implementation or customization services. This creates an ongoing relationship
with the customer, including updates and enhancements of the software. This
enables us to achieve a recurring revenue stream in addition to our revenues
from initial sales. Further, the nature of both core processing and e-commerce
solutions requires an even tighter relationship with customers, and we have
entered these markets in part to improve that relationship. This is particularly
true as we establish and implement ASP models for those services. Finally, the
most critical aspect of our ability to make new sales is the quality of
references from existing customers. We believe our growth in both revenues and
absolute numbers of customers, to over 5,000 banks, thrifts, and credit unions,
reflects a high level of customer satisfaction. We intend to continue to monitor
and improve our customers' satisfaction.
STRENGTH OF THE SALES FORCE. Unlike many of our competitors, we sell
nearly all our products directly rather than through third party sales channels.
We have invested significantly in the creation of our direct sales force, which
is organized so that field sales personnel cover major accounts and general
accounts and telephone sales personnel cover smaller customers. Further, we have
created telephone sales groups and marketing programs to support our field sales
force. We believe that the strength of our sales force enables us to create
direct relationships with customers, and insulates us from shifting priorities
of third party distributors. Further, since third party distributors may
represent other products that compete with us, use of a direct sales force
enables us to increase our success at cross-selling additional products to our
existing customers.
ADHERENCE TO CONCENTREX VALUES. We have adopted and enforce a values
statement that we use to help manage and unify our various offices and operating
units. Further, we recognize that our markets are fiercely competitive and not
all of our competitors share our positive values. We believe that adherence to
our values including honesty and integrity, care and concern for all
stakeholders, winning, continuous improvement, and embracing change - enables us
to maintain and enhance our relationships with our customers and partners.
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PRODUCTS
SOFTWARE PRODUCTS AND SERVICES: CORE PROCESSING. Core processing
solutions provide the institution-wide "host" processing that a financial
institution requires to operate. They include functions such as loan accounting,
account processing, general ledger and data retrieval of customer information.
The systems connect to other software applications such as e-commerce and loan
origination. Beginning in January 1999 with our acquisition of MCS, we started
offering hardware and software solutions for the back office accounting needs of
community banks and credit unions. The MCS system runs on Intel-based personal
computers ("PCs") using SCO UNIX, which means that the core system for a small
bank can operate on a standard PC. We have connected the MCS system to our loan
and branch automation software, and offer it as a low-cost, in-house solution
for smaller community banks. The MCS system also connects to our Internet
banking service bureau.
In August 1999 we acquired ULTRADATA which provides over 400 credit
unions with real-time, scaleable core processing and a full range of ancillary
services. The ULTRADATA system operates on either HP 9000 or IBM RS/6000 UNIX
operating systems, and is being ported to Windows NT. We believe this system is
also capable of providing scaleable, real-time host processing for community
banks, and we have a project underway to augment the system for the features
that are used by a community bank but not by a credit union, primarily small
business lending. We believe the market favors our core processing services for
both credit unions and community banks, especially as credit unions enter the
market for small business loans. Further, we believe this market both supports
the other software products and services we offer and provides greater
predictability of revenues. In turn, this greater predictability of revenues
should provide greater predictability of earnings.
SOFTWARE PRODUCTS AND SERVICES: LENDING PRODUCTS. Our lending
products automate processes at nearly every step in the lending process for
consumer, commercial, and residential real estate lending lines of business.
General business functions automated by our lending solutions include loan
application and analysis, loan closing, portfolio analysis and workflow
management, and risk management. We also offer connectivity for interfaces to
credit scoring and reporting systems and remote printing of loan documents. We
design our lending products to operate with common user interfaces and
databases.
SOFTWARE PRODUCTS AND SERVICES: MORTGAGE PRODUCTS. Our mortgage
products improve the consistency of the loan process, speed origination, and
increase capacity for their users. Among their functions, these products
automate the complex analyses necessary for ensuring optimal mortgage loan pool
sales, speed the process of preparing mortgage loans for sale faster than manual
methods, and allow lenders to take advantage of higher near term delivery
prices.
SOFTWARE PRODUCTS AND SERVICES: SALES AND SERVICE. Our sales and
service products automate the customer service, sales, and account opening
functions for the branch platform, teller station and telephone call center.
These products provide a common view of the entire customer relationship,
enabling service personnel to leverage selling opportunities.
E-COMMERCE SOLUTIONS
We offer Internet banking to provide a full range of account inquiry
and maintenance capabilities, which are integrated with many of our software
products for functions such as lending and account opening. Integration includes
product descriptions and set-up functions. Our Internet banking products will
provide dozens of functions, including account balance, account history, bill
payment, and online loan applications. We have also created a service bureau
that provides financial institutions with an inexpensive method of initiating
home banking services with their customers. This is accomplished by allowing
these customers to interface with their financial institution through a
Concentrex maintained and monitored web site. We plan to expand the capabilities
of our home banking solution for both our in-house and service bureau customers
with added functionality and access to financial portals.
A critical part of our e-commerce group is the Concentrex Intelliportal
Network, a business-to-business portal that will enable us to connect to our
over 5,000 customers. Initially, the Network will focus on customer support and
compliance information, which is critical to our customers. We believe that will
encourage customers
9
<PAGE>
to participate in the Network, since these services will be free. During the
second half of 2000, we plan to add products and services such as insurance,
leasing, and Internet-based training, on a series of "pay" channels. These will
assist our customers with key functions such as training, and also allow smaller
institutions to offer products and services that may be too expensive for them
to offer on their own. In this respect, Concentrex will act as a "concentrator"
or "aggregator" of services for our community bank and credit union customers.
PRODUCTS BY PRODUCT GROUP
SOFTWARE PRODUCTS AND SERVICES GROUP
<TABLE>
<CAPTION>
CORE PROCESSING
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Host Real time enterprise wide software system for Provides easy access to
Processing Engine for credit union transaction processing, accounting, information and enhances
Credit Unions administration, database management and customer service, cross-
information access selling, transaction efficiency
and accounting controls
Concentrex Host PC Based--Back office core ("host") processing Automates back room
Processing software for community banks and credit unions accounting and servicing
including applications available for bulk functions
account storage, voice response and account
inquiry
</TABLE>
<TABLE>
<CAPTION>
LENDING PRODUCTS
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Laser Pro Integrated, modular loan processing systems Standardizes lending policies
Lending for consumer, commercial, SBA, real estate and products, streamlines
home equity and agricultural loans, including a processing, incorporates a
module for geocoding to assist in analyzing national database of
fair lending and CRA compliance regulations
Concentrex Application Processes applications for indirect consumer Speeds the loan application
Manager - Consumer lending and approval process for
indirect lenders
</TABLE>
<TABLE>
<CAPTION>
MORTGAGE PRODUCTS
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Mortgage Provides mortgage origination, processing and Improves consistency of loan
servicing capabilities processes, speeds origination,
increases capacity
</TABLE>
10
<PAGE>
<TABLE>
<CAPTION>
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Secondary Comprehensive risk and pipeline management Automates complex analyses
Marketing system that automates secondary mortgage necessary for ensuring optimal
marketing functions from registration through mortgage loan pool sales
delivery of loans
Concentrex Mortgage Document Automates the labor intensive functions Speeds process of preparing
Tracking performed after a mortgage loan is closed mortgage loans for sale faster
than manual methods, allowing
lenders to take advantage of
higher near term delivery
prices
</TABLE>
<TABLE>
<CAPTION>
RETAIL DELIVERY PRODUCTS
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Teller Automates the teller station by providing Improves productivity and
comprehensive transaction automation, facilitates sales referrals
electronic journaling, store-and-forward
capabilities, simplified balancing, and access
to the customer database
Concentrex Sales & Service Provides sales and service capabilities, Opens accounts, enables
Version 5 including account opening screens, cross-selling and customer
customer/product matching, customer contact information requests
histories, letter and fulfillment generation,
and institution and product information
Concentrex Sales and Service Integrates in a common and consistent format Enables cross-selling and
Version 5 Call Center customer, product and internal procedure improves service
information
Concentrex Sales and Service Windows-based system that graphically links Allows customized arrangements
Version 1 each user to Concentrex software and other of modules and access to
business applications customer information
Cocentrex Account Automates and ensures regulatory compliance Speeds account opening,
Opening in the account opening and cross-selling ensures compliance with
processes for checking, savings, certificates regulations, improves the
of deposit, and IRA accounts consistency of new account
policies and procedures
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
E-COMMERCE GROUP
PRODUCT DESCRIPTION BENEFITS TO CUSTOMER
<S> <C> <C>
Concentrex Online Banking System that allows institutions to provide Provides Internet access,
Suite personal consumer and small business Internet strengthens customer
banking with in house or service bureau options relationships, extends
institution branding,
increases customer convenience
Concentrex Online Payment On-line bill payment system Internet bill payment
Services capability
Concentrex Intelliportal The intelligent portal to Internet based Provides cost effective access
Network products and services for financial institutions to and one stop resource for
new financial service products
Concentrex Service Bureau Houses and maintains the dedicated technology Significantly reduces the
for online banking websites hardware and staff
requirements banks need to
have an internet presence
</TABLE>
PRODUCT DEVELOPMENT AND NEW PRODUCTS
We ensure that our products meet customer requirements by conducting
primary research, tracking customer calls and requests for enhancements, doing
competitive analysis, working with industry trade groups, and holding product
user and focus group meetings. We also incorporate knowledge learned during the
sales and installation process into development of new and enhanced products and
processes.
We continue to invest significantly in our product development
efforts. During the past four years we have focused a considerable amount of
that investment on converting our products from the DOS environment to Windows .
That effort is now complete, and essentially all of our products have been
either rewritten or significantly enhanced. We are in the process of
"sunsetting" the DOS versions of our products, and plan to have substantially
completed that task by the end of 2000. At that time we will support only the
Windows version, or other newer versions, of our products, including
browser-based products. Our redevelopment effort also has included increased
focus on the use of software components that can be re-used in multiple
products, such as calculation modules and credit bureau communication modules.
We intend to continue enhancement of our products in terms of both added
features and increased use of components, which will help us remain competitive
and will enhance our goal of product integration. We also have begun investments
in service centers for customers who do not have the desire or capacity to
install the solutions in-house.
We have made significant investments in e-commerce technology, both
in terms of internal development and the 1999 purchase of MECA. We also have
focused on Web-enabling our existing product lines, such as loan origination and
new account opening software, and will continue to invest in technology that
enables our suite of solutions to work with and on the Internet.
We believe that market acceptance of our products is based in
significant part on the ability of the products to share information with a
financial institution's host processor system or with the vendor providing
processing services to the institution. This is particularly true for software
applications that require information from the host or that need to provide
information to the host, including loan origination, new account opening,
account servicing, and home banking. We have developed significant expertise
with most available host processor systems and the methods necessary to transfer
data to and from such systems. However, many of the companies
12
<PAGE>
that provide host software are unwilling to allow connections with software
other than the solution developed or selected by the host. We have been able to
overcome this in many instances through our market presence and pressure on the
host system's vendor from individual customers. We also believe that the market
trend is toward open systems, and we have initiated efforts to focus attention
on that issue, including positioning our own information management product
offerings as an open system alternative.
SERVICE AND SUPPORT
Substantially all of our customers subscribe to maintenance
agreements under which we provide periodic product updates reflecting evolving
regulations, product enhancements and toll-free telephone support. Maintenance
fees consist of per-item or per-user charges or are calculated based on a
percentage of the current product list price or of the size of the customer.
We provide training to our customers, and account for this revenue as
service and support fees. Service and support fees have grown significantly over
the last three years. For the year ended December 31, 1999, such fees were $48.3
million, or 45.1% of our total revenue. We anticipate that our e-commerce and
information management product offerings will increase that percentage over
time.
We install, implement and customize our software solutions at
customer sites, particularly at larger institutions, and at the time we sell a
host system for information management. As our sales to larger institutions and
our sales of core processing solutions increase, we anticipate demand for our
customization services to increase. Revenue from these services is accounted for
as software license fees using the percentage of completion method.
CUSTOMERS
We have licensed our software products to over 5,000 financial
institutions in the United States. Our target customer base includes commercial
banks, thrifts and credit unions. No customer accounted for 10% or more of our
total revenues in 1999, 1998 or 1997.
Our largest accounts include Bank of America, Union Planters Bank,
NCR Corporation, Banc One, PNC Bank, Citicorp Mortgage, and Central Carolina
Bank & Trust.
SALES AND MARKETING
We sell our products through national direct sales teams. The major
accounts sales team is devoted exclusively to the largest approximately 200
financial institutions in the United States. A second team focuses on all other
accounts with respect to software sales. A third national team specializes in
selling core processing products. A fourth team focuses on e-commerce products.
A fifth team consists of telemarketing personnel who contact institutions for
lead generation and qualification, and who sell add-on modules and products. All
sales teams are supported by product specialists. Our marketing group is
responsible for direct sales campaigns, trade media support and advertisements.
We have a number of third-party reseller and co-marketing alliances,
including agreements with some of the largest host processors and hardware
vendors. For example, co-marketing alliances with both IBM and NCR provide
access to institutions, or departments within large institutions, with whom we
may otherwise have no relationship. We also have endorsement relationships with
some associations that serve the financial institutions, which assist us with
marketing and promotion of our products. We have also been a leader in promoting
an open systems environment throughout the industry serving financial
institutions. As part of our commitment, these partnerships are supported by a
team of sales and account relationship managers.
13
<PAGE>
LEGAL NETWORK
We maintain a network of independent legal counsel in all 50 states,
Puerto Rico, Guam, and the District of Columbia. This network, as well as our
internal legal staff, keeps us informed of changes in state and federal laws,
changes in state and local documentation requirements, pending legislation and
court actions affecting financial institution practices, as well as other
information required to maintain regulatory compliance. We believe that the
quality of this information, our ability to effectively manage the continuous
information flow provided by the network participants, and our capability to
integrate this information into our software products provide us with a
significant competitive advantage.
We use legal counsel in all jurisdictions, other than Louisiana,
under agreements that are terminable at will by either party and that provide
for compensation based on an hourly rate. We have entered into a long-term legal
services agreement with a Louisiana law firm pursuant to which it earns legal
fees based upon sales of our products in Louisiana.
ACQUISITIONS
To remain competitive and to meet the changing needs of our
customers, we pursue acquisitions of products, technologies and businesses as a
part of our growth strategy. We continuously evaluate acquisition candidates
that provide opportunities to expand our customer base, cross-sell products, and
broaden our product offerings with proven solutions in a timely and
cost-effective manner. Since 1994 we have made 15 acquisitions and believe that
to date we have achieved our objectives of growth and broadening our product
offerings through this acquisition program. We intend to continue such activity
in the future, although we do not anticipate material acquisitions in the near
term as we complete the integration of our 1999 acquisitions.
EMPLOYEES
As of December 31, 1999, we had 1,023 full-time employees. Of this
number, 280 were engaged in product groups (primarily product development), 293
in customer service and support, 106 in sales and marketing, 161 in
implementation and training, 21 in technology, research ad development and 162
in general and administrative functions.
ITEM 2. PROPERTIES
Our corporate headquarters are located in Portland, Oregon in a
leased facility consisting of approximately 86,921 feet of office space occupied
under leases that expire in 2004. Annual lease payments for our corporate
headquarters are approximately $1.6 million, with provisions for inflationary
increases. We also lease office space in Atlanta, Georgia (32,277 square feet) ;
Dayton, Ohio (15,151 square feet); Burnsville, Minnesota (18,392 square feet);
Englewood Cliffs, New Jersey (14,198 square feet); Houston, Texas (7,565 square
feet); Denver, Colorado (4,470 square feet); Charleston, South Carolina (2,500
square feet); Vienna, Virginia (5,666 square feet); Pleasanton, California
(60,242 square feet); Jericho, New York (1,140 square feet); Trumbull,
Connecticut (92,000 square feet); and Carrolton, Texas (4,800 square feet).
These leases expire in 2007, 2006, 2000, 2005, 2002, 2004, 2003, 2003, 2007,
2002, 2003 and 2001, respectively. Annual lease payments for these additional
facilities, in aggregate, are approximately $3.3 million. We believe the office
space currently under lease is adequate to meet our needs for the next year.
ITEM 3. LEGAL PROCEEDINGS
We are involved in routine legal matters incidental to our business.
We believe that the resolution of any such matters that are currently
outstanding will not have a material effect on our financial condition or
results of operation. However, no assurance can be given that the concurrent
resolution of several of such matters in manners adverse to us would not have a
material adverse effect on our financial condition or results of operations.
14
<PAGE>
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The Company did not submit any matters to a vote of security holders
during the quarter ended December 31, 1999.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
Our common stock trades publicly on the Nasdaq National Market under
the trading symbol CCTX. The table below sets forth the high and low sales
prices for our common stock for the periods indicated as reported by the Nasdaq
National Market.
HIGH LOW
1998
First Quarter $16.69 $12.25
Second Quarter $17.88 $14.50
Third Quarter $16.38 $ 9.38
Fourth Quarter $13.13 $10.00
1999
First Quarter $14.00 $10.50
Second Quarter $18.00 $ 8.88
Third Quarter $13.75 $ 9.63
Fourth Quarter $10.38 $ 5.25
On February 29, 2000, the last reported sales price reported on the
Nasdaq National Market for our common stock was $8.00 per share. On the same
date, the number of shareholders of record and the approximate number of
beneficial holders of the Company's Common Stock were 276 and 1,803,
respectively.
In May 1999 we issued 90,000 shares of our common stock in an equity
sale to a private investor for $900,000. In August 1999 we issued warrants to
purchase 381,822 shares of our common stock at $12.34 per share and convertible
notes convertible into 602,534 shares of our common stock at $12.34 per share to
seven of our lenders in connection with lending commitments totalling $85.5
million. See Note 6 of Notes to Consolidated Financial Statements. On December
31, 1999 certain terms of the warrants, convertible notes and associated
financing agreement were renegotiated and the exercise price of the warrants and
the conversion price of the convertible notes were reduced from $12.34 to $10.00
per share. At maturity, the convertible notes would be convertible into 743,753
shares of common stock.
Also in August 1999, we issued a warrant to purchase 58,000 shares of
our common stock at $12.34 per share in consideration for the recipient
providing financial advisory and placement agent services in connection with the
above financing. On December 31, 1999, as a result of the renegotiation of the
financing arrangement, the exercise price of this warrant was adjusted to $10.00
per share consistent with the adjustments made to the other warrants and
convertible notes issued in connection with the financing. The issuance of
shares, warrants and convertible notes described above were made in reliance on
Section 4 (2) of the Securities Act of 1933, as amended. We made no public
solicitation in connection with the issuance of the above securities nor were
there any other offerees. We relied on representations from the recipients of
the securities that they purchased the securities for investment for their own
account and not with a view to, or for resale in connection with, any
distribution thereof and that they were aware of our business affairs and
financial condition and had sufficient information to reach an informed and
knowledgeable decision regarding their acquisition of the securities.
There were no cash dividends declared or paid on our common stock in
1999 or 1998. We do not anticipate declaring cash dividends on our common stock
in the foreseeable future. The terms of our lending agreements generally
prohibit the payment of dividends on our common stock.
15
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
IN THOUSANDS:
EXCEPT PER SHARE AMOUNTS 1999(1) 1998(2) 1997 1996(3) 1995(4)
- --------------------------------------- ----------- ------------- -------------- ----------- -----------
CONSOLIDATED STATEMENT OF OPERATIONS
DATA REVENUE(5):
<S> <C> <C> <C> <C> <C>
Software Products and Services
Group
License Revenue $ 48,730 $ 47,590 $ 38,281 $ 31,133 $ 17,277
Service and Support Revenue 38,284 28,077 26,235 21,804 14,965
Other 8,295 4,141 3,143 2,899 2,665
e-Commerce Group
License Revenue 1,786 1,612 2,193 2,802 1,641
Service and Support Revenue 9,986 4,210 2,797 1,311 228
----------- ------------- -------------- ----------- -----------
Total revenue 107,081 85,630 72,649 59,947 36,776
Cost of revenue 42,625 29,423 27,041 20,844 11,672
----------- ------------- -------------- ----------- -----------
Gross profit 64,456 56,207 45,608 39,103 25,104
Operating expenses 64,436 45,357 36,780 29,810 20,552
Acquired in-process research and
development and other charges 10,208 2,661 -- 8,030 4,549
=========== ============= ============== =========== ===========
Income (loss) from operations $ (10,188) $ 8,189 $ 8,828 $ 1,263 $ 3
=========== ============= ============== =========== ===========
Net income (loss) $ (13,831) $ 3,960 $ 4,680 $ 114 $ 323
Preferred Stock dividend 93 95 95 97 97
----------- ------------- -------------- ----------- -----------
Net income (loss) applicable to
common shareholders $ (13,924) $ 3,865 $ 4,585 $ 17 $ 226
=========== ============= ============== =========== ===========
Diluted net income (loss) per share $ (2.71) $ 0.75 $ 0.90 $ -- $ 0.05
=========== ============= ============== =========== ===========
Shares used in diluted per share
calculations 5,132 5,167 5,124 5,112 4,877
Basic net income (loss) per share $ (2.71) $ 0.77 $ 0.93 $ -- $ 0.05
=========== ============= ============== =========== ===========
Shares used in basic per share
calculations 5,132 5,012 4,919 4,763 4,369
CONSOLIDATED BALANCE SHEET DATA
Cash and cash equivalents $ 1,289 $ 3,589 $ 20 $ -- $ 4,844
Working capital (deficit) (3,586) 16,972 7,187 2,792 8,759
Property and equipment, net 7,532 4,534 5,211 4,805 2,968
Total assets 144,766 56,781 57,542 46,845 36,587
Short-term debt 8,052 261 5,605 2,896 3,915
Long-term debt, less current portion
and debt discount 59,036 5,693 2,232 2,810 423
Convertible Subordinated Notes 5,647 -- -- -- --
Mandatory Redeemable Class A
Preferred Stock 728 738 746 754 761
Shareholders' equity $ 22,722 $ 30,632 $ 25,943 $ 20,238 $ 18,169
<FN>
(1) Results for the year ended December 31, 1999 include pretax charges
totaling $10.2 million for the value of in-process research and development
efforts at the date of acquisition pertaining to the acquisition of MECA in
May 1999 ($3.8 million), for the value of in-process research and
development efforts at the date of acquisition pertaining to the
acquisition of ULTRADATA in August 1999 ($5.2 million), other expenses for
name change and certain costs related to acquisitions required
16
<PAGE>
to be expensed ($0.3 million) and settlement of an arbitration proceeding
($0.9 million). Excluding the impact of these charges, net loss and net
loss per share (diluted) would have been $5.7 million and $1.11,
respectively. The results of operations for the year ended December 31,
1999 include the results of operations of MECA and ULTRADATA since the
dates of their acquisitions in May and August 1999, respectively. To fund
these acquisitions, the Company incurred debt and convertible subordinated
notes of approximately $74 million. See Notes 1, 2, 6 and 7 of Notes to
Consolidated Financial Statements.
(2) Results for the year ended December 31, 1998 include pretax charges
totaling $3.0 million for the value of in-process research and development
efforts at the date of acquisition pertaining to the acquisition of the
assets of Mortgage Dynamics, Inc. in October 1998 ($1.0 million), the
remaining goodwill and associated severance charges related to the fisCAL
products ($0.9 million), the present value of net future lease payments due
with respect to certain office space in Atlanta that the Company ceased
using ($0.8 million), and the initial investment of the Company in a joint
venture ($0.3 million). Excluding the impact of these charges, net income
and net income per share (diluted) would have been $5.7 million and $1.11,
respectively. See Notes 1, 2 and 7 of Notes to Consolidated Financial
Statements.
(3) Results for the year ended December 31, 1996 include a pretax charge of
$8.0 million for the value of in-process research and development efforts
at the date of acquisition pertaining to five companies acquired in April
1996. Excluding the impact of the acquired in-process research and
development charges, net income and net income per share (diluted) would
have been $5.2 million and $1.02, respectively. The results of operations
for the year ended December 31, 1996 include the results of these
companies' operations since the date of acquisition in April 1996.
(4) Results for the year ended December 31, 1995 include a pretax charge of
$4.5 million. The charge consists of $3.7 million for the value of Culverin
Corporation's (Culverin) in-process research and development efforts at the
date of acquisition and $0.8 million for restructuring. Excluding the
impact of the acquired in-process research and development and
restructuring charges, net income and net income per share (diluted) would
have been $3.1 million and $0.64, respectively. The year ended December 31,
1995 statement of income includes the results of Culverin's operations
since the date of acquisition in November 1995.
(5) During the year ended December 31, 1999, we reorganized into two product
groups: the Software Products and Services group and the e-Commerce group.
Accordingly, we have reclassified our operating revenue data for these
periods to reflect the new groups. Total revenue did not change as a result
of this reclassification.
</FN>
</TABLE>
17
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
THE CONSOLIDATED FINANCIAL STATEMENTS AND NOTES THERETO SHOULD BE READ IN
CONJUNCTION WITH THE FOLLOWING DISCUSSION. THIS DISCUSSION AND CERTAIN OTHER
PARTS OF THIS REPORT CONTAIN FORWARD-LOOKING STATEMENTS THAT INVOLVE RISKS AND
UNCERTAINTIES, SUCH AS STATEMENTS OF CONCENTREX'S PLANS, OBJECTIVES,
EXPECTATIONS AND INTENTIONS. THE CAUTIONARY STATEMENTS MADE IN THIS DISCUSSION
SHOULD BE READ AS BEING APPLICABLE TO ALL RELATED FORWARD-LOOKING STATEMENTS
WHEREVER THEY APPEAR IN THIS REPORT. CONCENTREX'S ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE DISCUSSED HERE. FACTORS THAT COULD CAUSE OR CONTRIBUTE TO
SUCH DIFFERENCES INCLUDE QUARTERLY FLUCTUATIONS IN ORDERS RECEIVED, CHANGES IN
THE FINANCIAL INSTITUTIONS MARKETPLACE AND TECHNOLOGICAL ADVANCES, CHANGES IN
RELATIONSHIPS WITH KEY CUSTOMERS AND PARTNERS, NEED FOR ADDITIONAL CAPITAL,
MANAGEMENT OF GROWTH, SOFTWARE ERRORS AND ADDITIONAL FACTORS DISCUSSED ELSEWHERE
IN THIS REPORT, AS WELL AS IN THE COMPANY'S OTHER FILINGS WITH THE SECURITIES
AND EXCHANGE COMMISSION.
OVERVIEW
CFI ProServices, Inc. (doing business as Concentrex Incorporated
pending a change in the legal name of the company) is a leading provider of
technology-powered solutions to the financial services industry. During 1999 we
reorganized ourselves into two product groups: the Software Products and
Services group and the e-Commerce group. We offer a broad range of traditional
software products and services, a product group that we are both growing and
using to finance our innovative business-to-business e-commerce solutions. Our
Software Products and Services group supports a financial institution's mission
critical functions including back office "core" processing, loan origination,
new account opening, branch automation and cross selling. We support the key
sales functions a financial institution traditionally relies on to make money,
which are usually delivered face-to-face or over the telephone. We believe that
financial institutions will need to offer those same functions over the
Internet. Thus, we have focused our efforts on both Internet banking software
for account servicing and Internet-enabled versions of our traditional software
for lending and account opening. These integrate with other points of customer
contact and enable a financial institution to serve its customers, both in
person and over the Internet, with consistent, integrated solutions.
Our cost structure is relatively fixed within a short time frame and
the cost of generating revenue, in aggregate, does not vary significantly with
changes in revenue. As a result, we typically generate significantly greater
profit margins from incremental sales once fixed costs are covered. In addition,
any failure to achieve revenue targets in a particular period would adversely
affect our profit margins for that period.
Our backlog as of December 31, 1999 was $15.5 million, compared to
$18.3 million and $15.2 million at December 31, 1998 and 1997, respectively. The
decline in backlog from 1998 to 1999 resulted primarily from the decisions of
our customers to delay purchases in the months prior to December 31, 1999 due to
their concerns about the Year 2000 issue. Our backlog consists of firm signed
orders taken and not yet converted to revenue, but expected to be converted to
revenue within the next 12 months. Orders constituting our backlog are subject
to changes in delivery schedules or to cancellation at the option of the
purchaser without significant penalty. The stated backlog is not necessarily
indicative of our revenue for any future period.
ACQUISITIONS AND NEW BUSINESS VENTURES
We have expanded our market presence by acquiring products,
technologies and companies that complement our product suite or increase our
market share. We have completed 15 acquisitions since 1994. We completed four
acquisitions in 1999 consisting of: Modern Computer Systems (MCS) as of January
1, 1999, MECA Software, L.L.C. (MECA) as of May 17, 1999, ULTRADATA Corporation
(ULTRADATA) as of August 13, 1999 and certain assets of Total Direct Services
LLC (TDS) as of September 27, 1999. All four acquisitions were accounted for as
purchases and have been reflected in the results of operations presented since
their respective acquisition dates.
The terms of certain of our acquisitions provide that, based on
various factors, including the passage of time or certain product revenue, we
will be required to pay contingent royalties. Because amortization of certain
intangible
18
<PAGE>
assets (primarily goodwill) arising from our acquisition activity is not
deductible for federal income tax purposes, certain amortization expense has the
effect of increasing our effective tax rate for financial reporting purposes.
We currently have no understandings, commitments or agreements with
respect to any material acquisition of other businesses, products or
technologies. Additionally, our covenants with our lenders may limit our ability
to engage in acquisitions in the near term. Nevertheless, from time to time, we
may evaluate establishing new business operations or making investments in new
business ventures, including joint ventures.
RESULTS OF OPERATIONS
The following table sets forth our statements of operations data
expressed as a percentage of total revenue for the past three years.
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------
1999 1998 1997
---------------- -------------- -----------
<S> <C> <C> <C>
Revenue
Software Products and Services Group
License Revenue 45.5 % 55.6 % 52.7 %
Service and Support Revenue 35.8 32.8 36.1
Other 7.7 4.8 4.3
e-Commerce Group
License Revenue 1.7 1.9 3.0
Service and Support Revenue 9.3 4.9 3.9
---------------- -------------- -----------
Total revenue 100.0 100.0 100.0
Gross profit 60.2 65.6 62.8
Operating expenses
Sales and marketing 17.4 22.4 21.6
Product development 22.9 17.5 15.9
General and administrative 17.5 11.7 11.4
Goodwill Amortization 2.4 1.4 1.7
Acquired in-process research and development
and other charges 9.5 3.1 --
---------------- -------------- -----------
Total operating expenses 69.7 56.1 50.6
---------------- -------------- -----------
INCOME (LOSS) FROM OPERATIONS (9.5) (1) 9.5 (1) 12.2
Non-operating expense (4.2) (0.9) (0.4)
---------------- -------------- -----------
Income (loss) before income taxes (13.7) 8.6 11.8
Provision (benefit) for income taxes (0.8) 4.0 5.4
Preferred stock dividend 0.1 0.1 0.1
================ ============== ===========
Net income (loss) applicable to
common shareholders (13.0) %(1) 4.5 %(1) 6.3 %
================ ============== ===========
<FN>
(1) Excluding the impact of acquired in-process research and development and
other charges, income from operations as a percentage of revenue in 1999
and 1998 would have been 0.0% and 12.7%, respectively, and net income
(loss) applicable to common shareholders in 1999 and 1998 would have been
(5.3)% and 6.8%, respectively.
</FN>
</TABLE>
REVENUE
Total revenue increased $21.5 million, or 25.1%, to $107.1 million in
1999 from $85.6 million in 1998. Total revenue increased $13.0 million, or
17.9%, to $85.6 million in 1998 from $72.6 million in 1997.
We have increased the percentage of our service and support revenue
in 1999. We believe that service and support revenue is more predictable and
recurring than is software license revenue. Service and support revenue
accounted for 45.1%, 37.7% and 40.0% of total revenue, respectively, in 1999,
1998 and 1997. License revenue accounted for 47.2%, 57.5% and 55.7% of total
revenue, respectively, in 1999, 1998 and 1997.
19
<PAGE>
REVENUE BY GROUP
(IN $MILLIONS)
--------------------------
1999 1998 1997
--------------------------
SOFTWARE PRODUCTS AND SERVICES GROUP
License Revenue $48.7 $47.6 $38.3
Service and Support Revenue 38.3 28.1 26.2
Other Revenue 8.3 4.1 3.1
----------------------------
Group Total 95.3 79.8 67.6
E-COMMERCE GROUP
License Revenue 1.8 1.6 2.2
Service and Support Revenue 10.0 4.2 2.8
----------------------------
Group Total 11.8 5.8 5.0
----------------------------
TOTAL REVENUE $107.1 $85.6 $72.6
====== ===== =====
During 1999 we reorganized ourselves into two product groups: the
Software Products and Services group and the e-Commerce group. Accordingly, we
have reclassified our operating revenue data for all periods included in this
report to reflect the new groups. Total revenue did not change as a result of
this reclassification.
SOFTWARE PRODUCTS AND SERVICES GROUP
The Software Products and Services group includes:
o the traditional lending, branch automation and connectivity
software products and support services previously provided by CFI
ProServices, Inc.
o the core ("host") processing products we acquired from ULTRADATA
in August 1999 and from MCS in January 1999
o preprinted forms, font cartridges and modems previously sold by
us, license revenue from a personal financial management software
product that we acquired from MECA in May 1999, and the
fulfillment services acquired from MECA. All of these products
are included in "Other" revenue within the Software Products and
Services group.
Software Products and Services license revenue increased $1.1
million, or 2.4%, to $48.7 million in 1999 from $47.6 million in 1998. The
increase was due to the acquisition of ULTRADATA and MCS in 1999, offset in part
by declines in revenue from lending and branch automation software. We had no
core processing revenues in 1998 or 1997. The decline in revenue in 1999
compared to 1998 in lending and branch automation software products was
primarily due to Year 2000 pressures that caused our financial institution
customers to postpone their decisions on new software purchases and to delay or
defer implementation projects.
Software Products and Services license revenue increased $9.3
million, or 24.3%, to $47.6 million in 1998 from $38.3 million in 1997. The
increase was led by our Windows-based Laser Pro Lending suite of loan
origination products, new mortgage products, connectivity products and new
account opening products, and was offset in part by a
20
<PAGE>
decline in branch automation revenue. Branch automation revenue for 1997
included results from our RPxpress! remittance processing division, which was
sold in September 1997.
Service and support revenue in the Software Products and Services
group increased $10.2 million, or 36.4%, to $38.3 million in 1999 from $28.1
million in 1998. The increase resulted primarily from the ULTRADATA, MCS and
MECA acquisitions in 1999 and from an increase in the installed base of our
products. Service and support revenue increased $1.8 million, or 7.0%, in 1998
from $26.2 million in 1997 due primarily to an increase in the installed base of
our products and to an increase, effective in the fourth quarter of 1998, in
service and support pricing for certain lending products. Service and support
revenue consists primarily of recurring software support charges and revenue
from training customers in the use of our products. Substantially all of our
software customers subscribe to support services, which provide for the payment
of annual or quarterly maintenance fees.
Other revenue in the Software Products and Services group increased
$4.2 million, or 100%, to $8.3 million in 1999 from $4.1 million in 1998. The
increase resulted primarily from the MECA acquisition which added revenue from
its legacy personal financial management product and from its fulfillment
operations. We anticipate that revenue from the personal financial management
product will decline in future periods. Other revenue increased $1.0 million, or
31.8%, in 1998 from $3.1 million in 1997.
No significant price changes for software products occurred during
the periods presented.
E-COMMERCE GROUP
The e-Commerce group includes the home banking and bill payment
products previously sold by CFI ProServices, Inc. and the professional services
and technical support services acquired from MECA. Total revenue in the
e-Commerce segment increased $6.0 million, or 102.2%, to $11.8 million in 1999
from $5.8 million in 1998, and increased $0.8 million, or 16.6%, in 1998 from
$5.0 million in 1997. The 1999 increase was principally due to the acquisition
of MECA in May 1999.
License revenue in the e-Commerce group increased $0.2 million, or
10.8%, to $1.8 million in 1999 from $1.6 million in 1998. License revenue
decreased $0.6 million, or 26.5%, to $1.6 million in 1998 from $2.2 million in
1997.
Service and support revenue in the e-Commerce group increased $5.8
million, or 137.2%, to $10.0 million in 1999 from $4.2 million in 1998. The
increase resulted primarily from the acquisition of MECA's technical support
operations, from an increase in end users of our online banking software and
from increased online bill payment services revenue. Service and support revenue
increased $1.4 million, or 50.5%, to $4.2 million in 1998 from $2.8 million in
1997, due primarily to an increase in end users of our home banking software and
from increased on-line bill payment services revenue.
COST OF REVENUE
Cost of revenue primarily consists of amortization of internally
developed and purchased software, royalty payments, compliance warranty
insurance premiums, software production costs, costs of product support,
training and implementation, costs of software customization, materials costs
for forms and supplies, and bill payment processing costs.
Cost of revenue increased $13.2 million, or 44.9%, to $42.6 million
in 1999 compared to 1998. Cost of revenue increased $2.4 million, or 8.9%, to
$29.4 million in 1998 compared to 1997. The increase in 1999 is principally
attributable to the acquisitions of ULTRADATA and MECA, to higher implementation
costs associated with the growing number of large financial institution
projects, to additional personnel required to support the increased installed
base of customers and to increased royalties and materials costs associated with
increased revenues. As the breadth of our product lines has expanded, the
complexity and cost of providing high quality customer service and support has
increased.
21
<PAGE>
Software amortization was $3.8 million in 1999, $2.6 million in 1998
and $4.5 million in 1997. During 1998 and 1997, several software development
projects reached completion. As a result, we began to amortize certain product
development costs that had been capitalized in prior periods. In addition, we
recorded amortization as a result of software acquired in connection with
acquisitions. The increase in amortization costs in 1997 also resulted from
accelerated amortization for certain products being replaced by new products or
which management concluded were no longer technologically viable.
As a result of acquisitions, costs associated with royalty payments
will increase in future periods. We are obligated to pay royalties ranging from
3% to 18% of revenue related to certain products acquired in various
acquisitions. In addition, we are obligated to pay MicroBilt Corporation a fixed
amount for each OnLine Branch Automation product customer that converts to our
branch automation products. The royalty obligations generally extend three to
five years from the acquisition date.
Gross margin was 60.2%, 65.6% and 62.8% in 1999, 1998 and 1997,
respectively. The decrease in 1999 is primarily due to Year 2000 pressures that
caused our financial institution customers to postpone their decisions on new
software purchases and to delay or defer implementation projects. Since our
costs are relatively fixed in the short-term, this postponement of revenue
significantly reduced gross margin in the second half of 1999. The increase in
gross margin in 1998 is primarily attributable to lower software amortization
than in 1997 and from improved implementation efficiencies.
OPERATING EXPENSES
SALES AND MARKETING. Sales and marketing expenses decreased to $18.7
million, or 17.4% of revenue in 1999 from $19.2 million, or 22.4% of revenue, in
1998 and increased from $15.7 million, or 21.6% of revenue, in 1997. The
percentage decrease in 1999 resulted primarily from the MECA acquisition in May
of 1999, which contributed revenue without commensurate increases in sales and
marketing costs. The increase in dollar amount in 1998 over 1997 resulted from
increased commissions associated with increased revenues, salary increases,
additional personnel and higher advertising costs.
PRODUCT DEVELOPMENT. Product development expenses include costs of
enhancing existing products and developing new products. Product development
expenses were $24.5 million, or 22.9% of revenue, in 1999, $14.9 million, or
17.4% of revenue, in 1998 and $11.5 million, or 15.9% of revenue, in 1997.
Increases in dollar amount of product development expenses were largely the
result of increased personnel, primarily resulting from the MECA and ULTRADATA
acquisitions, additional costs for integrating acquired products and
accelerating development of our online banking products. We will continue to
commit significant resources to product development efforts.
Product development expenses in 1998 and 1997 were offset in part by
capitalization of software development efforts. We capitalized $1.0 million of
software development costs in 1998 and $5.0 million in 1997. No software
development costs were capitalized in 1999. Capitalized software development
costs, net of accumulated amortization, were $5.3 million as of December 31,
1999, $8.3 million as of December 31, 1998, and $9.9 million as of December 31,
1997. We believe that the current development cycle for our compliance-related
products, which typically have relatively long lives, was completed in the
second quarter of 1998 and, accordingly, there should be a significant reduction
in the capitalization of software development costs in future periods.
GENERAL AND ADMINISTRATIVE. General and administrative expenses were
$18.7 million, or 17.5% of revenue in 1999, $10.0 million, or 11.7% of revenue
in 1998 and $8.3 million, or 11.4% of revenue in 1997. The increase in 1999 is
due principally to the acquisitions of MECA and ULTRADATA. The increase in 1998
is due principally to additional systems and infrastructure costs necessary to
accommodate revenue growth.
GOODWILL AMORTIZATION
Goodwill acquired in acquisitions is amortized over periods ranging
from five to 20 years. Goodwill amortization included in operations was $2.5
million, $1.2 million and $1.3 million and goodwill amortization included in
cost of revenue was $0.6 million, $0.9 million and $0.5 million in 1999, 1998,
and 1997, respectively. The increase in 1999 is due principally to the goodwill
resulting from the ULTRADATA acquisition. We recorded approximately $49
22
<PAGE>
million of goodwill in the ULTRADATA acquisition, which is being amortized over
20 years. Goodwill, net of accumulated amortization, was $59.1 million and $6.2
million, respectively, at December 31, 1999 and 1998.
ACQUIRED IN-PROCESS RESEARCH AND DEVELOPMENT AND OTHER CHARGES
In connection with the acquisition of MECA in May 1999 and of
ULTRADATA in August 1999, we recorded expenses of $3.8 million and $5.2 million,
respectively, for in-process research and development efforts in process at the
dates of acquisition. The values assigned to the in-process research and
development efforts were determined by independent appraisal and represent those
efforts in process at the dates of acquisition that had not yet reached the
point where technological feasibility had been established and that had no
alternative future uses. Accounting rules require these costs be expensed as
incurred. These research and development efforts resulted in products released
during the first quarter of 2000.
In connection with our acquisition of the assets of Mortgage
Dynamics, Inc. in October 1998, we recorded a pretax charge of $1.0 million for
research and development efforts in process at the date of the acquisition. The
values assigned to the in-process research and development efforts were
determined by independent appraisals and represent those efforts in process at
the dates of acquisition that had not reached the point where technological
feasibility had been established and that had no alternative future uses.
Accounting rules require that these costs be expensed as incurred. These
research and development efforts resulted in products released during 1999.
In the third quarter of 1999, we also expensed name change costs and
certain costs related to acquisitions required to be expensed ($0.3 million) and
settlement of an arbitration proceeding ($0.9 million). In the fourth quarter of
1998, we recorded aggregate other pretax charges of $1.7 million consisting of
the present value of the remaining liability for certain leased office space
Concentrex ceased using, and the remaining goodwill associated with the fisCAL
credit analysis products and related severance costs. See Notes 1, 2 and 7 of
Notes to Consolidated Financial Statements.
INCOME FROM OPERATIONS
Income (loss) from operations in 1999 was ($10.2) million, or (9.5%)
of revenue, compared to $8.2 million, or 9.6% of revenue, in 1998 and $8.8
million, or 12.2% of revenue, in 1997. Excluding the impact of the $10.2 million
in unusual items in 1999 and of the $2.6 million in unusual items in 1998,
operating income would have been $0 in 1999 and $10.8 million, or 12.7% of
revenue, in 1998.
NON-OPERATING INCOME (EXPENSE)
Non-operating income (expense), which consists primarily of interest
income and expense, was a net expense of ($4.5) million in 1999 compared to a
net expense of ($0.7) million in 1998 and net non-operating income of $0.3
million in 1997. The increase in net interest expense in 1999 is attributable to
the debt we incurred to finance the ULTRADATA and MECA transactions.
Non-operating expense in 1998 included a $0.3 million charge representing our
initial investment in a joint venture. See Note 1 of Notes to Consolidated
Financial Statements.
In September 1997, we completed the sale of our RPxpress! remittance
processing division. On an annual basis, the remittance processing revenues and
expenses were both approximately $1.0 million. We received 10% of the sales
price in cash with the remainder payable in yearly installments with interest at
8.5% per annum over four years. In connection with the sale, we recorded a
non-operating gain of $0.6 million.
In February 1997, our Board of Directors elected not to proceed with
a planned follow-on stock offering of our common stock. We took a $0.5 million
non-operating charge in the first quarter of 1997 as a result of the
cancellation. Our Board of Directors determined that the stock price at which we
would be required to offer the shares was too low and would unfairly dilute the
investment of existing shareholders.
23
<PAGE>
PROVISION (BENEFIT) FOR INCOME TAXES
The effective tax rate (benefit) expense for 1999 was (6.0%) compared
to 46.8% in 1998 and 45.5% in 1997. The difference between federal and state
statutory tax rates and our effective tax rates in 1999, 1998, and 1997 results
primarily from nondeductible charges for in-process research and development and
from increased amortization of nondeductible intangibles (primarily goodwill)
related to acquisitions.
MARKET RISK
We have not entered into any derivative financial instruments for
speculative purposes. We may be exposed to future interest rate changes on our
debt. During 1999 we incurred significant indebtedness related to acquisitions.
A hypothetical 10% increase in interest rates on our level of debt existing at
December 31, 1999 would increase cash interest expense by approximately $0.6
million per year. We have purchased an interest rate cap for a substantial
portion of our long-term debt. The interest rate cap will become effective if
the prime rate of interest exceeds 10% per year.
LIQUIDITY AND CAPITAL RESOURCES
Net cash provided by operations was $8.4 million in 1999 compared to
$11.0 million in 1998. Working capital decreased to a deficit of ($3.6) million
at December 31, 1999 from $17.0 million at December 31, 1998. The decrease
occurred primarily because of liabilities assumed in the MECA and ULTRADATA
acquisitions and because of additional debt incurred to finance those
acquisitions.
Net cash used in investing activities in 1999 was $67.3 million
compared to $6.1 million in 1998. The increase in 1999 was primarily caused by
the acquisitions of MCS and ULTRADATA. Expenditures for property and equipment
of $2.7 million in 1999 were primarily attributable to investments in
infrastructure necessary to accommodate our growth.
Net cash from financing activities of $56.6 million in 1999 was
principally proceeds from long term debt financing activities related to
acquisitions, including the issuance of convertible subordinated notes,
partially offset by payments of long term debt and deferred loan costs.
Days sales outstanding (DSO's) in accounts receivable, including both
billed and unbilled accounts receivable, was 124 days at December 31,1999
compared to 109 days at December 31, 1998. The increase in DSO's in 1999 is
principally due to Year 2000 pressures that caused our customers to delay
payments to us because of their perceived need for liquidity at year end, and to
our decision to issue annual and quarterly maintenance invoices in December
rather than in January as we did in 1998, which also caused a corresponding
increase in deferred revenues. Our project-oriented business often requires
unbilled accounts receivable and milestone billings, both of which often have
longer collection cycles. Unbilled accounts receivable were $7.3 million, or
18.0% of total accounts receivable, at December 31, 1999 compared to $7.6
million, or 25.8% of total accounts receivable, at December 31, 1998.
In connection with the MECA and ULTRADATA acquisitions in 1999, we
substantially increased our outstanding debt. See Note 6 of Notes to
Consolidated Financial Statements. At December 31, 1999, we had the following
debt under our loan agreements:
<TABLE>
<CAPTION>
Gross Stated Interest Rate At
Amount December 31, 1999
--------------- -----------------------
<S> <C> <C>
Revolving Line of Credit $ 3.5 million 9.50%
3-year Term A Loan 35.0 million 10.50%
3-year Term B Loan 30.0 million 13.50%
Debt discount related to loan
renegotiation fees and fair value of warrants (3.2)million
--------
Total $ 65.3 million
</TABLE>
24
<PAGE>
In connection with the ULTRADATA acquisition, we also issued
convertible subordinated notes with an original face amount of $7.4 million with
original issue discount of $1.9 million. We received gross proceeds of $5.5
million upon issuance of the notes. See Note 6 of Notes to Consolidated
Financial Statements.
As a result of our 1999 acquisitions, we are highly leveraged. Our
loan agreements contain financial covenants that we must abide by. For example,
we are required to generate specific levels of earnings before interest, taxes,
depreciation and amortization ("EBITDA") measured over four-quarter periods. We
may from time to time fail to comply with the covenants in our loan agreements.
Any failure to comply with these covenants could have a material adverse effect
on us unless we are able to obtain waivers for noncompliance. There can be no
assurance that our lenders would grant waivers for noncompliance, which could
lead to an event of default under the loan agreements, or that such waivers
would be conditioned on terms and conditions acceptable to us.
During the fourth quarter of 1999, we amended our financing
agreements with our lenders. In consideration for those amendments, we agreed to
pay fees of 2% of the total loan commitments (a total of $1.7 million) and
agreed to decrease the exercise and conversion prices of certain warrants and
convertible notes held by the lenders from $12.34 per share to $10 per share.
The new exercise and conversion prices for the warrants were established at a
24% premium to the market price of our common stock at December 31, 1999. The
loan fees paid and the fair value attributed to the change in the exercise price
of the warrants held by the debt holders was recorded as additional debt
discount. If the conversion price of the convertible notes is further reduced
pursuant to the terms of the notes, we will record additional interest expense.
See Note 6 of Notes to Consolidated Financial Statements.
Our loan agreements also contain significant restrictions on our
activities. For example, we must obtain the consent of our lenders before we
purchase or sell significant assets. Additionally, the terms of our loan
agreements prohibit us from incurring additional indebtedness or issuing new
equity securities without the consent of the lenders. These restrictions may
make it difficult or impossible to raise additional funds if we need to do so.
Future cash requirements could include, among other things, purchases
of companies, products or technologies, expenditures for internal software
development, capital expenditures necessary to the expansion of the business,
and installment payments on debt related to acquisitions. Available cash
resources include cash generated by operations plus a revolving line of credit
up to $15.0 million, subject to borrowing base restrictions related to our
accounts receivable.
From time to time we receive contract claims from our customers and
other parties, including requests for full or partial refunds of moneys paid.
Although there can be no assurance that such claims, either alone or in the
aggregate, will not have a material adverse effect on our results of operations
or financial position, we believe that as of the date of this filing no such
claims will have such an effect. From time to time, we initiate contract claims
against our customers and other parties, including claims for payment of unpaid
invoices.
We believe that funds expected to be generated from existing
operations and borrowings under our revolving line of credit will provide us
with sufficient funds to finance our current operations for at least the next 12
months. We may require additional funds to support our working capital
requirements, future acquisitions or for other purposes and may seek to raise
such additional funds through one or more public or private financings of debt
or equity, or from other sources. No assurance can be given that additional
financing will be available or, that, if available, such financing will be
obtainable on terms favorable to us or our shareholders.
YEAR 2000
The Year 2000 issue identifies problems that may arise in computer
equipment and software, as well as embedded electronic systems, because of the
way these systems are programmed to interpret certain dates that will occur
around the change in century. In the computer industry this is primarily the
result of computer programs being designed and developed using or reserving only
two digits in date fields (rather than four digits) to identify the century,
without considering the ability of the program to properly distinguish the Year
2000 century change. Likewise, other dates may present problems because of the
way the digits are interpreted. We experienced no material Year 2000
25
<PAGE>
problems with our products at the century change. Costs incurred through
December 31, 1999 to assess Year 2000 issues were not significant and were
funded through operating cash flows.
Based on information gathered to date, we are not presently aware of
any Year 2000 issue that could materially affect our operations, either
self-originated or caused by third-party service vendors or providers.
Nevertheless, there can be no assurance that we will not experience some
operating difficulties as a result of Year 2000 issues going forward. If they
occur, these difficulties could require us to incur unanticipated costs to
remedy the problems and, either individually or collectively, have a material
adverse effect on our business operations and financial results.
QUARTERLY RESULTS
We have experienced, and expect in the future to experience,
significant quarterly fluctuations in our results of operations. These
fluctuations may be caused by various factors, including, among others: the size
and timing of product orders and shipments; the timing and market acceptance of
new products and product enhancements introduced by us and our competitors; our
product mix, including expenses of implementation and royalties related to
certain products; the timing of our completion of work under contracts accounted
for under the percentage of completion method; customer order deferrals in
anticipation of new products; aspects of the customers' purchasing process,
including the evaluation, decision-making and acceptance of products within the
customers' organizations; the sales process for our products, including the
complexity of customer implementation of our products; the number of working
days in a quarter; federal and state regulatory events; competitive pricing
pressures; technological changes in hardware platform, networking or
communication technology; changes in company personnel; the timing of our
operating expenditures; specific economic conditions in the financial services
industry and general economic conditions.
Our business has experienced, and is expected to continue to
experience, some degree of seasonality due to its customers' budgeting and
buying cycles. Our strongest revenue quarter in any year is typically the fourth
quarter and our weakest revenue quarter is typically the second quarter.
Customers' purchases are tied closely to their internal budget processes. For
some of our customers, budgets are approved at the beginning of the year and
budgeted amounts often must be utilized by the end of the year. In addition, our
incentive sales compensation plan provides for increases in commission
percentages as sales people approach or exceed their annual sales quotas. As a
result of these two factors, we usually experiences increased sales orders in
the last quarter. This pattern was altered in 1999 as Year 2000 issues,
including regulatory requirements and internal business process decisions,
affected customers' buying decisions.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
SEE MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS - MARKET RISK.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, notes thereto and supplementary data required by this
item begin on page F-1 as listed in Item 14 of Part IV of this document.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
26
<PAGE>
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Information required by this item is included under the captions PROPOSAL 1.
ELECTION OF DIRECTORS, MEMBERS OF THE BOARD OF DIRECTORS CONTINUING IN OFFICE,
NON-DIRECTOR EXECUTIVE OFFICERS, AND SECTION 16(A) BENEFICIAL OWNERSHIP
REPORTING COMPLIANCE, respectively, in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
Information required by this item is included under the captions BOARD
COMPENSATION, EXECUTIVE COMPENSATION, EMPLOYMENT CONTRACTS, TERMINATION OF
EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS AND REPORT OF THE COMPENSATION
COMMITTEE in the Company's Proxy Statement for its 2000 Annual Meeting of
Shareholders and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item is included under the caption SECURITY
OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT in the Company's Proxy
Statement for its 2000 Annual Meeting of Shareholders and is incorporated herein
by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item is included under the caption CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS in the Company's Proxy Statement for its
2000 Annual Meeting of Shareholders and is incorporated herein by reference.
27
<PAGE>
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
FINANCIAL STATEMENTS AND SCHEDULES
The Consolidated Financial Statements, together with the report thereon of
Arthur Andersen LLP, are included on the pages indicated below:
<TABLE>
PAGE
<S> <C>
Report of Independent Public Accountants F-1
Consolidated Balance Sheets - December 31, 1999 and 1998 F-2
Consolidated Statements of Operations for the years ended December 31, 1999,
1998 and 1997 F-3
Consolidated Statements of Shareholders' Equity for the years ended December 31,
1999, 1998 and 1997 F-4
Consolidated Statements of Cash Flows for the years ended December 31, 1999,
1998 and 1997 F-5
Notes to Consolidated Financial Statements F-6
The following schedule and report thereon is filed herewith:
Report of Independent Public Accountants on Financial Statement Schedule F-23
Schedule II Valuation and Qualifying Accounts F-24
</TABLE>
REPORTS ON FORM 8-K
A Form 8-K/A was filed with the Securities and Exchange Commission on October
27, 1999 with respect to the acquisition of ULTRADATA Corporation by the
Registrant.
28
<PAGE>
EXHIBITS
The following exhibits are filed herewith and this list is intended to
constitute the exhibit index:
Number Description
- -------------- -----------------------------------------------------------------
2.1 Stock Purchase and Sale Agreement dated November 21, 1995, among
CFI ProServices, Inc., Culverin Corporation, Eric T. Wagner, John
M. Loveless, David Steffens and Douglas Teets previously filed as
Exhibit 2.1 to the Current Report on Form 8-K dated November 21,
1995 and as filed with the Securities and Exchange Commission on
December 6, 1995 and incorporated herein by reference.
2.2 Stock Purchase and Sale Agreement effective April 1, 1996, by and
among MicroBilt Corporation, First Financial Management
Corporation and CFI ProServices, Inc. - previously filed as
Exhibit 2.1 with the Company's Form 8-K dated April 1, 1996 and
as filed with the Securities and Exchange Commission on April 16,
1996 and incorporated herein by reference.
2.3 Asset Purchase and Sale Agreement, effective April 1, 1996, by
and among Input Creations, Inc., its shareholders and CFI
ProServices, Inc. - previously filed as Exhibit 2.1 with the
Company's Form 8-K dated April 17, 1996 and as filed with the
Securities and Exchange Commission on May 2, 1996 and
incorporated herein by reference.
2.4 Asset Purchase and Sale Agreement, effective January 1, 1999, by
and among Modern Computer Systems, Inc., other affiliated
corporations, their shareholder and CFI ProServices, Inc.
previously filed as Exhibit 2.1 with the Company's Form 8-K dated
February 10, 1999 and as filed with the Securities and Exchange
Commission on February 10, 1999 and incorporated herein by
reference.
2.5 Purchase and Sale Agreement dated May 17, 1999, among MECA
Software, L.L.C., the members of MECA Software, L.L.C., CFI
ProServices, Inc., and MoneyScape Holdings, Inc. - previously
filed as Exhibit 2.1 to the Current Report on Form 8-K dated June
2, 1999, as filed with the Securities and Exchange Commission on
June 7, 1999, and incorporated herein by reference.
2.6 Agreement and Plan of Merger dated as of May 17, 1999, among the
Company, UFO Acquisition Co., and ULTRADATA Corporation
previously filed as Exhibit 2.1 to the Current Report on Form 8-K
dated August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by
reference.
3.1 Registrant's Amended and Restated Articles of Incorporation
previously filed as Exhibit 3(i)(a) to the Registration Statement
on Form S-1 No. 33-64894, as filed with the Securities and
Exchange Commission on June 23, 1993 and incorporated herein by
reference.
3.2 Amendments to Registrant's Amended and Restated Articles of
Incorporation (effective June 28, 1993) - previously filed as
Exhibit 3(i)(b) to the Registration Statement on Form S-1 No.
33-64894, as filed with the Securities and Exchange Commission on
July 26, 1993 and incorporated herein by reference.
3.3 Amendments to Registrant's Amended and Restated Articles of
Incorporation (effective July 26, 1993) - previously filed as
Exhibit 3(i)(c) to the Registration Statement on Form S-1,
Registration Statement No. 33-64894, as filed with the Securities
and Exchange Commission on August 10, 1993 and incorporated
herein by reference.
29
<PAGE>
Number Description
- -------------- -----------------------------------------------------------------
3.4 Registrant's Amended and Restated Bylaws - previously filed as
Exhibit 3(ii) to the Registration Statement on Form S-1,
Registration Statement No. 33-64894, as filed with the Securities
and Exchange Commission on August 10, 1993 and incorporated
herein by reference.
10.1* Nonqualified Stock Option Plan dated October 15, 1993 previously
filed as Exhibit 99.10 to the Registration Statement on Form S-8
(Registration No. 33-70506), as filed with the Securities and
Exchange Commission on October 19, 1993 and
incorporated herein by reference.
10.2* Registrant's Restated Outside Director Compensation and Stock
Option Plan - previously filed as Exhibit 10.3 to the Company's
Form 10-Q for the quarter ended March 31, 1994 and incorporated
herein by reference.
10.3 First Amendment to Registrant's Restated Outside Director
Compensation and Stock Option Plan effective May 14, 1999.
10.4* Registrant's Standardized Regional Prototype 401(k) Cash or
Deferred Savings Plan and Trust, adopted December 1, 1994
previously filed as Exhibit 10.12 to the Company's Form 10-K for
the year ended December 31, 1995 and as filed with the Securities
and Exchange Commission on April 1, 1996 and incorporated herein
by reference.
10.5* Legal Services Agreement for the State of Louisiana effective
March 13, 1986 between the Company and McGlinchey, Stafford,
Mintz, Cellini & Lang, a Louisiana professional law corporation
(confidential treatment requested) - previously filed as Exhibit
10.25 to the Registration Statement on Form S-1 (Registration No.
33-64894) filed with the Securities and Exchange Commission on
July 26, 1993 and incorporated herein by reference.
10.6* 1995 Consolidated and Restated Stock Option Plan - previously
filed as Exhibit 99.13 to the Registration Statement on Form S-8
filed with the Securities and Exchange Commission on March 1,
1995 and incorporated herein by reference.
10.7 First Amendment to 1995 Consolidated and Restated Stock Option
Plan - previously filed as Exhibit 9.2 to the Company's
Registration Statement on Form S-8 filed with the Securities and
Exchange Commission on or about September 4, 1996 and
incorporated herein by reference.
10.8 Second Amendment to 1995 Consolidated and Restated Stock Option
Plan effective January 21, 1999.
10.9 Office Lease dated March 18, 1994 between the Company and John
Hancock Mutual Life Insurance Company - previously filed as
Exhibit 10.1 to the Company's Form 10-Q for the quarter ended
March 31, 1994 dated May 12, 1994 and filed with the Securities
and Exchange Commission on May 13, 1994 and incorporated herein
by reference.
30
<PAGE>
Number Description
- -------------- -----------------------------------------------------------------
10.10 First amendment, dated July 8, 1996, to office lease dated March
18, 1994 between the Company and John Hancock Mutual Life
Insurance Company - previously filed as Exhibit 10.17 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1996 as filed with the Securities and Exchange Commission on
March 27, 1997 and is incorporated herein by reference.
10.11 Second amendment, dated January 11, 1999, to office lease dated
March 18, 1994 between the Company and John Hancock Mutual Life
Insurance Company. previously filed as Exhibit 10.10 to the
Company's Annual Report on Form 10-K for the year ended December
31, 1998 as filed with the Securities and Exchange Commission on
March 31, 1999 and is incorporated herein by reference.
10.12 Third Amendment to Office Lease dated August 11, 1999 between
Registrant and John Hancock Mutual Life Insurance Company
previously filed as Exhibit 10.2 to the Current Report on Form
8-K dated August 27, 1999, as filed with the Securities and
Exchange Commission on August 27, 1999, and incorporated herein
by this reference.
10.13 Fourth Amendment to Office Lease dated December 16, 1999 between
Registrant and Louis Dreyfus Property Group, Inc.
10.14* Employment and Non-competition Agreement dated November 21, 1995
between CFI ProServices, Inc. and Eric T. Wagner previously filed
as Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on December 6, 1995
and incorporated herein by reference.
10.15* Form of Executive Retention Agreement--previously filed as
Exhibit 10.1 to the Company's Current Report on Form 8-K filed
with the Securities and Exchange Commission on August 22, 1994
and incorporated herein by reference.
10.16 Financing Agreement dated as of August 13, 1999, by and among CFI
ProServices, Inc., ULTRADATA Corporation, MECA Software, L.L.C.,
MoneyScape Holdings, Inc., Foothill Capital Corporation, Ableco
Finance L.L.C., Levine Leichtman Capital Partners II, L.P., and
Foothill Partners III, L.P. - previously filed as Exhibit 10.1 to
the Company's Form 10-Q dated August 16, 1999, filed with the
Securities and Exchange Commission on August 16, 1999, and
incorporated herein by reference.
10.17* CFI ProServices, Inc. Employee Savings and Stock Ownership Plan -
previously filed as Exhibit 5.1 to the Current Report on Form 8-K
dated August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by this
reference.
10.18 Revolving Credit Note in the principal amount of up to
$15,000,000 dated as of August 13, 1999 previously filed as
Exhibit 2.2 to the Current Report on Form 8-K dated August 27,
1999, as filed with the Securities and Exchange Commission on
August 27, 1999, and incorporated herein by reference.
10.19 Form of Term Loan B Promissory Note in the aggregate principal
amount of $30,000,000 dated as of August 13, 1999 - previously
filed as Exhibit 2.4 to the Current Report on Form 8-K dated
August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by
reference.
31
<PAGE>
Number Description
- -------------- -----------------------------------------------------------------
10.20 Form of Warrant issued by the Company to the Lenders to purchase
up to an aggregate of 381,822 shares of the common stock of the
Company dated as of August 13, 1999 - previously filed as Exhibit
2.5 to the Current Report on Form 8-K dated August 27, 1999, as
filed with the Securities and Exchange Commission on August 27,
1999, and incorporated herein by reference.
10.21 Note Purchase Agreement among the Company and the Note Holders
dated as of August 13, 1999 previously filed as Exhibit 2.7 to
the Current Report on Form 8-K dated August 27, 1999, as filed
with the Securities and Exchange Commission on August 27, 1999,
and incorporated herein by reference.
10.22 Form of 10% Convertible Subordinated Discount Notes dated as of
August 13, 1999 - previously filed as Exhibit 2.8 to the Current
Report on Form 8-K dated August 27, 1999, as filed with the
Securities and Exchange Commission on August 27, 1999, and
incorporated herein by reference.
10.23 First Amendment to Note between the Company and Levine Leichtman
Capital Partners II, L.P. effective as of December 31, 1999
previously filed in the Company's First Prospectus Supplement
dated January 14, 2000, filed with the Securities and Exchange
Commission on January 14, 2000 and incorporated herein by
reference.
10.24 First Amendment to Note between the Company and Soundshore
Holdings, LTD effective as of December 31, 1999 previously filed
in the Company's First Prospectus Supplement dated January 14,
2000, filed with the Securities and Exchange Commission on
January 14, 2000 and incorporated herein by reference.
10.25 First Amendment to Note between the Company and US Bancorp Libra
effective as of December 31, 1999 previously filed in the
Company's First Prospectus Supplement dated January 14, 2000,
filed with the Securities and Exchange Commission on January 14,
2000, 1999 and incorporated herein by reference.
10.26 Form of Amendment Number One to Warrant among the Company,
Foothill Capital Partners III, L.P., Levine Leichtman Capital
Partners II, L.P. and Abelco Finance LLC effective as of December
31, 1999 previously filed in the Company's First Prospectus
Supplement dated January 14, 2000, filed with the Securities and
Exchange Commission on January 14, 2000 and incorporated herein
by reference.
10.27 Registration Rights Agreement for the Lender Warrants among the
Company and the Lenders dated as of August 13, 1999 - previously
filed as Exhibit 2.6 to the Current Report on Form 8-K dated
August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by
reference.
10.28 Registration Rights Agreement for the Subordinated Notes among
the Company and the Note Holders dated as of August 13, 1999
previously filed as Exhibit 2.9 to the Current Report on Form 8-K
dated August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by
reference.
32
<PAGE>
Number Description
- -------------- -----------------------------------------------------------------
10.29 Registration Rights Agreement for the Libra Warrants dated as of
August 13, 1999 - previously filed as Exhibit 2.11 to the Current
Report on Form 8-K dated August 27, 1999, as filed with the
Securities and Exchange Commission on August 27, 1999, and
incorporated herein by reference.
10.30 Warrant issued to U.S. Bancorp Libra, financial advisor and
placement agent for the Company, to purchase 58,000 shares of the
Company's common stock, dated as of August 13, 1999 - previously
filed as Exhibit 2.10 to the Current Report on Form 8-K dated
August 27, 1999, as filed with the Securities and Exchange
Commission on August 27, 1999, and incorporated herein by
reference.
10.31 Amendment Number One to Financing Agreement by and among CFI
ProServices, Inc., ULTRADATA Corporation, MECA Software, L.L.C.,
MoneyScape Holdings, Inc., Foothill Capital Corporation, Ableco
Finance L.L.C., Levine Leichtman Capital Partners II, L.P., and
Foothill Partners III, L.P. - previously filed in the Company's
First Prospectus Supplement dated January 14, 2000, filed with
the Securities and Exchange Commission on January 14, 2000 and
incorporated herein by reference.
10.32* Interim Amendment to CFI ProServices, Inc. 401(k) Profit Sharing
Plan dated as of December 31, 1999.
21 Subsidiaries of the Registrant
23 Consent of Independent Public Accountants
27 Financial Data Schedule
- --------------------------------
*Management contract or compensatory plan or arrangement.
33
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
Date: March 30, 2000
--------------
CFI PROSERVICES, INC.
BY: /S/ MATTHEW W. CHAPMAN
----------------------
Matthew W. Chapman
Chairman and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant and
in the capacities indicated on March 29, 2000.
SIGNATURE TITLE
/S/ MATTHEW W. CHAPMAN Director, Chairman and Chief Executive Officer
- ---------------------- (Principal Executive Officer)
Matthew W. Chapman
/S/ ROBERT P. CHAMNESS Director, President and Chief Operating Officer
- ----------------------
Robert P. Chamness
/S/ KURT W. RUTTUM Vice President and Chief Financial Officer
- ------------------ (Principal Financial and Accounting Officer)
Kurt W. Ruttum
/S/ ROBERT T. JETT Director, Executive Vice President and Secretary
- ------------------
Robert T. Jett
/S/ J. KENNETH BRODY Director
- --------------------
J. Kenneth Brody
/S/ LORRAINE O. LEGG Director
- --------------------
Lorraine O. Legg
/S/ ERAN S. ASHANY Director
- ------------------
Eran S. Ashany
/S/ FRANK E. BRAWNER Director
- --------------------
Frank E. Brawner
/S/ ROBERT B. WITT Director
- ------------------
Robert B. Witt
/S/ L. B. DAY Director
- -------------
L. B. Day
34
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Shareholders of
CFI ProServices, Inc., d/b/a Concentrex Incorporated
We have audited the accompanying consolidated balance sheets of CFI ProServices,
Inc. (an Oregon corporation), d/b/a Concentrex Incorporated, and subsidiaries as
of December 31, 1999 and 1998 and the related consolidated statements of
operations, shareholders' equity, and cash flows for each of the three years in
the period ended December 31, 1999. These consolidated financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of CFI ProServices,
Inc., d/b/a Concentrex Incorporated, and subsidiaries as of December 31, 1999
and 1998 and the results of their operations and their cash flows for each of
the three years in the period ended December 31, 1999 in conformity with
accounting principles generally accepted in the United States.
ARTHUR ANDERSEN LLP
Portland, Oregon
January 28, 2000
F-1
<PAGE>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------------ ------------------
<S> <C> <C>
ASSETS
Current Assets:
Cash and cash equivalents $ - $ 3,589
Restricted cash 1,289 -
Receivables, net of allowances of $3,268 and $2,600 40,938 29,701
Inventory 583 249
Deferred tax asset 2,843 1,341
Prepaid expenses and other current assets 4,342 1,810
Income taxes receivable 1,653 -
------------------ ------------------
Total Current Assets 51,648 36,690
Property and equipment, net of accumulated
depreciation of $12,894 and $9,947 7,532 4,534
Software development costs, net of accumulated
amortization of $4,561 and $3,368 5,283 8,277
Purchased software costs, net of accumulated
amortization of $803 and $19 7,808 211
Goodwill, net of accumulated amortization
of $6,928 and $4,763 59,133 6,190
Deferred tax asset 9,438 355
Other assets, net 3,924 524
================== ==================
Total Assets $ 144,766 $ 56,781
================== ==================
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
DRAFTS PAYABLE $ 728 $ -
Accounts payable 7,424 1,986
Accrued expenses 15,181 8,017
Deferred revenues 18,026 5,300
Customer deposits 5,823 3,681
Line of credit 3,482 -
Current portion of long-term debt 4,570 261
Income taxes payable - 473
------------------ ------------------
Total Current Liabilities 55,234 19,718
Commitments and Contingencies
Long-term Debt, less current portion and debt discount 59,036 5,693
Other Long-term Liabilities 1,399 -
Convertible Subordinated Notes 5,647 -
Mandatory Redeemable Class A Preferred Stock 728 738
Shareholders' Equity:
Series preferred stock, 5,000,000 shares authorized,
none issued and outstanding - -
Common stock, no par value, 10,000,000 shares authorized,
5,250,781 and 5,032,977 shares issued and outstanding 25,703 19,689
Retained earnings (accumulated deficit) (2,981) 10,943
------------------ ------------------
Total Shareholders' Equity 22,722 30,632
------------------ ------------------
Total Liabilities and Shareholders' Equity $ 144,766 $ 56,781
================== ==================
</TABLE>
The accompanying notes are an integral part of these consolidated balance sheets
F-2
<PAGE>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------------
1999 1998 1997
---------------- --------------- ---------------
<S> <C> <C> <C>
Revenue
Software Products and Services Group
License Revenue $ 48,730 $ 47,590 $ 38,281
Service and Support Revenue 38,284 28,077 26,235
Other Revenue 8,295 4,141 3,143
e-Commerce Group
License Revenue 1,786 1,612 2,193
Service and Support Revenue 9,986 4,210 2,797
---------------- --------------- ---------------
Total Revenue 107,081 85,630 72,649
Cost of Revenue 42,625 29,423 27,041
---------------- --------------- ---------------
Gross Profit 64,456 56,207 45,608
Operating Expenses
Sales and marketing 18,659 19,204 15,709
Product development 24,505 14,913 11,549
General and administrative 18,733 10,012 8,263
Goodwill Amortization 2,539 1,228 1,259
Acquired in-process research and development
and other charges 10,208 2,661 -
---------------- --------------- ---------------
Total Operating Expenses 74,644 48,018 36,780
---------------- --------------- ---------------
Income (Loss) From Operations (10,188) 8,189 8,828
Non-operating Income (Expense)
Interest expense (4,975) (454) (456)
Interest income 269 295 170
Canceled stock offering costs - - (487)
Gain on sale of operating division - - 628
Equity in losses attributable to joint venture - (670) (148)
Other, net 169 83 52
---------------- --------------- ---------------
Total Non-operating Income (Expense) (4,537) (746) (241)
---------------- --------------- ---------------
Income (Loss) Before Provision for (Benefit from)
Income Taxes (14,725) 7,443 8,587
Provision for (Benefit from) Income Taxes (894) 3,483 3,907
---------------- --------------- ---------------
Net Income (Loss) (13,831) 3,960 4,680
Preferred Stock Dividend 93 95 95
---------------- --------------- ---------------
Net Income (Loss) Applicable to Common Shareholders $ (13,924) $ 3,865 $ 4,585
================ =============== ===============
Basic Net Income (Loss) Per Share $ (2.71) $ 0.77 $ 0.93
================ =============== ===============
Diluted Net Income (Loss) Per Share $ (2.71) $ 0.75 $ 0.90
================ =============== ===============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Common Stock
--------------------------- Retained Earnings
Shares Amount (Accumulated Deficit) Total
---------- --------- --------------------- ---------
<S> <C> <C> <C> <C>
BALANCES, DECEMBER 31, 1996 4,824,973 $ 17,745 $ 2,493 $ 20,238
Issuance of Common Stock 100,450 724 - 724
Tax benefits from stock transactions - 396 - 396
Net income applicable to common shareholders - - 4,585 4,585
---------- --------- --------------------- ---------
BALANCES, DECEMBER 31, 1997 4,925,423 18,865 7,078 25,943
Issuance of Common Stock 107,554 768 - 768
Tax benefits from stock transactions - 56 - 56
Net income applicable to common shareholders - - 3,865 3,865
---------- --------- --------------------- ---------
BALANCES, DECEMBER 31, 1998 5,032,977 19,689 10,943 30,632
Issuance of Common Stock 306,004 3,414 - 3,414
Repurchase of Common Stock (88,200) (1,145) - (1,145)
Issuance of Common Stock warrants - 2,088 - 2,088
Exchange of options in connection with acquisition - 1,651 - 1,651
Tax benefits from stock transactions - 6 - 6
Net income (loss) applicable to common shareholders - - (13,924) (13,924)
---------- --------- --------------------- ---------
BALANCES, DECEMBER 31, 1999 5,250,781 $ 25,703 $ (2,981) $ 22,722
========== ========= ===================== =========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1999 1998 1997
---------- ----------- -----------
<S> <C> <C> <C>
Cash flows from operating activities:
Net income (loss) applicable to common shareholders $ (13,924) $ 3,865 $ 4,585
Adjustments to reconcile net income (loss) applicable to common
shareholders to cash provided by operating activities:
Depreciation and amortization 9,505 6,805 8,540
Write off of in process research and development 9,000 2,661 -
Gain on sale of operating division - - (628)
Interest accreted on mandatory redeemable preferred stock 93 95 95
Interest accreted on notes payable 301 93 93
Amortization of debt discount and deferred loan costs 1,056 - -
Expense for stock warrants issued 124 - -
Expense for ESSOP shares issued 1,230 - -
Deferred income taxes (1,124) (586) 87
Equity in losses attributable to joint venture - 670 148
(Increase) decrease in assets, net of effects from
purchase of businesses:
Receivables, net (4,954) 2,749 (9,135)
Inventory 302 48 (141)
Prepaid expenses and other assets (655) 612 (269)
Income taxes receivable (1,647) - -
Increase (decrease) in liabilities, net of effects
from purchase of businesses:
Drafts payable 728 - (425)
Accounts payable 3,924 (133) (765)
Accrued expenses (3,935) 52 (1,186)
Deferred revenues 9,541 (7,307) 2,053
Customer deposits (684) 1,966 846
Income taxes payable (473) (596) 1,475
---------- ----------- -----------
Net cash provided by operating activities 8,408 10,994 5,373
Cash flows from investing activities:
Expenditures for property and equipment (2,711) (1,680) (2,713)
Software development costs capitalized - (1,054) (4,994)
Investment in joint venture - (304) (322)
Proceeds from long-term note receivable 153 189 -
Issuance of note receivable - (391) -
Purchase of investments - (206) -
Proceeds from sale of operating division - - 87
Cash paid for acquisition of Modern Computer Systems, Inc.
net of cash received (5,591) - -
Cash received in acquisition of MECA Software, LLC 889 - -
Cash paid for acquisition of ULTRADATA Corporation, net of
cash received (59,968) - -
Cash paid for other acquistion (98) - -
Cash paid for acquisition of Mortgage Dynamics, Inc. - (2,668) -
---------- ----------- -----------
Net cash used in investing activity (67,326) (6,114) (7,942)
Cash flows from financing activities:
Net proceeds from (payments on) line of credit (518) (1,310) 3,719
Payments on note payable (166) - -
Payments on long-term debt (8,291) (666) (1,751)
Proceeds from long term debt 65,000 - -
Proceeds from issuance of convertible subordinated notes 5,550 - -
Payment of deferred loan costs (4,674) - -
Payments on mandatory redeemable preferred stock (103) (103) (103)
Proceeds from issuance of common stock 965 768 724
Repurchase of common stock (1,145) - -
---------- ----------- -----------
Net cash provided by (used in) financing activities 56,618 (1,311) 2,589
---------- ----------- -----------
Increase (decrease) in cash and cash equivalents (2,300) 3,569 20
Cash and cash equivalents (including restricted cash):
Beginning of period 3,589 20 -
---------- ----------- -----------
End of period $ 1,289 $ 3,589 $ 20
========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF BUSINESS
CFI ProServices, Inc., dba Concentrex Incorporated, and its subsidiaries (the
Company) provides technology-powered solutions to the financial services
industry. The Company offers a broad range of traditional software products and
services, as well as business-to-business e-commerce solutions. Software for a
financial institution includes back office "core" processing, loan origination,
new account opening, branch automation and cross selling. The Company has been
in business since 1978.
BASIS OF CONSOLIDATION
The consolidated financial statements include the accounts of the Company's
wholly owned subsidiaries: ULTRADATA Corporation (ULTRADATA), MoneyScape
Holdings, Inc. (MSHI), and MECA Software, L.L.C. (MECA). The Company owns a 99%
membership interest in MECA, and MSHI owns the remaining 1% membership interest.
All intercompany transactions and balances have been eliminated. The Company
made certain acquisitions in October 1998, January 1999, May 1999 and August
1999 (see Note 2). These acquisitions have been included in the consolidated
financial statements since the dates of acquisition.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents include cash and short-term investments with maturity
dates of three months or less at the time of acquisition.
INVENTORY
Inventory consists primarily of printed bank forms and computer hardware, and is
stated at the lower of cost or market, with cost determined on the first-in,
first-out (FIFO) method.
PROPERTY AND EQUIPMENT
Property and equipment is stated at cost, less accumulated depreciation.
Depreciation is computed on a straight-line basis over the estimated useful
lives of the individual assets, which are three years for computer equipment and
software, and five to seven years for furniture, fixtures and other equipment.
Leasehold improvements are amortized over the shorter of the estimated useful
life or the term of the lease. Expenditures for repairs and maintenance are
charged to current operations, and costs related to renewals and improvements
that add significantly to the useful life of an asset are capitalized. When
depreciable properties are retired or otherwise disposed of, the cost and
related accumulated depreciation are removed from the accounts and the resulting
gain or loss is reflected in income.
SOFTWARE
The costs of internally developed software which meet the criteria in SFAS No.
86, "Accounting for the Costs of Computer Software To Be Sold, Leased or
Otherwise Marketed," are capitalized. These costs are amortized on a
straight-line basis over estimated economic lives ranging from three to five
years.
Purchased software is capitalized at cost and amortized on a straight-line basis
over the estimated economic life of three to six years. Generally, contracts for
purchased software require royalties to be paid based on revenues generated by
the related software.
F-6
<PAGE>
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------------------
1999 1998 1997
----------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Amortization of internally developed software $ 2,993 $ 2,633 $ 3,465
Amortization of purchased software 784 19 1,079
</TABLE>
During 1998 and 1997 several software development projects reached completion.
As a result, the Company began to amortize certain product development costs
which had been capitalized in prior periods. In addition, the Company recorded
amortization as a result of software acquired in connection with the 1999 and
1998 acquisitions. Amortization costs in 1997 included accelerated amortization
for certain products being replaced by new products which management concluded
were no longer technologically viable.
GOODWILL
Goodwill resulting from acquisitions is amortized on a straight-line basis over
estimated lives of five to 20 years. The Company believes these useful lives are
appropriate based on the factors influencing acquisition decisions. These
factors include product life, profitability and general industry outlook. The
Company reviews its goodwill for impairment at the end of each quarter, or more
frequently when events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable. To perform that review, the Company
estimates the sum of expected future undiscounted cash flows from operating
activities. If the estimated net cash flows are less than the carrying amount of
goodwill, the Company recognizes an impairment loss in an amount necessary to
write the assets down to fair value as determined by the expected discounted
future cash flows. In 1998 the Company wrote off $877,000, reflecting the
remaining goodwill associated with its fisCAL credit analysis products and
related severance costs calculated in accordance with pre-existing employment
contracts. These charges are included in the acquired in-process research and
development and other charges in the Company's Statement of Operations for 1998.
INVESTMENT IN JOINT VENTURE
In November 1997 the Company made a 50% investment in Lori Mae, L.L.C. (Lori
Mae), a company designed to securitize small business loans originated by
community banks. The Company uses the equity method to account for its
investment in this joint venture. In 1998 the Company wrote off its initial
investment in Lori Mae in the amount of $352,000 due to lack of acceptable
market demand for Lori Mae's initial product. This charge, in addition to losses
attributable to the joint venture, are included in equity in losses attributable
to joint venture in the Company's Statement of Operations for 1998. At December
31, 1998 and 1999, the Company's net investment in Lori Mae was $0.
DEFERRED LOAN COSTS AND DEBT DISCOUNT
Deferred loan costs associated with the Company's debt are included in other
assets. Deferred loan costs net of amortization were $3,602 and $0 at December
31, 1999 and 1998, respectively. Debt discount is recorded as a reduction in the
carrying value of the debt. Deferred loan costs and debt discount are amortized
using the effective interest method. See Note 6.
REVENUE RECOGNITION
License revenues are derived from three kinds of transactions:
o Licenses with no follow-on obligations on the part of the Company
are recognized upon delivery.
o Licenses which require installation and training by the Company
prior to use are recognized upon completion of the installation
and training.
F-7
<PAGE>
o Licenses which include significant amounts of tailoring and,
occasionally, customization are recognized on a percentage of
completion basis as the tailoring and customization are
performed. Estimates of efforts to complete a project are used in
the percentage of completion calculation. Due to the
uncertainties inherent in these estimates, actual results could
differ from those estimates.
If the license agreement obligates the Company to provide post-contract support
at no additional cost to the customer, the revenue related to the post-contract
support is recognized ratably over the support period. Returns and exchanges are
infrequent and are recorded as reductions in license revenue when the obligation
to accept the return or conduct the exchange becomes known.
Revenues for consulting, custom programming and training, where separately
contracted for, are recognized as the related services are performed. Other
revenues include sales of preprinted forms and hardware, which are recognized
upon delivery. Amounts received in advance for service and support contracts are
deferred and recognized ratably over the support period. Amounts in excess of
invoiced minimums for service and support charges based on usage are estimated
and recognized in the period in which usage occurs. Included in receivables at
December 31, 1999 and 1998 are unbilled receivables of $7.3 million and $7.7
million, respectively. These primarily relate to percentage of completion
contracts and contracts with deferred payment terms.
During 1997 and 1998 Statements of Position (SOP) 97-2 and 98-9, "Software
Revenue Recognition," were released and became effective for the Company for the
year ended December 31, 1998. SOP 97-2 and SOP 98-9 did not have a material
impact on the Company's financial statements.
INCOME TAXES
The Company accounts for income taxes in accordance with SFAS No. 109,
"Accounting For Income Taxes." This pronouncement requires deferred tax assets
and liabilities to be valued using the enacted tax rates expected to be in
effect when the temporary differences are recovered or settled.
ADVERTISING COSTS
Advertising costs are expensed as incurred. These costs were $1.8 million, $1.4
million and $1.2 million for the years ended December 31, 1999, 1998 and 1997,
respectively.
USE OF ESTIMATES
The preparation of financial statements in conformity with accounting principles
generally accepted in the United States requires management to make estimates
and assumptions that affect the reported amounts of assets and liabilities, and
disclosure of contingent assets and liabilities, at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting periods. Actual results could differ from those estimates.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company's financial instruments consist of accounts receivable, accounts
payable and debt instruments. At December 31, 1999 and 1998, the fair value of
the Company's accounts receivable and accounts payable approximated their
carrying value due to their short-term nature. At December 31, 1999 and 1998,
the fair value of the Company's debt, excluding debt discount, approximated its
carrying value.
F-8
<PAGE>
EARNINGS PER SHARE
Basic earnings per share (EPS) and diluted EPS are computed using the methods
prescribed by SFAS No. 128, "Earnings per Share." Basic EPS is calculated using
the weighted average number of common shares outstanding for the period and
diluted EPS is computed using the weighted average number of common shares and
dilutive common equivalent shares outstanding. Following is a reconciliation of
basic EPS and diluted EPS:
<TABLE>
<CAPTION>
Year Ended December 31, 1999 1998 1997
- ------------------------------ --------- --------- --------- --------- --------- --------- --------- -------- ---------
(In thousands, except per
share data) Per Per Per
Share Share Share
BASIC EPS Income Shares Amount Income Shares Amount Income Shares Amount
- --------- --------- --------- --------- --------- --------- --------- --------- -------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Income (loss) available to
Common shareholders $(13,924) 5,132 $(2.71) $ 3,865 5,012 $ 0.77 $4,585 4,919 $ 0.93
========= ========= =========
Effect of Dilutive Securities
Stock Options - - - 155 - 205
--------- --------- --------- --------- --------- --------
DILUTED EPS
- -----------
Income (loss) available to
Common shareholders $(13,924) 5,132 $(2.71) $ 3,865 5,167 $ 0.75 $ 4,585 5,124 $ 0.90
========= ========= =========
</TABLE>
The number of options and warrants to purchase shares of common stock and the
assumed conversion of convertible subordinated notes that were excluded from the
table above (as the effect would have been anti-dilutive) were 2,112,447 for the
year ended December 31, 1999, 787,184 for the year ended December 30, 1998 and
94,500 for the year ended December 31, 1997, respectively.
SUPPLEMENTARY CASH FLOW INFORMATION
<TABLE>
<CAPTION>
The Company made the following cash payments: Years Ended December 31,
------------------------------------
1999 1998 1997
--------- --------- --------
(In thousands)
<S> <C> <C> <C>
Interest and preferred dividends $ 2,401 554 $ 517
Income taxes 2,016 4,751 2,294
</TABLE>
F-9
<PAGE>
Noncash investing and financing activities were as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
------------------------------------
1999 1998 1997
--------- -------- ---------
(In thousands)
<S> <C> <C> <C>
Tax benefit from exercise of nonqualified stock options $ 6 $ 56 $ 396
Note receivable received in connection with the sale of remittance
processing division -- -- 788
Increase in goodwill for accrued acquisition related contingent
royalties 752 1,085 1,140
Decrease in goodwill and increase in deferred tax asset
related to acquired net operating losses -- -- 389
Reclassification of bank line of credit to long-term debt -- 4,000 --
Issuance of common stock in connection with acquisition of Modern
Computer Systems, Inc. 650 -- --
Issuance of common stock in connection with acquisition of MECA
Software, L.L.C. 569 -- --
Assumption of debt in connection with acquisition of MECA Software,
L.L.C. 7,500 -- --
Other liabilities assumed in connection with acquisitions 17,676 -- --
Accrual of loan renegotiation costs 1,711 -- --
Fair value of stock warrants issued in connection with financings 1,964 -- --
Fair value of stock options converted in connection with acquisition of
ULTRADATA Corporation 1,651 -- --
Note payable acquired in connection with acquisition of ULTRADATA
Corporation 504 -- --
</TABLE>
RECLASSIFICATIONS
Certain reclassifications in the financial statements and notes have been made
to prior year financial statements to conform with the current presentation.
COMPREHENSIVE INCOME
SFAS No. 130, "Reporting Comprehensive Income," establishes standards for
reporting and display of comprehensive income. Comprehensive income includes
charges or credits to equity that did not result from transactions with
shareholders. SFAS No. 130 became effective during 1998. As net income and
comprehensive income were identical in 1999, 1998 and 1997, SFAS No. 130 did not
have an impact on the Company's financial statements.
SEGMENT REPORTING
SFAS No. 131, "Disclosures about Segments of an Enterprise and Related
Information," requires the Company to report certain information about operating
segments. SFAS No. 131 became effective for the Company's year ended December
31, 1998. The Company provides integrated software to financial institutions
for, among other things, use in back office processing, branch automation, loan
origination, new account opening and electronic banking. The Company classifies
its products primarily as application products and e-commerce products. These
products constitute the Company's suite of products and are sold to the same
types of customer through similar distribution channels. Accordingly, the
Company believes it operates in one segment. During 1999 revenue was
reclassified for all periods into the Software Products and Services group and
the e-Commerce group. Total revenues did not change as a result of this
reclassification. Revenues for products and associated services are separately
reported in the Software Products and Services group and the e-Commerce group on
the Statement of Operations.
Virtually all of the Company's sales are made in the United States. The
remaining sales are made to customers located in Latin America.
F-10
<PAGE>
RECENT PRONOUNCEMENT
In June 1999, Financial Accounting Standards Board issued Statement of Financial
Accounting Standards No. 137, "Accounting for Derivative Instruments and Hedging
Activities" (SFAS 137). SFAS 137 is an amendment to Statement of Financial
Accounting Standards No. 133, "Accounting for Derivative and Hedging
Activities." SFAS 137 establishes accounting and reporting standards for all
derivative instruments. SFAS 137 is effective for the Company beginning January
1, 2001. The Company currently does not have any derivative instruments and,
accordingly, does not expect the adoption of SFAS 137 to have an impact on its
results of operations or financial position.
In December 1999, the Securities and Exchange Commission issued Staff Accounting
Bulletin No. 101 (SAB No. 101) on revenue recognition. SAB No. 101 provides
guidance on the recognition, presentation, and disclosure of revenue in
financial statements. SAB No. 101 is effective for the Company beginning January
1, 2000. The Company does not expect the adoption of SAB No. 101 to have a
material impact on its results of operations or financial position.
2. ACQUISITIONS
Effective January 1, 1999 the Company acquired substantially all of the assets
of Modern Computer Systems, Inc. and certain related corporations (collectively,
MCS). MCS offers hardware and software solutions for the back office accounting
needs of community banks and credit unions. The purchase price approximated $7.0
million and consisted of cash paid of $6.0 million, common stock issued of
$650,000 and acquisition costs. The purchase price was allocated to the
estimated fair value of the assets acquired, which included goodwill and
purchased software. The acquisition was accounted for as a purchase. The
operations of MCS have been included in the Company's results of operations
since January 1, 1999. The 1998 pro forma results reflecting the MCS acquisition
are not materially different from the Company's reported results for the year
ended December 31, 1998.
Effective May 17, 1999 the Company and MSHI acquired 99% and 1%, respectively,
of the equity in MECA in exchange for 50,000 shares of Concentrex common stock.
The acquisition was accounted for as a purchase. The net purchase price
approximated $12.3 million and consisted of the common stock issued, assumption
of net liabilities and accrued acquisition costs. The liabilities assumed
included $7.5 million of debt owed to certain former members of MECA and was
repaid by the Company from proceeds from bank borrowings. The purchase price was
allocated to the estimated fair value of the assets acquired, which included the
expensing of $3.8 million of in-process research and development and the
recognition of a $10.5 million deferred tax asset. The technological feasibility
of the acquired technology, which has no alternative future use, had not been
established prior to the purchase. The excess of the fair value of the assets
acquired over cost (negative goodwill) was allocated to reduce acquired
non-current assets. The Company is still obtaining certain data related to the
acquisition, and accordingly, the purchase price allocation remains open. The
operations of MECA have been included in the Company's results of operations
since May 17, 1999.
Effective August 13, 1999 Concentrex acquired all of the outstanding common
stock of ULTRADATA. ULTRADATA provides information management software and
solutions for relationship-oriented financial institutions. The acquisition was
accounted for as a purchase, resulting in approximately $56.4 million of
goodwill and purchased software. These amounts are being amortized over a period
of six to 20 years. The purchase price was $67.7 million, including
acquisition-related expenses. The purchase price was allocated to the estimated
fair value of the assets acquired, which included the expensing of $5.2 million
of in-process research and development. The technological feasibility of the
acquired technology, which has no alternative future use, had not been
established prior to the purchase. The Company is still obtaining certain data
related to the acquisition, and, accordingly, the purchase price allocation
remains open. The operations of ULTRADATA have been included in the Company's
results of operations since August 13, 1999.
In October 1998 the Company acquired substantially all of the assets of Mortgage
Dynamics, Inc. (MDI). The acquisition was accounted for as a purchase. The
purchase price was $2.7 million in cash plus certain contingent royalties tied
to future revenue production. In conjunction with this acquisition, the Company
recorded approximately $1.5 million of goodwill, which is being amortized
ratably over seven years; $230,000 of purchased software, which is being
amortized ratably over three years; and $991,000 of acquired in-process research
and development, determined by independent appraisal, all of which was expensed
in 1998. The technological feasibility of the acquired technology, which has no
alternative future use, had not been established prior to the purchase. Pro
forma results reflecting the MDI acquisition are not materially different from
the Company's reported results for 1998.
F-11
<PAGE>
Unaudited pro forma results of operations assuming the MECA and ULTRADATA
acquisitions occurred at January 1, 1998 are as follows:
<TABLE>
<CAPTION>
Years ended December 31,
---------------------------
1999 1998
---------- ----------
(In thousands except per share data)
<S> <C> <C>
Total Revenue $ 131,684 $ 139,637
Net loss applicable to common shareholders $ (21,991) $ (10,133)
Basic net loss per share $ (4.26) $ (2.00)
Diluted net loss per share $ (4.26) $ (2.00)
</TABLE>
Pro forma results include the write-off of acquired in-process research and
development in the year incurred.
3. PROPERTY AND EQUIPMENT
The major categories of property and equipment are summarized as follows:
<TABLE>
<CAPTION>
December 31,
-----------------------------------------
1999 1998
----------------- ----------------
(In thousands)
<S> <C> <C>
Computer hardware and software $ 14,397 $ 10,630
Furniture and fixtures 4,206 3,293
Leasehold improvements 1,584 558
Machinery and equipment 239 --
----------------- ----------------
20,426 14,481
Less- accumulated depreciation 12,894 9,947
================= ================
$ 7,532 $ 4,534
================= ================
</TABLE>
Depreciation expense was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-------------------------------------------------
1999 1998 1997
------------- ------------- -------------
(In thousands)
<S> <C> <C> <C>
Depreciation expense $ 2,668 $ 2,381 $ 2,230
============= ============= =============
</TABLE>
F-12
<PAGE>
4. ACCRUED EXPENSES
Accrued expenses consist of the following:
<TABLE>
<CAPTION>
December 31,
----------------------------------
1999 1998
------------- --------------
(In thousands)
<S> <C> <C>
Accrued royalties $ 1,372 $ 1,766
Accrued commissions 831 960
Accrued bonuses and profit sharing 3,206 2,095
Sales taxes 1,141 599
Accrued acquisition costs, primarily severance 2,660 --
Other 5,971 2,597
============= ==============
$ 15,181 $ 8,017
============= ==============
</TABLE>
Accrued severance costs were recorded in connection with the 1999 acquisitions.
Amounts relate to employees terminated prior to December 31, 1999 as a result of
the acquisitions and were accrued pursuant to contractual obligations assumed in
the acquisitions.
5. EMPLOYEE BENEFIT PLANS
The Company created a profit sharing plan (the Plan) on February 1, 1989 under
the provisions of Section 401(k) of the Internal Revenue Code. Effective January
1, 1999, the Plan was amended to be an Employee Savings and Stock Ownership Plan
(ESSOP). The ESSOP provides for employee profit sharing and employer matching of
401(k) contributions to be made in the form of Company common stock. Employer
matching contributions to the ESSOP are made at the discretion of the Board of
Directors and were as follows:
Years Ended December 31,
--------------------------------------------------
1999 1998 1997
------------- ------------- --------------
(In thousands)
Employer contributions $ 944 $ 856 $ 468
============= ============= ==============
The Board of Directors has approved an officers' bonus plan. The amount and
timing of bonuses and profit sharing payments under the ESSOP are at the Board's
discretion. In 1999 the profit sharing payment under the ESSOP was made in
common stock. The expense associated with these plans was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
---------------------------------------------------
1999 1998 1997
------------- ------------- ---------------
(In thousands)
<S> <C> <C> <C>
Bonus and profit sharing expense $ 4,331 $ 2,735 $ 850
============= ============= ===============
</TABLE>
Through December 31, 1998 the Company had a qualified employee stock purchase
plan (ESPP) which allowed qualified employees to direct up to seven percent of
monthly base pay for purchases of stock. The purchase price for shares purchased
under the plan was 85 percent of the lesser of the fair market value at the
beginning or end of the plan year. The ESPP terminated in accordance with its
terms during 1999.
F-13
<PAGE>
6. FINANCINGS
COMMON STOCK
On May 14, 1999 the Company sold 90,000 shares of its common stock to one
investor for gross proceeds of $900,000. The proceeds of the issuance were used
to repay liabilities acquired in the MECA acquisition.
During January 1999 the Company's Board of Directors authorized a repurchase of
up to $5.0 million of the Company's common stock. During the first quarter of
1999, the Company repurchased 88,200 shares of its common stock for $1.1
million. The Company did not repurchase any other shares in 1999.
DEBT
On May 17, 1999 the Company entered into two lending agreements (the "USNB
Lending Agreements") with U.S. Bank National Association ("USNB"). On August 13,
1999 the USNB Lending Agreements were terminated, and all amounts outstanding
were repaid, upon completion of the financing described in the following
paragraphs. The first USNB Lending Agreement was for a revolving line of credit
in an amount not to exceed $5.0 million (the "Revolving Line") to be used for
working capital. The Company drew $4.0 million on the Revolving Line on May 17,
1999 and used the proceeds to pay off all amounts owing on a previous line of
credit with Bank of America; the Bank of America credit facility with the
Company was simultaneously terminated. The second USNB Lending Agreement was for
a revolving line of credit in an amount not to exceed $15.0 million (the
"Acquisition Line") to be used for acquisitions. The Company drew $8.3 million
on the Acquisition Line on May 17, 1999 and used the proceeds to pay off certain
liabilities assumed in connection with the acquisition of MECA on that date. The
Company drew an additional $2.7 million on the Acquisition Line to purchase
shares of ULTRADATA common stock in open market transactions during the quarter
ended June 30, 1999.
On August 13, 1999 the Company and its subsidiaries entered into a financing
agreement (the "Financing Agreement") with Foothill Capital Corporation
("Foothill") and certain other parties (collectively, the "Lenders") for three
credit facilities aggregating $80 million. The credit facilities provided under
the Financing Agreement terminate on August 13, 2002.
The first credit facility under the Financing Agreement is a revolving credit
facility (the "Foothill Revolver") for up to $15 million, subject to borrowing
base restrictions related to accounts receivable of the Company and its
subsidiaries. The Foothill Revolver bears interest at an annual rate equal to
the prime rate plus 1.0%. On August 13, 1999 the Company drew $1.7 million under
the Foothill Revolver in connection with the ULTRADATA acquisition. The interest
rate on the Foothill Revolver was 9.5% at December 31, 1999.
The second credit facility under the Financing Agreement is a term loan for $35
million (the "Term A Loan") that bears interest at an annual rate equal to the
prime rate plus 2.0%. The Term A Loan has scheduled quarterly prepayments of
principal beginning in the second quarter of 2000 that are expected to aggregate
$19 million over the term of the loan; the expected remaining principal of $16
million is due on August 13, 2002. On August 13, 1999 the Company drew $35
million under the Term A Loan in connection with the ULTRADATA acquisition. The
interest rate on the Term A Loan was 10.5% at December 31,1999.
The third credit facility under the Financing Agreement is a term loan for $30
million (the "Term B Loan") that bears interest at an annual rate equal to the
prime rate plus 5.0%. The Term B Loan has no scheduled prepayments of principal.
The Term B Loan is due in full on August 13, 2002. On August 13, 1999 the
Company drew $30 million under the Term B Loan in connection with the ULTRADATA
acquisition. The interest rate on the Term B Loan was 13.5% at December 31,
1999.
In connection with the credit facilities provided under the Financing Agreement,
the Company issued to the Lenders warrants (the "Lender Warrants") to purchase
up to 381,822 shares of the common stock of the Company, which represented 5.0%
of the fully diluted common stock of the Company at the date of issuance. The
exercise price of the Lender Warrants is $10.00 per share. The Company has
registered for resale the shares of common stock issuable upon exercise of the
Lender Warrants. The Lender Warrants are exercisable through August 13, 2004.
The Company also issued warrants to purchase 58,000 shares of common stock to
the debt placement agent in connection with obtaining the
F-14
<PAGE>
credit facilities under the Financing Agreement. The warrants issued to the debt
placement agent have the same terms as the Lender Warrants. The Company recorded
the fair value of the warrants as debt discount and deferred loan costs as
appropriate.
At December 31,1999 and December 31,1998, long-term debt consisted of the
following:
<TABLE>
<CAPTION>
December 31, December 31,
1999 1998
------------------- -----------------
(In thousands)
<S> <C> <C>
Term A Loan $ 35,000 $ --
Term B Loan 30,000 --
Note payable, in relation to Halcyon acquisition, with imputed
interest at 8.0%, due in quarterly installments of $50, including
interest, payable through 2001 272 449
Note payable, assumed in the Halcyon acquisition, in
monthly installments of $6, including interest
imputed at 8.5%, with final payment due October 2004 265 307
Guaranteed royalties to be paid in relation to Input acquisition,
with imputed interest at 6.0%, payable through March 2001 813 1,148
TSTG non-compete payments through April 1999 -- 50
Note payable, assumed in the ULTRADATA acquisition, due in
monthly installments of $29, including interest at the rate of 10.0% 410 --
Long-term portion of line of credit -- 4,000
------------------- ------------------
66,760 5,954
Less current portion of long-term debt (4,570) (261)
Less debt discount (3,154) --
------------------- ------------------
Long-term debt $ 59,036 $ 5,693
=================== ==================
</TABLE>
Payouts under long-term debt are as follows (in thousands):
YEARS ENDING DECEMBER 31,
2000 $ 4,570
2001 10,021
2002 52,055
2003 60
2004 54
===============
$ 66,760
===============
On August 13, 1999 the Company also issued 10% Convertible Subordinated Discount
Notes (the "Subordinated Notes") in the aggregate original face amount of $7.4
million (with original issue discount of $1.9 million). The Subordinated Notes
are generally non-callable by the Company through August 13, 2002. Interest at
10% per
F-15
<PAGE>
annum accretes on the Subordinated Notes through August 13, 2002 and then
becomes payable in cash by the Company if the Subordinated Notes are not
redeemed or converted by that date. The Subordinated Notes are initially
convertible into a maximum of 743,754 shares of the Company's common stock at
the election of the holders. The actual number of shares into which the
Subordinated Notes are convertible depends upon the date of conversion and the
amount of interest accreted on the Subordinated Notes through the date of
conversion. The conversion price of the Subordinated Notes is $10.00 per share.
If the average closing price of the Company's common stock for the 10 trading
days ending on August 12, 2000 is less than $10.00 per share, the conversion
price will be reduced at that time to equal such average price. If the
conversion price of the Subordinated Notes is reduced pursuant to the terms of
the Subordinated Notes, the Company will record additional interest expense. The
Subordinated Notes are due on August 13, 2004 if not previously converted by
that date. The Company received gross proceeds of $5.5 million upon issuance of
the Subordinated Notes, all of which was used in connection the ULTRADATA
acquisition.
During the fourth quarter of 1999, we amended our financing agreements with our
lenders. In consideration for those amendments, we agreed to pay fees of 2% of
the total loan commitments (a total of $1.7 million) and agreed to decrease the
exercise and conversion prices of certain warrants and convertible notes held by
the lenders from $12.34 per share to $10 per share. The new exercise and
conversion prices for the warrants were established at a 24% premium to the
market price of our common stock at December 31, 1999. The loan fees paid and
the fair value attributed to the change in the exercise price of the warrants
held by the debt holders was recorded as additional debt discount.
As a result of our 1999 acquisitions, the Company is highly leveraged. Our loan
agreements contain financial covenants that we must abide by and prohibit the
payment of dividends on our common stock, among other restrictions. For example,
the Company is required to generate specific levels of earnings before interest,
taxes, depreciation and amortization ("EBITDA") measured over four-quarter
periods. At December 31, 1999, the Company was in compliance with all financial
covenants.
7. COMMITMENTS AND CONTINGENCIES
OPERATING LEASES
The Company leases facilities and equipment under operating leases, with terms
from one to 10 years, payable in monthly installments. Total lease expense was
as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
---------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Lease expense $ 4,582 $ 2,980 $ 2,786
================ =============== ================
</TABLE>
Future minimum lease payments are as follows (in thousands):
YEARS ENDING DECEMBER 31,
2000 $ 6,202
2001 5,873
2002 4,573
2003 4,470
2004 3,651
Thereafter 3,950
==============
$ 28,719
==============
In 1998 the Company recorded a loss of $793,000 for the present value of net
future lease payments due with respect to certain office space in Atlanta that
the Company ceased using. The loss was included in other charges on the
Statement of Operationsfor 1998.
CONTINGENCIES
The Company is involved in routine legal matters incidental to its business. The
Company believes that the resolution of any such matters that are currently
outstanding will not have a material effect on its financial condition or
results of operations. However, no assurance can be given that the concurrent
resolution of several of such matters in manners
F-16
<PAGE>
adverse to the Company would not have a material adverse effect on the Company's
financial condition or results of operations.
During the year ended December 31, 1999, the Company recorded an expense of
$900,000 related to a settlement of an arbitration proceeding. This expense was
included in other charges on the Statement of Operations for 1999.
8. INCOME TAXES
The provision (benefit) for income taxes is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------------------------
1999 1998 1997
---------------- --------------- ----------------
(In thousands)
<S> <C> <C> <C>
Current tax provision:
Federal $ 206 $ 3,667 $ 3,443
State 24 402 377
---------------- --------------- ----------------
230 4,069 3,820
Deferred tax provision (benefit) (1,124) (586) 87
---------------- --------------- ----------------
Total provision (benefit) $ (894) $ 3,483 $ 3,907
================ =============== ================
</TABLE>
The reconciliation of the statutory Federal income tax rate to the Company's
effective income tax rate is as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
--------------------------------------------
1999 1998 1997
----------- ----------- -----------
<S> <C> <C> <C>
Federal statutory rate (34.0) % 34.0 % 34.0 %
State income taxes net of Federal benefit (4.0) 4.8 4.2
Disallowance of meals and entertainment expenses 0.9 1.4 1.1
Purchase accounting adjustments, including goodwill
amortization 29.8 5.5 5.7
Change in valuation allowance -- (0.1) (0.2)
Other 1.3 1.2 0.7
----------- ----------- -----------
(6.0) % 46.8 % 45.5 %
=========== =========== ===========
</TABLE>
F-17
<PAGE>
Deferred tax assets and liabilities are comprised of the following components:
<TABLE>
<CAPTION>
December 31,
---------------------------------
1999 1998
-------------- ------------
(In thousands)
<S> <C> <C>
Current deferred tax asset:
Allowance for doubtful accounts $ 1,118 $ 844
Current portion of net operating loss carryforwards -- 164
Severance and other accruals 1,006 281
Accrued vacation liability 214 --
Other 505 52
-------------- ------------
Total current deferred tax asset $ 2,843 $ 1,341
============== ============
Long-term deferred tax asset (liability):
In-process technology acquired $ 2,448 $ 2,660
Depreciation 197 (160)
Intangibles amortization (1,259) 702
Tax basis of acquired asset in excess of book 9,510 --
Capitalized software (1,900) (3,145)
Net operating loss and credit carryforwards 3,849 475
Other (33) (77)
-------------- ------------
Gross long-term deferred tax asset 12,812 455
Valuation allowance (3,374) (100)
-------------- ------------
Total long-term deferred tax asset $ 9,438 $ 355
============== ============
</TABLE>
The increase (decrease) in the valuation allowance was as follows:
<TABLE>
<CAPTION>
Years Ended December 31,
-----------------------------------------------
1999 1998 1997
------------ ------------ ------------
(In thousands)
<S> <C> <C> <C>
Increase (decrease) in valuation allowance $ 3,274 $ (72) $ (17)
============ ============ ============
</TABLE>
At December 31, 1999, for Federal tax return reporting purposes, the Company had
approximately $7.1 million of regular and alternative minimum tax loss
carryovers that expire at various dates through 2019. In addition, at December
31, 1999, the Company had $1.2 million of general business credit carryovers
that expire at various dates through 2013. The general business credit
carryovers may not be used to offset taxes payable until the tax loss carryovers
are fully utilized. In 1997, based on management's estimate of realization, the
Company recorded an increase in deferred tax assets and a corresponding decrease
in goodwill of $389,000 relating to net operating losses acquired in connection
with a prior acquisition. Current Federal tax law limits the net operating loss
and tax credit carryforwards available to be used in any given year in the event
of certain circumstances including significant changes in ownership interests.
The Company is limited to using approximately $3.7 million of net operating loss
carryovers in any one year. During 1999 the Company acquired certain tax loss
carryforwards in connection with its acquisitions. Because of the uncertainty of
realization of these tax loss carryforwards, the Company provided a valuation
allowance against the related deferred tax assets. The increase in the valuation
allowance in 1999 is primarily attributed to these acquired tax loss
carryforwards. Realization, if any, of these tax loss carryforwards will be
recorded as a reduction in goodwill.
F-18
<PAGE>
9. PREFERRED STOCK
The Company is redeeming the 10,300 outstanding shares of mandatory redeemable
Class A preferred stock at $262.14 per share over a 28-year period ending in the
year 2018. The present value of the remaining payments, which are due quarterly,
has been recorded as the carrying value at December 31, 1999 and 1998. The
carrying value is adjusted as payments are made and dividends are accrued on the
shares yet to be redeemed. The rate used to calculate the present value was 13
percent per annum, which approximated the Company's borrowing rate at the time
redemption commenced. At December 31, 1999 there were 7,017 outstanding shares
remaining to be redeemed.
The repayment schedule for the mandatory redeemable Class A preferred stock at
December 31, 1999 is as follows (in thousands):
YEARS ENDING DECEMBER 31,
2000 $ 103
2001 103
2002 103
2003 103
Thereafter 1,428
-------------
Total future payments 1,840
Less- Amount representing dividends 1,112
-------------
Present value of future payments 728
Less- Current portion --
-------------
Long-term mandatory redeemable preferred stock $ 728
=============
10. STOCK OPTIONS AND DIRECTOR COMPENSATION
At December 31, 1999, the Company had four stock plans: a Consolidated Plan, a
nonqualified stock option plan, the Compensation Plan for outside directors and
the ESSOP.
Under the Consolidated Plan, options, which consist of incentive stock options
and nonqualified stock options, generally vest ratably over five years and
generally expire ten years from the date of grant. The exercise price for
incentive stock options granted under the plan is set at the fair market value
at the grant date. The exercise price for nonqualified options may be set below
the fair market value at the grant date, but, to this date, no options have been
granted with an exercise price less than fair market value at the grant date.
Under the nonqualified stock option plan, available to officers and key
employees, the vesting period and exercise price, which may be set below the
fair market value at the date of grant, are determined by the Compensation
Committee of the Board of Directors. No options have been granted with an
exercise price less than fair market value at the date of grant.
Under the Restated Outside Director Compensation and Stock Option Plan (the
Compensation Plan), the company provides for outside directors to be paid a
$7,000 retainer and $1,000 for each Board of Directors meeting attended, and the
issuance of stock options. The options are awarded annually on the first
business day after each annual meeting of shareholders.
Under the ESSOP 175,000 shares of Common Stock were initially reserved, of which
104,618 had been issued as of December 31,1999. The Company records compensation
expense for the shares issued under the ESSOP based on the fair market value of
the stock.
F-19
<PAGE>
Below is a table showing the activity for the three stock option plans for the
past three years:
<TABLE>
<CAPTION>
Weighted Average Total
Shares Subject Exercise Price Per Exercise
to Options Share Price
(in thousands)
----------------- -------------------- ------------------
<S> <C> <C> <C>
Balances, December 31, 1996 831,820 $ 10.93 $ 9,089
Options granted 118,000 18.40 2,172
Options exercised (79,804) 5.52 (441)
Options lapsed (86,713) 13.45 (1,167)
----------------- -------------------- ------------------
Balances, December 31, 1997 783,303 12.32 9,653
Options granted 214,293 12.39 2,655
Options exercised (51,680) 10.43 (539)
Options lapsed (30,490) 13.74 (419)
----------------- -------------------- ------------------
Balances, December 31, 1998 915,426 12.40 11,350
Options granted 468,956 9.25 4,337
Options exercised (9,442) 4.93 (46)
Options lapsed (13,437) 10.19 (137)
----------------- -------------------- ------------------
Balances, December 31, 1999 1,361,503 $ 11.39 $ 15,504
================= ==================== ==================
</TABLE>
In August 1999 the Company exchanged 273,293 of outstanding employee stock
options as a result of the ULTRADATA acquisition. The exercise prices for these
options range from $3.66 to $15.32 per share. These options are included in the
table above as options granted during 1999. The Company has recorded as part of
the purchase price $1.7 million relating to the fair value of the options
exchanged.
For all three stock option plans at December 31, 1999, there were 1,478,404
shares of unissued stock reserved for issuance, of which 116,901 shares remained
available for future grants. Options to purchase 767,788, 437,026 and 361,873
shares of common stock were exercisable at December 31, 1999, 1998 and 1997,
respectively. These exercisable options had weighted average exercise prices of
$10.71, $9.91 and $8.27 at December 31, 1999, 1998 and 1997, respectively.
The Financial Accounting Standards Board issued SFAS No.123 which defines a fair
value based method of accounting for an employee stock option and similar equity
instrument and encourages all entities to adopt that method of accounting for
all of their employee stock compensation plans. However, it also allows an
entity to continue to measure compensation cost for those plans using the method
of accounting prescribed by APB 25. Entities electing to remain with the
accounting in APB 25 must make pro forma disclosures of net income and earnings
per share, as if the fair value based method of accounting defined in SFAS 123
had been adopted.
The Company has elected to account for its stock-based compensation plans under
APB 25; however, the Company has computed, for pro forma disclosure purposes,
the value of all options granted during 1999, 1998 and 1997 using the
Black-Scholes options pricing model as prescribed by SFAS 123 using the
following weighted average assumptions for grants:
F-20
<PAGE>
<TABLE>
<CAPTION>
For the Year Ended December 31,
------------------------------------------------------------
1999 1998 1997
-------------- ---------------- ----------------
<S> <C> <C> <C>
Risk-free interest rate 6.25% 6.0% 6.3%
Expected dividend yield 0.0% 0.0% 0.0%
Expected lives (years) 7.5 7.5 6.9
Expected volatility 35.0% 59.4% 60.7%
</TABLE>
Using the Black-Scholes methodology, the total value of options granted during
1999, 1998 and 1997 was $1.1 million, $1.2 million and $1.3 million,
respectively, which would be amortized on a pro forma basis over the vesting
period of the options (typically five years). The weighted average fair value of
options granted during 1999, 1998 and 1997 was $7.52 per share, $8.36 per share
and $11.51 per share, respectively. During 1999, the Company terminated the
ESPP. The number of shares issued under the ESPP was 1,944, 22,383 and 20,646
for the years ended December 31, 1999, 1998 and 1997, respectively and the
related weighted average purchase price and weighted average fair value of
shares issued were $9.77 and $5.19, respectively for 1999, $10.20 and $5.83,
respectively for 1998 and $13.71 and $6.55, respectively for 1997.
If the Company had accounted for its stock-based compensation plans in
accordance with SFAS 123, the Company's net income and net income per share
would approximate the pro forma disclosures below:
<TABLE>
<CAPTION>
For the Year Ended December 31,
(in thousands, except per share data)
------------------------------------------------------------------------------------------------
1999 1998 1997
---------------------------- ---------------------------- -------------------------------
As Reported Pro Forma As Reported Pro Forma As Reported Pro Forma
------------- ----------- ------------- ----------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $(13,924) $(14,921) $ 3,865 $ 2,659 $4,585 $ 3,563
Net income (loss)
per share - basic $(2.71) $(2.91) $ 0.77 $ 0.53 $ 0.93 $ 0.72
Net income (loss) per
share - diluted $(2.71) $(2.91) $ 0.75 $ 0.53 $ 0.90 $ 0.71
</TABLE>
The effects of applying SFAS 123 in this pro forma disclosure are not indicative
of future amounts. Additional awards are anticipated in future years.
F-21
<PAGE>
The following table summarizes information about stock options outstanding at
December 31, 1999:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
- --------------------------------------------------------------------------------- -------------------------------------
Weighted
Number Average Weighted Number of Weighted
Range of Exercise Out- Remaining Average Shares Average
Prices Per Share standing at Contractual Exercise Exercisable at Exercise Price
12/31/99 Life (years) Price 12/31/99
- ----------------------- -------------- ---------------- -------------- ----------------- ----------------
<S> <C> <C> <C> <C> <C>
$1.00 - 4.99 125,924 2.5 $ 1.85 120,305 $ 1.72
$5.00 - 9.99 232,847 7.4 $ 6.95 158,487 $ 6.89
$10.00 - 14.99 699,154 6.8 $ 12.32 309,218 $ 12.40
$15.00 - 15.99 207,178 6.1 $ 15.01 126,578 $ 15.02
$16.00 - 20.00 86,400 6.3 $ 19.48 43,200 $ 18.97
$24.25 - 24.25 10,000 1.3 $ 24.25 10,000 $ 24.25
</TABLE>
11. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
QUARTER ENDED (1) (3) March 31, June 30, September 30, December 31, 1999
(In thousands, except per share data) 1999 1999 1999
- -------------------------------------------- -------------- --------------- ------------------ -------------------
<S> <C> <C> <C> <C>
Revenue $ 20,053 $ 27,829 $ 29,563 $ 29,636
Gross profit 12,306 17,570 18,000 16,580
Net income (loss) applicable to common
shareholders 799 (979) (9,037) (4,707)
Net income (loss) per share - basic $ 0.16 $ (0.19) $ (1.74) $ (0.90)
Net income (loss) per share - diluted $ 0.16 $ (0.19) $ (1.74) $ (0.90)
- -------------------------------------------- -------------- --------------- ------------------ -------------------
QUARTER ENDED (2) (3) March 31, June 30, September 30, December 31, 1998
(In thousands, except per share data) 1998 1998 1998
- -------------------------------------------- -------------- --------------- ------------------ -------------------
Revenue $ 19,051 $ 19,002 $ 23,186 $ 24,391
Gross profit 12,303 11,835 15,413 16,656
Net income applicable to common
shareholders 1,000 927 1,593 345
Net income per share - basic $ 0.20 $ 0.19 $ 0.32 $ 0.07
Net income per share - diluted $ 0.19 $ 0.18 $ 0.31 $ 0.07
<FN>
(1) The results in the third quarter of 1999 reflect pretax charges totaling
$5.2 million for the value of in- process research and development efforts
at the date of the ULTRADATA acquisition and $1.2 million of other charges
(see Notes 2 and 7). The results in the second quarter of 1999 reflect
pretax charges totaling $3.8 million for the value of in-process research
and development efforts at the date of the MECA acquisition (see Note 2).
(2) The results in the fourth quarter of 1998 reflect pretax charges totaling
$3.0 for the value of in-process research and development efforts at the
date of acquisition pertaining to MDI (see Note 2) and other charges (see
Note 1 and Note 7).
(3) The quarterly results reflect the operations of MDI, MCS, MECA and
ULTRADATA from the respective dates of their acquisition.
</FN>
</TABLE>
F-22
<PAGE>
Report of Independent Public Accountants
on Financial Statement Schedule
To the Board of Directors and Shareholders of
CFI ProServices, Inc.
d/b/a Concentrex Incorporated
We have audited in accordance with auditing standards generally accepted in the
United States, the consolidated financial statements included in CFI
ProServices, Inc.'s, dba Concentrex Incorporated, 1999 Annual Report on Form
10-K, and have issued our report thereon dated January 28, 2000. Our audits were
made for the purpose of forming an opinion on those statements taken as a whole.
The Valuation and Qualifying Accounts schedule is the responsibility of the
Company's management and is presented for purposes of complying with the
Securities and Exchange Commission's rules and is not part of the basic
consolidated financial statements. This schedule has been subjected to the
auditing procedures applied in our audits of the basic consolidated financial
statements and, in our opinion, fairly states, in all material respects, the
financial data required to be set forth therein in relation to the basic
consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
Portland, Oregon
January 28, 2000
F-23
<PAGE>
<TABLE>
<CAPTION>
CFI PROSERVICES, INC.
dba CONCENTREX INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1998 and 1999
Additions
Balance At Charged To Balance At
Beginning Costs And End Of
Of Year Expenses Deductions (a) Other (b) Year
--------------- ----------- -------------- --------- -----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1997
Allowance for doubtful accounts and
sales returns $ 1,303 $ 4,808 $ (3,231) $ - $ 2,880
=============================================================================
FASB 109 Valuation $ 189 $ - $ (17) $ - $ 172
=============================================================================
Amortization Of Intangibles:
Purchased software $ 1,229 $ 1,079 $ (2,308) $ - $ -
Software development costs 2,585 3,465 (5,315) - 735
Goodwill 1,455 1,772 - - 3,227
=============================================================================
$ 5,269 $ 6,316 $ (7,623) $ - $ 3,962
=============================================================================
Year ended December 31, 1998
Allowance for doubtful accounts and
sales returns $ 2,880 $ 2,005 $ (2,285) $ - $ 2,600
=============================================================================
FASB 109 Valuation $ 172 $ - $ (72) $ - $ 100
=============================================================================
Lease Loss Accrual $ - $ 793 $ - $ - $ 793
=============================================================================
Amortization Of Intangibles:
Purchased software $ - $ 19 $ - $ - $ 19
Software development costs 735 2,633 - - 3,368
Goodwill 3,227 2,102 (566) - 4,763
=============================================================================
$ 3,962 $ 4,754 $ (566) $ - $ 8,150
=============================================================================
Year ended December 31, 1999
Allowance for doubtful accounts and
sales returns $ 2,600 $ 2,097 $ (2,242) $ 813 $ 3,268
=============================================================================
FASB 109 Valuation $ 100 $ - $ - $ 3,274 $ 3,374
=============================================================================
Lease Loss Accrual $ 793 $ (309) $ (409) $ - $ 75
=============================================================================
Accrued Acquisition Costs $ - $ - $ (2,057) $ 4,717 $ 2,660
=============================================================================
Amortization Of Intangibles:
Purchased software $ 19 $ 784 $ - $ - $ 803
Software development costs 3,368 2,994 (1,801) - 4,561
Goodwill 4,763 3,059 (894) - 6,928
=============================================================================
$ 8,150 $ 6,837 $ (2,695) $ - $12,292
=============================================================================
<FN>
(a) Represents write-off of receivables, fully amortized intangibles, and, in
1998, goodwill associated with a 1996 acquisition. Also includes payments
on lease loss accrual, accrued acquisition costs and reduction in FASB 109
valuation account credited to income tax expense.
(b) Includes FASB 109 valuation allowance recorded as part of the 1999
acquisition of ULTRADATA Corporation. Also includes accrued acquisition
costs and allowance for doubtful accounts acquired as part of the 1999
acquisitions of both MECA Software, LLC and ULTRADATA Corporation.
</FN>
</TABLE>
F-24
Exhibit 10.3
FIRST AMENDMENT TO RESTATED OUTSIDE DIRECTOR
COMPENSATION AND STOCK OPTION PLAN
The CFI ProServices, Inc. Restated Outside Director Compensation and
Stock Option Plan (the "Plan") is hereby amended as follows:
Section 2.1 of the Plan is hereby amended to read as follows:
"Annually the Board of Directors shall establish a retainer
payable to the non-employee Directors. In addition, the Board
may establish meeting fees for attendance at Board or
Committee meetings as the Board deems appropriate. The
retainer for the 1999-2000 plan year shall be $7,000.00
payable to each non-employee Director; and each such director
shall receive $1,000.00 for attendance at each Board or
Committee meeting."
Section 3.1 of the Plan is hereby amended to read as follows:
"As of the Effective Date of this First Amendment, the Company
shall establish a new reserve from its authorized but unissued
stock for 100,000 shares of Common Stock to be issued pursuant
to the exercise of options granted under the Plan ("Options").
The maximum number of shares which may be issued upon exercise
of the Options granted against this new share reserve shall be
100,000 shares of Common Stock. If any outstanding Option
under the Plan for any reason expires or is terminated without
having been exercised in full, the shares allocable to the
unexercised portion of such Option shall again become
available for option pursuant to this Plan."
Section 3.3 of the Plan is hereby amended to read as follows:
"On the first business day following the Company's Annual
Meeting of Shareholders at which this First Amendment is
approved by the shareholders of the Company and on the first
business day following each succeeding Annual Meeting of
Shareholders until the share reserve has been exhausted, every
non-employee Director eligible to receive Options shall be
granted an Option to purchase 4,000 shares of the Company's
Common Stock. If, on the first business day following the
Company's Annual Meeting of
<PAGE>
Shareholders, the share reserve is
insufficient to permit a full 4,000 shares to be awarded to
each Director, then any remaining shares shall be awarded on a
pro rata basis."
Section 3.4 of the Plan is hereby amended so that the second
sentence reads as follows: "Every Director eligible to receive
Options under this Section 3.4 shall be granted an Option to
purchase a pro rata portion of the 4,000 shares as corresponds
to the number of days (including non-business days) such
Director performs duties as a Director of the Company up to
and including the day immediately following the Annual Meeting
of Shareholders, divided by the number 365."
SECTION 3.6 OF THE PLAN IS HEREBY AMENDED TO READ AS FOLLOWS:
"TERM OF OPTIONS. The term of each option hereunder shall
expire at 5:00 p.m. Pacific time on the date which is five
years after the date on which each Option is granted."
The Effective Date of this First Amendment is May 14, 1999, the date of
approval of this First Amendment by the Company's Shareholders.
2
EXHIBIT 10.8
SECOND AMENDMENT TO 1995 CONSOLIDATED AND RESTATED
STOCK OPTION PLAN
The 1995 Consolidated and Restated Stock Option Plan of CFI ProServices, Inc.,
as amended to date (the "Plan") is hereby amended further as provided below:
Section 1.2 of the Plan is amended to read as follows:
1.2 This Plan includes the Company's Incentive Stock
Option Plan No. 1, as amended and restated October
15, 1993 ("Plan No. 1"), Incentive Stock Option Plan
No. 2, as amended and restated October 15, 1993
("Plan No. 2"), Incentive Stock Option Plan Dated
April 30, 1993 (restated as of October 15, 1993)
("Plan No. 3"), Nonqualified Stock Option Plan Dated
April 30, 1993 (restated as of October 15, 19993)
("Plan No. 4"), First Amendment to 1995 Consolidated
and Restated Stock Option Plan (effective May 17,
1996), and Second Amendment to 1995 Consolidated and
Restated Stock Option Plan (effective January 21,
1999) (collectively referred to herein as the "Plans"
or the "Plan"). The Plan governs any and all
outstanding unexercised stock options granted under
the Plans. All unissued stock options reserved for
issuance under the Plans, and all stock options
issued but not exercised under the Plans which have
been terminated or expired, will continue to be
available and reserved for issuance hereunder.
Section 4.1 of the Plan is hereby amended to read as follows:
4.1 The stock subject to the options to be granted under
the Plan shall be made available either from CFI
common stock ("Shares") authorized but unissued, or
from Shares reacquired by the Company. Subject to the
adjustment as provided in Section 6.11, the total
number of Shares with respect to which the Committee
may grant stock options under the Plan shall not
exceed 1,530,536 Shares (the aggregate Share reserve
of Plans No. 1, 2, 3, 4, and the First Amendment to
the 1995 Consolidated and Restated
<PAGE>
Stock Option Plan
computed as of January 1, 1999, plus the 500,000
additional shares authorized by the Second Amendment
to 1995 Consolidated and Restated Stock Option Plan).
The options may be granted either as qualified or
nonqualified stock options as defined in Section 5.
Section 10 of the Plan is hereby amended to read as follows:
10. Since this Plan is a consolidation of four plans plus
two amendments adding more shares to the Plan, each
adopted on a different date; and since in the case of
"incentive stock options" (as defined in Section 5) the
option must be granted within ten years from the date
the plan is adopted and exercised within ten years from
the date of grant, the following sinking reserves shall
apply. The option share reserve of 1,030,536 shares on
January 1, 1999 shall be increased by the 500,000
additional shares authorized by this amendment; but the
option share reserve shall be reduced (subject to any
outstanding option grants) on the dates set forth
below:
DATE SINKING SHARE RESERVE
January 21, 2001 1,388,000
April 16, 2003 1,000,000
January 12, 2006 500,000
January 21, 2009 0
The effective date of this Second Amendment shall be January 21, 1999.
2
EXHIBIT 10.13
FOURTH AMENDMENT OF LEASE
This Fourth Amendment of Lease is entered into effective this 16th day
of December, 1999, by and between 400 SW SIXTH AVENUE, LLC, a Delaware limited
liability company, by Louis Dreyfus Property Group, Inc., a Delaware
corporation, its Managing Member (the "Landlord"), and CONCENTREX, INCORPORATED
formerly known as CFI ProServices, Inc., an Oregon corporation (the "Tenant").
RECITALS
A. John Hancock Mutual Life Insurance Company, as landlord ("John
Hancock"), and Tenant entered into that certain Office Lease dated March 18,
1994, as amended by that certain First Amendment to Lease (the "First
Amendment") dated July 8, 1996, and that certain Second Amendment to Lease (the
"Second Amendment") dated January 11, 1999 (as amended, the "Lease"), and that
certain Third Amendment of Lease (the "Third Amendment") dated October 13, 1999,
by which Tenant leased from John Hancock the floor area consisting of
approximately 84,545 rentable square feet (the "Leased Premises") on the second,
third, fourth, sixth, ninth and tenth floors of the 400 SW Sixth Avenue Building
(the "Building") as outlined on the floor plan of the Building attached as
Exhibit A to the Lease. The Building is located on a parcel of land (the "Land")
located in the Northwest one-quarter of Section 3, Township 1 South, Range 1
East, of the Willamette Meridian, in the City of Portland, County of Multnomah
and State of Oregon, and more particularly described as follows:
Beginning at the Northwest corner of Lot 8 of Block 175 of the
duly recorded plat of CITY OF PORTLAND, said point also being the
true point of beginning of the parcel of land herein described;
thence South 70(degree)00'00" East along the North line of Block
175, a distance of 100.00 feet to the Northeast corner of said Lot
8; thence South 20(degree)00'00" West along the Easterly line of
Lots 8, 7, 6 and 5 of Block 175 of said plat, a distance of 200.00
feet to the Southeast corner of Lot 5 of said Block 175; thence
North 70(degree)00'00" West, along the Southerly line of said
Block 175, a distance of 100.00 feet, to the Southwest corner of
Lot 5 of said Block 175; thence North 20(degree)00'00" East, along
the Westerly boundary line of said Block 175, a distance of 200.00
feet to the true point of beginning of the herein described parcel
of land.
B. Landlord purchased the Building and Land from John Hancock and
accordingly assumed John Hancock's rights and obligations under the Lease.
C. The parties hereto desire to modify the Lease by expanding the Leased
Premises by approximately 1,536 rentable square feet OF FLOOR AREA ON THE SIXTH
(6TH) floor of the Building, known as Suite 601, and 840 rentable square feet of
floor area on the SIXTH (6TH) floor of the Building known as Suite 604, (the
"Expansion Space"), as more specifically described in Exhibit A attached hereto
and incorporated herein by this reference.
<PAGE>
D. The parties also desire to further amend the Lease as set forth below.
Capitalized terms not defined herein shall have the same meaning as set forth in
the Lease. References herein to the Lease shall include this Fourth Amendment
where the context requires.
TERMS AND CONDITIONS
NOW, THEREFORE, in consideration of the above recitals, the mutual
covenants hereinafter set forth and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, Landlord agrees to
lease the Expansion Space to Tenant and Tenant agrees to lease the Expansion
Space from Landlord upon the same terms and conditions as the balance of the
Leased Premises, except that the Lease is amended as follows:
1. RECITALS. The foregoing recitals are true and correct and incorporated
herein by reference.
2. EXPANSION SPACE COMMENCEMENT DATE: December 1, 1999, or upon substantial
completion of tenant improvements, unless construction delays are caused by
Tenant, whichever is latter. Except as provided under Section 12 of this Fourth
Amendment, if Tenant occupies and does business from any portion of the
Expansion Space before the Expansion Space Commencement Date, the Expansion
Space Commencement Date shall be advanced to the date of such occupancy.
3. EXPANSION SPACE. Upon the Expansion Space Commencement Date, the Leased
Premises will be expanded to include the Expansion Space. Upon the Expansion
Space Commencement Date, the total area of the Leased Premises shall comprise
approximately 86,921 rentable square feet.
4. LEASE TERM. The term of the Lease with respect to the Expansion Space
shall commence on the Expansion Space Commencement Date and shall expire on
November 30, 2004.
5. TENANT'S PERCENTAGE OF OPERATING EXPENSES. Under Section 24.2 of the
Lease, Tenant's percent of Operating Expenses will be based upon the following
calculations:
o Tenant's square footage leased under the Lease and the
First Amendment divided by the total building square
footage as DETERMINED BY OLD BOMA MEASUREMENTS (72,111
RSF DIVIDED BY 183,051 RSF EQUALS 39.3% pro rata
share).
o Tenant's square footage leased under the Second
Amendment and the Third Amendment divided by the total
building square FOOTAGE AS DETERMINED BY NEW BOMA
MEASUREMENTS (12,434 RSF DIVIDED BY 188,917 RSF EQUALS
6.58% pro rata share)
o Tenant's square footage leased under this Fourth
Amendment divided by the total building square footage
as determind by new BOMA
2
<PAGE>
MEASUREMENTS (2,376 RSF
DIVIDED BY 188,917 RSF EQUALS 1.25% pro rata share)
6. BASE YEAR. Under Section 19.4, Additional Rent: Operating Expense
Adjustment, Tenant's Base Year for floors two, three, four and ten shall be
1996; Tenant's Base Year for floor nine shall be 1999; and Tenant's Base Year
for the Expansion Space shall be 2000. Under Section 19.1, Tenant's Base Year
for real property taxes for floors two, three and four shall be 1994-1995;
Tenant's Base Year for floor ten shall be 1996-1997; Tenant's Base Year for
floor nine shall be 1998-1999; and Tenant's Base Year for the Expansion Space
shall be 1999-2000.
7. BASE RENT. Commencing on the Expansion Space Commencement Date, Tenant
shall pay to Landlord as Base Rent for the Expansion Space during the remainder
of the Lease Term, with Base Rent for any partial month prorated according to
Section 2.1 of the Lease, as follows:
Expansion Space (601)
<TABLE>
<CAPTION>
LEASE MONTHS ANNUAL RATE/ MONTHLY RATE
SQUARE FOOT
<S> <C> <C>
Dec. 1, 1999 - Sep. 30, 2000 $20.50 $2,624.00
Oct. 1, 2000 - Sep. 30, 2001 $21.15 $2,707.20
Oct. 1, 2001 - Sep. 30, 2002 $21.80 $2,790.40
Oct. 1, 2002 - Sep. 30, 2003 $22.45 $2,873.60
Oct. 1, 2003 - Sep. 30, 2004 $23.12 $2,959.40
Oct. 1, 2004 - Nov. 30, 2004 $23.82 $3,049.00
</TABLE>
Expansion Space (604)
<TABLE>
<CAPTION>
LEASE MONTHS ANNUAL RATE/ MONTHLY RATE
SQUARE FOOT
<S> <C> <C>
Feb. 1, 2000 - Sep. 30, 2000 $20.50 $1,435.00
Oct. 1, 2000 - Sep. 30, 2001 $21.15 $1,480.50
Oct. 1, 2001 - Sep. 30, 2002 $21.80 $1,526.00
Oct. 1, 2002 - Sep. 30, 2003 $22.45 $1,571.50
Oct. 1, 2003 - Sep. 30, 2004 $23.12 $1,618.40
Oct. 1, 2004 - Nov. 30, 2004 $23.82 $1,667.40
</TABLE>
3
<PAGE>
8. BASE RENT FOR LEASED PREMISES. Upon the Expansion Space Commencement
Date, the Base Rent for the Leased Premises shall be as follows:
<TABLE>
<CAPTION>
FOURTH AMENDMENT FOURTH AMENDMENT
EXPANSION EXPANSION
LEASE FIRST SECOND THIRD SPACE (601) SPACE (604) TOTAL
TERM LEASE AMENDMENT AMENDMENT AMENDMENT BASE RENT
- ---------------------- ---------- ---------- ---------- ---------- ---------------- ---------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
12/15/99 - 3/31/00 $78,261.50 $27,707.00 $12,868.33 $8,051.38 $2,624.00 $0.00 $129,512.21
2/01/00 - 9/30/00 $78,261.50 $27,707.00 $12,868.33 $8,051.38 $2,624.00 $1,435.00
4/1/00 - 9/30/00 $78,261.50 $27,707.00 $13,511.75 $8,051.38 $2,624.00 $1,435.00
10/1/00 - 7/31/01 $78,261.50 $27,707.00 $13,511.75 $8,306.66 $2,707.20 $1,480.50
8/1/01 - 9/30/01 $87,113.00 $30,478.00 $13,511.75 $8,306.66 $2,707.20 $1,480.50
10/1/01 - 3/31/02 $87,113.00 $30,478.00 $13,511.75 $8,561.95 $2,790.40 $1,526.00
4/1/02 - 9/30/02 $87,113.00 $30,478.00 $14,155.17 $8,561.95 $2,790.40 $1,526.00
10/1/02 - 3/31/03 $87,113.00 $30,478.00 $14,155.17 $8,817.24 $2,873.60 $1,571.50
4/1/03 - 9/30/03 $87,113.00 $30,478.00 $14,798.58 $8,817.24 $2,873.60 $1,571.50
10/01/03 - 9/30/04 $2,959.40 $1,618.40
10/01/04 - 11/30/04 $3,049.00 $1,667.40
</TABLE>
9. RIGHT OF FIRST OFFER. The right of first offer granted under Paragraph 8 of
the First Amendment shall be amended to apply only as to Suite 700 of the
Building. The right of first offer shall otherwise remain in full force and
effect.
10. TENANT IMPROVEMENTS. Landlord shall provide Tenant a tenant improvement
allowance up to and not to exceed $10.00 per rentable square foot, or
$23,760.00 (the "TI Allowance"). The TI Allowance shall be used to pay for
all costs and expenses incurred in connection with remodeling the Expansion
Space, including (without limitation) all costs for heating, ventilation
and air conditioning modifications made to the existing condition as of the
signature date of this Fourth Amendment, electrical distribution, plumbing,
partitions, working drawings, construction documents, design services,
supervision and permits, but not furniture and furnishings. It is agreed
and understood that Tenant will be responsible for payment of the entire
cost of other improvements in excess of the TI Allowance. If Tenant exceeds
the TI allowance, any such excess costs shall be promptly paid by Tenant in
a single lump sum within 15 days after receipt of invoice from Landlord.
Tenant shall not be entitled to a credit for any unused portion of the TI
Allowance. Landlord will act as general contractor on the Tenant's behalf
for the entire scope of the work outlined above and Landlord shall have no
liability to Tenant whatsoever for any claims or damages arising in
connection with Landlord's services as general contractor or its
administration of the construction contract, except as may be caused by
Landlord's gross negligence, willful misconduct or delay, except for causes
beyond Landlord's control. All remodeling work shall be in compliance with
all applicable laws and
4
<PAGE>
regulations as of the date of this Fourth
Amendment, including (without limitation) the Americans with Disabilities
Act.
11. SUBORDINATION TO TENANT LENDER. The terms of that certain Subordination and
Consent dated August 16, 1999, and entered into between Landlord, Tenant
and Ableco Finance LLC, a Delaware limited liability company, as collateral
agent on behalf on the lender group named therein, are hereby acknowledged
to extend to, among other collateral, all of Tenant's personal property,
including (without limitation) Tenant's inventory, equipment, furniture and
fixtures, together with all additions, substitutions, replacements and
improvements to the same (collectively, "Goods"), which Goods are or are to
be located on and may be affixed to the Expansion Space.
12. BROKER'S COMMISSION. Tenant covenants, warrants and represents that no
other broker besides Mike Holzgang of Cushman & Wakefield was instrumental
in bringing about or consummating this Fourth Amendment and that Tenant had
no conversations or negotiations with any other broker concerning the
leasing of the Premises. Tenant agrees to indemnify and hold harmless
Landlord against and from any claims for any brokerage commissions and all
costs, expenses and liabilities in connection therewith, including, without
limitation, attorney's fees and expenses, arising out of any conversations
or negotiations had by Tenant with any other broker.
13. TENANT REPRESENTATIONS. Each person executing this Amendment on behalf of
Tenant does hereby covenant and warrant that:
13.1 Tenant is duly incorporated and validly existing under the laws of and
qualified to transact business in Oregon;
13.2 Tenant has full corporate right and authority to enter into this
Fourth Amendment and to perform all Tenant's obligations hereunder;
and
13.3 The person (and each person if more than one signs) signing this
Fourth Amendment on behalf of the Tenant is duly and validly
authorized to do so.
13.4 Except as expressly provided herein, Tenant has not assigned or
transferred any interest in the Lease and has full power and authority
to execute this Fourth Amendment.
13.5 Tenant has no known claims of any kind or nature against Landlord
arising from or under the Lease and there are no agreements between
Landlord and Tenant other than the Lease as amended by this Fourth
Amendment.
14. MISCELLANEOUS.
14.1 The Lease as modified herein remains in full force and effect and is hereby
ratified by Landlord and Tenant. In the event of any conflict between any
other part of the Lease and this Fourth Amendment, the terms and conditions
of this Fourth Amendment shall control. To the extent that this Fourth
Amendment may have been
5
<PAGE>
executed following any effective dates set forth
herein, said effective dates are hereby ratified, confirmed and approved.
14.2 In the event of any litigation arising out of or in connection with this
Fourth Amendment, the prevailing party shall be awarded reasonable
attorneys' fees, costs and expenses
14.3 This Fourth Amendment shall be binding upon and inure to the benefit of the
parties hereto and their successors and assigns.
14.4 This Fourth Amendment contains the entire agreement of Landlord and Tenant
with respect to the subject matter hereof, and may not be amended or
modified except by an instrument executed in writing by Landlord and
Tenant.
IN WITNESS WHEREOF, the parties have executed this Fourth Amendment on
the date first above written.
LANDLORD: TENANT:
400 SW SIXTH AVENUE LLC, CONCENTREX, INCORPORATED
a Delaware limited liability company, formerly known as
By: Louis Dreyfus Property Group, Inc., CFI PROSERVICES, INC., an
a Delaware corporation and its Managing Oregon Corporation
Member
BY: /S/ ROLAND BARIBEAU BY: /S/ KURT W. RUTTUM
------------------- ------------------
NAME: ROLAND BARIBEAU NAME: KURT W. RUTTUM
TITLE: EXECUTIVE VICE PRESIDENT TITLE: VICE PRESIDENT & CFO
REVIEWED AND APPROVED BY
LOUIS DREYFUS PROPERTY GROUP
BY: /S/ RONALD H. BELTZ
-------------------
NAME: RONALD H. BELTZ
TITLE: VICE PRESIDENT
6
EXHIBIT 10.32
CFI PROSERVICES, INC.
401(k) PROFIT SHARING PLAN
INTERIM AMENDMENT
The CFI ProServices, Inc. 401(k) Profit Sharing Plan is hereby amended
to reflect the changes made by the Small Business Job Protection Act of 1996,
the Taxpayer Relief Act of 1997, GATT and USERRA as follows:
I.
The following provisions of Basic Plan No. 03 are amended to read as
follows:
1. Section 2.6 is hereby amended to read as follows:
"2.6 "ANNUAL COMPENSATION" shall mean all of the
earnings which would be included in the Participant's Form W-2. For any
self-employed individual covered under the Plan, Annual Compensation
will mean Earned Income. Compensation shall include only that
Compensation which is actually paid to the Participant during the
applicable Plan Year.
Annual Compensation shall include any amount which is
contributed by the Employer pursuant to a salary reduction agreement
and which is not includable in the gross income of the Employee under
Sections 125, 402(e)(3), 402(h) or 403(b) of the Code covering
Cafeteria Plans, Cash or Deferred Arrangements under 401(k) Plans,
Salary Reduction Arrangements under Simplified Employee Pension Plans,
and Tax-Sheltered Annuities.
The Annual Compensation of each Participant taken
into account under the Plan for any year shall not exceed the OBRA '93
Annual Compensation limit of $150,000, as adjusted by the Commissioner
for increases in the cost of living in accordance with Section
401(a)(17)(B) of the Code. The cost of living adjustment in effect for
a calendar year applies to any period, not exceeding 12
<PAGE>
months, over
which compensation is determined (determination period) beginning in
such calendar year. If a determination period consists of fewer than 12
months, the OBRA '93 Annual Compensation limit will be multiplied by a
fraction, the numerator of which is the number of months in the
determination period, and the denominator of which is 12.
For Plan Years beginning on or after January 1, 1994,
any reference in this Plan to the limitation under Section 401(a)(17)
of the Code shall mean the OBRA '93 Annual Compensation limit set forth
in this provision.
If compensation for any prior determination period is
taken into account in determining an Employee's benefits accruing in
the current Plan Year, the compensation for that prior determination
period is subject to the OBRA '93 Annual Compensation limit in effect
for that prior determination period. For this purpose, for
determination periods beginning before the first day of the first Plan
Year beginning on or after January 1, 1994, the OBRA '93 Annual
Compensation limit is $150,000."
2._______Section 2.16(a) is hereby amended to read as follows:
"(a) LEASED EMPLOYEE. The term "Leased Employee"
means any person (other than an Employee of the recipient) who
pursuant to an agreement between the recipient and any other
person ("leasing organization") has performed services for the
recipient (or for the recipient and related persons determined
in accordance with Section 414(n)(6) of the Code) on a
substantially full time basis for a period of at least
one-year, and such services are performed under primary
direction or control of the recipient Employer. Contributions
or benefits provided a Leased Employee by the leasing
organization which are attributable to services performed for
the recipient Employer shall be treated as provided by the
recipient Employer.
A Leased Employee shall not be considered an Employee
of the recipient if: (i) such Employee is covered by a money
purchase pension plan providing: (1) a nonintegrated Employer
Contribution rate of at least 10 percent of compensation, as
defined in Section 415(c)(3) of the Code, but including
amounts contributed by the
2
<PAGE>
Employer pursuant to a salary
reduction agreement which are excludable from the Employee's
gross income under Sections 125, 402(e)(3), 402(h) or 403(b)
of the Code, (2) immediate participation, and (3) full and
immediate vesting; and (ii) Leased Employees do not constitute
more than 20 percent of the recipient's non-highly compensated
work force."
3._______Section 2.19 is hereby amended to read as follows:
"2.19 "HIGHLY COMPENSATED EMPLOYEE." Effective for
years beginning after December 31, 1996, the term "Highly Compensated
Employee" means any Employee who (1) was as five percent owner at any
time during the year or the preceding year, or (2) for the preceding
year had compensation from the Employer in excess of $80,000 and, if
the Employer so elects, was in the top-paid group for the preceding
year. The $80,000 amount is adjusted at the same time and in the same
manner as under Section 415(d) of the Code, except that the base period
is the calendar quarter ending September 30, 1996.
For this purpose, the applicable year of the Plan for
which a determination is being made is called a "determination year"
and the preceding 12-month period is called a "look-back" year.
A Highly Compensated Former Employee is based on the
rules applicable to determining Highly Compensated Employees status as
in effect for that determination year, in accordance with Section
1.414(q)-1T, A-4 of the Temporary Income Tax Regulations and Notice
97-75.
In determining whether an Employee is a Highly
Compensated Employee for years beginning in 1997, the amendments to
Section 414(q) stated above are treated as having been in effect for
years beginning in 1996."
4._______Section 5.2(d) is hereby amended to read as follows:
"(d) ADP TEST FOR ELECTIVE DEFERRALS.
(i) GENERAL. The Actual Deferral
Percentage (hereinafter "ADP") for a Plan Year for
Participants who are Highly Compensated Employees for
3
<PAGE>
each
Plan Year and the prior year's ADP for Participants who were
Non-Highly Compensated Employees for the prior Plan Year must
satisfy the requirements of Section 401(k)(3) of the Code, as
amended, including satisfaction of one of the following tests:
a. The ADP for a Plan Year for
Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the prior year's ADP
for Participants who were Non-Highly Compensated
Employees for the prior Plan Year multiplied by 1.25;
or
b. The ADP for a Plan Year for
Participants who are Highly Compensated Employees for
the Plan Year shall not exceed the prior year's ADP
for Participants who were Non-Highly Compensated
Employees for the prior Plan Year multiplied by 2.0,
provided that the ADP for Participants who are Highly
Compensated Employees does not exceed the ADP for
Participants who were Non-Highly Compensated
Employees in the prior Plan year by more than two
percentage points.
(ii) ACTUAL DEFERRAL PERCENTAGE. "Actual
Deferral Percentage" shall mean, for a specified group of
Participants for a Plan Year, the average of the ratios
(calculated separately for each Participant in such group) of
(a) the amount of Elective Deferrals actually paid over to the
Trust on behalf of such Participant for the Plan Year to (b)
the Participant's Annual Compensation for such Plan Year.
(iii) For the first Plan Year the Plan
permits any Participant to make Elective Deferrals and this is
not a successor plan, for purposes of the foregoing tests, the
prior year's Non-Highly Compensated Employees' ADP shall be
three percent unless the Employer has elected to use the Plan
Year's ADP for these Participants.
(iv) If elected by the Employer in a
amendment to the Plan, the ADP tests above will be applied by
comparing the current Plan Year's ADP for Participants who are
Highly Compensated Employees with the current Plan Year's ADP
for Participants who are Non-Highly
4
<PAGE>
Compensated Employees.
Once made, this election can only be undone if the Plan meets
the requirements for changing to Prior Year Testing set forth
in Notice 98-1 (or superseding guidance).
(v) EXCESS DEFERRALS AND CORRECTIVE
DISTRIBUTIONS UNDER ADP TEST. A corrective distribution of any
Excess Deferrals (adjusted for any income or loss allocable
thereto) shall be made to Highly Compensated Employees to
whose account such Excess Deferrals were allocated for the
preceding Plan Year no later than the end of the Plan Year
following the Plan Year for which the Excess Deferrals were
made. Excess Deferrals are allocated to the Highly Compensated
Employees with the largest amounts of Employer Contributions
taken into account in calculating the ADP test for the year in
which the excess arose, beginning with the Highly Compensated
Employee with the largest amount of such Employer
Contributions and continuing in descending order until all the
Excess Deferrals have been allocated. For purposes of the
preceding sentence, the "largest amount" is determined after
distribution of any Excess Deferrals.
If the ADP test has not been satisfied when
the actual deferral rates of the Highly Compensated Employee
with the highest ratio has been reduced to equal the ratio of
the Highly Compensated Employee with the next highest actual
deferral ratio, then the process shall be repeated until the
ADP test has been satisfied. The Excess Deferrals are to be
distributed to those Highly Compensated Employees for whom a
reduction is made in order to satisfy the ADP test.
If such excess amounts are distributed more
than 2 1/2 months after the last day of the Plan Year in which
such excess amounts arose, a 10 percent excise tax will be
imposed on the Employer maintaining the Plan with respect to
such amounts.
(vi) SPECIAL RULES FOR ADP TEST.
a. A Participant is a Highly
Compensated Employee for a particular Plan Year if he
or she meets the definition of a Highly
5
<PAGE>
Compensated
Employee in effect for that Plan Year. Similarly, a
Participant is a Non-Highly Compensated Employee for
a particular Plan Year if he or she does not meet the
definition of a Highly Compensated Employee in effect
for that Plan Year.
b. The ADP for any Participant who
is a Highly Compensated Employee for the Plan Year
and who is eligible to make Elective Deferrals (and
receive Qualified Nonelective Contributions or
Qualified Matching Contributions, or both, if treated
as Elective Deferrals for purposes of the ADP test)
under two or more arrangements described in Section
401(k) of the Code, that are maintained by the
Employer, shall be determined as if such Elective
Deferral (and, if applicable, such Qualified
Nonelective Contributions or Qualified Matching
Contributions, or both) were made under a single
arrangement. For Plan Years beginning after December
31, 1988, if a Highly Compensated Employee
participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the
same calendar year shall be treated as a single
arrangement.
c. In the event that this Plan
satisfies the requirements of Sections 401(k),
401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other
plans satisfy the requirements of such sections of
the Code only if aggregated with this Plan, then this
section shall be applied by determining the ADP of
Employees as if all such plans were a single plan.
Any adjustments to the Non-Highly Compensated
Employee ADP for the prior year will be made in
accordance with Notice 98-1 and any superseding
guidance, unless the Employer has elected to use the
Current Year Testing method. Plans may be aggregated
in order to satisfy Section 401(k) of the Code only
if they have the same Plan Year and use the same ADP
testing method. For Plan Years beginning after
December 31, 1988, an
6
<PAGE>
Employee Stock Ownership Plan may not be aggregated
with this Plan.
To the extent administratively
feasible, corrective distributions of Excess
Deferrals shall be made within 2 1/2 months after the
end of the Plan Year with respect to which the
contribution was made in order to avoid a 10 percent
penalty tax on the Employer. The amount of Excess
Deferrals to be distributed pursuant to this section
shall be reduced by the amount of: (a) any Excess
Deferrals previously distributed to such Employee for
the Employee's taxable year ending with or within the
Plan Year; and (b) any Excess Deferral previously
distributed.
(vii) DETERMINATION OF ALLOCABLE INCOME OR
LOSS. Any distribution of Excess Deferrals which are caused by
the application of the ADP test shall be adjusted for any
income or loss allocable to such Excess Deferrals. The
allocable income or loss allocated to each Participant shall
be determined in the same manner as provided herein for
determining the income or loss allocable to excess Elective
Deferrals caused by the $7,000 (indexed) limit except that (a)
the period shall be the plan year, and (b) if Qualified
Matching Contributions or Qualified Nonelective Contributions,
or both, are taken into account in the ADP test, then the
Participant's Qualified Matching Contribution Account or
Qualified Nonelective Contribution Account, or both if
applicable, shall be combined with the Participant's Elective
Deferral Account in making the determination. A reasonable
method shall be used for computing the income allocable to
Excess Deferrals which is used consistently for all
Participants and for all corrective distributions for such
year, which is used for allocating income and earnings to
Participant's accounts under Section 7 herein and does not
result in discrimination in favor of Highly Compensated
Employees. Income and loss allocable for the period from the
end of such Plan Year to the date of distribution shall not be
included.
(viii) ACCOUNTING FOR EXCESS DEFERRALS.
Excess Deferrals which are caused by the application of the
ADP test shall be distributed from the Participant's Elective
Deferral Account and Qualified Matching Contribution Account
7
<PAGE>
(if applicable) in proportion to the Participant's Elective
Deferrals and Qualified Matching Contributions (to the extent
used in the ADP test) for the Plan Year. Excess Deferrals
shall be distributed from the Participant's Qualified
Nonelective Contribution Account only to the extent that such
Excess Deferrals exceed the balance in the Participant's
Elective Deferral Account and Qualified Matching Contribution
Account.
a. For purposes of determining if
the ADP test has been satisfied, corrective
distributions of Elective Deferrals, Qualified
Nonelective Contributions and Qualified Matching
Contributions must be made before the last day of the
12-month period immediately following the Plan Year
to which contributions relate.
b. Employer shall maintain records
sufficient to demonstrate satisfaction of the ADP
test and the amount of Qualified Nonelective
Contributions or Qualified Matching Contributions, or
both, used in such test.
c. Actual deferral ratios and
percentages shall be calculated to the nearest
one-hundredth of one percent of Annual Compensation.
5. Section 5.6 is hereby amended to read as follows:
"5.6 ACP TEST FOR EMPLOYEE AND MATCHING
CONTRIBUTIONS.
(a) GENERAL. Employer Matching Contributions
and the allocation thereof must meet the Actual Contribution
Percentage test (the "ACP" test). The ACP test is the same as
the ADP test in Section 5.2(d) except that Employer Matching
Contributions are tested instead of Employee Elective
Deferrals and Qualified Employer Matching Contributions taken
into account under the ADP test shall not be counted.
(b) MULTIPLE USE LIMITATION. If one or more
Highly Compensated Employees is included in the ADP test and
in the ACP test, then the sum of the ADP and the ACP for those
Highly Compensated Employees may not exceed the multiple use
limitation. The multiple use limitation is the sum of:
(i) 125 percent of the greater of
the ADP of the Non-Highly Compensated Employees for
the Plan Year or the ACP of Non-Highly Compensated
Employees under the Plan subject to Code Section
401(m) for the Plan Year beginning with or within the
Plan Year of the CODA; and
8
<PAGE>
(ii) The lesser of 200 percent or
two plus the lesser of such ADP or ACP.
(c) SPECIAL RULES FOR ACP TEST.
(i) A Participant is a Highly
Compensated Employee for a particular Plan Year if he
or she meets the definition of a Highly Compensated
Employee in effect for that Plan Year. Similarly, a
Participant is a Non-Highly Compensated Employee for
a particular Plan Year if he or she does not meet the
definition of a Highly Compensated Employee in effect
for that Plan Year.
(ii) For purposes of the ACP test,
the Contribution Percentage for any Participant who
is a Highly Compensated Employee and who is eligible
to have Contribution Percentage Amounts allocated to
his or her account under two or more plans described
in Section 401(a) of the Code, or arrangements
described in Section 401(k) of the Code that are
maintained by the Employer, shall be determined as if
the total of such Contribution Percentage Amounts was
made under each Plan.
(iii) If a Highly Compensated
Employee participates in two or more cash or deferred
arrangements that have different Plan Years, all cash
or deferred arrangements ending with or within the
same calendar year shall be treated as a single
arrangement.
(iv) Multiple Use: If one or more
Highly Compensated Employees participate in both a
Cash or Deferred Arrangement and a plan subject to
the ACP test maintained by the Employer and the sum
of the ADP and ACP of those Highly Compensated
Employees subject to either or both tests exceeds the
multiple use limit set forth in (b) above, then the
ACP of those Highly Compensated Employees who also
participate in a Cash or Deferred Arrangement will be
reduced so that the limit is not exceeded. The amount
by which each Highly Compensated Employee's
Contribution Percentage Amounts is reduced shall be
9
<PAGE>
treated as an Excess Aggregate Contribution. The ADP
and ACP of the Highly Compensated Employees are
determined after any corrections required to meet the
ADP and ACP tests and are deemed to be the maximum
permitted under such tests for the Plan Year.
Multiple use does not occur if either the ADP and ACP
of the Highly Compensated Employees does not exceed
1.25 multiplied by the ADP and ACP of the Non-Highly
Compensated Employees.
(iv) In the event that this Plan
satisfies the requirements of Sections 401(m),
401(a)(4) or 410(b) of the Code only if aggregated
with one or more other plans, or if one or more other
plans satisfy the requirements of such Sections of
the Code only if aggregated with this Plan, then this
section shall be applied by determining the
Contribution Percentage of Employees as if all such
plans were a single plan.
Any adjustments to the Non-Highly
Compensated Employee ACP for the prior year will be
made in accordance with Notice 98-1 and any
superseding guidance, unless the Employer has elected
to use the Current Year Testing method. Plans may be
aggregated in order to satisfy Section 401(m) of the
Code only if they have the same Plan Year and use the
same ACP testing method.
(v) For purposes of determining
the Contribution Percentage test, Employee
Contributions are considered to have been made in the
Plan Year in which contributed to the Trust. Matching
Contributions and Qualified Nonelective Contributions
will be considered made for a Plan Year if made no
later than the end of the 12-month period beginning
on the day after the close of the Plan Year.
(vi) Employer shall maintain
records sufficient to demonstrate satisfaction of the
ACP test and the amount of Qualified Nonelective
10
<PAGE>
Contributions or Qualified Matching Contributions, or
both, used in such test.
(D) DEFINITIONS.
(i) "Aggregate Limit" shall mean
the sum of (i) 125 percent of the greater OF THE ADP
OF THE NON-HIGHLY COMPENSATED EMPLOYEES FOR THE PRIOR
Plan Year or the ACP of Non-Highly Compensated
Employees under the Plan subject to Section 401(m) of
the Code for the Plan YEAR BEGINNING WITH OR WITHIN
THE PRIOR Plan Year of the CODA and (ii) the lesser
of 200 percent or 2 plus the lesser of such ADP or
ACP. "Lesser" is substituted for "greater" in "(i)",
above, and "greater" is substituted for "lesser"
after "2 plus the" in "(ii)" if it would result in a
larger Aggregate Limit. If the Employer has elected
to use the Current Year Testing method, then, in
calculating the Aggregate Limit for a particular Plan
Year, the Non-Highly Compensated Employees' ADP and
ACP for that Plan Year, instead of for the prior Plan
Year, is used.
(ii) "Average Contribution
Percentage" shall mean the average of the
Contribution Percentages of the Eligible Participants
in a group.
(iii) "Contribution Percentage"
shall mean the ratio (expressed as a percentage) of
the Participant's Contribution Percentage Amounts to
the Participant's compensation for the Plan Year. For
purposes of the Participant's initial Plan Year of
participation, Annual Compensation shall only be
counted from the Participant's Entry Date.
(iv) "Contribution Percentage
Amounts" shall mean the sum of the Employee Elective
Deferrals, Employer Matching Contributions and
Qualified Matching Contributions (to the extent not
taken into account for purposes of the ADP test) made
under the Plan on behalf of the Participant for the
Plan Year. Such Contribution Percentage Amounts shall
include forfeitures of Excess Aggregate Contributions
11
<PAGE>
or Matching Contributions allocated to the
Participant's Account which shall be taken into
account in the year in which such forfeiture is
allocated. Administrator may include Qualified
Nonelective Contributions in the Contribution
Percentage Amounts. Administrator also may elect to
use Elective Deferrals in the Contribution Percentage
Amounts so long as the ADP test is met before the
Elective Deferrals are used in the ACP test and
continues to be met following the exclusion of those
Elective Deferrals that are used to meet the ACP
test.
(v) "Eligible Participant" shall
mean any Employee who is eligible to make an Employee
Contribution, or an Elective Deferral (if the
Employer takes such contributions into account in the
calculation of the Contribution Percentage), or to
receive a Matching Contribution (including
forfeitures) or a Qualified Matching Contribution. If
an Employee Contribution is required as a condition
of participation in the Plan, any Employee who would
be a Participant in the Plan if such Employee made
such a contribution shall be treated as an Eligible
Participant on behalf of whom no Employee
Contributions are made.
(vi) "Employee Contribution" shall
mean any contribution made to the Plan by or on
behalf of a Participant that is included in the
Participant's gross income in the year in which made
and that is maintained under a separate account to
which earnings and losses are allocated.
(vii) "Matching Contribution" shall
mean an Employer Contribution made to this or any
other defined contribution plan on behalf of a
Participant on account of an Employee Contribution
made by such Participant, or on account of a
Participant's Elective Deferral, under a plan
maintained by the Employer."
6. Section 5.7(a) is hereby amended to read as follows:
12
<PAGE>
"(a) GENERAL. Excess Aggregate Contributions, plus
any income and minus any loss allocable thereto, shall be forfeited, if
forfeitable, or if not forfeitable, distributed no later than the last
day of each Plan Year to Participants to whose accounts such Excess
Aggregate Contributions were allocated for the preceding Plan Year.
Excess Aggregate Contributions are allocated to the
Highly Compensated Employees with the largest Contribution Percentage
Amounts taken into account in calculating the ACP test for the year in
which the excess arose, beginning with the Highly Compensated Employee
with the largest amount of such Contribution Percentage Amounts and
continuing in descending order until all the Excess Aggregate
Contributions have been allocated. For purposes of the preceding
sentence, the "largest amount" is determined after distribution of any
Excess Aggregate Contributions.
If such Excess Aggregate Contributions are
distributed more than 2 1/2 months after the last day of the Plan Year
in which such excess amounts arose, a 10 percent excise tax will be
imposed on the Employer maintaining the Plan with respect to those
amounts.
"Excess Aggregate Contributions" shall mean, with
respect to any Plan Year, the excess of:
(i) The aggregate Contribution Percentage
Amounts taken into account in computing the numerator of the
Contribution Percentage actually made on behalf of Highly
Compensated Employees for such Plan Year, over
(ii) The maximum Contribution Percentage
Amounts permitted by the ACP test (determined by reducing
contributions made on behalf of Highly Compensated Employees
in order of their Contribution Percentages beginning with the
highest of such percentages).
Such determination shall be made after first
determining excess Elective Deferrals and then determining
excess Employer Contributions."
13
<PAGE>
7. Section 5.7(b) is hereby amended to read as follows:
"(b) DISPOSITION OF EXCESS EMPLOYER CONTRIBUTIONS. Excess
Employer Contributions and attributable earnings shall
be distributed and forfeited as follows:
(i) The vested portion of the
excess amount shall be distributed to the Participant
on whose behalf the contribution was made within the
time limitations set forth in Section 5.3.
(ii) The non-vested portion of the
excess amount shall be forfeited and allocated in the
manner provided in for Employer Matching
Contributions, except no such forfeiture shall be
allocated to the account of any Highly Compensated
Employee who incurred the forfeiture.
Excess Employer Contributions are allocated
to the Highly Compensated Employees with the largest
Contribution Percentage Amounts taken into account in
calculating the ACP test for the year in which the excess
arose, beginning with the Highly Compensated Employee with the
largest amount of such Contribution Percentage Amounts and
continuing in descending order until all the Excess Employer
Contributions have been allocated. For purposes of the
preceding sentence, the "largest amount" is determined after
distribution of any Excess Employer Contributions. If such
Excess Employer Contributions are distributed more than 2 1/2
months after the last day of the Plan Year in which such
excess amounts arose, a 10 percent excise tax will be imposed
on the Employer maintaining the Plan with respect to those
amounts. Excess Employer Contributions shall be treated as
annual additions under the Plan."
8. Section 5.7(d) is hereby amended to read as follows:
"(d) DETERMINATION OF INCOME OR LOSS. Excess
Employer Contributions shall be adjusted for any income or
loss up to the date of distribution. The income or loss
allocable to Excess Employer Contributions allocated to each
Participant is the income or loss allocable to the
Participant's Employee Contribution Account, Matching
Contribution Account (if any, and if all amounts therein are
not used in the ADP test) and, if applicable, Qualified
Nonelective Contribution Account and Elective Deferral Account
for the Plan Year and shall be determined under a reasonable
method used consistently for all Participants and all
corrective distributions, which is used for allocating income
to Participant's accounts under Section 7 herein and does not
result in discrimination in favor of Highly Compensated
Employees."
14
<PAGE>
9. Section 5.13 is hereby amended to read as follows:
"5.13 ADDITIONAL LIMITATIONS REGARDING SELF-EMPLOYED
PLANS. With respect to plans covering self-employed persons,
the following additional limitations shall apply:
(a) A partner's cash or deferred election
must be made before the last day of the partnership's taxable
year for which the Elective Deferral is made. For Plan Years
beginning before January 1, 1992, the time for making such
election must be before the due date (including extensions)
for filing the partnership's tax return for its taxable year
ending with or within the Plan year.
(b) An Employer Matching Contribution made
on behalf of a partner with respect to the partner's Elective
Deferrals shall be on behalf of the partner subject to all
limitations imposed on Elective Deferrals, if the partnership
deduction for the Matching Contribution is allocated to the
partner for whom it is made."
10. Section 10.4(b) is amended to read as follows:
"(B) THE REQUIRED BEGINNING DATE. The
required beginning date of a Participant is the later of the
April 1 of the calendar year following the calendar year in
which the Participant attains age 70 1/2 or retires except
that benefit distributions to a five percent owner must
commence by the April 1 of the calendar year following the
calendar year in which the Participant attains age 70 1/2.
(i) Any Participant attaining age
70 1/2 in years after 1995 may elect by April 1 of
the calendar year following the year in which the
Participant attained age 70 1/2, (or by December 31,
1997 in the case of a Participant attaining age 70
1/2 in 1996) to defer distributions until the
calendar year following the calendar year in which
the Participant retires. If no such election is made
the Participant will begin receiving distributions by
the April 1 of the calendar year following the year
in which the Participant attained age 70 1/2 (or by
December 31, 1997 in the case of a Participant
attaining age 70 1/2 in 1996).
15
<PAGE>
(ii) Any Participant attaining age
70 1/2 in years prior to 1997 may elect to stop
distributions and recommence by the April 1 of the
calendar year following the year in which the
Participant retires. There is a new annuity starting
date upon recommencement.
(iii) The preretirement age 70 1/2
distribution option is only eliminated with respect
to Employees who reach age 70 1/2 in or after a
calendar year that begins after the later of December
31, 1998, or the adoption date of the amendment. The
preretirement age 70 1/2 distribution option is an
optional form of benefit under which benefits payable
in a particular distribution form (including any
modifications that may be elected after benefit
commencement) commence at a time during the period
that begins on or after January 1 of the calendar
year in which an Employee attains age 70 1/2 and ends
April 1 of the immediately following calendar year.
(iv) FIVE PERCENT OWNER. A
Participant is treated as a five percent owner for
purposes of this section if such Participant is a
five percent owner as defined in Section 416 of the
Code at any time during the Plan Year ending with or
within the calendar year in which such owner attains
age 70 1/2.
(v) Once distributions have begun
to a five percent owner under this section, they must
continue to be distributed, even if the Participant
ceases to be a five percent owner in a subsequent
year."
11. Section 17.7 is amended to read as follows:
"17.7 LIQUIDATION OF PLAN AND TRUST. If the Primary
Employer elects to terminate the Plan and Trust, the Primary Employer
shall direct Trustee to distribute the assets remaining in the Trust
after payment of any expenses properly chargeable against the Trust to
16
<PAGE>
the Participants in the amounts credited to their accounts as of the
date of such termination. If a Participant's Account balance under the
Plan exceeds $3,500 and the Participant does not consent to an
immediate distribution: (a) Administrator may purchase and distribute
from a commercial provider an annuity contract for such Participant
with the Participant's Account balance if an annuity option is
otherwise available under the terms of this Plan; or (b) If the
Employer has not elected an annuity option from a commercial provider
in the Adoption Agreement (i) the Participant's Account may be
transferred without the Participant's consent to another plan
maintained by a Related Employer; or (ii) if no other plan is
maintained by a Related Employer the Account may then be distributed to
the Participant without the consent of the Participant; provided,
however, Participant Elective Deferrals, Qualified Employer Matching
Contributions, Qualified Employer Nonelective Contributions and income
attributable thereto, may be distributed to Participants or their
Beneficiaries, provided that neither the Employer or a Related Employer
establishes or maintains a Successor Plan at the time of the
termination of the Plan or within the period ending 12 months after the
final distribution of assets. If Employer maintains a Successor Plan,
the Participant's Accounts may be transferred to the Successor Plan. A
"Successor Plan" means another defined contribution plan maintained by
the same Employer, other than an ESOP, a Simplified Employee Pension
Plan (as defined in Section 408(k) of the Code) or a SIMPLE IRA Plan
(as defined in Section 408(p) of the Code). If fewer than two percent
of the Eligible Employees under this Plan at the time of its
termination, are or were eligible under the other defined contribution
plan at any time during the 24-month period beginning 12 months before
the time of termination, then the other plan is not treated as a
"Successor Plan." A distribution made after March 31, 1988, pursuant to
Plan termination, must be part of a lump-sum distribution to the
Participant of his Plan Benefit."
12. Section 19.1-4 is amended to read as follows:
"19.1-4 If pursuant to Section 19.1-3 or as a result
of the allocation of forfeitures there is an Excess Amount, the excess
will be disposed of as follows:
(a) Any Nondeductible Voluntary Employee
Contributions (plus attributable earnings), to the extent they
17
<PAGE>
would reduce the Excess Amount, will be returned to the
Participant;
(b) If after the application of paragraph
(a) an Excess Amount still exists, any Elective Deferrals
(plus attributable earnings), to the extent they would reduce
the Excess Amount, will be distributed to the Participant.
(c) If after the application of paragraph
(a), an Excess Amount still exists and the Participant is
covered by this Plan at the end of the limitation year, the
Excess Amount will be used to reduce Employer Contributions
(including allocation of any forfeitures) for such
Participants in the next limitation year, and each succeeding
limitation year if necessary.
(d) Neither the Employer nor any Employee
may contribute to the Plan for any Limitation Year in which
the Plan is unable to allocate fully a suspense account
maintained pursuant to this paragraph (d).
(e) If after the application of paragraph
(a) an excess amount still exists and the Participant is not
covered by this Plan at the end of the limitation year, the
excess amount will be held unallocated in a suspense account.
The suspense account will be applied to reduce future Employer
Contributions (including allocation of any forfeitures) for
all remaining Participants in the next limitation year, and
each succeeding limitation year if necessary.
(f) If a suspense account is in existence at
any time during the limitation year pursuant to this section,
it will not participate in the allocation of the Trust's
investment gains and losses. If a suspense account is in
existence at any time during a particular limitation year, all
amounts in the suspense account must be allocated and
reallocated to Participants' Accounts before any Employer or
any Employee Contributions may be made to the Plan for that
limitation year. Excess amounts may not be distributed to
Participants or former Participants."
18
<PAGE>
13. Section 19.5-4 is amended to read as follows:
"19.5-4 DEFINED CONTRIBUTION DOLLAR LIMITATION: $30,000
as adjusted pursuant to Section 415(d) of the Code and the
Regulations thereunder."
14. A new provision shall be added to read as follows:
"USERRA PROVISIONS. Notwithstanding any provision of
this Plan to the contrary, contributions, benefits and service credit
with respect to qualified military service will be provided in
accordance with Section 414(u) of the Code."
19
<PAGE>
II.
This amendment shall be effective as of the first day
of the Plan Year beginning after December 31, 1996. DATED
THIS 31ST day of December, 1999.
EMPLOYER:
CFI PROSERVICES, INC.
BY: \S\ ROBERT P. CHAMNESS
----------------------
President
20
Exhibit 21
SUBSIDIARIES OF CFI PROSERVICES, INC., DBA CONCENTREX INCORPORATED
Name of Subsidiary and Percentage of Securities Owned
JURISDICTION IN WHICH ORGANIZED DIRECTLY BY CFI PROSERVICES, INC.
ULTRADATA Corporation (Delaware) 100%
MECA Software, L.L.C. (Delaware) 99%
MoneyScape Holdings, Inc. (Oregon) 100%
<PAGE>
Exhibit 23
Consent of Independent Public Accountants
As independent public accountants, we hereby consent to the incorporation of our
reports dated January 28, 2000 included in this Form 10-K into the Company's
previously filed Registration Statements File No. 33-70506, No. 33-89872, No.
333-11351, No. 333-87901 and No. 333-32820 on Form S-8.
ARTHUR ANDERSEN LLP
Portland, Oregon
March 30, 2000
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<S> <C>
<PERIOD-START> Jan-01-1999
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> Dec-31-1999
<PERIOD-END> Dec-31-1999
<CASH> 1,289
<SECURITIES> 0
<RECEIVABLES> 44,206
<ALLOWANCES> 3,268
<INVENTORY> 583
<CURRENT-ASSETS> 51,648
<PP&E> 20,426
<DEPRECIATION> 12,894
<TOTAL-ASSETS> 144,766
<CURRENT-LIABILITIES> 55,234
<BONDS> 63,606
728
0
<COMMON> 25,703
<OTHER-SE> (2,981)
<TOTAL-LIABILITY-AND-EQUITY> 144,766
<SALES> 9,037
<TOTAL-REVENUES> 107,081
<CGS> 3,596
<TOTAL-COSTS> 42,625
<OTHER-EXPENSES> 74,644
<LOSS-PROVISION> 2,097
<INTEREST-EXPENSE> 4,975
<INCOME-PRETAX> (14,725)
<INCOME-TAX> (894)
<INCOME-CONTINUING> (13,924)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (13,924)
<EPS-BASIC> (2.71)
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