<PAGE>
SCHEDULE 14A INFORMATION
(RULE 14a-101)
INFORMATION REQUIRED IN PROXY STATEMENT
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(a) OF
THE SECURITIES EXCHANGE ACT OF 1934
Filed by the Registrant /X/
Filed by a Party other than the Registrant / /
Check the appropriate box:
/ / Preliminary proxy statement
/X/ Definitive proxy statement
/ / Definitive additional materials
/ / Soliciting material pursuant to Rule 14a-11(c) or Rule 14a-12
C-ATS SOFTWARE INC.
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(Name of Registrant as Specified In Its Charter)
C-ATS SOFTWARE INC.
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(Name of Person(s) Filing Proxy Statement)
Payment of filing fee (Check the appropriate box):
/X/ No fee required.
/ / Fee computed on table below per Exchange Act Rules 14a-6(i)(4)
and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11:(1)
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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/X/ Fee paid previously with preliminary materials.
/ / Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the form or schedule and the date of its filing.
(1) Amount previously paid:
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(2) Form, schedule or registration statement no.:
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(3) Filing party:
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(4) Date filed:
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(1) Set forth the amount on which the filing fee is calculated and state how it
was determined.
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C-ATS SOFTWARE INC.
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
---------------------
TO THE SHAREHOLDERS OF C-ATS SOFTWARE INC.
NOTICE IS HEREBY GIVEN that the 1997 Annual Meeting of Stockholders of C-ATS
Software Inc., a Delaware corporation (the "Company"), will be held on Tuesday,
May 20, 1997 at 2:00 p.m., local time, at the offices of the Company, 1870
Embarcadero Road, Palo Alto, California 94303, telephone (415) 321-3000 for the
following purposes:
1. To elect six (6) directors to serve for the ensuing year and until their
successors are duly elected and qualified.
2. To approve an amendment to the Company's 1995 Stock Plan to increase the
number of shares of Common Stock available for grant under the plan by
1,000,000 shares.
3. To ratify the appointment of Arthur Andersen LLP as independent auditors
of the Company for the fiscal year ending December 31, 1997.
4. To transact such other business as may properly come before the meeting
and at any and all continuations or adjournments thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 31, 1997 are
entitled to notice of and to vote at the meeting and any continuation or
adjournment thereof.
By Order of the Board of Directors
Rod A. Beckstrom,
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD
Palo Alto, California
April 21, 1997
YOUR VOTE IS IMPORTANT
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE ANNUAL MEETING IN
PERSON. HOWEVER, TO ENSURE YOUR REPRESENTATION AT THE MEETING, YOU ARE URGED TO
MARK, SIGN, DATE AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN THE
POSTAGE-PAID ENVELOPE ENCLOSED FOR THAT PURPOSE. RETURNING YOUR PROXY WILL HELP
THE COMPANY ENSURE A QUORUM AND AVOID THE ADDITIONAL EXPENSE OF DUPLICATE PROXY
SOLICITATIONS. ANY STOCKHOLDER ATTENDING THE MEETING MAY VOTE IN PERSON EVEN IF
HE OR SHE HAS RETURNED THE PROXY.
<PAGE>
C-ATS SOFTWARE INC.
1870 EMBARCADERO ROAD
PALO ALTO, CALIFORNIA 94303
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PROXY STATEMENT
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
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INFORMATION CONCERNING SOLICITATION AND VOTING
GENERAL
The enclosed proxy is solicited on behalf of C-ATS Software Inc. (the
"Company") for the 1997 Annual Meeting of Stockholders to be held on Tuesday,
May 20, 1997, at 2:00 p.m., local time (the "Annual Meeting"), and at any and
all continuations or adjournments thereof, for the purposes set forth herein and
in the accompanying Notice of Annual Meeting of Stockholders. The Annual Meeting
will be held at the principal executive offices of the Company, 1870 Embarcadero
Road, Palo Alto, California 94303. The telephone number at this address is (415)
321-3000.
These proxy solicitation materials were mailed on or about April 21, 1997 to
all stockholders entitled to vote at the Annual Meeting.
PURPOSES OF THE ANNUAL MEETING
The purposes of the Annual Meeting are to (1) elect six directors to serve
for the ensuing year and until their successors are duly elected and qualified,
(2) approve an amendment to the Company's 1995 Stock Plan to increase the number
of shares of Common Stock available for grant thereunder, (3) ratify the
appointment of Arthur Andersen LLP as the Company's independent accountants for
the fiscal year ending December 31, 1997 and (4) transact such other business as
may properly come before the meeting and at any and all continuations or
adjournments thereof.
RECORD DATE AND SHARE OWNERSHIP
Only stockholders of record at the close of business on March 31, 1997 (the
"Record Date") are entitled to receive notice of and to vote at the Annual
Meeting. As of the Record Date, the Company had outstanding 6,709,634 shares of
Common Stock. For information regarding holders of more than 5% of the
outstanding Common Stock, see "Share Ownership of Directors, Officers and
Certain Beneficial Owners." The closing price of the Company's Common Stock on
the Record Date, as reported by the Nasdaq National Market, was $4.875 per
share.
REVOCABILITY OF PROXIES
Any person giving a proxy in the form accompanying this statement has the
power to revoke it at any time before it is voted by delivering to the Secretary
of the Company at the Company's principal executive office, 1870 Embarcadero
Road, Palo Alto, California 94303, a written notice of revocation or a duly
executed proxy bearing a later date, or by attending the meeting and voting in
person.
VOTING AND SOLICITATION
Each stockholder voting for the election of directors may cumulate his or
her votes, giving one candidate a number of votes equal to the number of
directors to be elected multiplied by the number of shares which the stockholder
is entitled to vote, or distributing the stockholder's votes under the same
principle among as many candidates as the stockholder chooses, provided that
votes may not be cast for
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more than six (6) candidates. However, no stockholder shall be entitled to
cumulate votes for any candidate unless the candidate's name has been placed in
nomination prior to the voting. On all other matters, each share has one vote.
Votes cast by proxy or in person at the Annual Meeting will be tabulated by
the Inspector of Elections (the "Inspector") with the assistance of the
Company's transfer agent. The Inspector will also determine whether or not a
quorum is present. Except with respect to the election of directors where
cumulative voting is involved and except in certain other specific
circumstances, the affirmative vote of a majority of shares present in person or
represented by proxy at a duly held meeting at which a quorum is present is
required under Delaware law for approval of proposals presented to stockholders.
In general, Delaware law also provides that a quorum consists of a majority of
the shares entitled to vote and present or represented by proxy at the meeting.
The Inspector will treat abstentions as shares that are present and entitled to
vote for purposes of determining the presence of a quorum but will not treat
abstentions as votes in favor of approving any matter submitted to the
stockholders for a vote. Any proxy which is returned using the form of proxy
enclosed and which is not marked as to a particular item will be voted for the
election of directors, for approval of the amendment of the 1995 Stock Plan, for
ratification of the appointment of the designated independent auditors and as
the proxy holders deem advisable on other matters that may come before the
meeting. If a broker indicates on the enclosed proxy or its substitute that it
does not have discretionary authority as to certain shares to vote on a
particular matter ("broker non-votes"), those shares will not be considered as
present with respect to that matter. The Company believes that the tabulation
procedures to be followed by the Inspector are consistent with the general
statutory requirements in Delaware concerning voting of shares and determination
of a quorum.
The cost of soliciting proxies will be borne by the Company. The Company has
retained the services of Skinner & Company to aid in the solicitation of proxies
from bankers, bank nominees and other institutional owners. The Company
estimates that it will pay Skinner & Co. a fee not to exceed $3,500.00 for its
services and will reimburse Skinner & Co. for certain out-of-pocket expenses.
The Company also may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. In addition, the Company's directors,
officers and employees, without receiving any additional compensation, may
solicit proxies personally or by telephone, telegraph or facsimile copy.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be presented
by such stockholders at the Company's 1998 Annual Meeting of Stockholders must
be received by the Company no later than December 31, 1997, in order that they
may be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
PROPOSAL 1
ELECTION OF DIRECTORS
A board of six directors is to be elected at the Annual Meeting. Unless
otherwise instructed by the stockholder, the proxy holders will vote the proxies
received by them for the Company's nominees named below. All nominees are
currently directors of the Company. Mr. William Sharpe is not standing for re-
election. In the event that any nominee of the Company is unable or declines to
serve as a director at the time of the Annual Meeting, the proxies will be voted
for any nominee who shall be designated by the present Board of Directors to
fill the vacancy. It is not expected that any nominee will be unable or will
decline to serve as a director. In the event that additional persons are
nominated for election as directors, the proxy holders intend to vote all
proxies received by them in such a manner and in accordance with cumulative
voting as will assure the election of as many of the nominees listed below as
possible, and in such event the specific nominees to be voted for will be
determined by the proxy holders. The term of
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office of each person elected as a director will continue until the next Annual
Meeting of Stockholders or until a successor has been duly elected and
qualified.
THE BOARD OF DIRECTORS RECOMMENDS THAT STOCKHOLDERS
VOTE "FOR" THE NOMINEES LISTED BELOW.
NOMINEES FOR DIRECTOR
The names of the nominees, each of whom is currently a director of the
Company, and certain information about them is set forth below, including
information furnished by them as to their principal occupation for the last five
years, certain other directorships held by them and their ages as of March 31,
1997:
<TABLE>
<CAPTION>
DIRECTOR
NAME AGE POSITION WITH THE COMPANY SINCE
- ----------------------------------------------------- --- ------------------------------------------- -----------
<S> <C> <C> <C>
Rod A. Beckstrom..................................... 36 Chief Executive Officer and Chairman 1988
Robert Geske......................................... 52 Director 1996
Manuel Correia (2)................................... 62 Director 1995
Mark P. Kalkus (1)................................... 34 Director 1990
Andrew S. Rachleff (1)............................... 38 Director 1990
Mario M. Rosati (1).................................. 50 Director and Secretary 1989
</TABLE>
- ------------------------
(1) Member of the Compensation Committee.
(2) Member of the Audit Committee.
Rod A. Beckstrom was a founder of the Company and has been Chief Executive
Officer and Chairman since 1988. Before founding the Company, Mr. Beckstrom
worked at Morgan Stanley International in London as a swaps trader. Mr.
Beckstrom received a B.A. in economics and an M.B.A. from Stanford University.
Manual Correia became a Director of the Company in January 1995. Since 1994,
Mr. Correia has been Vice President, Technical Services of Cadence Design
System, Inc. Mr. Correia joined Cadence in 1990 as Vice President, Customer
Service. From 1988 to 1990, Mr. Correia was Vice President, Marketing and
Customer Service for Gateway Design Automation. Mr. Correia received a B.S.
degree in electrical engineering from Northeastern University and a M.S. degree
in management sciences from State University of New York.
Robert Geske became a Director of the Company in February 1996. Dr. Geske
was a co-founder and Chairman and CEO of LOR/Geske Bock Associates, Inc. from
1986 to 1996. He currently serves as a Professor of Finance at the University of
California, Los Angeles and as Vice-President of C-ATS Software, Inc. Dr. Geske
has published numerous articles and served as an Associate Editor for the
Journal of Financial and Quantitative Analysis and the Journal for Portfolio
Management. From 1980 to 1986, he was a partner in the investment banking firm
of Houlihan, Lokey, Howard, Zukin, Inc. Dr. Geske received his Ph.D. in finance
from the University of California, Berkeley.
Mark P. Kalkus became a Director of the Company in 1990. Mr. Kalkus has been
President and Chief Operating Officer of Lamar Companies, a real estate
investment concern, since 1992. From 1988 to 1992, Mr. Kalkus was Vice President
of Lamar Companies. Mr. Kalkus received a B.A. degree in economics and
psychology and a J.D. from Stanford University.
Andrew S. Rachleff has been a Director of the Company since 1990. Mr.
Rachleff has been a general partner of Benchmark Capital since 1995, and has
been a general partner with Merrill, Pickard Andersen & Eyre since 1989. Mr.
Rachleff received a B.S. degree from the University of Pennsylvania and an
M.B.A. from Stanford University. Mr. Rachleff is also a director of several
privately held companies.
3
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Mario M. Rosati has been a Director of the Company since 1989 and Secretary
since 1988. Mr. Rosati is a member of the law firm of Wilson Sonsini Goodrich &
Rosati. Mr. Rosati received a B.A. degree from the University of California at
Los Angeles and a J.D. from the Boalt Hall School of Law at the University of
California at Berkeley. Mr. Rosati is a director of Genus, Inc., Ross System,
Inc., Parallan Computer, Inc., Sanmina Corporation and several privately held
companies.
There is no family relationship between any of the foregoing nominees or
between any of such nominees and any of the Company's executive officers.
BOARD MEETINGS AND COMMITTEES
During the fiscal year ended December 31, 1996 (the "Last Fiscal Year"), the
Board of Directors held a total of five (5) meetings and took one (1) action by
written consent. Each of the incumbent directors attended at least 75% of all
meetings of the Board of Directors and of the committees, if any, upon which
such director served.
The Audit Committee, which currently consists of directors Manuel Correia
and William F. Sharpe, was established to review, in consultation with the
independent accountants, the Company's financial state-ments, accounting and
other policies, accounting systems and system of internal controls. The Audit
Committee also recommends the engagement of the Company's independent
accountants and reviews other matters relating to the relationship of the
Company with its accountants. The Audit Committee met once during the Last
Fiscal Year.
The Compensation Committee, which currently consists of directors Mark P.
Kalkus, Andrew S. Rachleff and Mario M. Rosati, was established to review and
act on matters relating to compensation levels and benefit plans for key
executives of the Company, among other things. The Compensation Committee met
five (5) times during the Last Fiscal Year.
The Board of Directors currently has no nominating committee or a committee
performing a similar function.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
No interlocking relationship exists between the Company's Board of Directors
or Compensation Committee and the Board of Directors or compensation committee
of any other company.
COMPENSATION OF DIRECTORS
Directors are compensated $2,500 per quarter for their services. Directors
are also reimbursed for their expenses incurred in attending Board meetings.
Non-employee directors participate in the 1995 Director Option Plan (the
"Director Plan"). Under the Director Plan, each current non-employee director
has been granted, on the later of January 6, 1995 or the date on which such
individual first became a director, a nonstatutory option to purchase 15,000
shares of Common Stock which has a term of ten years and which vests or will
vest and become exercisable as to one-twelfth (1/12) of the shares at the end of
each three month period from its date of grant, such that each option shall be
fully exercisable three years following its date of grant, based on continued
service as a director (the "First Option"). Provided that shares are then
available under the Director Plan, after the First Option is granted to the
non-employee director, he or she shall automatically be granted an option to
purchase 15,000 shares (a "Subsequent Option") on January 6, 1998 (in the case
of each non-employee director who was a director on January 6, 1995) or the date
three years after such person first became a director, and each three years
thereafter, provided the director is a non-employee director on such date. Such
options have a term of ten years and will vest and become exercisable at the
same rate as the First Options described above. The exercise price of each
option granted under the Director Plan must be equal to 100% of the fair market
value of the Common Stock on the date of grant. During the fiscal year ended
December 31, 1996, options to purchase
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50,000 shares of the Company's Common Stock were granted to Rod A. Beckstrom
pursuant to the Company's 1995 Stock Plan. All of such options have a per share
exercise price of $4.69 and are exercisable over four (4) years. 25% of the
shares subject to the option shall vest 12 months after the vesting commencement
date, and 1/48 of the shares subject to the option shall vest each month
thereafter, so long as Mr. Beckstrom continues to serve.
VOTE REQUIRED
The six nominees receiving the highest number of affirmative votes of the
shares present or represented by proxy and entitled to be voted for them shall
be elected as directors. Votes withheld from any director are counted for
purposes of determining the presence or absence of a quorum for the transaction
of business, but have no other legal effect under Delaware law.
PROPOSAL 2
APPROVAL OF AN AMENDMENT TO THE 1995 STOCK PLAN
The 1995 Stock Plan (the "Stock Plan") was originally adopted by the Board
of Directors in January 1995, and approved by the stockholders in February 1995.
A total of 500,000 shares of Common Stock were initially reserved for issuance
and an additional 1,000,000 shares of Common Stock were reserved for issuance in
December 1995.
PROPOSED AMENDMENTS TO THE STOCK PLAN
In February 1997, the Board of Directors approved an amendment to the Stock
Plan increasing the number of shares reserved for issuance under the Stock Plan
by 400,000 shares, and in April 1997, the Board of Directors approved an
amendment to the Stock Plan increasing the shares reserved for issuance under
the Stock Plan by an additional 600,000 shares, bringing the total shares
currently reserved for issuance on exercise of options under the Stock Plan to
2,500,000.
In 1993, Section 162(m) was added to the United States Internal Revenue Code
of 1986, as amended. Section 162(m) may limit the Company's ability to deduct
for United States Federal income tax purposes compensation in excess of
$1,000,000 paid to the Company's Chief Executive Officer and its four other
highest paid executive officers in any one fiscal year. Grants under the Stock
Plan will not be subject to the deduction limitation if the Stockholders approve
the Stock Plan, including the option grant limitations described below.
The Company believes that grants of stock options and stock purchase rights
motivate high levels of performance and provide an effective means of
recognizing employee contributions to the success of the Company. The Company
believes that this practice is of great value in recruiting and retaining highly
qualified personnel who are in great demand. The Board of Directors believes
that the ability to grant options and stock purchase rights under the Stock
Plan, including in certain cases nonstatutory stock options and stock purchase
rights at below fair market value of the underlying stock, will be important to
the future success of the Company by allowing it to remain competitive in
attracting and retaining such key personnel.
VOTE REQUIRED
Provided that a quorum is present, the affirmative vote of a majority of the
votes cast will be required to approve the amendment to the Stock Plan.
5
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THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 2.
The essential provisions of the Stock Plan are outlined below.
ADMINISTRATION
The Stock Plan may be administered by the Board of Directors or a committee
designated by the Board, which committee shall be constituted to comply with the
rules governing a plan intended to qualify under Rule 16b-3 as a discretionary
plan. The administrators of the Stock Plan are referred to as the
"Administrator."
ELIGIBILITY; LIMITS ON GRANTS
The Stock Plan provides that options and stock purchase rights may be
granted to employees, directors and consultants to the Company, its parent or
subsidiaries. Incentive stock options may be granted only to employees,
including employee directors and officers. The Administrator approves the
participants, the time or times at which options and stock purchase rights shall
be granted and the number of shares to be subject to each option or stock
purchase right.
Section 162(m) of the Code places limits on the deductibility for federal
income tax purposes of compensation paid to certain executive officers of the
Company. In order to preserve the Company's ability to deduct the compensation
income associated with options and stock purchase rights granted to such
persons, the Plan provides that no employee, director or consultant may be
granted, in any fiscal year of the Company, options and stock purchase rights to
purchase more than 450,000 shares of Common Stock.
See discussion below under "Tax Information" for a summary of the more
general rules governing the availability to the Company of tax deductions in
connection with stock options or stock purchase rights granted under the Stock
Plan.
As of December 31, 1996, there were approximately 111 employees, directors,
scientific advisors, and consultants currently eligible to participate in the
Stock Plan, and 106 optionees, including scientific advisors and consultants,
holding outstanding options under the Stock Plan.
TERMS OF OPTIONS
The terms of options and stock purchase rights granted under the Stock Plan
are determined by the Administrator. Each option or stock purchase right is
evidenced by a written agreement between the Company and the optionee to whom
such option or stock purchase right is granted and is subject to the following
additional terms and conditions:
(a) EXERCISE OF THE OPTION: The Administrator determines when options may
be exercisable. Shares subject to an option generally vest and are exercisable
over four (4) years. 25% of the shares subject to the option shall vest 12
months after the vesting commencement date, and 1/48 of the shares subject to
the option shall vest each month thereafter, subject to the optionee continuing
to be a service provider on such date. The Administrator may accelerate the
vesting of any outstanding option. The purchase price of the shares purchased
upon exercise of any option shall be paid, at the discretion of the
Administrator, in cash, check, promissory note, other shares of Common Stock
(with some restrictions), cashless exercise, reduction in the amount of any
Company liability to the optionee or other legally permitted consideration.
(b) EXERCISE PRICE: The exercise price under the Stock Plan is determined
by the Administrator, provided that in the case of an incentive stock option,
the exercise price shall not be less than 100% of the fair market value of the
Common Stock on the date the option is granted, and provided further that in the
case of an incentive stock option granted to an employee who, at the time of
such grant, owns stock representing more than ten percent (10%) of the voting
power of all classes of stock of the Company or
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any parent or subsidiary of the Company, the exercise price shall be no less
than 110% of the fair market value of the Common Stock on the date the option is
granted. In the case of a nonstatutory stock option intended to qualify as
"performance-based" compensation within the meaning of Section 162(m) of the
code, the per share exercise shall not be less than 100% of the fair market
value of the Common Stock on the date of grant.
(c) TERMINATION OF EMPLOYMENT: If an optionee's employment or consultant
relationship terminates for any reason (other than death or disability), then
all options held by the optionee under the Stock Plan expire on the earlier of
(i) the date set forth in his or her notice of grant or (ii) the expiration date
of such option. To the extent the option is exercisable at the time of such
termination, the optionee may exercise all or part of his or her option at any
time before termination.
(d) DEATH OR DISABILITY: If an optionee's employment relationship,
directorship or consulting relationship terminates as a result of death or
disability, then all options held by such optionee under the Stock Plan expire
on the earlier of (i) twelve (12) months from the date of such termination or
(ii) the expiration date of such option. The optionee (or the optionee's estate
or the person who acquires the right to exercise the option by bequest or
inheritance), may exercise all or part of the option at any time before such
expiration to the extent that the option was exercisable at the time of such
termination.
(e) TERMINATION OF OPTIONS: Incentive Stock Options granted under the Stock
Plan expire no later than ten (10) years from the date of grant or such shorter
term as may be provided in the option agreement, and nonstatutory stock options
granted under the Stock Plan expire as determined by the Administrator. However,
in the case of an option granted to an employee who, at the time of such grant,
owns stock representing more than ten percent (10%) of the voting power of all
classes of stock of the Company or any parent or subsidiary of the Company, the
term of an incentive stock option shall not be greater than five (5) years or
such shorter term as may be provided in the option agreement. Under the form of
option agreement currently used by the Company, options generally expire ten
(10) years from the date of grant.
(f) NON-TRANSFERABILITY OF OPTIONS: Subject to the discretion of the
Administrator, options and stock purchase rights are not transferable by the
optionee other than by will or by the laws of descent or distribution and are
exercisable during the optionee's lifetime only by the optionee.
(g) OTHER PROVISIONS: The option agreement may contain such other terms,
provisions and conditions not inconsistent with the Stock Plan as may be
determined by the Administrator.
STOCK PURCHASE RIGHTS
The Stock Plan permits the Company to grant stock purchase rights to
purchase Common Stock of the Company either alone, in addition to, or in tandem
with other awards under the Stock Plan and/or cash awards made outside the Plan.
Upon the granting of a stock purchase right under the Stock Plan, the offeree
shall be advised in writing of the terms, conditions and restrictions related to
the offer, including the number of shares of Common Stock that the offeree shall
be entitled to purchase, the price to be paid and the time within which the
offeree must accept such offer. The offer shall be accepted by execution of a
restricted stock purchase agreement between the Company and the offeree.
Unless the Administrator determines otherwise, the restricted stock purchase
agreement shall grant the Company a repurchase option exercisable upon the
voluntary or involuntary termination of the purchaser's employment or consulting
relationship with the Company for any reason (including death or disability).
The purchase price for shares repurchased pursuant to the restricted stock
purchase agreement shall be the original price paid by the purchaser and may be
paid by cash or check to the Company. The repurchase option shall lapse at such
rate as the administrators may determine.
Upon exercise of a stock purchase right, the purchaser shall have all rights
of a stockholder of the Company.
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CHANGES IN CAPITALIZATION
In the event a change, such as a stock split or stock dividend payable in
Common Stock, is made in the Company's capitalization which results in an
exchange of Common Stock for a greater or lesser number of shares without
receipt of consideration by the Company, appropriate adjustment shall be made in
the number of shares reserved for issuance under the Stock Plan and in the
number of shares subject to outstanding options and stock purchase rights under
the Stock Plan, as well as in the price per share of Common Stock covered by
such options and stock purchase rights. Such adjustment shall be made by the
Board of Directors, whose determination shall be final, binding and conclusive.
In the event of the proposed dissolution or liquidation of the Company,
options and stock purchase rights outstanding under the Stock Plan will
terminate immediately prior to such action. However, the Administrator may, in
its discretion, provide for the options and stock purchase rights to be
immediately exercisable in full prior to such event. In the event of a proposed
sale of all or substantially all of the assets of the Company, or the merger of
the Company into another corporation, outstanding options and stock purchase
rights shall be assumed or an equivalent option or stock purchase right shall be
substituted by the successor entity. However, in the event the successor
corporation refuses to assume or substitute for the options or stock purchase
rights, the optionee will fully vest in and have the right to exercise the
option or stock purchase right as to all of the optioned stock, including shares
as to which it would not otherwise be vested or exercisable. The stock plan
authorizes the Board of Directors to include in individual option agreements
provisions for automatic vesting of the option on a change in control of the
Company under certain conditions. The Board has included such provisions in
selected option agreements.
AMENDMENT AND TERMINATION OF THE PLAN
The Board of Directors may amend the Stock Plan at any time or may terminate
the Stock Plan without approval of the stockholders; provided, however, that
stockholder approval is required for any amendment to the Stock Plan for which
stockholder approval would be required under the federal securities laws or the
Code or other applicable laws. However, no action by the Board of Directors or
stockholders may unilaterally impair any option or stock purchase right
previously granted under the Stock Plan. In any event, the Stock Plan shall
terminate in January 2005. Any options or stock purchase rights outstanding
under the Stock Plan at the time of its termination shall remain outstanding
until they expire by their terms.
CERTAIN FEDERAL INCOME TAX INFORMATION
The following brief summary of the effect of federal income taxation upon
the grant and exercise of options and stock purchase rights under the Stock Plan
does not purport to be complete and does not discuss the tax consequences of the
optionee's or stock purchase right holder's death or the income tax laws of any
municipality, state or foreign country in which an optionee or stock purchase
right holder may reside.
INCENTIVE STOCK OPTIONS
An optionee who is granted an incentive stock option will not recognize
taxable income either at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon the sale or exchange of the shares more than two (2) years after grant of
the option and one (1) year after exercise of the option, any gain or loss will
be treated as long-term capital gain or loss. If these holding periods are not
satisfied, the optionee will recognize ordinary income at the time of sale or
exchange equal to the difference between the exercise price and the lower of (i)
the fair market value of the shares at the date of the option exercise or (ii)
the sale price of the shares. The Company will be entitled to a deduction in the
same amount as the ordinary income recognized by the optionee. Any gain or loss
recognized on such a premature disposition of the shares in excess of the
8
<PAGE>
amount treated as ordinary income will be long-term or short-term capital gain
or loss, depending on the holding period.
NONSTATUTORY OPTIONS
All other options which do not qualify as incentive stock options are
referred to as nonstatutory stock options. An optionee will not recognize any
taxable income at the time he is granted a nonstatutory option. However, upon
its exercise, the optionee will recognize taxable income generally measured as
the excess of the then fair market value of the shares purchased over the
purchase price. Any taxable income recognized in connection with an option
exercise by an optionee who is also an employee of the Company will be subject
to tax withholding by the Company. Upon resale of such shares by the optionee,
any difference between the sales price and the optionee's purchase price, to the
extent not recognized as taxable income as described above, will be treated as
long-term or short-term capital gain or loss, depending on the holding period.
The Company will be entitled to a tax deduction in the same amount as the
ordinary income recognized by the optionee with respect to shares acquired upon
exercise of a nonstatutory stock option.
STOCK PURCHASE RIGHTS
Restricted stock is usually purchased upon exercise of a stock purchase
right. At the time of purchase, restricted stock is subject to a "substantial
risk of forfeiture" within the meaning of Section 83 of the Code. As a result,
the purchaser will not recognize ordinary income at the time of purchase.
Instead, the purchaser will recognize ordinary income on the dates when the
stock ceases to be subject to substantial risk of forfeiture. The stock will
generally cease to be subject to a substantial risk of forfeiture when it is no
longer subject to the Company's right to repurchase the stock upon the
purchaser's termination of employment with the Company (i.e., as it "vests"). At
such times, the purchaser will recognize the ordinary income measured as the
difference between the purchase price and the fair market value of the stock on
the date the stock is no longer subject to a substantial risk of forfeiture.
However, a purchaser may accelerate to the date of his or her recognition of
ordinary income, if any, and the beginning of any capital gain holding period by
timely filing an election pursuant to Section 83(b) of the Code. In such event,
the ordinary income recognized, if any, would be equal to the difference between
the purchase price and the fair market value of the stock on the date of
exercise, and the capital gain holding period would commence on the purchase
date. The ordinary income recognized by a purchaser who is an employee will be
treated as wages and will be subject to tax withholding by the Company.
Generally, the Company will be entitled to a tax deduction in the amount and at
the time the purchaser recognizes ordinary income.
PARTICIPATION IN THE STOCK PLAN
The grant of options and stock purchase rights under the Stock Plan to
eligible employees, directors and consultants, including the Named Officers, is
subject to the discretion of the Administrator. As of the date of this proxy
statement, there has been no determination by the Administrator with respect to
future awards under the Stock Plan. The following table sets forth additional
information with respect to options granted under the Stock Plan during the Last
Fiscal Year to all current executive officers as a group and to all other
employees. The term of options under the Stock Plan (other than those granted to
10% stockholders, as to which the term is five years from date of grant) is
generally ten years from date of grant.
9
<PAGE>
<TABLE>
<CAPTION>
AVERAGE % OF TOTAL
OPTIONS EXERCISE GRANTS UNDER
IDENTITY OF GROUP GRANTED(#) PRICE($) THE STOCK PLAN
- ------------------------------------------------------------------------ -------------- ----------- -----------------
<S> <C> <C> <C>
All Current Executive Officers as a group............................... 790,000(1) $ 5.23 43.5%
All Other Employees as a group.......................................... 1,026,592(2) $ 5.11 56.5%
</TABLE>
- ------------------------
(1) Includes 335,000 options repriced on 11/07/96 at $4.69 per share
(2) Includes 449,392 options repriced on 11/07/96 at $4.69 per share
------------------------
PROPOSAL 3
RATIFICATION OF APPOINTMENT OF INDEPENDENT ACCOUNTANTS
The Board of Directors has selected Arthur Andersen LLP, independent
accountants, to audit the financial statements of the Company for the current
fiscal year ending December 31, 1997. Arthur Andersen LLP has audited the
Company's financial statements annually since 1993. In the event that a majority
of the Votes Cast are against the ratification, the Board of Directors will
reconsider its selection.
A representative of Arthur Andersen LLP will be present at the meeting to
make a statement if such representative desires to do so and to respond to
appropriate questions.
THE BOARD OF DIRECTORS RECOMMENDS A VOTE IN FAVOR OF PROPOSAL 3.
10
<PAGE>
SHARE OWNERSHIP OF DIRECTORS, OFFICERS AND
CERTAIN BENEFICIAL OWNERS
The following table sets forth certain information regarding the beneficial
ownership of the Company's Common Stock as of the Record Date by (i) each
stockholder known to the Company to be a beneficial owner of more than 5% of the
Company's Common Stock; (ii) each director and nominee for director; (iii) each
of the Named Officers; and (iv) all current executive officers and directors of
the Company as a group. Unless otherwise indicated, officers and directors can
be reached at the Company's principal executive offices.
<TABLE>
<CAPTION>
OPTIONS
EXERCISABLE
WITHIN 60
BENEFICIAL OWNER DAYS OF
----------------------- APRIL 1,
BENEFICIAL OWNERSHIP SHARES PERCENT(1) 1997(2)
- ------------------------------------------------------------------------- ---------- ----------- --------------
<S> <C> <C> <C>
Rod A. Beckstrom (2)..................................................... 1,083,333 16.00% 60,000
Merrill, Pickard, Anderson & Eyre V, L.P. (3) ........................... 669,015 9.97% --
(Andrew S. Rachleff)
2480 Sand Hill Road, Suite 200
Menlo Park, CA 94205
Greylock Limited Partnership. ........................................... 599,784 8.94% --
One Federal Street
Boston, MA 02110
David L. Babson and Company Incorporated (4). ........................... 436,700 6.51% --
One Memorial Drive
Cambridge, MA 02142
State of Wisconsin Investment Board (5) ................................. 463,700 6.91% --
P.O. Box 7842
Madison, WI 53707
Wellington Management Company, LLP (6) .................................. 430,000 6.41% --
75 State Street
Boston, MA 02109
Robert Geske............................................................. 289,325 4.31% --
Jerome Bock.............................................................. 289,325 4.31% --
Manuel Correia........................................................... 11,250 0.17% 11,250
Mark P. Kalkus........................................................... 47,250 0.70% 11,250
Amos Barzilay............................................................ 19,487 0.29% 17,500
Andrew S. Rachleff (5)................................................... 690,265 10.27% 11,250
Mario M. Rosati.......................................................... 18,750 0.28% 18,750
William Sharpe........................................................... 18,250 0.27% 18,250
Finn Christensen......................................................... 18,750 0.28% 18,750
David Gilbert............................................................ 27,000 0.40% 25,000
Dawnell Greene........................................................... -- 0.00% --
G. Bradford Solso........................................................ 37,083 0.55% 35,416
Charles T. Marshall...................................................... 133,308 1.97% 60,000
All directors and officers as a group (14 persons)....................... 2,683,376 38.35% 287,416
</TABLE>
- ------------------------
(1) Percent ownership is based on 6,709,634 shares of Common Stock outstanding
as of March 31, 1997 and includes options to purchase shares of Common Stock
exercisable within 60 days of April 1, 1997 by directors and officers from
option shares exercisable listed in right hand column.
11
<PAGE>
(2) Options exercisable within 60 days of April 1, 1997 as listed in table are
included in Beneficial Owner Shares and Beneficial Owner percent
calculations.
(3) Includes 669,015 shares owned beneficially by Merrill, Pickard, Anderson &
Eyre V, L.P of which Mr. Rachleff is a general partner. In such capacity,
Mr. Rachleff may be deemed to share voting and investment power with respect
to such shares, although he disclaims beneficial ownership of such shares
except to the extent of his pecuniary interest therein. In addition to Mr.
Rachleff, there are three other general partners of Merrill, Pickard,
Anderson & Eyre V, L.P, James C. Anderson, Bruce W. Dunlevie and Steven L.
Merrill, each of whom may be deemed to shares voting and investment power
with respect to such shares. Each disclaims beneficial ownership of such
shares except to the extent of his pecuniary interest therein.
(4) Represents shares held or disclosed on Schedule 13G filed on February 7,
1997.
(5) Represents shares held or disclosed on Schedule 13G filed on January 16,
1997.
(6) Represents shares held or disclosed on Schedule 13G filed on February 10,
1997.
(7) Includes 679,015 shares registered to Merrill, Pickard, Anderson & Eyre V,
L.P. ("MPAE V"). MPAE V Management Co., L.P. ("MgtCo") is the General
Partner for MPAE V, and may be deemed the beneficial owner of these shares.
Andrew S. Rachleff is a General Partner of MgtCo and disclaims beneficial
ownership of the above shares except to the extent of his pecuniary interest
in MgtCo. options to purchase 11,250 shares of Common Stock exercisable
within 60 days of April 1, 1997.
(8) See footnotes (2), (3), (7).
REPORT OF THE COMPENSATION COMMITTEE
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS ON EXECUTIVE
COMPENSATION
Decisions on compensation of the Company's executive officers are made by
the Compensation Committee of the Board of Directors. The members of the
Compensation Committee, Messrs. Kalkus, Rachleff, and Rosati are non-employee
directors. Decisions by the Compensation Committee relating to the compensation
of the Company's executive officers are reviewed by the full Board (which did
not modify or reject any Compensation Committee decisions during 1996), except
for decisions about awards under the Company's Stock Plan, which decisions must
be made solely by the committee in order for the grants under such Stock Plan to
satisfy Rule 16b-3.
COMPENSATION PHILOSOPHY AND RELATIONSHIP OF PERFORMANCE. This report
reflects the Compensation Committee's executive officer compensation philosophy
for the year ended December 31, 1996 as endorsed by the Board of Directors. The
resulting actions taken by the Company are shown in the compensation tables
supporting this report. The Compensation Committee either approves or recommends
to the Board of Directors compensation levels and compensation components for
the executive officers. With regard to compensation actions affecting the Chief
Executive Officer, all of the non-employee members of the Board of Directors
acted as the approving body.
The Compensation Committee's executive compensation policies are designed to
enhance the financial performance of the Company, and thus stockholder value, by
aligning the financial interests of the key executives with those of
stockholders.
The executive compensation program is viewed in total considering all of the
component parts: base salary, annual performance bonus, benefits and long-term
incentive opportunity in the form of stock options and stock ownership. The
annual compensation components consist generally of equal or lower base salaries
than those of companies within the industry combined with incentive plans based
on the Company's financial performance that can result in total compensation
generally in line with those at comparable companies. Long-term incentives are
tied to stock performance through the use of stock
12
<PAGE>
options. The Compensation Committee's position is that stock ownership by
management is beneficial in aligning management's and stockholders' interests in
the enhancement of stockholder value. Overall, the intent is to have more
significant emphasis on variable compensation components and less on fixed cost
components. The Committee believes this philosophy and structure are in the best
interests of the stockholders.
Executive compensation for fiscal 1996 primarily consisted of base salary
and performance incentives awarded in the form of stock options for such period.
ANNUAL INCENTIVE ARRANGEMENTS. The Company has adopted a Program which
provides annual incentive compensation in the form of cash bonuses to key
employees, including the Named Officers, who by the nature of their positions
are deemed sufficiently accountable to impact directly the financial results
of the Company. The Program is approved by the Compensation Committee, whose
members are not eligible to participate in the Program.
The Committee believes that key executives should have a significant
proportion of total cash compensation subject to specific strategic and
financial measurements. At the beginning of each fiscal year, or upon an
individual being appointed an executive officer, the Committee sets a target
bonus range (0-60%) in 1997 for each executive officer expressed as a percentage
of the executive's base salary. Performance goals for purposes of determining
annual incentive compensation are established, which include sales,
profitability and other strategic and financial measurements. Senior management,
including the Named Officers, have the potential to earn significantly higher
levels of incentive compensation if the Company exceeds its targets. The target
incentive compensation levels established by the Compensation Committee for 1996
expressed as a percentage of base salary were approximately 30%.
The performance goals established at the beginning of 1996 were based on
several strategic and financial measurements including a target level of
profitability and sales and attainment of certain other objectives. Based on
evaluation of the above criteria, the Compensation Committee chose to award
incentive payments for 1996 averaging approximately 15% in amounts listed below
under the "Executive Compensation -- Summary Compensation Table."
STOCK OPTIONS. The Compensation Committee of the Board of Directors
generally determines stock option grants to eligible employees including the
Named Officers. The Committee believes that options granted to management
reinforce the Committee's philosophy that management compensation should be
closely linked with stockholder value. The Stock Plan is more fully described in
the section of this Proxy
Statement entitled "Proposal 2." Stock options have been granted to
approximately all of the Company's management and key employees.
OTHER COMPENSATION PLANS. The Company has adopted certain broad-based
employee benefit plans in which all employees, including the Named Officers, are
permitted to participate on the same terms and conditions relating to
eligibility and generally subject to the same limitations on the amounts that
may be contributed or the benefits payable under those plans. Under the
Company's 401(k) Plan, which is a defined contribution plan qualified under
Sections 401(a) and 401(k) of the Code, participants, including the Named
Officers, can contribute a percentage of their annual compensation. Although the
401(k) Plan allows for the Company to make matching contributions, the Company
did not make a matching contribution for participants in 1996.
MR. BECKSTROM'S 1996 COMPENSATION. Compensation for the Chief Executive
Officer aligns with the philosophies and practices discussed above for executive
officers in general. All compensation determinations and stock option grants to
the Chief Executive Officer are reviewed by the Compensation Committee with the
Board of Directors. Mr. Beckstrom is not eligible to participate in the Employee
Stock Purchase Plan.
13
<PAGE>
At the beginning of each fiscal year, the Compensation Committee sets a
target bonus amount for the Chief Executive Officer. The target incentive
compensation level established for Mr. Beckstrom for 1996, expressed as a
percentage of his base salary, was 30%.
For 1996, the Chief Executive Officer's performance goals were established
based on strategic and financial measurements, including a target level of sales
and profitability. In evaluating, Mr. Beckstrom's performance for the purpose of
determining his incentive compensation for such period, the Compensation
Committee considered his leadership and the Company's performance against its
financial and strategic objectives. Based on the evaluation, the Compensation
Committee decided that Mr. Beckstrom's performance qualified him to receive a
15% bonus award. For specific data regarding Mr. Beckstrom's 1996 compensation,
see "Executive Compensation -- Summary Compensation Table."
TEN YEAR OPTION REPRICING
The following table identifies stock options to purchase shares of the
Company's Common Stock held by any executive officers which were granted at a
lower exercise price during the last fiscal year.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES MARKET PRICE LENGTH OF ORIGINAL
UNDERLYING OF STOCK EXERCISE PRICE NEW OPTION TERM
OPTION AT TIME OF AT TIME OF EXERCISE REMAINING AT DATE
NAME DATE REPRICED# REPRICING($) REPRICING($) PRICE($) OF REPRICING
- ----------------------------- --------- ----------- ------------- --------------- ----------- --------------------
<S> <C> <C> <C> <C> <C> <C>
Amos Barzilay................ 11/7/96 60,000 $ 4.69 $ 6.75 $ 4.69 9 years, 6 months
Finn Christensen............. 11/7/96 60,000 $ 4.69 $ 6.75 $ 4.69 9 years, 6 months
David Gilbert................ 11/7/96 75,000 $ 4.69 $ 7.13 $ 4.69 9 years, 3 months
Charles T. Marshall.......... 11/7/96 40,000 $ 4.69 $ 6.88 $ 4.69 9 years, 1 month
G. Bradford Solso............ 11/7/96 100,000 $ 4.69 $ 6.88 $ 4.69 9 years, 1 month
</TABLE>
REPORT ON REPRICING OF OPTIONS
In November 1996, certain employees of the Company, including the Named
Officers, were given the opportunity to exchange existing, higher priced options
granted under the Stock Plan for new options with an exercise price of $4.69 per
share, which price was equal to the closing price of the Company's Common Stock
on November 7, 1996 (the date this repricing was approved by the Compensation
Committee). Vesting continued on the original grant schedule as of the date of
the repricing.
The Company believes that given the disparity, in November 1996, between the
trading price of its Common Stock and the exercise price of certain existing
stock options, such repricings were desirable in order to provide incentive to
the Company's employees to work towards the future growth of the Company and to
retain key personnel. In exchange for the reduction in the exercise price, each
exchanged option was prevented from exercise for six months commencing with the
date of the repriced option.
Compensation Committee
Mario M. Rosati
Mark P. Kalkus
Andrew S. Rachleff
14
<PAGE>
EXECUTIVE COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth the compensation paid to the Company's Chief
Executive Officer and the four other most highly paid executive officers (the
"Named Officers") during the three fiscal years ended December 31, 1996, 1995,
and 1994.
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
ANNUAL -------------------------------------- SECURITIES
FISCAL BASE PAID OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY SALARY BONUS($) COMPENSATION($) OPTIONS(#)
- --------------------------------------- ----------- --------- --------- --------- ---------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Rod A. Beckstrom ...................... 1996 192,500 191,540 28,875 -- 50,000
Chief Executive Officer 1995 160,000 160,209 -- -- --
1994 193,000 193,000 113,820 -- --
David Gilbert ......................... 1996 192,500 179,823 28,875 30,000(1) 200,000
President and Chief Operating Officer 1995
1994
G. Bradford Solso ..................... 1996 180,000 163,108 24,750 -- 125,000
Chief Financial Officer 1995
1994
Robert L. Geske ....................... 1996 144,000 132,000 21,600 -- --
Vice President of Research and 1995
Development 1994
Charles T. Marshall ................... 1996 136,500 133,250 20,475 -- 40,000
Vice President of Corporate Resources 1995 130,000 127,500 -- -- 40,000
1994 124,000 124,000 27,137 -- --
</TABLE>
- ------------------------
(1) Consists of relocation reimbursement.
------------------------
EMPLOYMENT CONTRACTS AND TERMINATION OF EMPLOYMENT ARRANGEMENTS
In connection with the February 13, 1996 acquisition of LOR/Geske Bock
Associates, Inc., by CATS Sub, inc. a wholly-owned subsidiary of the Company,
Robert Geske entered into an employment agreement, dated January 30 1996,
wherein Mr. Geske agreed to serve as Vice President of the Company. In
consideration for his services, Mr. Geske receives an annual base salary of
$144,000 and is eligible to participate in any of the Company's executive bonus
plans. The term of Mr. Geske's agreement is four years, and after the four year
period, Mr. Geske's employment is to be extended for successive six-month
periods. Further, under the agreement, Mr. Geske is to receive certain severance
benefits should his employment with the Company terminate for any reason other
than for cause.
15
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES
OPTIONS OF STOCK PRICE
GRANTED TO APPRECIATION FOR
NUMBER OF EMPLOYEES EXERCISE OPTION TERM(1)
OPTIONS IN FISCAL PRICE PER EXPIRATION ---------------------
NAME GRANTED YEAR(2) SHARE DATE 5% 10%
- ------------------------------------------ ----------- ------------- ----------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Rod A. Beckstrom.......................... 50,000 2.75% 4.69 11/7/06 152,363 381,514
David Gilbert............................. 200,000 11.01% 4.69 (3) 588,780 1,462,703
G. Bradford Solso......................... 125,000 6.88% 4.69 (4) 346,430 848,823
Robert L. Geske........................... -- -- -- -- -- --
Charles T. Marshall....................... 40,000 2.20% 4.69 11/7/06 121,890 305,211
</TABLE>
- ------------------------
(1) The 5% and 10% assumed annual rates of compounded stock price appreciation
are mandated by rules of the SEC. There can be no assurance that the actual
stock price appreciation over the option term will be at the assumed 5% and
10% levels or any other defined level. Actual gains, if any, on stock option
exercises are dependent on the future performance of the Common Stock,
overall market conditions and the option holders' continued employment
through the vesting period. The amounts reflected in the table may not be
achieved and do not reflect the Company's estimate of future stock price
growth. Unless the market price of the Common Stock appreciates over the
option term, no value will be realized from the option grants made to the
Named Officers.
(2) Based on 1,816,592 total options granted to employees during the Last Fiscal
Year including 784,392 repriced options.
(3) Options to purchase 75,000 shares expire on 2/8/2006; options to purchase
125,000 shares expire on 11/7/2006.
(4) Options to purchase 100,000 shares expire on 12/1/2005; options to purchase
25,000 shares expire on 11/7/2006.
------------------------
AGGREGATED OPTION EXERCISES IN LAST FISCAL YEAR AND
FISCAL YEAR END OPTION VALUES
The following table provides information with respect to option exercises in
the Last Fiscal Year by the Named Officers and the value of their unexercised
options at December 31, 1996.
<TABLE>
<CAPTION>
TOTAL NUMBER OF TOTAL VALUE OF UNEXERCISED
SHARES UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON VALUE FISCAL YEAR END FISCAL YEAR END(1)
EXERCISE REALIZED -------------------------- ----------------------------
NAME (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
- -------------------------------- ----------- ----------- ----------- ------------- ----------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Rod A. Beckstrom................ -- -- 60,000 50,000 $ 202,500 $ --
David Gilbert................... -- -- -- 200,000 -- --
G. Bradford Solso............... -- -- 25,520 99,480 -- --
Robert L. Geske................. -- -- -- -- -- --
Charles T. Marshall............. -- -- 19,167 40,833 30,939 2,811
</TABLE>
- ------------------------
(1) Value is based on the market value of the Company's stock of $4.375 on
December 31, 1996, less the exercise price.
16
<PAGE>
ACCELERATION OF OPTIONS FOR OFFICERS AND DIRECTORS
On November 7, 1996, the Board and the Compensation Committee amended the
option agreements held by Charles G. Marshall, G. Bradford Solso, Finn
Christensen, David Gilbert and Amos Barzilay, to permit the immediate
acceleration of their options in the event of a change in control of the Company
under certain circumstances.
PERFORMANCE GRAPH
The following graph shows a comparison of cumulative total stockholder
return, calculated on a dividend reinvested basis, from the date of the final
prospectus for the initial public offering of the Company's Common Stock (March
21, 1995) through 1996 fiscal year end (December 31, 1996) for C-ATS Software
Inc., the S&P 500 Composite Index (the "S&P 500"), the Pacific Stock Exchange
Technology Index (the "PSE High Tech Index"), and the Nasdaq Computer Index (the
"Nasdaq Computer Index"). The graph assumes that $100 was invested in the
Company's Common Stock at the initial public offering price, and in the S&P 500,
the PSE High Tech Index and the Nasdaq Computer Index at the closing price on
March 21, 1995. Note that historic stock price performance is not necessarily
indicative of future stock price performance. The Company's stock price on
December 31, 1996 was $4.375.
EDGAR REPRESENTATION OF DATA POINTS USED IN PRINTED GRAPHIC
<TABLE>
<CAPTION>
C*ATS SOFTWARE INC. PSE HIGH TECH INDEX S&P 500 INDEX NASDAQ COMPUTER INDEX
<S> <C> <C> <C> <C>
3/21/95 $100.00 $100.00 $100.00 $100.00
3/31/95 $125.00 $99.57 $101.78 $100.43
6/30/95 $91.67 $121.05 $111.47 $126.32
9/29/95 $70.83 $135.69 $120.30 $138.56
12/29/95 $59.38 $134.43 $127.52 $137.59
3/29/96 $59.38 $134.03 $133.65 $142.76
6/28/96 $50.00 $138.59 $139.60 $162.03
9/30/96 $40.63 $147.91 $144.70 $175.80
12/31/96 $39.84 $161.36 $156.73 $194.94
</TABLE>
17
<PAGE>
COMPLIANCE WITH SECTION 16(A) OF THE
SECURITIES EXCHANGE ACT OF 1934
Section 16(a) of the Exchange Act requires that directors, certain officers
of the Company and ten percent stockholders file reports of ownership and
changes in ownership with the Securities and Exchange Commission (the "SEC") as
to the Company's securities beneficially owned by them. Such persons are also
required by SEC rules to furnish the Company with copies of all Section 16(a)
forms they file.
Based solely on its review of copies of Forms 3 and 4 and amendments thereto
furnished to the Company pursuant to Rule 16a-3(e) and Forms 5 and amendments
thereto furnished to the Company with respect to its most recent fiscal year,
and any written representations referred to in Item 405(b)(2)(i) of Regulation
S-K stating that no Forms 5 were required, the Company believes that, during the
Last Fiscal Year, all Section 16(a) filing requirements applicable to the
Company's officers, directors and ten percent stockholders were complied with.
FINANCIAL STATEMENTS
The Company's Annual Report to Stockholders for the last fiscal year is
being mailed with this proxy statement to stockholders entitled to notice of the
meeting. The Annual Report includes the consolidated financial statements,
unaudited selected financial data and management's discussion and analysis of
financial condition and results of operations.
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If any
other matters properly come before the meeting, it is the intention of the
persons named in the accompanying proxy to vote the shares represented thereby
on such matters in accordance with their best judgment.
By Order of the Board of Directors
Rod A. Beckstrom,
CHIEF EXECUTIVE OFFICER AND CHAIRMAN
OF THE BOARD
Palo Alto, California
April 21, 1997
18
<PAGE>
DETACH HERE
P
R
O C-ATS SOFTWARE INC.
X 1870 EMBARCADERO ROAD
Y PALO ALTO, CALIFORNIA 94303
1997 ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD MAY 20, 1997
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
The enclosed proxy is solicited on behalf of the Board of Directors of
C-ATS Software Inc. (the "Company") for use at the 1997 Annual Meeting of
Stockholders to be held on Tuesday, May 20, 1997, at 2:00 p.m., local time
(the "Annual Meeting"), and at any and all continuations or adjournments
thereof, for the purposes set forth herein and in the accompanying Notice of
Annual Meeting of Stockholders. The Annual Meeting will be held at the
Company's offices at 1870 Embarcadero Road, Palo Alto, California 94303.
These proxy solicitation materials were mailed on or about April 17,
1997 to all stockholders entitled to vote at the Annual Meeting.
-----------
SEE REVERSE
CONTINUED AND TO BE SIGNED ON REVERSE SIDE SIDE
-----------
<PAGE>
DETACH HERE
/X/ PLEASE MARK
VOTES AS IN
THIS EXAMPLE
1. To elect six (6) directors to serve for the ensuing year and until
their successors are duly elected and qualified.
NOMINEES: Rod A. Beckstrom, Manuel Correia, Robert Geske, Mark P. Kalkus,
Andrew S. Rachleff, and Mario M. Rosati
FOR WITHHELD
/ / / /
/ / MARK HERE / /
--------------------------------------- FOR ADDRESS
For all nominees except as noted above CHANGE AND
NOTE BELOW
2. To approve an amendment to the Company's 1995 Stock Plan to increase
the number of shares of Common Stock available for grant under the
plan by 1,000,000 shares.
FOR AGAINST ABSTAIN
/ / / / / /
3. To ratify the appointment of Arthur Andersen LLP as independent
auditors of the Company for the fiscal year ending December 31, 1997.
FOR AGAINST ABSTAIN
/ / / / / /
4. To transact such other business as may properly come before the
meeting and at any and all continuations or adjournments thereof.
This Proxy is being solicited by the Board of Directors of C-ATS Software Inc.
This Proxy should be marked, dated and signed exactly as name appears hereon.
Joint owners should each sign. Persons signing as attorney, executor,
administrator, trustee or guardian should give full title as such.
Signature: Date:
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Signature: Date:
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