<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 26, 1996.
SCHEDULE 14A INFORMATION
PROXY STATEMENT PURSUANT TO SECTION 14(A) OF THE SECURITIES EXCHANGE ACT OF
1934
Filed by the Registrant [X] Filed by a Party other than the Registrant [_]
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only
[X] Definitive Proxy Statement (as permitted by Rule 14a-
6(e)(2))
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11c or (S)240.14a-12
ATRIA SOFTWARE, INC.
(NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
ATRIA SOFTWARE, INC.
(NAME OF PERSON(S) FILING PROXY STATEMENT)
PAYMENT OF FILING FEE (CHECK THE APPROPRIATE BOX):
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1) or 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] $500 per each party to the controversy pursuant to Exchange Act Rule 14a-
6(i)(3).
[X] 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: Common
Stock, $.0001 par value, of Pure Software Inc. ("Pure") and Common
Stock, $.01 par value, of Registrant
2) Aggregate number of securities to which transaction applies: up to
23,941,533 shares of Pure Common Stock
3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11: $231,035.79*
4) Proposed maximum aggregate value of transaction: $231,035.79
5) Total fee paid: $231,035.79
--------
* Established in accordance with Rule 0-11(a)(4) based on the average high
and low prices of the Atria Common Stock, as reported on The Nasdaq
National Market on June 20, 1996.
[X]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: $231,035.79
2) Form, Schedule or Registration Statement No.: Schedule 14A
3) Filing Party: Pure Software Inc. and Atria Software, Inc.
4) Date Filed: June 24, 1996
<PAGE>
[LOGO OF ATRIA APPEARS HERE]
July 26, 1996
Dear Stockholder:
As most of you are aware, Atria Software, Inc. ("Atria") has entered into an
agreement to combine with Pure Software Inc. ("Pure") in a "merger of equals"
strategic business combination (the "Merger"). At our Special Meeting on
Friday, August 23, 1996, you will be asked to consider and approve the
Agreement and Plan of Reorganization between Pure, its wholly owned
subsidiary, CST Acquisition Corporation and Atria (the "Agreement") relating
to the Merger. The accompanying Prospectus/Joint Proxy Statement presents the
details of the Merger. Following the Merger, based on the shares of Atria
Common Stock and Pure Common Stock outstanding as of July 1, 1996, the former
holders of Atria Common Stock will hold 55.7% of the Common Stock of the
consolidated entity composed of Pure and Atria together (the "Combined Company
Common Stock"), and the holders of Pure Common Stock prior to the Merger will
hold 44.3% of the Combined Company Common Stock.
After careful consideration, Atria's Board of Directors has unanimously
approved the Agreement and recommends that you vote FOR the approval and
adoption of the Agreement. The Board of Directors of Atria believes the Merger
offers Atria and its stockholders a number of important benefits including:
(i) the strategic fit between the two companies, creating an opportunity for
the combined company to play a defining role in the market for software
development management products, (ii) the potential for the combined company
to capitalize on the expanded product offerings and the marketing and product
synergies between Atria's and Pure's product lines and (iii) the greater
financial, product development, sales and marketing resources that would
result from combining the two companies. In the Merger, all of the issued and
outstanding shares of capital stock of Atria will be converted into the right
to receive an aggregate of approximately 22,200,461 shares of Common Stock,
$.0001 par value per share, of Pure, based on the capitalization of Atria and
Pure on July 1, 1996. Pure will also assume options exercisable for up to
approximately 2,598,602 additional shares of Combined Company Common Stock,
based on the number of options outstanding on July 1, 1996.
All stockholders are invited to attend the Special Meeting in person. The
affirmative vote of holders of a majority of the shares of Common Stock, $.01
par value per share ("Atria Common Stock"), of Atria outstanding as of the
record date will be necessary for approval and adoption of the Agreement and
the transactions contemplated thereby. PURSUANT TO MASSACHUSETTS LAW, AND AS
DESCRIBED IN GREATER DETAIL IN THE NOTICE OF THE MEETING AND IN THE
PROSPECTUS/JOINT PROXY STATEMENT, HOLDERS OF ATRIA COMMON STOCK WILL BE
ENTITLED TO APPRAISAL RIGHTS IN CONNECTION WITH THE MERGER.
Stockholders are urged to review carefully the information contained in the
accompanying Prospectus/Joint Proxy Statement, including in particular the
information under the captions "Risk Factors," "Atria Software, Inc. Special
Meeting--Recommendation of Atria Board of Directors," "Approval of the Merger
and Related Transactions--Joint Reasons for the Merger" and "--Atria's Reasons
for the Merger" prior to making any voting decision in connection with their
Atria Common Stock.
Whether or not you expect to attend the Special Meeting in person, please
complete, sign and promptly return the enclosed proxy card in the enclosed
postage-prepaid envelope to assure representation of your shares. You may
revoke your proxy at any time before it has been voted, and if you attend the
Special Meeting you may vote in person even if you have previously returned
your proxy card. Your prompt cooperation will be greatly appreciated.
Sincerely,
Paul H. Levine
President and Chief Executive Officer
Lexington, Massachusetts
YOUR PROXY IS IMPORTANT--PLEASE VOTE PROMPTLY
ATRIA STOCKHOLDERS SHOULD NOT SURRENDER OR OTHERWISE ATTEMPT TO EXCHANGE
THEIR ATRIA STOCK CERTIFICATES FOR PURE STOCK CERTIFICATES UNLESS AND UNTIL
THEY HAVE RECEIVED APPROPRIATE NOTICE AND INSTRUCTIONS FOR EXCHANGE.
<PAGE>
ATRIA SOFTWARE, INC.
20 MAGUIRE ROAD
LEXINGTON, MASSACHUSETTS 02173
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
TO BE HELD ON AUGUST 23, 1996
A Special Meeting of Stockholders (the "Atria Meeting") of Atria Software,
Inc., a Massachusetts corporation ("Atria"), will be held at the offices of
Testa, Hurwitz & Thibeault, LLP, located at High Street Tower, 125 High
Street, Boston, Massachusetts 02110, on Friday, August 23, 1996, at 12:00
noon, local time, to consider and act on the following matters:
1. To consider and vote upon a proposal to approve and adopt the
Agreement and Plan of Reorganization (the "Agreement") dated as of June 6,
1996, among Pure Software Inc., a Delaware corporation ("Pure"), CST
Acquisition Corporation, a Massachusetts corporation and wholly owned
subsidiary of Pure (the "Merger Sub"), and Atria, pursuant to which, among
other matters (i) Merger Sub will be merged with and into Atria (the
"Merger") and (ii) each share of Common Stock, $.01 par value per share
("Atria Common Stock"), of Atria will be converted into the right to
receive, and become exchangeable for, 1.544615 shares of Common Stock, par
value $.0001 per share ("Pure Common Stock"), of Pure (based on the closing
stock prices of the Atria Common Stock and Pure Common Stock on June 5,
1996, the last trading day prior to the execution of the Agreement).
2. To transact such other matters as may properly come before the Atria
Meeting or any postponements or adjournments of the Atria Meeting.
If the Agreement is approved by the stockholders of Atria at the Atria
Meeting and effected by Atria, any stockholder (1) who files with Atria before
the taking of the vote on the approval of such action, written objection to
the proposed action stating that such stockholder intends to demand payment
for such shares if the action is taken and (2) whose shares are not voted in
favor of such action, has or may have the right to demand in writing from the
surviving corporation, within 20 days after the date of mailing to such
stockholder of notice in writing that the corporate action has become
effective, payment for such stockholder's shares and an appraisal of the value
thereof. Atria and any such stockholder shall in such cases have the rights
and duties and shall follow the procedure set forth in Sections 85 to 98,
inclusive, of Chapter 156B of the General Laws of Massachusetts. Following the
Merger, based on the shares of Atria Common Stock and Pure Common Stock
outstanding as of July 1, 1996, the former holders of Atria Common Stock will
hold 55.7% of the Common Stock of the consolidated entity composed of Pure and
Atria and their respective subsidiaries after the Merger (the "Combined
Company Common Stock"), and the holders of Pure Common Stock prior to the
Merger will hold 44.3% of the Combined Company Common Stock.
Information relating to the above matters is set forth in the attached
Prospectus/Joint Proxy Statement. Stockholders of record as of the close of
business on July 19, 1996 will be entitled to notice of, and to vote at, the
Atria Meeting and any adjournments or postponements thereof.
All stockholders are cordially invited to attend the Atria Meeting in
person.
By Order of the Board of Directors
W. Geoffrey Stein
Clerk
Lexington, Massachusetts
July 26, 1996
WHETHER OR NOT YOU EXPECT TO ATTEND THE ATRIA MEETING, PLEASE COMPLETE, DATE
AND SIGN THE ENCLOSED PROXY CARD AND MAIL IT PROMPTLY IN THE ENCLOSED ENVELOPE
IN ORDER TO ASSURE REPRESENTATION OF YOUR SHARES. NO POSTAGE NEED BE AFFIXED
IF THE PROXY CARD IS MAILED IN THE UNITED STATES.
<PAGE>
[LOGA OF PURE SOFTWARE APPEARS HERE] [LOGO OF ATRIA APPEARS HERE]
PROSPECTUS/JOINT PROXY STATEMENT
23,941,533 SHARES
PURE COMMON STOCK
---------------
This Prospectus/Joint Proxy Statement constitutes the Prospectus of Pure
Software Inc., a Delaware corporation ("Pure"), with respect to up to
23,941,533 shares of its Common Stock, par value $0.0001 per share ("Pure
Common Stock"), to be issued in connection with the proposed merger (the
"Merger") of CST Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of Pure ("Merger Sub"), with and into Atria Software,
Inc., a Massachusetts corporation ("Atria"), pursuant to the terms set forth in
the Agreement and Plan of Reorganization, dated as of June 6, 1996 (the
"Agreement"), among Pure, Merger Sub and Atria. As used herein, the term
"Combined Company" means Pure and Atria and their respective subsidiaries as a
consolidated entity following the Merger and references to the products,
business, results of operations or financial condition of the Combined Company
should be considered to refer to Pure and Atria, unless the context otherwise
requires. The shares of Pure Common Stock after the Merger are referred to
herein as the "Combined Company Common Stock" and the Common Stock, $.01 par
value per share, of Atria is herein referred to as "Atria Common Stock." As a
result of the Merger, each outstanding share of Atria Common Stock, other than
shares as to which appraisal rights pursuant to the Massachusetts Business
Corporation Law (the "MBCL") have been exercised and shares held in the
treasury of Atria or owned by Merger Sub, Pure or any wholly owned subsidiary
of Pure or Atria, will be converted into the right to receive 1.544615 shares
of Pure Common Stock (the "Exchange Ratio"), and each outstanding option or
right to purchase Atria Common Stock under the Atria 1990 Stock Option Plan,
1994 Stock Plan and 1994 Non-Employee Director Stock Option Plan (collectively,
the "Atria Stock Option Plans") and the Atria 1994 Employee Stock Purchase Plan
(the "Atria Stock Purchase Plan") will be assumed by Pure and will become an
option or right to purchase Combined Company Common Stock, with appropriate
adjustments to the number of shares issuable thereunder and the exercise price
thereof based on the Exchange Ratio. Holders of Atria Common Stock who do not
vote in favor of the Merger may, under certain circumstances and by following
prescribed statutory procedures, receive cash for their shares. See "Terms of
the Merger--Appraisal Rights."
This Prospectus/Joint Proxy Statement also constitutes the Proxy Statements
of Pure and Atria with respect to the Special Meeting of Stockholders of Pure
scheduled to be held on August 23, 1996 (the "Pure Meeting") and the Special
Meeting of Stockholders of Atria scheduled to be held on August 23, 1996 (the
"Atria Meeting").
This Prospectus/Joint Proxy Statement and the accompanying form of proxy are
first being mailed to the stockholders of Pure and Atria on or about July 26,
1996.
---------------
SEE "RISK FACTORS" AT PAGE 17 FOR CERTAIN INFORMATION THAT SHOULD BE
CONSIDERED BY PURE AND ATRIA STOCKHOLDERS IN EVALUATING THE PROPOSALS TO BE
VOTED ON AT THE PURE MEETING AND AT THE ATRIA MEETING AND THE ACQUISITION OF
THE SECURITIES OFFERED HEREBY.
---------------
NEITHER THIS TRANSACTION NOR THE SECURITIES OF PURE OFFERED HEREBY HAVE BEEN
APPROVED OR DISAPPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY
STATE SECURITIES COMMISSION NOR HAS THE SECURITIES AND EXCHANGE COMMIS-
SION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS/JOINT PROXY STATEMENT. ANY REPRESENTA-
TION TO THE CONTRARY IS A CRIMINAL OFFENSE.
---------------
The date of this Prospectus/Joint Proxy Statement is July 26, 1996.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
AVAILABLE INFORMATION...................................................... 2
TRADEMARKS................................................................. 2
FORWARD-LOOKING STATEMENTS................................................. 2
SUMMARY.................................................................... 3
RISK FACTORS............................................................... 17
INTRODUCTION............................................................... 24
PURE SOFTWARE INC. SPECIAL MEETING......................................... 24
Date, Time and Place of Pure Meeting..................................... 24
Purpose.................................................................. 24
Record Date and Outstanding Shares....................................... 24
Vote Required............................................................ 24
Proxies.................................................................. 25
Solicitation of Proxies; Expenses........................................ 25
Recommendations of Pure Board of Directors............................... 25
ATRIA SOFTWARE, INC. SPECIAL MEETING....................................... 26
Date, Time and Place of Atria Meeting.................................... 26
Purpose.................................................................. 26
Record Date and Outstanding Shares....................................... 26
Vote Required............................................................ 26
Proxies.................................................................. 26
Solicitation of Proxies; Expenses........................................ 27
Appraisal Rights......................................................... 27
Recommendation of Atria Board of Directors............................... 27
APPROVAL OF THE MERGER AND RELATED TRANSACTIONS............................ 28
Joint Reasons For the Merger............................................. 28
Pure's Reasons For the Merger............................................ 29
Atria's Reasons For the Merger........................................... 30
Material Contacts and Board Deliberations................................ 31
Opinions of Pure's Financial Advisors.................................... 34
Opinion of Atria's Financial Advisor..................................... 42
Certain Federal Income Tax Considerations................................ 46
Governmental and Regulatory Approvals.................................... 47
Accounting Treatment..................................................... 47
TERMS OF THE MERGER........................................................ 48
Effective Time........................................................... 48
Manner and Basis of Converting Shares.................................... 48
Stock Ownership Following the Merger..................................... 48
Conduct of Combined Company Following the Merger......................... 49
Conduct of Pure's and Atria's Business Prior to the Merger............... 50
No Solicitation.......................................................... 51
Break Up Fees; Expenses.................................................. 52
Conditions to the Merger................................................. 52
Termination of the Agreement............................................. 54
Stock Option Agreements.................................................. 54
Voting Agreements........................................................ 55
Affiliate Agreements..................................................... 56
Licensing and Marketing Agreement........................................ 56
Interests of Certain Persons............................................. 56
Appraisal Rights......................................................... 57
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION.............. 60
Financial Statements.................................................... 60
Combined Company Following the Merger................................... 65
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY PURE STOCKHOLDERS.... 67
Proposal Two--Amendment to Restated Certificate of Incorporation........ 67
Proposal Three--Amendment of the 1995 Stock Option Plan................. 67
PURE...................................................................... 73
Pure Business........................................................... 73
Pure Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 79
Pure Certain Transactions............................................... 85
Pure Management and Executive Compensation.............................. 85
Pure Stock Information.................................................. 90
ATRIA..................................................................... 92
Atria Business.......................................................... 92
Atria Management's Discussion and Analysis of Financial Condition and
Results of Operations.................................................. 101
Securities Ownership of Certain Beneficial Owners and Management of
Atria.................................................................. 108
Market Price of Atria Common Stock...................................... 112
Compensation and Other Information Concerning Directors and Officers of
Atria.................................................................. 113
COMPARISON OF CAPITAL STOCK............................................... 116
EXPERTS................................................................... 122
LEGAL MATTERS............................................................. 122
FINANCIAL STATEMENTS...................................................... F-1
Index to Financial Statements........................................... F-1
Report of KPMG Peat Marwick LLP (Pure).................................. F-2
Report of Ernst & Young LLP (Atria)..................................... F-17
ANNEX A--Agreement and Plan of Reorganization, dated as of June 6, 1996,
among Pure Software Inc., CST Acquisition Corporation and Atria
Software, Inc................................................... A-1
ANNEX B--Stock Option Agreements dated as of June 6, 1996 between Pure
Software Inc. and Atria Software, Inc........................... B-1
ANNEX C--Sections 85-98 of the Massachusetts Business Corporation Law..... C-1
ANNEX D--Opinion of Deutsche Morgan Grenfell/C.J. Lawrence Inc. .......... D-1
ANNEX E--Opinion of Morgan Stanley & Co. Incorporated..................... E-1
ANNEX F--Opinion of Wessels, Arnold & Henderson, L.L.C. .................. F-1
</TABLE>
ii
<PAGE>
AVAILABLE INFORMATION
Pure and Atria are subject to the information reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and in
accordance therewith file reports, proxy statements and other information with
the Securities and Exchange Commission (the "SEC"). Such reports, proxy
statements and other information may be inspected and copied at the public
reference facilities maintained by the SEC at Room 1024, Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, and at the SEC's regional offices
located at Seven World Trade Center, Suite 1300, New York, New York 10048, and
at Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois
60601-2511. Copies of such material may be obtained by mail from the Public
Reference Section of the SEC at Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, at prescribed rates. The SEC also maintains a Web site
that contains reports, proxy and information statements and other information
regarding registrants that file electronically with the SEC at the address
"http://www.sec.gov". Pure Common Stock is quoted on the Nasdaq National
Market ("Nasdaq"), and such reports, proxy statements and other information
can also be inspected at the offices of Nasdaq Operations, 1735 K Street,
N.W., Washington, D.C. 20006.
Pure has filed with the SEC a registration statement on Form S-4 (herein,
together with all amendments and exhibits, referred to as the "Registration
Statement") under the Securities Act of 1933, as amended (the "Securities
Act"). This Prospectus/Joint Proxy Statement does not contain all of the
information set forth in the Registration Statement, certain parts of which
are omitted in accordance with the rules and regulations of the SEC. For
further information, reference is hereby made to the Registration Statement.
Copies of the Registration Statement and the exhibits and schedules thereto
may be inspected, without charge, at the offices of the SEC, or obtained at
prescribed rates from the Public Reference Section of the SEC at Judiciary
Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549.
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION OTHER THAN AS CONTAINED HEREIN IN CONNECTION WITH THESE
MATTERS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY PURE OR ATRIA. NEITHER THE DELIVERY
HEREOF NOR ANY DISTRIBUTION OF SECURITIES MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
FACTS HEREIN SET FORTH SINCE THE DATE HEREOF. THIS PROSPECTUS/JOINT PROXY
STATEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER
TO BUY THE SECURITIES OFFERED BY THIS PROSPECTUS/JOINT PROXY STATEMENT WHERE,
OR TO ANY PERSON TO WHOM, IT IS UNLAWFUL TO MAKE SUCH AN OFFER OR
SOLICITATION.
----------------
TRADEMARKS
This Prospectus/Joint Proxy Statement contains trademarks of Pure and Atria
and may contain trademarks of others.
----------------
FORWARD-LOOKING STATEMENTS
This Prospectus/Joint Proxy Statement contains forward-looking statements
within the meaning of Section 27A of the Securities Act and Section 21E of the
Exchange Act. Actual results could differ materially from those projected in
the forward-looking statements as a result of certain factors, including those
set forth in the risk factors set forth below. Reference is made to the
particular discussions set forth under "Pure--Pure Management's Discussion and
Analysis of Financial Condition and Results of Operations" and "Atria--Atria
Management's Discussion and Analysis of Financial Condition and Results of
Operations." In connection with forward-looking statements which appear in
these disclosures, stockholders should carefully review the factors set forth
in this Prospectus/Joint Proxy Statement under "Risk Factors."
2
<PAGE>
SUMMARY
THE FOLLOWING CONTAINS A SUMMARY OF CERTAIN INFORMATION CONTAINED ELSEWHERE
IN THIS PROSPECTUS/JOINT PROXY STATEMENT. THIS SUMMARY DOES NOT CONTAIN A
COMPLETE STATEMENT OF ALL MATERIAL ELEMENTS OF THE PROPOSALS TO BE VOTED ON AND
IS QUALIFIED IN ITS ENTIRETY BY THE MORE DETAILED INFORMATION APPEARING
ELSEWHERE IN THIS PROSPECTUS/JOINT PROXY STATEMENT AND IN THE INFORMATION AND
DOCUMENTS ANNEXED HERETO.
THE COMPANIES
Pure Software Inc.
Pure develops, markets and supports a comprehensive, integrated suite of
software products that are designed to enable the production of reliable, high-
quality software and improve the software development process. Pure's products,
which include Purify, Quantify, PureCoverage, PureLink, PureDDTS,
PureTestExpert, PureVision and PurePerformix, comprise a family of tools for
use from initial software development through quality assurance and deployment.
These products are designed to improve software reliability, reduce development
and testing cost, shorten time-to-market and increase the predictability of
software development cycles.
Pure's products are sold directly by telephone and field sales personnel in
North America, Europe and Japan and through distributors in these and a variety
of other countries. Pure's products are used by information systems departments
that develop software to support internal operations, engineering departments
that develop software as a component of a manufactured product and independent
software vendors that develop software for resale.
Pure was initially incorporated in California in 1991 and was reincorporated
in Delaware in July 1995. Pure maintains its executive offices at 1309 South
Mary Avenue, Sunnyvale, California 94087, and its telephone number is (408)
720-1600.
CST Acquisition Corporation
Merger Sub is a corporation recently organized by Pure for the purpose of
effecting the Merger. It has no material assets and has not engaged in any
activities except in connection with the Merger. Merger Sub's executive offices
are located at 1309 South Mary Avenue, Sunnyvale, California 94087, and its
telephone number is (408) 720-1600.
Atria Software, Inc.
Atria and its subsidiaries develop, market and support software that
facilitates the management of complex software development, enhancement and
maintenance. Atria's software configuration management ("SCM") and change
request management ("CRM") products are used by professional software
development teams to control the software development process, develop releases
more efficiently, improve software quality and shorten time to market.
Atria's products are sold directly by field sales personnel in North America
and Europe and through distributors in these and a variety of other countries.
Atria's products are used by engineering departments that develop software as a
component of a manufactured product, independent software vendors that develop
software for resale and information systems departments that develop software
to support internal operations.
Atria was incorporated in Massachusetts in 1990. Atria's principal executive
offices are located at 20 Maguire Road, Lexington, Massachusetts 02173, and its
telephone number is (617) 676-2400.
3
<PAGE>
SPECIAL MEETING OF STOCKHOLDERS OF PURE
Time, Date, Place and Purpose
A Special Meeting of Stockholders of Pure will be held at TECHMART, 5201
Great America Parkway, Santa Clara, California on Friday, August 23, 1996 at
9:00 a.m., local time (the "Pure Meeting"). The purpose of the Pure Meeting is
to approve (i) the issuance of shares of Pure Common Stock to the stockholders
of Atria pursuant to the Agreement, (ii) an amendment to the Restated
Certificate of Incorporation of Pure (the "Certificate") to change the
corporate name of Pure to "Pure Atria Corporation" subject to and upon
consummation of the Merger, and (iii) an increase of 2,200,000 shares to be
reserved for issuance under the Pure 1995 Stock Option Plan (representing
approximately 5% of the shares of Combined Company Common Stock estimated to be
outstanding following consummation of the Merger (based on the capitalization
of Pure and Atria as of July 1, 1996)), subject to and upon consummation of the
Merger. See "Pure Software Inc. Special Meeting--Date, Time and Place of Pure
Meeting," and "--Purpose."
Record Date and Vote Required
Only Pure stockholders of record at the close of business on July 19, 1996
(the "Pure Record Date") are entitled to notice of and to vote at the Pure
Meeting. Under Delaware law, the charter documents of Pure and the rules of
Nasdaq, (i) the issuance of shares of Pure Common Stock requires the
affirmative vote of a majority of the total votes cast regarding such proposal,
(ii) the amendment of the Certificate requires the affirmative vote of holders
of a majority of the outstanding shares of Pure Common Stock and (iii) the
amendment of the Pure 1995 Stock Option Plan requires the affirmative vote of a
majority of the total votes cast regarding such proposal. See "Pure Software
Inc. Special Meeting--Record Date and Outstanding Shares" and "--Vote
Required."
As of the Pure Record Date, there were 355 stockholders of record of Pure
Common Stock and 17,745,135 shares of Pure Common Stock outstanding, each of
which will be entitled to cast one vote per share on each matter to be acted
upon at the Pure Meeting. Pure's directors and certain of its officers have
agreed to vote their shares in favor of the issuance of shares in connection
with the Agreement. See "Pure Software Inc. Special Meeting--Vote Required" and
"Terms of the Merger--Voting Agreements."
Recommendation of Pure Board of Directors
Pure's Board of Directors (the "Pure Board") has unanimously approved the
Agreement and the transactions contemplated thereby and has determined that the
Merger is fair and in the best interests of Pure and its stockholders. After
careful consideration, the Pure Board unanimously recommends a vote in favor of
(i) the issuance of shares of Pure Common Stock pursuant to the Agreement, (ii)
an amendment of the Certificate to change the corporate name of Pure to "Pure
Atria Corporation" subject to and upon consummation of the Merger, and (iii) an
increase of 2,200,000 shares to be reserved for issuance under the Pure 1995
Stock Option Plan, subject to and upon consummation of the Merger. Stockholders
should read this Prospectus/Joint Proxy Statement carefully before voting. See
"Pure Software Inc. Special Meeting--Recommendations of Pure Board of
Directors" and "Approval of the Merger and Related Transactions--Joint Reasons
for the Merger," "--Pure's Reasons for the Merger" and "--Material Contacts and
Board Deliberations."
SPECIAL MEETING OF STOCKHOLDERS OF ATRIA
Time, Date, Place and Purpose
A Special Meeting of Stockholders of Atria will be held at the offices of
Testa, Hurwitz & Thibeault, LLP, located at High Street Tower, 125 High Street,
Boston, Massachusetts 02110 on Friday, August 23, 1996 at 12:00 noon, local
time (the "Atria Meeting"). The purpose of the Atria Meeting is to approve and
adopt the Agreement. See "Atria Software, Inc. Special Meeting--Date, Time and
Place of Atria Meeting" and "--Purpose."
Record Date and Vote Required
Only Atria stockholders of record at the close of business on July 19, 1996
(the "Atria Record Date") are entitled to notice of and to vote at the Atria
Meeting. Pursuant to the MBCL and the Atria Restated Articles of
4
<PAGE>
Organization, as amended, the affirmative vote of the holders of a majority of
the Atria Common Stock outstanding as of the Atria Record Date is required to
approve and adopt the Agreement.
As of the Atria Record Date, there were 180 stockholders of record of Atria
Common Stock and 14,381,437 shares of Atria Common Stock outstanding, each of
which will be entitled to cast one vote per share on each matter to be acted
upon at the Atria Meeting. Atria's directors and certain of its officers have
agreed to vote their shares in favor of the approval and adoption of the
Agreement. See "Atria Software, Inc. Special Meeting--Vote Required," "Terms of
the Merger--Voting Agreements" and "--Interests of Certain Persons."
Recommendation of Atria Board of Directors
Atria's Board of Directors (the "Atria Board") has unanimously approved the
Agreement and the transactions contemplated thereby and has determined that the
Merger is fair and in the best interests of Atria and its stockholders. After
careful consideration, the Atria Board unanimously recommends a vote in favor
of approval and adoption of the Agreement. Stockholders should read this
Prospectus/Joint Proxy Statement carefully prior to voting. See "Approval of
the Merger and Related Transactions--Joint Reasons for the Merger," "--Atria's
Reasons for the Merger," "Atria Software, Inc. Special Meeting--Recommendation
of Atria Board of Directors," and "--Material Contacts and Board
Deliberations."
RISK FACTORS
THE FOLLOWING RISK FACTORS SHOULD BE CONSIDERED BY STOCKHOLDERS IN CONNECTION
HEREWITH: (I) THE EXPECTED LONG-TERM STRATEGIC BENEFITS OF THE MERGER ARE
DEPENDENT UPON THE SUCCESSFUL COMBINATION AND INTEGRATION OF THE TWO COMPANIES,
AND THERE CAN BE NO ASSURANCE THAT THIS WILL OCCUR; (II) THE FLUCTUATION OF
STOCK PRICES, AND THE FIXED NATURE OF THE EXCHANGE RATIO, MAY CAUSE THE VALUE
RECEIVED BY ATRIA STOCKHOLDERS TO DECLINE PRIOR TO THE EFFECTIVE TIME; (III)
THERE IS NO ASSURANCE THAT THE INTEGRATION OF ATRIA'S AND PURE'S BUSINESS
OPERATIONS WILL NOT INVOLVE UNEXPECTED COSTS; (IV) THERE IS NO ASSURANCE THAT
THE BUYING PATTERNS OF PURE'S AND ATRIA'S CUSTOMERS WILL NOT BE AFFECTED BY THE
MERGER; (V) BOTH PURE'S AND ATRIA'S PRODUCTS HAVE HISTORICALLY BEEN LICENSED ON
THE UNIX OPERATING SYSTEM, AND SUCH PRODUCTS ARE SENSITIVE TO FACTORS AFFECTING
THE DEMAND FOR, AND THE USE OF, SUCH OPERATING SYSTEM; (VI) THE COMBINED
COMPANY EXPECTS TO INTRODUCE NEW PRODUCTS INTO, AND EXPAND ITS PRODUCT
OFFERINGS IN, NEW MARKETS, INCLUDING MARKETS CHARACTERIZED BY GREATER USAGE OF
THE WINDOWS AND WINDOWS NT OPERATING SYSTEMS, AND THERE IS NO ASSURANCE THAT
THE COMBINED COMPANY WILL BE ABLE TO ACHIEVE BROAD MARKET ACCEPTANCE OR COMPETE
EFFECTIVELY IN THESE NEW MARKETS; (VII) A NUMBER OF FACTORS MAY RESULT IN
UNANTICIPATED FLUCTUATIONS IN QUARTERLY RESULTS; (VIII) CHANGING TECHNOLOGY AND
MARKET REQUIREMENTS INVOLVE CERTAIN INHERENT RISKS, INCLUDING THE POTENTIAL
DIFFICULTY IN SUCCESSFULLY INTRODUCING NEW PRODUCTS; (IX) CERTAIN RISKS
ASSOCIATED WITH MANAGING AND MAINTAINING RAPID GROWTH; (X) THE AUTOMATED
SOFTWARE QUALITY, SCM AND CRM TOOLS MARKETS, IN WHICH THE COMBINED COMPANY'S
PRODUCTS WILL COMPETE, ARE HIGHLY COMPETITIVE; (XI) THE RISKS INHERENT IN
INTERNATIONAL OPERATIONS, INCLUDING CURRENCY FLUCTUATIONS AND ADDITIONAL COSTS;
(XII) THE COMBINED COMPANY WILL BE DEPENDENT ON PROPRIETORY TECHNOLOGY, WHICH
IT MAY NOT BE ABLE TO FULLY PROTECT; (XIII) THE MARKET FOR THE COMBINED
COMPANY'S COMMON STOCK, AND FOR TECHNOLOGY STOCKS IN GENERAL, IS EXTREMELY
VOLITILE; AND (XIV) THE EFFECTS OF CERTAIN ANTI-TAKEOVER PROVISIONS APPLICABLE
TO THE COMBINED COMPANY. SEE "RISK FACTORS."
REASONS FOR THE MERGER
The Boards of Atria and Pure have authorized the execution and delivery of
the Agreement with the expectation that the proposed Merger, by combining the
experience, financial resources, size and breadth of product offerings of Pure
and Atria, will result in significant long-term strategic benefits to the
companies. See "Risk Factors," "Approval of the Merger and Related
Transactions--Joint Reasons for the Merger," "--Pure's Reasons for the Merger,"
and "--Atria's Reasons for the Merger."
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FAIRNESS OPINIONS
Each of Deutsche Morgan Grenfell/C.J. Lawrence Inc. ("DMG") and Morgan
Stanley & Co. Incorporated ("Morgan Stanley") has delivered to the Pure Board
its written opinion, dated June 6, 1996, to the effect that, as of such date,
the Merger was fair from a financial point of view to Pure. The full text of
the opinions of DMG and Morgan Stanley, which set forth assumptions made and
matters considered, are attached hereto as Annex D and Annex E, respectively,
to this Prospectus/Joint Proxy Statement and are incorporated herein by
reference. HOLDERS OF PURE COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH
OPINIONS IN THEIR ENTIRETIES. See "Approval of the Merger and Related
Transactions--Opinions of Pure's Financial Advisors" and Annexes D and E
hereto.
Wessels, Arnold & Henderson, L.L.C. ("Wessels") has delivered to the Atria
Board its written opinion, dated June 6, 1996, to the effect that, as of such
date, the Merger was fair from a financial point of view to the holders of
Atria Common Stock. The full text of the opinion of Wessels, which sets forth
assumptions made and matters considered is attached hereto as Annex F to this
Prospectus/Joint Proxy Statement, and is incorporated herein by reference.
HOLDERS OF ATRIA COMMON STOCK ARE URGED TO, AND SHOULD, READ SUCH OPINION IN
ITS ENTIRETY. See "Approval of the Merger and Related Transactions--Opinion of
Atria's Financial Advisor" and Annex F attached hereto.
INCOME TAX TREATMENT
The Merger is intended to qualify as a reorganization under Section 368(a) of
the Internal Revenue Code of 1986, as amended (the "Code"), in which case no
gain or loss should generally be recognized by the holders of shares of Atria
Common Stock on the exchange of their shares of Atria Common Stock solely for
shares of Pure Common Stock. Pure and Atria have each received an opinion from
tax counsel that the Merger will constitute a reorganization under Section
368(a) of the Code. HOWEVER, ALL ATRIA STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS. See "Approval of the Merger and Related Transactions--Certain
Federal Income Tax Considerations."
REGULATORY MATTERS
Pure and Atria are aware of no material governmental or regulatory approvals
required for consummation of the Merger, other than compliance with the federal
securities laws and applicable securities and "blue sky" laws of the various
states. See "Approval of the Merger and Related Transactions--Governmental and
Regulatory Approvals."
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting principles.
Consummation of the Merger is conditioned upon receipt at the closing of the
Merger by Pure and Atria of letters from KPMG Peat Marwick LLP, Pure's
independent auditors, and Ernst & Young LLP, Atria's independent auditors,
reaffirming those firms' concurrence with Pure management's and Atria
management's conclusions, respectively, as to the appropriateness of pooling-
of-interests accounting for the Merger under Accounting Principles Board
Opinion No. 16, if consummated in accordance with the Agreement. See "Approval
of the Merger and Related Transactions--Accounting Treatment."
THE MERGER
Terms of the Merger
At the Effective Time (as defined below) of the Merger, Merger Sub will merge
with and into Atria and Pure will own all of the capital stock of Atria. It is
currently intended that the operations of Pure and Atria will be combined as
soon as practicable following the closing of the Merger. As a result of the
Merger, each
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outstanding share of Atria Common Stock, other than shares as to which
appraisal rights pursuant to the MBCL have been exercised and shares held in
the treasury of Atria or owned by Merger Sub, Pure or any wholly owned
subsidiary of Pure or Atria, will be converted into the right to receive
1.544615 shares of Pure Common Stock, and each outstanding option or right to
purchase Atria Common Stock under the Atria Stock Option Plans and Atria Stock
Purchase Plan will be assumed by Pure and will become an option or right to
purchase Combined Company Common Stock, with appropriate adjustments to be made
to the number of shares issuable thereunder and the exercise price thereof
based on the Exchange Ratio. In addition, as a result of the Merger and
pursuant to the terms of the Atria Stock Option Plans, the exercisability of
outstanding options and the lapse of repurchase rights under such plans will
accelerate by 2 1/2 years from the Effective Time of the Merger.
No fractional shares will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of Atria Common Stock (after aggregating all
fractional shares to be received by such holder) will receive from the Combined
Company an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average closing price of a
share of Pure Common Stock for the ten most recent days that Pure Common Stock
has traded ending on the trading day immediately prior to the Effective Time,
as reported on the Nasdaq. See "Terms of the Merger--Manner and Basis of
Converting Shares."
Effective Time of the Merger
The Merger will become effective upon the filing of Articles of Merger (the
"Articles of Merger") with the Secretary of State of the Commonwealth of
Massachusetts or at such later time as may be agreed in writing by Pure, Atria
and Merger Sub and specified in the Articles of Merger (the "Effective Time").
Assuming all conditions to the Merger are met or waived prior thereto, it is
anticipated that the Closing Date of the Merger (the "Closing Date") and
Effective Time will be on or about August 26, 1996. See "Terms of the Merger--
Effective Time."
Exchange of Atria Stock Certificates
Promptly after the Effective Time, the Combined Company, acting through U.S.
Stock Transfer Corp. as its exchange agent (the "Exchange Agent"), will deliver
to each Atria stockholder of record a letter of transmittal with instructions
to be used by such stockholder in surrendering certificates which, prior to the
Merger, represented shares of Atria Common Stock. CERTIFICATES SHOULD NOT BE
SURRENDERED BY THE HOLDERS OF ATRIA COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE
LETTER OF TRANSMITTAL FROM THE EXCHANGE AGENT. At the Effective Time, each then
outstanding option or right to purchase Atria Common Stock, whether vested or
unvested, will be assumed by Pure without any action on the part of the holder
thereof and the number of shares issuable thereunder and the exercise price
thereof shall be appropriately adjusted according to the Exchange Ratio. OPTION
AGREEMENTS NEED NOT BE SURRENDERED. See "Terms of the Merger--Manner and Basis
of Converting Shares."
Form S-8 Registration Statement
No later than two business days after the Closing Date, the Combined Company
will file a registration statement on Form S-8 under the Securities Act
covering the shares of Combined Company Common Stock issuable upon exercise of
options to purchase Atria Common Stock to be assumed by Pure at the Effective
Time. See "Terms of the Merger--Manner and Basis of Converting Shares."
Stock Ownership Following the Merger
Based upon the number of shares of Atria Common Stock outstanding and the
number of shares issuable upon exercise of outstanding options to purchase
Atria Common Stock as of July 1, 1996, and assuming that no
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holder of Atria Common Stock exercises appraisal rights, an aggregate of
approximately 22,200,461 shares of Pure Common Stock will be issued to Atria
stockholders in the Merger and Pure will assume options exercisable for up to
approximately 2,598,602 additional shares of Combined Company Common Stock.
Based upon the number of shares of Pure Common Stock issued and outstanding as
of July 1, 1996, and after giving effect to the issuance of Pure Common Stock
as described in the previous sentence, the former holders of Atria Common Stock
would hold, and have voting power with respect to, approximately 55.7% of the
Combined Company's total issued and outstanding shares, and holders of former
Atria options would hold options to purchase approximately 6.1% of the Combined
Company's total issued and outstanding shares (assuming the exercise of only
such options). The foregoing numbers of shares and percentages are subject to
change in the event that the capitalization of either Pure or Atria changes
subsequent to July 1, 1996 and prior to the Effective Time, and there can be no
assurance as to the actual capitalization of Pure or Atria at the Effective
Time or the Combined Company at any time following the Effective Time. See
"Terms of the Merger--Stock Ownership Following the Merger."
Conduct of Combined Company Following the Merger
Pursuant to the Agreement, the full Board of Directors of the Combined
Company following the Merger will consist of six directors, three of whom will
be designated by Pure and three of whom will be designated by Atria. One
designee of Pure will be Reed Hastings and the two remaining designees will be
non-employee directors and are expected to be Thomas A. Jermoluk and Larry W.
Sonsini, all of whom are currently directors of Pure. One designee of Atria
will be Paul H. Levine and the two remaining designees will be non-employee
directors and are expected to be David A. Litwack and Louis J. Volpe, all of
whom are currently directors of Atria.
Following the Merger, the principal executive officers of the Combined
Company will be as follows: Paul H. Levine, who is currently President and
Chief Executive Officer of Atria, will be Chairman of the Board; Reed Hastings,
who is currently President and Chief Executive Officer of Pure, will be
President and Chief Executive Officer; and Chuck Bay, who is currently Vice
President, Finance, Chief Financial Officer, General Counsel and Secretary of
Pure, will be Vice President, Finance and Chief Financial Officer. See "Terms
of the Merger--Conduct of Combined Company Following the Merger."
No Solicitation
Under the terms of the Agreement, until the earlier of the Effective Time or
termination of the Agreement pursuant to its terms, each of Pure and Atria have
agreed that they will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and affiliates
not to, directly or indirectly, (i) solicit or knowingly encourage submission
of, any proposals or offers by any person, entity or group (other than Atria or
Pure, respectively, and its respective affiliates, agents and representatives),
or (ii) participate in any discussions or negotiations with, or disclose any
non-public information concerning itself or any of its subsidiaries to, or
afford any access to the properties, books or records of itself or any of its
subsidiaries to, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity or group (other than Atria or Pure,
respectively, and its respective affiliates, agents and representatives), in
connection with any Acquisition Proposal with respect to itself. For the
purposes of the Agreement, an "Acquisition Proposal" with respect to an entity
means any proposal or offer relating to (i) any merger, consolidation, sale of
substantial assets or similar transactions involving the entity or any
subsidiaries of the entity (other than sales of assets or inventory in the
ordinary course of business or permitted under the terms of the Agreement),
(ii) sale of 10% or more of the outstanding shares of capital stock of the
entity (including without limitation by way of a tender offer or an exchange
offer), (iii) the acquisition by any person of beneficial ownership or a right
to acquire beneficial ownership of, or the formation of any "group" (as defined
under Section 13(d) of the Exchange Act and the rules and regulations
thereunder) which beneficially owns, or has the right to acquire beneficial
ownership of, 10% or more of the then outstanding shares of capital stock of
the entity (except for acquisitions for passive investment purposes only in
circumstances where the person or group qualifies for and files a
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Schedule 13G with respect thereto); or (iv) any public announcement of a
proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing. Each of Pure and Atria have agreed to cease any
and all existing activities, discussions or negotiations with any parties
conducted prior to the signing of the Agreement with respect to any of the
foregoing. Each of Pure and Atria have agreed to (i) notify Atria or Pure,
respectively, as promptly as practicable if any inquiry or proposal is made or
any information or access is requested in writing in connection with an
Acquisition Proposal or potential Acquisition Proposal and (ii) as promptly as
practicable notify Atria or Pure, respectively, of the significant terms and
conditions of any such Acquisition Proposal. In addition, subject to the other
provisions set forth in this section, from and after the date of the Agreement
until the earlier of the Effective Time and termination of the Agreement
pursuant to its terms, each of Pure and Atria and its subsidiaries have agreed
to not, and have agreed to instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than Atria or Pure, respectively); provided, however,
that nothing in the Agreement will prohibit the Board of Directors of either
Pure or Atria from taking and disclosing to its stockholders a position with
respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated under
the Exchange Act.
Notwithstanding the foregoing, each of Pure and Atria may, to the extent its
Board of Directors determines, in good faith, after consultation with outside
legal counsel, that such Board's fiduciary duties under applicable law require
it to do so, participate in discussions or negotiations with, and, subject to
the requirements of the following paragraph, furnish information to any person,
entity or group after such person, entity or group has delivered to either Pure
or Atria, as the case may be, in writing, an unsolicited bona fide Acquisition
Proposal which the Board of Directors of such company in its good faith
reasonable judgment determines, after consultation with its independent
financial advisors, would result in a transaction more favorable to the
stockholders of such company from a financial point of view than the Merger and
for which financing, to the extent required, is then committed or which, in the
good faith reasonable judgment of the Board of Directors of such company (based
upon the advice of independent financial advisors), is reasonably capable of
being financed by such person, entity or group, and which is likely to be
consummated (a "Superior Proposal"). In the event either Pure or Atria receives
a Superior Proposal, nothing contained in the Agreement will prevent the Board
of Directors of such company from approving such Superior Proposal or
recommending such Superior Proposal to its stockholders, if such Board
determines that such action is required by its fiduciary duties under
applicable law; provided, however, that Pure or Atria have agreed not to accept
or recommend to their respective stockholders, or enter into any agreement
concerning, a Superior Proposal for a period of not less than 48 hours after
the receipt by Atria or Pure, as the case may be, of a copy of such Superior
Proposal (or a description of the significant terms and conditions thereof, if
not in writing). See "Terms of the Merger--No Solicitation."
Market Price Data
Pure Common Stock has been traded on Nasdaq under the symbol "PRSW" since
Pure's initial public offering in August 1995. On June 5, 1996, the last day
before the execution of the Agreement, the closing price of Pure Common Stock
as reported on Nasdaq was $40.625 per share. On July 19, 1996, the closing
price of Pure Common Stock as reported on Nasdaq was $27.625. There can be no
assurance as to the actual price of Pure Common Stock prior to, at or at any
time following the Effective Time of the Merger, or in the event the Merger is
not consummated.
Atria Common Stock has been traded on Nasdaq under the symbol "ATSW" since
Atria's initial public offering in May 1994. On June 5, 1996, the last day
before the execution of the Agreement, the closing price of Atria Common Stock
as reported on Nasdaq was $62.75 per share. Following the Merger, Atria Common
Stock will no longer be traded on Nasdaq. On July 19, 1996, the closing price
of Atria Common Stock as reported on Nasdaq was $40.50. There can be no
assurance as to the actual price of Atria Common Stock prior to, or at
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the Effective Time of the Merger, or in the event the Merger is not
consummated. See "Risk Factors," "Pure--Pure Stock Information," and "Atria--
Market Price of Atria Common Stock."
Termination; Fees; Expenses
The Agreement may be terminated under certain circumstances, including,
without limitation, by mutual written consent of Pure and Atria authorized by
their respective Boards of Directors; and by either Pure or Atria if the other
party commits certain breaches of any representation, warranty or covenant
contained in the Agreement; if consummation of the Merger is restricted by an
order or other action of a court of competent jurisdiction or a governmental,
regulatory or administrative agency or commission; if the Merger is not
consummated on or before December 31, 1996 (except that the Agreement cannot be
terminated pursuant to this provision by a party whose action or failure to act
has been a principal cause of the failure of the Merger to occur on or before
such date where such action or failure to act constitutes a breach of the
Agreement); or if a material adverse effect with respect to the other party has
occurred since the date of the Agreement.
Each of Pure and Atria have agreed that if it accepts a Superior Proposal, if
the Board of Directors of such company recommends a Superior Proposal to the
stockholders of such company, or if the stockholders of such company fail to
approve the Merger following a publicly disclosed (and not withdrawn)
Acquisition Proposal with regard to such company, then, such company will
immediately pay to the other party the sum of $25 million. Each of Pure and
Atria have agreed that if the stockholders of such company fail to approve the
Merger following the withholding, withdrawal or modification by the Board of
Directors of such company, in a manner adverse to the other party, of its
recommendation in favor of the Merger (and the $25 million sum is not otherwise
payable), then such company will immediately pay to the other party the sum of
$15 million. And each of Pure and Atria have agreed that if the stockholders of
such company fail to approve the Agreement and/or Merger under circumstances
not described in the preceding sentences, then such company will immediately
pay to the other party the sum of $5 million. See "Terms of the Merger--Break
Up Fees; Expenses," and "--Termination of the Agreement."
Conditions to the Merger
Consummation of the Merger is subject to the satisfaction of various
conditions, including approvals by the requisite vote of the stockholders of
Pure and Atria and the receipt by Pure and Atria of certain letters from their
respective independent accountants regarding the ability of the Combined
Company to account for the Merger as a pooling of interests. The ability of the
Combined Company to account for the Merger as a pooling of interests depends in
part on there being no exercise of appraisal rights under applicable law as to
greater than a certain number of shares of Atria Common Stock. If appraisal
rights are exercised as to a greater number of shares, then in the absence of
waivers from Pure and Atria regarding the failure to meet that condition, the
Merger would not close.
Consummation of the Merger is also subject to the satisfaction of the
following conditions: the Registration Statement filed with the SEC relating to
the issuance of shares of Pure Common Stock in connection with the Merger shall
be effective and such shares shall be authorized for listing on Nasdaq; no
injunction, court order, or other legal restraint preventing consummation of
the Merger shall be in effect; and Pure and Atria shall have received opinions
from their respective legal counsel to the effect that the Merger will qualify
as a "reorganization" within the meaning of the Code. In addition, the
obligations of Atria to consummate the Merger are subject to the following
conditions, unless waived by Atria: the representations and warranties of Pure
and Merger Sub contained in the Agreement shall be accurate except where any
breach or breaches did not have or would not reasonably be expected to have a
material adverse effect on Pure; Pure and Merger Sub shall have performed in
all material respects the covenants required by the Agreement; no material
adverse effect with respect to Pure shall have occurred; and Atria shall have
received a legal opinion from counsel to Pure. In addition, the obligations of
Pure to consummate the Merger are subject to the following conditions, unless
waived by Pure: the representations and warranties of Atria contained in the
Agreement shall be accurate except
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where any breach or breaches did not have or would not reasonably be expected
to have a material adverse effect on Atria; Atria shall have performed in all
material respects the covenants required by the Agreement; no material adverse
effect with respect to Atria shall have occurred; and Pure shall have received
a legal opinion from counsel to Atria. See "Terms of the Merger--Conditions to
the Merger."
Stock Option Agreements
As an inducement to Atria to enter into the Agreement, Pure entered into a
Stock Option Agreement with Atria dated June 6, 1996 (the "Pure Option
Agreement") pursuant to which Pure granted Atria the right (the "Pure Option"),
under certain conditions, to purchase up to 2,646,096 shares of Pure Common
Stock by exchanging therefore shares of Atria Common Stock at the rate of
0.64741 of a share of Atria Common Stock for each option share and/or, at
Atria's election, by paying cash of $40.625 per share (the "Pure Exercise
Price"). Subject to certain conditions, the Pure Option may be exercised in
whole or in part by Atria (i) upon the commencement of a tender or exchange
offer for 25% or more of any class of Pure's capital stock, (ii) in the event
Pure shall have accepted a Superior Proposal or if the Board of Directors of
Pure recommends a Superior Proposal to the stockholders of Pure or (iii) in the
event the stockholders of Pure fail to approve the issuance of shares of Pure
Common Stock by virtue of the Merger if prior to such failure there shall have
occurred an Acquisition Proposal (as such term is defined below) with respect
to Pure which shall have been publicly disclosed and not withdrawn.
As an inducement to Pure to enter into the Agreement, Atria entered into a
Stock Option Agreement with Pure dated June 6, 1996 (the "Atria Option
Agreement") pursuant to which Atria granted Pure the right (the "Atria
Option"), under certain conditions, to purchase up to 2,149,038 shares of Atria
Common Stock by exchanging therefore shares of Pure Common Stock at the rate of
1.544615 shares of Pure Common Stock for each option share and/or, at Pure's
election, by paying cash of $62.75 per share (the "Atria Exercise Price").
Subject to certain conditions, the Atria Option may be exercised in whole or in
part by Pure (i) upon the commencement of a tender or exchange offer for 25% or
more of any class of Atria's capital stock, (ii) in the event Atria shall have
accepted a Superior Proposal or if the Board of Directors of Atria recommends a
Superior Proposal to the stockholders of Atria or (iii) in the event the
stockholders of Atria fail to approve the Agreement and the Merger if prior to
such failure there shall have occurred an Acquisition Proposal with respect to
Atria which shall have been publicly disclosed and not withdrawn. The Pure
Option Agreement and the Atria Option Agreement are sometimes collectively
referred to herein as the "Stock Option Agreements." See "Terms of the Merger--
Stock Option Agreements."
Voting Agreements
Each of the members of the Pure Board (including Reed Hastings, Audrey
MacLean for the Audrey MacLean and Michael M. Clair Trust u/a/d/ December 1,
1990, Aki Fujimura, Andrew S. Rachleff, Thomas A. Jermoluk and Larry W.
Sonsini) and Chuck Bay, Pure's Vice President, Finance, Chief Financial
Officer, General Counsel and Secretary (who own an aggregate of 4,513,021
shares of Pure Common Stock and options exercisable within 60 days of the Pure
Record Date to purchase an aggregate of 686,683 shares of Pure Common Stock,
representing approximately 25.4% of the votes entitled to be cast by holders of
shares of Pure Common Stock issued and outstanding as of the Pure Record Date
or 28.2% of such votes assuming exercise of all options held by such persons)
has entered into a Voting Agreement with Atria (the "Pure Voting Agreement").
Pursuant to the Pure Voting Agreement, which is irrevocable, each of the
foregoing Pure stockholders has agreed to vote in favor of the Merger and
against approval of any proposal made in opposition or competition with
consummation of the Merger.
Each of the members of the Atria Board (including Paul H. Levine, Paul J.
Ferri, Gardner C. Hendrie, David A. Litwack, Robert D. Pavey and Louis J.
Volpe) and Elliot M. Katzman, Atria's Vice President, Finance and
Administration and Chief Financial Officer; John C. Leary, Atria's Vice
President, Sales; Norris H. Evans,
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Atria's Vice President, Research and Development; and David B. Leblang, Atria's
Chief Technical Officer; (who own an aggregate of 773,839 shares of Atria
Common Stock and options exercisable within 60 days of the Atria Record Date to
purchase an aggregate of 197,400 shares of Atria Common Stock, representing
approximately 5.4% of the votes entitled to be cast by holders of shares of
Atria Common Stock issued and outstanding as of the Atria Record Date, and 6.7%
of such votes assuming exercise of all options held by such persons) has
entered into a Voting Agreement with Pure (the "Atria Voting Agreement").
Pursuant to the Atria Voting Agreement, which is irrevocable, each of the
foregoing Atria stockholders has agreed to vote in favor of the Merger and
against approval of any proposal made in opposition or competition with
consummation of the Merger. See "Terms of the Merger--Voting Agreements."
Affiliate Agreements
Each of the members of the Board of Directors of Pure and certain officers of
Pure have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of Pure
Common Stock held by them to help ensure that the Merger will be treated as a
pooling of interests for accounting and financial reporting purposes. Each of
the members of the Board of Directors of Atria and certain officers of Atria
have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of
Atria Common Stock held by them prior to the Merger and the shares of Pure
Common Stock received by them in the Merger so as to comply with the
requirements of applicable federal securities and tax laws and to help ensure
that the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes. See "Terms of the Merger--Conditions to the
Merger" and "--Affiliate Agreements."
Licensing and Marketing Agreement
Pure and Atria have also entered into a License and Marketing Agreement (the
"License and Marketing Agreement") in connection with the Agreement. The
License and Marketing Agreement would become effective only in the event that
the Agreement is terminated under certain circumstances. The License and
Marketing Agreement, if effective, would permit Atria to market, distribute,
support and maintain the PureDDTS defect tracking system product, and modify
and create derivative works of the product. The License and Marketing Agreement
contains customary warranty, indemnity and confidentiality provisions. See
"Terms of the Merger--Licensing and Marketing Agreement."
Interests of Certain Persons in the Merger
In considering the recommendation of the Atria Board with respect to the
Agreement, holders of Atria Common Stock should be aware that members of the
Atria Board and the executive officers of Atria have certain interests in the
Merger that are in addition to the interests of holders of Atria Common Stock
generally. See "Terms of the Merger -- Interests of Certain Persons."
Appraisal Rights
Holders of Pure Common Stock are not entitled to appraisal rights under the
Delaware General Corporation Law in connection with the Merger. Pursuant to
Massachusetts law, and as described in greater detail in the Notice of the
Meeting and in the Prospectus/Joint Proxy Statement, holders of Atria Common
Stock will be entitled to appraisal rights in connection with the Merger. A
holder of Atria Common Stock who desires to pursue appraisal rights must (i)
file a written objection to the Agreement with Atria before the taking of the
stockholders' vote on the Agreement, (ii) refrain from voting in favor of the
Agreement; and (iii) make written demand from the surviving corporation for
payment for the stockholder's shares, all in accordance with the MBCL. Such
appraisal rights are not conditioned upon voting against the Agreement. See
"Terms of the Merger--Appraisal Rights."
12
<PAGE>
Anti-takeover Provisions of Delaware Law and the Combined Company's Charter
Documents
Upon consummation of the Merger, the stockholders of Atria, a corporation
organized under the laws of Massachusetts, will become stockholders of the
Combined Company, a corporation organized under the laws of Delaware. Certain
provisions of Delaware law applicable to the Combined Company may have the
effect of delaying, deterring, or preventing changes in control or management
of the Combined Company. The charter documents of the Combined Company will
contain certain additional provisions which may further this effect. The
Combined Company will be subject to the provisions of Section 203 of the
Delaware General Corporation Law, which restricts the corporation from entering
into certain "business combinations" with an "interested person" for a period
of three years. An interested person is generally defined to mean a person or
entity that has acquired in excess of 15% of the Combined Company's voting
stock. In addition, the Combined Company's Board will have authority to issue
up to 2,000,000 shares of preferred stock and to fix the rights, preferences,
privileges and restrictions, including voting rights, of such shares without
any further vote or action by the stockholders. The issuance of such preferred
stock could have a dilutive effect upon the stockholders of the Combined
Company, and could discourage an unsolicited attempt to take over the Combined
Company. See "Comparison of Capital Stock."
13
<PAGE>
SELECTED HISTORICAL AND SELECTED PRO FORMA COMBINED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The following selected historical financial information of Pure and Atria has
been derived from their respective historical financial statements, and should
be read in conjunction with such consolidated financial statements and the
notes thereto, included elsewhere in this Prospectus/Joint Proxy Statement. The
selected pro forma financial information is derived from the unaudited pro
forma combined condensed financial statements, which give effect to the Merger
as a pooling of interests and should be read in conjunction with such unaudited
pro forma statements and the notes thereto included in this Prospectus/Joint
Proxy Statement. For purposes of the pro forma operating data, Pure's
consolidated financial statements for the three fiscal years ended December 31,
1993, 1994, and 1995, and for the three months ended March 31, 1995 and 1996
have been combined with the Atria financial statements for the three fiscal
years ended December 31, 1993, 1994, and 1995, and for the three months ended
March 31, 1995 and 1996. No dividends have been declared or paid on Pure or
Atria Common Stock. The pro forma information is presented for illustrative
purposes only and is not necessarily indicative of the operating results or
financial position that would have occurred if the Merger had been consummated
at the beginning of the periods indicated, nor is it necessarily indicative of
future operating results or financial position.
PURE SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------------------- ----------------
1991 1992 1993 1994 1995 1995 1996
------ ------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues................ $2,205 $6,329 $11,925 $21,993 $44,042 $ 8,245 $15,128
Gross margin............ 1,669 5,431 10,717 19,976 40,292 7,646 13,836
Merger and integration.. -- -- -- -- 2,961 -- --
In-process research and
development............ -- -- -- -- 10,100 10,100 --
Income (loss) from oper-
ations................. 597 1,845 881 2,480 (6,368) (9,010) 2,330
Income (loss) before in-
come taxes............. 599 1,853 901 2,640 (5,550) (8,888) 2,637
Net income (loss)....... 599 1,523 828 2,047 (8,695) (9,088) 1,775
Net income (loss) per
share.................. $ 0.09
Pro forma net income
(loss) (1)............. 1,752 (9,419) (9,309)
Pro forma net income
(loss)
per share (1).......... $ 0.11 $ (0.60) $ (0.64)
Shares used in per share
computations........... 15,838 15,784 14,505 19,905
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
------ ------ ------ ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED BALANCE
SHEET DATA:
Cash, cash equivalents and
short-term investments........ $ 466 $3,267 $3,003 $ 8,995 $37,435 $40,004
Working capital................ 784 3,508 3,476 8,322 32,882 34,660
Total assets................... 1,068 4,768 7,749 17,315 58,102 64,512
Long-term obligations.......... -- -- 165 318 67 --
Redeemable convertible pre-
ferred stock.................. 319 2,436 2,397 6,467 -- --
Total stockholders' equity..... 578 1,514 2,100 3,847 39,834 42,798
</TABLE>
14
<PAGE>
ATRIA SELECTED HISTORICAL FINANCIAL INFORMATION
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ---------------
1991 1992 1993 1994 1995 1995 1996
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
STATEMENT OF OPERATIONS
DATA:
Revenues................ $ 50 $ 2,084 $ 9,262 $20,765 $40,143 $ 8,020 $13,502
Operating income
(loss)................. (1,401) (1,389) 709 3,447 5,805 1,489 2,739
Net income (loss)....... (1,312) (1,300) 818 3,380 5,173 1,256 2,076
Net income (loss) per
share.................. $ (0.31) $ (0.31) $ 0.08 $ 0.25 $ 0.34 $ 0.08 $ 0.14
Shares used in per share
computation............ 4,184 4,198 10,768 13,308 15,006 14,932 15,210
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, AS OF
------------------------------------------ MARCH 31,
1991 1992 1993 1994 1995 1996
------- ------- ------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
HISTORICAL CONSOLIDATED
BALANCE SHEET DATA:
Working capital.......... $ 1,009 $ 3,664 $ 3,775 $28,055 $32,674 $35,127
Total assets............. 1,224 5,144 7,485 37,401 51,972 56,892
Redeemable convertible
preferred stock......... 2,053 6,117 6,167 -- -- --
Total stockholders' eq-
uity (deficit).......... (1,818) (3,116) (2,187) 29,133 36,021 38,849
</TABLE>
SELECTED PRO FORMA COMBINED FINANCIAL INFORMATION
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
PRO FORMA COMBINED CONDENSED
STATEMENT OF OPERATIONS DATA:
Revenues............................ $21,187 $42,758 $84,185 $16,265 $28,630
Gross margin........................ 19,338 38,776 76,320 14,870 25,816
Income (loss) from operations....... 1,590 5,927 (563) (7,521) 5,069
Net income (loss)................... 1,646 5,427 (3,522) (7,832) 3,851
Net income (loss) per share......... $ 0.09
Pro forma net income (loss) (1)..... 5,132 (4,246) (8,053)
Pro forma net income (loss) per
share (1).......................... $ 0.14 $ (0.11) $ (0.22)
Shares used in per share
computation........................ 36,394 37,600 36,278 43,399
</TABLE>
<TABLE>
<CAPTION>
AS OF
MARCH 31,
1996
---------
<S> <C>
PRO FORMA COMBINED CONDENSED BALANCE SHEET DATA:
Working capital....................................................... $63,187
Total assets.......................................................... 121,404
Stockholders' equity.................................................. 75,047
</TABLE>
- --------
(1) On November 21, 1995, Pure acquired Performix, Inc. ("Performix"). The
acquisition was accounted for as a pooling of interests. Pro forma net
income (loss) includes a provision for income taxes as if Performix had
been a C Corporation, fully subject to federal and state income taxes.
Prior to its acquisition by Pure, Performix had elected S Corporation
status for income tax purposes and, consequently, historical results as
they relate to Performix do not include a provision for income taxes.
See "Unaudited Pro Forma Combined Condensed Financial Information" and
accompanying notes thereto.
15
<PAGE>
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share data of Pure and
Atria and combined per share data on an unaudited pro forma basis after giving
effect to the Merger on a pooling of interests basis of accounting, assuming
that 1.544615 shares of Pure Common Stock are issued in exchange for one share
of Atria Common Stock in the Merger. This data should be read in conjunction
with the selected historical financial data, the unaudited pro forma combined
condensed financial information and the separate historical financial
statements of Pure and Atria and notes thereto, included elsewhere in this
Prospectus/Joint Proxy Statement. The pro forma combined financial data are not
necessarily indicative of the operating results that would have been achieved
had the Merger been consummated as of the beginning of the periods presented
and should not be construed as representative of future operations.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED
------------------------ MARCH 31,
1993 1994 1995 1996
------- ------- -------- ------------
<S> <C> <C> <C> <C>
HISTORICAL--PURE:
Net income (loss) per share............ $0.09
Pro forma net income (loss) per
share(1).............................. $ 0.11 $ (0.60)
Book value per share(2)................ 0.36 0.73 2.32 2.44
HISTORICAL--ATRIA:
Net income per share................... $ 0.08 $ 0.25 $ 0.34 $0.14
Book value per share(2)................ 0.41 2.07 2.54 2.72
PRO FORMA COMBINED NET INCOME (LOSS)
PER SHARE(1)(3):
Per Pure share......................... $ 0.14 $ (0.11) $0.09
Equivalent per Atria share(4).......... 0.22 (0.17) 0.14
</TABLE>
<TABLE>
<CAPTION>
AS OF
----------------------
DECEMBER 31, MARCH 31,
1995 1996
------------ ---------
<S> <C> <C>
PRO FORMA COMBINED BOOK VALUE PER SHARE(3)(5):
Per Pure share........................................... $1.77 $1.90
Equivalent per Atria share(4)............................ 2.74 2.93
</TABLE>
- --------
(1) On November 21, 1995, Pure acquired Performix. The acquisition was
accounted for as a pooling of interests. Pro forma net income (loss)
includes a provision for income taxes as if Performix had been a C
Corporation, fully subject to federal and state income taxes. Prior to its
acquisition by Pure, Performix has elected S Corporation status for income
tax purposes and, consequently, historical results as they relate to
Performix do not include a provision for income taxes.
(2) The historical book value per share is computed by dividing stockholders'
equity by the number of shares of common stock and preferred stock, on an
as if converted basis, outstanding at the end of each period.
(3) Pure and Atria estimate they will incur direct transaction costs of
approximately $10,000,000 associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected
that after the Merger, the Combined Company will incur an additional
significant charge to operations, which is not currently reasonably
estimable, to reflect costs associated with integrating the two companies.
The pro forma combined book value per share data gives effect to the
estimated direct transaction costs, but does not include the additional
significant charge relating to integrating the two companies, as if such
costs had been incurred as of the respective balance sheet date. These
costs and charge are not included in the pro forma net income (loss) per
share data. See "Unaudited Pro Forma Combined Condensed Financial
Information" and accompanying notes thereto.
(4) The Atria equivalent pro forma combined per share amounts are calculated by
multiplying the Pure combined pro forma per share amounts by the Exchange
Ratio of 1.544615 shares of Pure Common Stock for each share of Atria
Common Stock.
(5) The pro forma combined book value per share is computed by dividing pro
forma stockholders' equity by the pro forma number of shares of common
stock outstanding at the end of each period.
16
<PAGE>
RISK FACTORS
THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY IN EVALUATING THE
PROPOSALS TO BE VOTED ON AT THE PURE MEETING AND THE ATRIA MEETING AND THE
ACQUISITION OF THE SECURITIES OFFERED HEREBY. THIS SECTION CONTAINS FORWARD-
LOOKING STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD
DIFFER MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS
AS A RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN THE FOLLOWING
RISK FACTORS AND ELSEWHERE HEREIN.
UNCERTAINTIES RELATING TO INTEGRATION OF OPERATIONS
Atria and Pure have entered into the Agreement with the expectation that the
proposed Merger will result in long-term strategic benefits. These anticipated
benefits will depend in part on whether the companies' operations can be
integrated in an efficient and effective manner. There can be no assurance
that this will occur. The combination of the companies will require, among
other things, integration of the companies' respective product offerings and
coordination of the companies' sales, marketing and research and development
efforts. Historically, the sales models used by Pure's and Atria's sales
organizations have differed significantly, although each employs direct and
telesales personnel. As compared to Atria, Pure's product line has
traditionally experienced a shorter sales cycle and its sales model has relied
more heavily on telesales. There can be no assurance that the Combined Company
will be able to take full advantage of the combined sales force's efforts.
Pure and Atria also use a number of distribution channels in the various
geographic markets in which their respective products are sold and there can
be no assurance that channel conflicts will not develop following the Merger
as the Combined Company attempts to integrate these channels.
The success of the integration process will be significantly influenced by
the ability of the Combined Company to attract and retain key management,
sales, marketing and research and development personnel. There is no assurance
that the foregoing will be accomplished smoothly or successfully. The
integration of operations following the Merger will require the dedication of
management resources, which may distract attention from the day-to-day
operations of the Combined Company. The inability of management to
successfully integrate the operations of the companies could have a material
adverse effect upon the business, operating results and financial condition of
the Combined Company.
NO EFFECT ON EXCHANGE RATIO OF PRICE OF PURE COMMON STOCK
Under the terms of the Agreement, the shares of Atria Common Stock issued
and outstanding at the Effective Time will be converted into the right to
receive shares of Pure Common Stock. The Agreement does not contain any
provisions for adjustment of the Exchange Ratio based on fluctuations in the
price of Pure Common Stock. Accordingly, the value of the consideration to be
received by stockholders of Atria upon the Merger will depend on the market
price of the Pure Common Stock at the Effective Time. The Exchange Ratio is
based on the closing market prices of the Pure Common Stock and the Atria
Common Stock on June 5, 1996, the day before the Agreement was executed. There
can be no assurance that the market price of the Combined Company Common Stock
on and after the Effective Time will not be lower than either of such prices.
COSTS OF INTEGRATION; TRANSACTION EXPENSES
Pure and Atria estimate they will incur direct transaction costs of
approximately $10 million associated with the Merger, which will be charged to
operations upon consummation of the Merger. The Combined Company expects to
incur an additional significant charge to operations, which is not currently
reasonably estimable, in the quarter ended September 30, 1996, the quarter in
which the Merger is expected to be consummated, to reflect costs associated
with integrating the two companies. There can be no assurance that the
Combined Company will not incur additional material charges in subsequent
quarters to reflect additional costs associated with the Merger.
17
<PAGE>
EFFECTS OF MERGER ON CUSTOMERS
There can be no assurance that the present and potential customers of Atria
and Pure will continue their current buying patterns without regard to the
proposed Merger. Any significant delay or reduction in orders could have an
adverse effect on the near-term business and results of operations of the
Combined Company. In addition, uncertainties regarding product overlap of the
companies' respective CRM systems (PureDDTS and ClearTrack) may cause
customers to delay purchasing decisions regarding these products.
DEPENDENCE ON UNIX OPERATING SYSTEM
Although both Atria and Pure have adapted certain of their products to other
operating systems, Atria's and Pure's products have historically been licensed
for use principally on certain versions of the UNIX operating system. The
revenues of Atria have been primarily attributable, and the revenues of Pure
have been almost entirely attributable, to UNIX related products and services.
Any factor adversely affecting the demand for, or the use of, the UNIX
operating system that would require changes to Atria's or Pure's products
would have a material adverse effect upon the business, operating results and
financial condition of the Combined Company. In addition, any changes to the
underlying components of the UNIX operating system that would require changes
to the products of either Pure or Atria would materially adversely affect the
Combined Company if it were not able to successfully develop or implement such
changes in a timely fashion.
RISKS ASSOCIATED WITH EXPANSION INTO NEW MARKETS; EMERGING MARKET FOR SOFTWARE
QUALITY, SCM AND CRM TOOLS
The Combined Company can be expected to introduce new products and expand
its product offerings in the client/server development environments. Broad
market acceptance of the Combined Company's products in these new markets,
including acceptance in markets characterized by greater usage of the Windows
and Windows NT operating systems, is critical to the Combined Company's future
success. Each of Atria and Pure believes that factors affecting the ability of
the Combined Company's products to achieve broad market acceptance include:
product performance, price, ease of adoption, displacement of existing
approaches and adaptation to rapid technological change and competitive
product offerings. There can be no assurance that the Combined Company will be
able to respond promptly and effectively to the challenges of technological
change and its competitors' innovations in these new markets, or that the
Combined Company will be able to achieve the necessary market acceptance, or
compete effectively, in these new markets.
Although demand for Pure's and Atria's products has grown in recent years,
the market for software quality, SCM and CRM tools is still emerging and any
future growth depends upon continued market acceptance of such tools.
Historically, each of Pure and Atria has been required to establish new
product markets by educating prospective customers as to the advantages of its
products. Each of Pure and Atria expects that new product markets will need to
be established for its future products, which will require significant sales
and marketing resources. There can be no assurance that the market for each of
Pure's and Atria's existing products will continue to grow, that developers
will adopt such products for the development and testing of their software or
that the Combined Company will be successful in establishing product markets
for its new products. If the market for software quality, SCM and CRM tools
fails to grow or grows more slowly than Pure and Atria currently anticipate,
or if the Combined Company is unable to establish product markets for its new
products, the Combined Company's business, operating results and financial
condition would be materially adversely affected.
FLUCTUATIONS IN QUARTERLY RESULTS; FUTURE OPERATING RESULTS UNCERTAIN
Each of Pure's and Atria's quarterly operating results have in the past, and
the Combined Company's results may in the future, fluctuate significantly
depending on factors such as demand for its products, the size and timing of
orders, the number, timing and significance of new product announcements by it
and its competitors, its ability to develop, introduce and market new and
enhanced versions of its products on a timely basis, the level of product and
price competition, changes in operating expenses, changes in average selling
prices and
18
<PAGE>
product mix, changes in its sales incentive strategy, sales personnel changes,
the mix of direct and indirect sales, product returns and general economic
factors, among others. Pure and Atria have routinely received and the Combined
Company may routinely receive a substantial portion of its orders in the last
month of a quarter, with these orders frequently concentrated in the last
weeks or days of a quarter. As a result, because product revenues in any
quarter may be substantially dependent on orders booked and shipped in that
quarter, revenues for any future quarter may not be predictable with any
significant degree of accuracy. Product revenues are also difficult to
forecast because the markets for software quality, SCM and CRM products is
rapidly evolving and the Combined Company's sales cycle, from initial
evaluation to multiple license purchases and the provision of support
services, may vary substantially from customer to customer. The Combined
Company's expense levels, however, will be based in significant part on
expectations of future revenues and therefore will be relatively fixed in the
short run. If revenue levels are below expectations, operating results are
likely to be adversely affected. Net income may be disproportionately affected
by an unanticipated decline in revenue for a particular quarter because a
relatively small amount of the Combined Company's expenses will vary with its
revenue in the short run. As a result, Pure and Atria believe that period-to-
period comparisons of Pure's, Atria's or the Combined Company's results of
operations are not and will not necessarily be meaningful and should not be
relied upon as any indication of future performance. Due to all of the
foregoing factors, it is likely that in some future quarter the Combined
Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of the Combined Company's
Common Stock would likely be materially adversely affected. Although each of
Pure and Atria have experienced growth in revenues in recent years, there can
be no assurance that, in the future, the Combined Company will sustain revenue
growth or remain profitable on a quarterly or annual basis.
RAPID TECHNOLOGICAL CHANGE; NEW PRODUCT DELAYS; RISK OF PRODUCT DEFECTS
The software market is characterized by ongoing technological developments,
evolving industry standards and rapid changes in customer requirements. The
introduction of products embodying new technologies and the emergence of new
industry standards and practices can render existing products obsolete and
unmarketable. The Combined Company's future business, operating results and
financial condition will depend on its ability to enhance its existing
products, develop new products that address the increasingly sophisticated
needs of its customers, develop products for additional platforms and respond
to technological advances and emerging industry standards and practices. In
addition, in the future each of Pure and Atria expects to introduce enhanced
versions of current products, as well as versions of current products that are
ported to different UNIX platforms or developed for use on platforms other
than UNIX. Products that are ported to additional platforms or developed for
use on platforms other than UNIX entail significant technical risks. Relative
to other software products, Pure's products are difficult to port across
different UNIX platforms and the Combined Company's products may require
significant development efforts for use on platforms other than UNIX. There
can be no assurance that the Combined Company will be successful in
developing, introducing and marketing product enhancements, new products, or
versions of existing products for other UNIX platforms or platforms other than
UNIX on a timely basis, if at all, or that it will not experience difficulties
that could delay or prevent the successful development, introduction or
marketing of these products, or that its new products and product enhancements
will adequately meet the requirements of the marketplace and achieve market
acceptance. Delays in the commencement of commercial shipments of new products
or enhancements may result in customer dissatisfaction and delay or loss of
product revenues, and the announcement of new products may cause customers to
defer purchases of existing products. If the Combined Company is unable, for
technological or other reasons, to develop and introduce new products or
enhancements of existing products in a timely manner in response to changing
market conditions or customer requirements, or if new versions of existing
products do not achieve market acceptance, the Combined Company's business,
operating results and financial condition will be materially adversely
affected. Software products as complex as those offered by Pure and Atria may
contain undetected errors or failures when first introduced or as new versions
are released. Although neither Pure nor Atria has experienced material adverse
effects resulting from any software errors in any recent years, there can be
no assurance that, despite testing internally or by current or potential
customers, errors will not be found in new products after commencement of
commercial shipments, resulting in loss of or delay in market acceptance,
which could have a material adverse
19
<PAGE>
effect upon the Combined Company's business, operating results and financial
condition. Further, because Pure relies on its own products to detect errors
in its software, any such errors could make it more difficult to sell Pure's
products in the future.
MANAGEMENT OF GROWTH; DEPENDENCE ON KEY PERSONNEL
Each of Pure and Atria has recently experienced a period of significant
growth that has placed strain upon its management systems and resources. In
the future, the Combined Company will be required to continue to improve its
financial and management controls, reporting systems and procedures on a
timely basis and expand, train and manage its employee work force. There can
be no assurance that the Combined Company will be able to effectively manage
such growth. Its failure to do so would have a material adverse effect upon
its business, operating results and financial condition. Competition for
qualified sales, technical and other qualified personnel is intense, and there
can be no assurance that the Combined Company will be able to attract,
assimilate or retain additional highly qualified employees in the future. If
the Combined Company is unable to hire and retain such personnel, particularly
those in key positions, its business, operating results and financial
condition would be materially adversely affected. The Combined Company's
future success also depends in significant part upon the continued service of
its key technical, sales and senior management personnel. The loss of the
services of one or more of these key employees could have a material adverse
effect on its business, operating results and financial condition. Additions
of new and departures of existing personnel, particularly in key positions,
can be disruptive and can result in departures of existing personnel, which
could have a material adverse effect upon the Combined Company's business,
operating results and financial condition. In addition, as a result of the
Merger, and pursuant to the terms of Atria Stock Option Plans, immediately
prior to the Effective Time, the exercisability of outstanding options and
lapse of repurchase rights under such plans will accelerate by 2 1/2 years
from the Effective Time of the Merger. Such acceleration may reduce the
incentive for certain employees to remain with the Combined Company.
COMPETITION; RISKS OF LITIGATION AND POTENTIAL LITIGATION
The market for software quality, SCM and CRM tools is highly competitive and
subject to rapid technological change. Many of Pure's and Atria's current and
potential competitors have longer operating histories, significantly greater
financial, technical and marketing resources, greater name recognition and a
larger installed customer base than Pure or Atria have, or the Combined
Company will have. In addition, any of these competitors may be able to
respond more quickly to new or emerging technologies and changes in customer
requirements, and to devote greater resources to the development, promotion
and sale of their products than Pure, Atria or the Combined Company.
Furthermore, because there are relatively low barriers to entry in the
software industry, Pure and Atria expect additional competition from other
established and emerging companies, which may choose to enter the market by
developing products that compete with those offered by the Combined Company or
by acquiring companies, businesses, products or product lines that compete
with the Combined Company. It is also possible that alliances among
competitors may emerge and rapidly acquire significant market share. Pure and
Atria also believe that competition will increase as a result of software
industry consolidation. There can be no assurance that the Combined Company's
current or potential competitors will not develop or acquire products
comparable or superior to those developed by the Combined Company, combine or
merge to form significant competitors, or adapt more quickly than the Combined
Company to new technologies, evolving industry trends and changing customer
requirements. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which could materially and adversely
affect the Combined Company's business, operating results and financial
condition. There can be no assurance that the Combined Company will be able to
compete successfully against current and future competitors or that
competitive pressures faced by the Combined Company will not have a material
adverse effect on its business, operating results and financial condition. If
the Combined Company is unable to compete successfully against current and
future competitors, the Combined Company's business, operating results and
financial condition will be materially and adversely affected.
20
<PAGE>
In addition, competitors and potential competitors may resort to litigation
as a means of competition. In the past, Pure has instituted litigation against
several competitors. Such litigation may be costly and expose the Combined
Company to new claims that it may not have anticipated. Although patent and
intellectual property disputes in the software area have often been settled
through licensing, cross-licensing or similar arrangements, costs associated
with such arrangements may be substantial. Any litigation involving the
Combined Company, whether as plaintiff or defendant, regardless of the
outcome, may result in substantial costs and expenses to the Combined Company
and significant diversion of effort by the Combined Company's technical and
management personnel. In addition, there can be no assurance that litigation,
either instituted by or against the Combined Company, will not be necessary to
resolve issues that may arise from time to time in the future with other
competitors. Any such litigation could have a material adverse effect upon the
Combined Company's business, operating results and financial condition.
INTERNATIONAL SALES; CURRENCY FLUCTUATIONS
International sales represented approximately 21%, 20%, 30% and 32% of
Pure's total revenues for the fiscal years ended 1993, 1994, 1995 and the
three months ended March 31, 1996, respectively, and represented 15%, 19%, 27%
and 24% of Atria's total revenues for the same periods. Each of Pure and Atria
believes that continued profitability will require additional expansion of
sales in foreign markets. This expansion has required and will continue to
require significant management attention and financial resources and could
adversely affect the Combined Company's operating margins. In order to
increase international sales in subsequent periods, the Combined Company must
establish additional foreign operations, hire additional personnel and recruit
additional international resellers. To the extent that the Combined Company is
unable to expand international sales in a timely and cost-effective manner,
its business, operating results and financial condition could be materially
adversely affected. In addition, there can be no assurance that the Combined
Company will be able to maintain or increase international market demand for
its products. Pure's and Atria's international sales are currently denominated
in either U.S. or local currency and neither company currently engages in any
hedging activities. Although exposure to currency fluctuations to date has not
been significant, there can be no assurance that fluctuations in the currency
exchange rates in the future will not have a material adverse impact on the
Combined Company's business, operating results and financial condition.
Additional risks inherent in the Combined Company's international business
activities include unexpected changes in regulatory requirements, tariffs and
other trade barriers, costs of localizing products for foreign countries, lack
of acceptance of localized products in foreign countries, longer accounts
receivable payment cycles, difficulties in collecting payment, difficulties in
managing international operations, potentially adverse tax consequences
including repatriation of earnings, reduced protection for intellectual
property, the burdens of complying with a wide variety of foreign laws, and
the effects of high local wage scales and other expenses. There can be no
assurance that such factors will not have a material adverse effect on the
Combined Company's future international sales and, consequently, the Combined
Company's business, operating results and financial condition.
DEPENDENCE ON PROPRIETARY TECHNOLOGY; RISK OF THIRD PARTY CLAIMS FOR
INFRINGEMENT
Pure and Atria rely on a combination of patent, copyright and trademark
laws, trade secrets, confidentiality procedures and contractual provisions to
protect their respective proprietary rights. Despite such efforts to protect
their proprietary rights, unauthorized parties may attempt to copy aspects of
Pure's or Atria's products or to obtain and use information that Pure or Atria
regards as proprietary. Policing unauthorized use of Pure's or Atria's
products is difficult, time-consuming and costly. Although neither Pure nor
Atria is able to determine the extent to which piracy of its software products
exists, software piracy can be expected to be a persistent problem. In selling
its products, Pure has relied on "shrink wrap" licenses that are not signed by
licensees and, therefore, may be unenforceable under the laws of certain
jurisdictions. In addition, the laws of some foreign countries do not protect
proprietary rights to as great an extent as do the laws of the United States.
There can be no assurance that the Combined Company's means of protecting its
proprietary rights will be adequate or that its competitors
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will not independently develop similar technology. Pure and Atria expect that
software product developers will be increasingly subject to infringement
claims as the number of products and competitors in their industry segments
grows and the functionality of products in different industry segments
overlaps. There can be no assurance that infringement or invalidity claims (or
claims for indemnification resulting from infringement claims) will not be
asserted against the Combined Company or that any such assertions will not
materially adversely affect its business, operating results and financial
condition. Any such claims, whether with or without merit, could be time-
consuming, result in costly litigation and diversion of resources, cause
product shipment delays or require the Combined Company to enter into royalty
or licensing agreements. Such royalty or licensing agreements, if required,
may not be available on terms acceptable to the Combined Company or at all. In
the event of a successful claim of product infringement against the Combined
Company and failure or inability of the Combined Company to license the
infringed or similar technology, the Combined Company's business, operating
results and financial condition could be materially adversely affected.
Each of Pure and Atria also relies on certain software that it licenses from
third parties, including software that is integrated with internally developed
software and used in its products to perform key functions. There can be no
assurance that these third-party software licenses will continue to be
available to the Combined Company on commercially reasonable terms, or that
the software will be appropriately supported, maintained or enhanced by the
licensors. The loss of licenses to, or inability to support, maintain and
enhance, any of such software, could result in increased costs, or in delays
or reductions in product shipments until equivalent software could be
developed, identified, licensed and integrated, which would materially
adversely affect the Combined Company's business, operating results and
financial condition.
VOLATILITY OF STOCK PRICES
The markets for Pure's and Atria's Common Stock are highly volatile. The
trading price of the Combined Company's Common Stock could be subject to wide
fluctuations in response to quarterly variations in operating and financial
results, announcements of technological innovations or new products by the
Combined Company or its competitors, changes in prices of the Combined
Company's or its competitors' products and services, changes in product mix,
changes in revenue and revenue growth rates for the Combined Company as a
whole or for individual geographic areas, business units, products or product
categories, as well as other events or factors. Statements or changes in
opinions, ratings, or earnings estimates made by brokerage firms or industry
analysts relating to the market in which the Combined Company does business or
relating to Pure, Atria, or the Combined Company specifically have resulted,
and could in the future result, in an immediate and adverse effect on the
market price of Pure's, Atria's or the Combined Company's Common Stock.
Statements by financial or industry analysts regarding the extent of the
dilution in Pure's net income per share resulting from the Merger and the
extent to which such analysts expect potential business synergies to offset
such dilution can be expected to contribute to volatility in the market price
of the Combined Company's Common Stock. In addition, the stock market has from
time to time experienced extreme price and volume fluctuations which have
particularly affected the market price for the securities of many high-
technology companies and which often have been unrelated to the operating
performance of these companies. These broad market fluctuations may adversely
affect the market price of the Combined Company's Common Stock.
INTEGRATION OF ACQUIRED COMPANIES
Pure has recently completed the acquisitions of QualTrak Corporation and
Performix, Inc. and the Combined Company may acquire other companies, products
or technologies in the future. There can be no assurance that these
acquisitions and the Merger with Atria can be effectively integrated, that
such acquisitions will not result in costs or liabilities that could
materially and adversely affect the Combined Company's business, operating
results and financial condition, or that the Combined Company will obtain the
anticipated or desired benefits of such transactions.
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EFFECT OF ANTITAKEOVER PROVISIONS OF DELAWARE LAW AND THE COMBINED COMPANY'S
CHARTER DOCUMENTS
Upon consummation of the Merger, the stockholders of Atria will become
stockholders of the Combined Company, a corporation governed by the laws of
Delaware. The Combined Company will be subject to the provisions of Section
203 of the Delaware General Corporation Law, which has the effect of
restricting changes in control of a company. In addition, the Combined
Company's Board of Directors will have authority to issue up to 2,000,000
shares of preferred stock and to fix the rights, preferences, privileges and
restrictions, including voting rights, of such shares without any further vote
or action by the stockholders. These and other provisions of Delaware law
applicable to the Combined Company along with the Combined Company's charter
documents may have the effect of delaying, deterring or preventing changes in
control or management of the Combined Company. See "Comparison of Capital
Stock."
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INTRODUCTION
This Prospectus/Joint Proxy Statement is furnished in connection with the
solicitation of proxies to be used at the Pure Meeting and the Atria Meeting.
This Prospectus/Joint Proxy Statement is also furnished by Pure to Atria
stockholders in connection with the issuance of shares of Pure Common Stock in
connection with the Merger described herein.
The information set forth herein concerning Pure and Merger Sub has been
furnished by Pure and the information set forth herein concerning Atria has
been furnished by Atria.
PURE SOFTWARE INC. SPECIAL MEETING
DATE, TIME AND PLACE OF PURE MEETING
The Pure Meeting will be held at TECHMART, 5201 Great America Parkway, Santa
Clara, California, on Friday, August 23, 1996 at 9:00 a.m. local time.
PURPOSE
The purpose of the Pure Meeting is to approve (i) the issuance of shares of
Pure Common Stock to the stockholders of Atria pursuant to the Agreement, (ii)
an amendment to the Certificate to change the corporate name of Pure to "Pure
Atria Corporation" subject to and upon consummation of the Merger, and (iii)
an increase of 2,200,000 shares to be reserved for issuance under the Pure
1995 Stock Option Plan (representing approximately 5% of the shares of
Combined Company Common Stock estimated to be outstanding or issuable
following consummation of the Merger (based on the capitalization of Pure and
Atria as of July 1, 1996)), subject to and upon consummation of the Merger.
RECORD DATE AND OUTSTANDING SHARES
Only Pure stockholders of record at the close of business on July 19, 1996
(the "Pure Record Date") are entitled to notice of and to vote at the Pure
Meeting. As of the Pure Record Date, there were 355 stockholders of record of
Pure Common Stock.
On or about July 26, 1996, a notice meeting the requirements of Delaware law
is being mailed to all stockholders of record as of the Pure Record Date.
VOTE REQUIRED
Under Delaware law, the charter documents of Pure and Nasdaq rules, approval
of (i) the issuance of shares of Pure Common Stock requires the affirmative
vote of a majority of the total votes cast regarding such proposal, (ii) the
amendment of the Certificate requires the affirmative vote of holders of a
majority of the outstanding shares of Pure Common Stock and (iii) the
amendment of the Pure 1995 Stock Option Plan requires the affirmative vote of
a majority of the total votes cast regarding such proposal. Each stockholder
of record of Pure Common Stock on the Pure Record Date is entitled to cast one
vote per share, exercisable in person or by properly executed proxy, on each
matter properly submitted for the vote of the stockholders of Pure at the Pure
Meeting.
The presence, in person or by properly executed proxy, of the holders of a
majority of the outstanding shares of Pure Common Stock entitled to vote at
the Pure Meeting shall constitute a quorum. The effect of an abstention is the
same as that of a vote against the proposal with regard to proposal (ii) and
abstentions shall be counted toward the number of shares represented and
voting at the Pure Meeting with regard to proposals (i) and (iii).
The members of the Pure Board and certain Pure officers have entered into
the Pure Voting Agreement with Atria, pursuant to which each such holder has
agreed to vote (i) in favor of approval of the Agreement and the
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Merger and (ii) against (among other things) approval of any proposal made in
opposition to or competition with consummation of the Merger. In addition,
each such holder has agreed pursuant to the Pure Voting Agreement, to grant to
Atria within five days of Atria's written request, an irrevocable proxy to
vote shares as aforesaid. The outstanding shares of Pure Common Stock subject
to the Pure Voting Agreement represent 25.4% of the votes entitled to be cast
by holders of shares of Pure Common Stock issued and outstanding as of the
Pure Record Date, or 28.2% assuming exercise of all options exercisable within
60 days of the Pure Record Date, held by parties to the Pure Voting Agreement.
See "Terms of the Merger--Voting Agreements."
PROXIES
Each of the persons named as proxies in the proxy is an officer of Pure. All
shares of Pure Common Stock that are entitled to vote and are represented at
the Pure Meeting either in person or by properly executed proxies received
prior to or at the Pure Meeting and not duly and timely revoked will be voted
at the Pure Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the issuance of shares of Pure Common Stock, the amendment of
the Certificate and the amendment of the Pure 1995 Stock Option Plan.
The Pure Board knows of no other matter to be presented at the Pure Meeting.
If any other matters are properly presented for consideration at the Pure
Meeting (or any adjournments or postponements thereof) including, among other
things, consideration of a motion to adjourn or postpone the Pure Meeting to
another time and/or place (including, without limitation, for the purpose of
soliciting additional proxies), the persons named in the enclosed forms of
proxy and voting thereunder will have the discretion to vote on such matters
in accordance with their best judgment.
Any proxy given pursuant to this solicitation may be revoked by the person
giving it at any time before it is voted. Proxies may be revoked by (i) filing
with the Secretary of Pure at or before the taking of the vote at the Pure
Meeting, a written notice of revocation bearing a later date than the proxy;
(ii) duly executing a later-dated proxy relating to the same shares and
delivering it to the Secretary of Pure before the taking of the vote at the
Pure Meeting or (iii) attending the Pure Meeting and voting in person
(although attendance at the Pure Meeting will not in and of itself constitute
a revocation of a proxy). Any written notice of revocation or subsequent proxy
should be sent so as to be delivered to Pure Software Inc. at 1309 S. Mary
Avenue, Sunnyvale, California 94087, Attention: Secretary, or hand-delivered
to the Secretary of Pure, in each case at or before the taking of the vote at
the Pure Meeting.
SOLICITATION OF PROXIES; EXPENSES
The cost of the solicitation of Pure stockholders will be borne by Pure. In
addition, Pure may reimburse brokerage firms and other persons representing
beneficial owners of shares for their expenses in forwarding solicitation
materials to such beneficial owners. Proxies may also be solicited by certain
Pure directors, officers and regular employees personally or by telephone,
telegram, letter or facsimile. Such persons will not receive additional
compensation, but may be reimbursed for reasonable out-of-pocket expenses
incurred in connection with such solicitation. In addition, Pure has retained
the Financial Relations Board to assist in the solicitation of proxies at an
estimated fee of $4,500 plus reimbursement of reasonable expenses.
RECOMMENDATIONS OF PURE BOARD OF DIRECTORS
THE PURE BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR AND IN THE
BEST INTERESTS OF PURE AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION, THE
PURE BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF (I) THE ISSUANCE OF
SHARES OF PURE COMMON STOCK PURSUANT TO THE AGREEMENT, (II) AMENDMENT OF THE
CERTIFICATE TO CHANGE THE CORPORATE NAME OF PURE TO "PURE ATRIA CORPORATION"
SUBJECT TO AND UPON CONSUMMATION OF THE MERGER, AND (III) AN INCREASE OF
2,200,000 SHARES TO BE RESERVED FOR ISSUANCE UNDER THE PURE 1995 STOCK OPTION
PLAN, SUBJECT TO AND UPON CONSUMMATION OF THE MERGER.
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ATRIA SOFTWARE, INC. SPECIAL MEETING
DATE, TIME AND PLACE OF ATRIA MEETING
The Atria Meeting will be held at the offices of Testa, Hurwitz & Thibeault,
LLP, located at High Street Tower, 125 High Street, Boston, Massachusetts
02110, on Friday, August 23, 1996 at 12:00 noon, local time.
PURPOSE
The purpose of the Atria Meeting is to approve and adopt the Agreement.
RECORD DATE AND OUTSTANDING SHARES
Only stockholders of record of Atria Common Stock at the close of business
on July 19, 1996 (the "Atria Record Date") are entitled to notice of, and to
vote at, the Atria Meeting. As of the Atria Record Date, there were 180
stockholders of record holding an aggregate of approximately 14,381,437 shares
of Atria Common Stock.
On or about July 26, 1996, a notice meeting the requirements of
Massachusetts law is being mailed to all stockholders of record as of the
Atria Record Date.
VOTE REQUIRED
Pursuant to the MBCL and the Atria Restated Articles of Organization, as
amended, the affirmative vote of the holders of a majority of the Atria Common
Stock outstanding as of the Atria Record Date is required to approve and adopt
the Agreement. Each stockholder of record of Atria Common Stock on the Atria
Record Date, will be entitled to cast one vote per share on each matter to be
acted upon at the Atria Meeting.
The representation, in person or by proxy, of at least a majority of the
outstanding shares of Atria Common Stock entitled to vote at the Atria Meeting
is necessary to constitute a quorum for the transaction of business. The
effect of an abstention is the same as that of a vote "against" the proposal.
The members of the Atria Board and certain Atria officers have entered into
the Atria Voting Agreement with Pure, pursuant to which each such holder has
agreed to vote (i) in favor of approval of the Agreement and (ii) against
(among other things) approval of any proposal made in opposition to or
competition with consummation of the Merger. In addition, each such holder has
agreed pursuant to the Atria Voting Agreement to grant to Pure, within five
days of Pure's written request, an irrevocable proxy to vote shares as
aforesaid. The outstanding shares of Atria Common Stock subject to the Atria
Voting Agreement represent 5.4% of the votes entitled to be cast by holders of
shares of Atria Common Stock as of the Atria Record Date and 6.7% assuming
exercise of all exercisable options held by parties to the Atria Voting
Agreement. See "Terms of the Merger--Voting Agreements."
PROXIES
Each of the persons named as proxies in the proxy is an officer of Atria.
All shares of Atria Common Stock that are entitled to vote and are represented
at the Atria Meeting either in person or by properly executed proxies received
prior to or at the Atria Meeting and not duly and timely revoked will be voted
at the Atria Meeting in accordance with the instructions indicated on such
proxies. If no such instructions are indicated, such proxies will be voted for
the approval of the Agreement.
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The Atria Board knows of no other matter to be presented at the Atria
Meeting. If any other matter upon which a vote may properly be taken should be
presented at the Atria Meeting, shares represented by all proxies received by
the Atria Board will be voted with respect thereto in accordance with the
judgement of the persons named as proxies in the proxies.
Execution of a proxy does not in any way affect a stockholder's right to
attend the meeting and vote in person. Any proxy may be revoked by a
stockholder at any time before it is exercised by delivering a written
revocation or a later-dated proxy to the Clerk of Atria, or by attending the
meeting and voting in person. Any written notice of revocation or subsequent
proxy should be sent so as to be delivered to Atria Software, Inc. at
20 Maguire Road, Lexington, Massachusetts 02173, Attention: Clerk, or hand-
delivered to the Clerk of Atria, in each case at or before the taking of the
vote at the Atria Meeting.
SOLICITATION OF PROXIES; EXPENSES
All costs of solicitation of proxies will be borne by Atria. Brokers,
custodians and fiduciaries will be requested to forward proxy soliciting
material to the owners of stock held in their names, and Atria will reimburse
them for their reasonable out-of-pocket costs. In addition, proxies may also
be solicited by certain directors, officers and employees of Atria personally
or by mail, telephone or telegraph following the original solicitation. Such
persons will not receive additional compensation for such solicitation. Atria
has retained D.F. King & Co., Inc., an independent proxy solicitation firm, to
assist in soliciting proxies at an estimated fee of $5,500 plus reimbursement
of reasonable expenses.
APPRAISAL RIGHTS
Pursuant to Massachusetts law, and as described in greater detail in the
Notice of the Meeting and in the Prospectus/Joint Proxy Statement, holders of
Atria Common Stock will be entitled to appraisal rights in connection with the
Merger. A holder of Atria Common Stock who desires to pursue appraisal rights
must (i) file a written objection to the Agreement with Atria before the
taking of the stockholders' vote on the Agreement, (ii) refrain from voting in
favor of the Agreement; and (iii) make written demand from the surviving
corporation for payment for the stockholder's shares, all in accordance with
the MBCL. Such appraisal rights are not conditioned upon voting against the
Agreement. See "Terms of the Merger--Appraisal Rights."
RECOMMENDATION OF ATRIA BOARD OF DIRECTORS
THE ATRIA BOARD HAS UNANIMOUSLY APPROVED THE AGREEMENT AND THE TRANSACTIONS
CONTEMPLATED THEREBY AND HAS DETERMINED THAT THE MERGER IS FAIR TO, AND IN THE
BEST INTERESTS OF, ATRIA AND ITS STOCKHOLDERS. AFTER CAREFUL CONSIDERATION,
THE ATRIA BOARD UNANIMOUSLY RECOMMENDS A VOTE IN FAVOR OF APPROVAL AND
ADOPTION OF THE AGREEMENT.
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APPROVAL OF THE MERGER AND RELATED TRANSACTIONS
THE FOLLOWING DISCUSSION SUMMARIZES THE PROPOSED MERGER AND RELATED
TRANSACTIONS. THE FOLLOWING IS NOT, HOWEVER, A COMPLETE STATEMENT OF ALL
PROVISIONS OF THE AGREEMENT AND RELATED AGREEMENTS. DETAILED TERMS OF AND
CONDITIONS TO THE MERGER AND CERTAIN RELATED TRANSACTIONS ARE CONTAINED IN THE
AGREEMENT, A CONFORMED COPY OF WHICH IS ATTACHED TO THIS PROSPECTUS/JOINT
PROXY STATEMENT AS ANNEX A. REFERENCE IS ALSO MADE TO THE PURE OPTION
AGREEMENT AND THE ATRIA OPTION AGREEMENT ATTACHED TO THIS PROSPECTUS/JOINT
PROXY STATEMENT AS ANNEX B, AND TO THE OTHER ANNEXES HERETO. STATEMENTS MADE
IN THIS PROSPECTUS/JOINT PROXY STATEMENT WITH RESPECT TO THE TERMS OF THE
MERGER AND SUCH RELATED TRANSACTIONS ARE QUALIFIED IN THEIR RESPECTIVE
ENTIRETIES BY REFERENCE TO THE MORE DETAILED INFORMATION SET FORTH IN THE
AGREEMENT AND THE OTHER ANNEXES HERETO. THIS SECTION CONTAINS FORWARD-LOOKING
STATEMENTS THAT INVOLVE RISKS AND UNCERTAINTIES. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE ANTICIPATED IN THESE FORWARD-LOOKING STATEMENTS AS A
RESULT OF CERTAIN FACTORS, INCLUDING THOSE SET FORTH IN RISK FACTORS AND
ELSEWHERE HEREIN.
JOINT REASONS FOR THE MERGER
The Boards of Directors of Atria and Pure have determined that the Combined
Company would have the potential to realize long-term improved operating and
financial results and a stronger competitive position. Pure and Atria believe
that there is a strategic fit among testing, configuration management and
change request management software systems and that, in order to succeed in
the market served by these systems, suppliers will need to expand their
product offerings to address a wider range of customer requirements. Pure and
Atria also believe that the Merger will provide greater opportunities to
develop business relationships, license technology, and engage in other
strategic combinations and transactions involving their respective products
and technologies than would be the case if the companies otherwise
independently engaged in these activities. In this way, the Merger could
provide the Combined Company with the range of products and services required
to play a defining role in the market for software quality, SCM, CRM and other
software development management products.
Each of the Boards of Directors of Atria and Pure has identified additional
potential mutual benefits of the Merger that they believe will contribute to
the success of the Combined Company. These potential benefits include
principally the following:
. The combined experience, financial resources, size and breadth of product
offerings of the Combined Company will allow the Combined Company to
respond more quickly and effectively to technological change, increased
competition and market demands in an industry experiencing rapid
innovation and change.
. The combination of Atria's SCM and CRM products with Pure's software
quality and reliability products will allow the Combined Company to offer
a more comprehensive and integrated set of software development
management tools to its customers.
. The creation of a larger customer base, a higher market profile and
greater financial strength may present greater opportunities for
marketing the products of the Combined Company.
. The structure of the transaction as a "merger of equals" can provide
significant advantages in increasing the opportunity for (i) effectively
utilizing the skills and resources of the companies' respective
management teams and (ii) matching the respective "corporate cultures" of
the two companies while maintaining some of the most important aspects of
each culture.
. The broadening and integration of the companies' product lines may
enhance the Combined Company's ability to increase market penetration by
expanding in-house software developers' use of software testing, SCM, CRM
and other software development management tools.
. Combined technological resources may allow the Combined Company to
compete more effectively against larger competitors by providing the
Combined Company with enhanced ability to develop new products and
greater functionality for existing products.
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. The creation of a combined customer service and technical support system
may permit the Combined Company to provide more efficient support
coverage to its customers.
Pure and Atria have each identified additional reasons for the Merger. Each
Board of Directors has recognized that the potential benefits of the Merger
may not be realized. See "Risk Factors."
PURE'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Pure
Board believes that the following are additional reasons the Merger will be
beneficial to Pure and for stockholders of Pure to vote FOR the proposals set
forth herein:
. Given the complementary nature of the product lines of Pure and Atria,
the Merger will enhance the opportunity for the potential realization of
Pure's strategic objective of achieving greater scale and presence in the
automated software development and quality tools markets.
. Combining with Atria would provide an opportunity for expanded
distribution of Pure's products to current Atria customers.
. The Pure stockholders would have the opportunity to participate in the
potential for growth of the Combined Company after the Merger.
In the course of its deliberations during Pure Board meetings held on June
4, 1996 and June 6, 1996, the Pure Board reviewed with Pure management a
number of additional factors relevant to the Merger, including (i) historical
information concerning Pure's and Atria's respective businesses, prospects,
financial performance and condition, operations, technology, management and
competitive position, including public reports concerning results of
operations during the most recent fiscal year and fiscal quarter for each
company with the SEC; (ii) Pure management's view as to the financial
condition, results of operations and businesses of Pure and Atria before and
after giving effect to the Merger based on management due diligence and
publicly available earnings estimates; (iii) current financial market
conditions and historical market prices, volatility and trading information
with respect to Pure Common Stock and Atria Common Stock; (iv) the
consideration to be received by Atria stockholders in the Merger and the
relationship between the market value of the Pure Common Stock to be issued in
exchange for each share of Atria Common Stock and a comparison of comparable
merger transactions; (v) the belief that the terms of the Agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable; (vi) Pure management's view as
to the prospects of Pure as an independent company; (vii) Pure management's
view as to the potential for other third parties to enter into strategic
relationships with or to acquire Pure or Atria; (viii) detailed financial
analysis and pro forma and other information with respect to the companies
presented by DMG and Morgan Stanley in Board presentations, including DMG's
and Morgan Stanley's opinions that the consideration to be paid pursuant to
the Agreement was fair from a financial point of view to Pure (a copy of each
of these opinions is annexed hereto, and stockholders are urged to carefully
review each opinion); (ix) the impact of the Merger on Pure's customers and
employees; and (x) reports from management, legal and financial advisors as to
the results of their due diligence investigation of Atria. The Pure Board also
considered the terms of the proposed Agreement regarding Pure's and Atria's
respective rights to consider and negotiate other acquisition proposals in
certain circumstances, as well as the possible effects of the provisions
regarding the termination fees and the Stock Option Agreements. In addition,
the Pure Board noted that the Merger is expected to be accounted for as a
pooling of interests and that no goodwill is expected to be created on the
books of the combined company as a result thereof, and that Pure would have
equal representation on the Board of the combined company following the
Merger.
The Pure Board also identified and considered a variety of potentially
negative factors in its deliberations concerning the Merger, including, but
not limited to: (i) the risk that the potential benefits sought in the Merger
might not be fully realized, (ii) the possibility that the Merger might not be
consummated and the effect of public announcement of the Merger on (a) Pure's
sales and operating results, (b) Pure's ability to attract and retain key
management, marketing and technical personnel and (c) progress of certain
development projects, (iii) the potential dilutive effect of the issuance of
Pure Common Stock in the Merger, (iv) the substantial charges to be
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incurred, primarily in the quarter ending September 30, 1996, in connection
with the Merger, including costs of integrating the businesses and transaction
expenses arising from the Merger, (v) the risk that despite the efforts of the
combined company, key technical and management personnel might not remain
employed by the combined company, (vi) the difficulty of managing separate
operations at different geographic locations and (vii) the other risks
described under "Risk Factors" herein. The Pure Board believed that these
risks were outweighed by the potential benefits of the Merger.
ATRIA'S REASONS FOR THE MERGER
In addition to the anticipated joint benefits described above, the Atria
Board believes that the following are additional reasons the Merger will be
beneficial to Atria and for stockholders of Atria to vote FOR the proposal set
forth herein:
. The addition of Pure's customer base to Atria's existing customer base
may provide new opportunities to market Atria's products to a larger
group of software developers.
. Pure has a sales force and distribution system that are expected to
complement Atria's sales and distribution resources. Additional sales
resources may provide expanded opportunities to market Pure's and Atria's
products to new and existing customers.
. Atria currently derives substantially all of its revenue from licenses of
ClearCase and related products and services. Atria believes that its
continued future success is dependent, in part, on its ability to develop
or acquire new products and expand its product offerings. Together,
Pure's and Atria's products would be expected to provide a more
comprehensive suite of software development tools, and will reduce
dependence on individual segments of the software development tools
market.
. The combined technological and engineering resources of Pure and Atria
would be expected to allow the Combined Company an opportunity to offer
an integrated package of software development management tools that
perform together to meet customer needs. Atria's ClearCase has been
integrated with PureDDTS since 1993.
. The Atria stockholders would have the opportunity to participate in the
potential growth of the Combined Company after the Merger.
In the course of its deliberations during Atria Board meetings held on May
21, 1996, May 31, 1996, June 5,,1996 and June 6, 1996, the Atria Board
reviewed with Atria management a number of additional factors relevant to the
Merger, including the strategic overview and prospects for Atria, its products
and its finances. The Atria Board also considered, among other matters (i)
historical information concerning Atria's and Pure's respective businesses,
prospects, financial performance and condition, operations, technology,
management and competitive position, including public reports concerning
results of operations during the most recent fiscal year and fiscal quarter
for each company with the SEC; (ii) Atria management's view as to the
financial condition, results of operations and businesses of Pure and Atria
before and after giving effect to the Merger based on management due diligence
and publicly available financial information; (iii) current financial market
conditions and historical market prices, volatility and trading information
with respect to Pure Common Stock and Atria Common Stock; (iv) the
consideration to be received by Atria stockholders in the Merger and the
relationship between the market value of the Pure Common Stock to be issued in
exchange for each share of Atria Common Stock and a comparison of comparable
merger transactions; (v) the belief that the terms of the Agreement, including
the parties' representations, warranties and covenants, and the conditions to
their respective obligations, are reasonable; (vi) Atria management's view as
to the prospects of Atria as an independent company; (vii) Atria management's
view as to the potential for other third parties to enter into strategic
relationships with or to acquire Pure or Atria; (viii) the impact of the
Merger on Atria's customers and employees; and (ix) reports from management,
legal and financial advisors as to the results of their due diligence
investigation of Pure. The Atria Board also considered the terms of the
proposed Agreement regarding Pure's and Atria's respective rights to consider
and negotiate other acquisition proposals in certain circumstances, as well as
the possible effects of the provisions regarding the termination fees and the
Stock Option Agreements. In addition, the Atria Board noted that the Merger is
expected to be accounted for as a pooling of interests and that
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no goodwill is expected to be created on the books of the combined company as
a result thereof. The Atria Board considered financial presentations by
Wessels, including the oral opinion of Wessels delivered at the June 5, 1996
meeting of the Atria Board of Directors, and confirmed in writing on June 6,
1996, which concluded that the Exchange Ratio provided in the Agreement was
fair to Atria stockholders from a financial point of view on such date (a copy
of this opinion is annexed hereto, and stockholders are urged to carefully
review this opinion). The Atria Board also took into account that Atria would
have equal representation on the Board of the combined company following the
Merger.
The Atria Board also identified and considered a number of potentially
negative factors in its deliberations concerning the Merger, including, but
not limited to, (i) the risk that the potential benefits sought in the Merger
might not be fully realized, (ii) the possibility that the Merger would not be
consummated and the effect of the public announcement of the Merger on (a)
Atria's sales and operating results, (b) Atria's ability to attract and retain
key management, marketing and technical personnel and (c) progress of certain
development projects, (iii) the potential dilutive effect of the issuance of
Pure Common Stock in the Merger, (iv) the substantial charges to be incurred,
primarily in the quarter ending September 30, 1996, in connection with the
Merger, including costs of integrating the businesses and transaction expenses
arising from the Merger, (v) the risk that despite the efforts of the combined
company, key technical and management personnel may not remain employed by the
combined company (vi) the difficulty of managing separate operations at
different geographic locations and (vii) the other risks described under "Risk
Factors" herein. The Atria Board believed that these risks were outweighed by
the potential benefits of the Merger.
MATERIAL CONTACTS AND BOARD DELIBERATIONS
The market for automated software development and quality tools became
increasingly competitive throughout 1995. In their efforts to enhance their
market positions and grow their businesses in an increasingly competitive
environment, each of Pure and Atria has continually evaluated strategic
relationships of various forms, such as potential OEM arrangements, joint
marketing relationships and potential acquisitions of technologies and
companies.
During 1994, representatives of Pure and Atria became familiar with each
others' products through informal contacts at industry trade shows and through
interaction with mutual customers. These contacts continued and, since 1995,
Pure and Atria have participated in a number of joint product-related seminars
throughout the United States and Canada and have engaged in other informal
joint marketing efforts, including product referrals.
In March 1995, Reed Hastings, President and Chief Executive Officer of Pure,
and Paul H. Levine, President and Chief Executive Officer of Atria, entered
into preliminary discussions with respect to exploring a business relationship
between the two companies. Mr. Hastings had visited Mr. Levine at Atria to
discuss the possibility of Atria entering into an OEM agreement with respect
to Pure's product, PureDDTS, and the issue of merging the companies arose in
relation to discussions between Mr. Hastings and Mr. Levine regarding possible
synergies with respect to Atria's ClearCase product and PureDDTS.
In April 1995, a team of executives from Atria (which included Mr. Levine)
visited a team of executives from Pure (which included Mr. Hastings) to
discuss the companies and explore the potential for a business combination
transaction. After this meeting both companies determined not to continue to
discuss such a transaction at that time.
In September 1995, Mr. Hastings and Mr. Levine again entered into
preliminary discussions regarding a possible strategic alliance or business
combination of the two companies. A number of phone discussions and written
communications between Mr. Hastings and Mr. Levine took place that month, and
Mr. Levine and Mr. Hastings discussed a possible merger with their respective
management teams. However, both parties again determined not to continue to
discuss such a transaction at that time.
In April 1996, Chuck Bay, Vice President, Finance, Chief Financial Officer,
General Counsel and Secretary of Pure, and Elliot M. Katzman, Vice President,
Finance and Administration, Chief Financial Officer and Treasurer of Atria,
had preliminary discussions regarding whether the two companies should again
re-examine
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the possibility of combining the two companies. Mr. Bay and Mr. Katzman agreed
to discuss the possibility of a business combination with Mr. Hastings and Mr.
Levine, respectively.
On May 2, at a regular quarterly board meeting, the Pure Board discussed the
industry in which Pure operates, and in that context, strategic alternatives
available to Pure in order to enhance its long term strategic position. The
issue of a possible merger with Atria was discussed, and the Pure Board
authorized Pure's management to continue discussions with Atria. Specifically,
the Pure Board directed management to begin to discuss with Atria the
potential financial and other terms upon which a merger with Atria might be
structured.
On May 3, Mr. Hastings contacted Mr. Levine and during the course of their
discussions the issue of a possible business combination between the two
companies was raised. Mr. Hastings and Mr. Levine agreed to set up a meeting
to discuss the possibility of a merger.
On May 5, Mr. Hastings and Mr. Levine met in Chicago and began informal
discussions concerning a possible business combination. Broad discussions of
business strategies and potential synergies of a combined company took place
between Mr. Hastings and Mr. Levine, and both agreed that Mr. Bay and Mr.
Katzman should meet to discuss the terms of a potential merger between the two
companies. The financial terms of a combination of the two companies were not
specifically discussed at this meeting.
Over the next several weeks, the senior management teams of each company
began to explore the feasibility of a possible strategic business combination
and began discussions regarding such a combination. To facilitate these
discussions, on May 24, the parties entered into a mutual non-disclosure
agreement under which each agreed to maintain the confidentiality of the other
party's confidential information.
On May 6, Pure engaged DMG to act as one of its financial advisors in
connection with the possible strategic business combination with Atria.
On May 21, the Atria Board met by telephone conference call and senior
management reviewed with the Atria Board the initial informal discussions
between senior management of the two companies concerning a possible strategic
business combination in order to enhance Atria's long term strategic position.
There was a preliminary discussion concerning the factors that supported a
possible combination of the respective product lines, technologies and market
positions of Atria and Pure and the strategic factors associated with a
possible strategic business combination with Pure. The Atria Board also
discussed possible terms of the transaction and potential organizational
structures of a combined company. The Atria Board authorized and instructed
management to explore the possibility of combining with Pure and to continue
discussions with representatives of Pure. The Atria Board also authorized
management to negotiate the engagement of Wessels to act as Atria's financial
advisor in connection with discussions with Pure regarding a possible business
combination.
On May 22, Mr. Bay and Mr. Katzman met in Minneapolis. The purpose of the
meeting was for Mr. Bay and Mr. Katzman to begin initial discussions regarding
the broad terms of a merger between the two companies.
On May 23, Mr. Bay and Larry W. Sonsini, a member of the Pure Board and
Pure's outside legal counsel, met in Minneapolis with Mr. Katzman, Mark J.
Macenka, Atria's outside legal counsel, and Michael Ogborne, Atria's financial
advisor. The parties discussed the strategic benefits to each company of a
possible combination and various structural and operational alternatives
consistent with a "merger of equals" transaction and agreed to relay the
results of the preliminary discussions to Mr. Hastings and Mr. Levine. It was
agreed that if Mr. Hastings and Mr. Levine each found the preliminary
discussion of the potential structure acceptable, then due diligence meetings
would be arranged the following week.
There continued to be various meetings between representatives of Atria and
Pure through the first week of June at which there were discussions concerning
the business, operations and technology of each company and of the Combined
Company that would result from a business combination.
On May 26, a Committee of the Atria Board, consisting of Messrs. Levine,
Pavey and Ferri, met by telephone conference call to discuss the status of the
discussions with Pure and the feasibility of a business combination.
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On May 29, Pure engaged Morgan Stanley to act as one of its financial
advisors in connection with the possible strategic business combination with
Atria.
On May 31, Atria engaged Wessels to act as its financial advisor in
connection with the possible strategic business combination with Pure.
Between May 23 and June 5, representatives of the two companies and their
respective technical, legal and financial advisors met to conduct due
diligence as to the business of each other's company and to explore further
potential synergies between the two companies and the operational issues
associated with any business combination. In addition, Pure's and Atria's
legal counsel and executive officers had further discussions regarding the
terms of the Agreement and related documents, including the terms of the
proposed Stock Option Agreements, the termination rights relating to the
Agreement, the conditions upon which any breakup fees would be payable and the
amount of such fees, and the representations, warranties and covenants to be
made. Pure's and Atria's financial advisors had further discussions regarding
valuation issues relevant to negotiation of a mutually acceptable exchange
ratio and other terms and conditions of a potential business combination.
On May 31, members of senior management of Pure met throughout the day with
members of the Atria Board regarding the business of Pure and the benefits of
a business combination and addressed questions and comments of the directors.
On May 31, the Atria Board met, with certain attendees participating by
telephone conference call, at which meeting the senior management and legal
and financial advisors of Atria discussed (i) the status of the discussions,
the results of the due diligence evaluation of Pure and the benefits and
potential risks of a merger with Pure, including Pure's results to date for
the second quarter of fiscal 1996 and (ii) the principal terms of the
Agreement and related documents, including the Stock Option Agreements.
Atria's legal counsel discussed the Board's fiduciary duties in considering a
strategic business combination and strategic alternatives, and held further
discussions with the Atria Board on the principal terms of the Agreement, the
Stock Option Agreements, the Atria Affiliate Agreements and the Atria Voting
Agreement. Atria's financial advisor then reviewed, among other things, the
strategic rationale for, and certain financial analyses relating to, the
proposed merger. The Atria Board authorized management to continue the
discussions with Pure as to a possible merger.
On June 2, Pure provided to Atria a draft of the Agreement and there then
ensued discussions between counsel to Pure and counsel to Atria regarding the
proposed structure and other principal terms of the Agreement.
On June 4, the Pure Board met to review the status of negotiations and
discussed the status of Pure's due diligence review of Atria and the status of
the merger negotiations. Open issues were summarized and included, (i) the
name of the combined company following the Merger, (ii) the composition of the
Board of Directors of the combined company and (iii) the structure of the
proposed merger. In addition, there was a discussion regarding the potential
market reaction to the proposed combination, the impact of an exchange ratio
based on the then current trading prices for Pure Common Stock and Atria
Common Stock, with no premium to be realized for either the Pure stockholders
or the Atria stockholders, as well as discussion regarding how the transaction
might be structured. At this time the Pure Board unanimously agreed that
management should continue to proceed with negotiation and investigation of
the proposed combination.
From June 4 through June 6, Pure and Atria, together with their respective
legal and financial advisors continued to negotiate the terms of definitive
agreements relating to the transaction, including the terms of the proposed
stock option agreements, the termination rights relating to the Agreement, the
conditions upon which any breakup fees would be payable and the amount of such
fees, and the representations, warranties and covenants to be made. Final due
diligence by Pure of Atria, and Atria of Pure also took place.
On June 4 and 5, Messrs. Levine, Ferri and Pavey, certain members of
management of Atria, Atria's legal counsel and a representative, of Atria's
financial advisors, met by telephone conference call and discussed the status
of the discussions with Pure, the feasibility of a business combination and
other issues relating to the Merger.
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On the evening of June 5, the Atria Board met by telephone conference call
and senior management of Atria reported on the status of negotiations with
respect to the exchange ratio and other business terms of the Merger. The
Atria Board discussed (i) the name of the combined company following the
Merger, (ii) the composition of the Board of Directors of the combined company
and (iii) the structure of the proposed merger. In addition, there was a
discussion regarding the potential market reaction to the proposed
combination, the impact of an exchange ratio based on the then current trading
prices for Pure Common Stock and Atria Common Stock, with no premium to be
realized for either the Pure stockholders or the Atria stockholders. Atria's
legal counsel reviewed for the Atria Board the proposed terms of the Agreement
and related documents, including the Stock Option Agreements. Wessels made a
presentation to the Atria Board regarding the exchange ratio, reviewed
detailed financial analysis and pro forma and other information with respect
to the companies and delivered its oral opinion to the Atria Board that the
currently proposed exchange ratio was fair to the stockholders of Atria from a
financial point of view as of such date.
During the morning of June 6, the Pure Board convened to consider and vote
upon the proposed merger and related transactions. At this specially scheduled
meeting, (i) management of Pure reported that agreement had been reached with
respect to the exchange ratio, (ii) management responded to questions
regarding various aspects of the proposed merger, (iii) Pure's legal advisors
held further discussions regarding the Pure Board's fiduciary duties in
considering a strategic business combination and reviewed proposed definitive
terms of the Agreement and related documents, including the Stock Option
Agreements, (iv) each of DMG and Morgan Stanley made a presentation to the
Pure Board regarding the exchange ratio, reviewed its detailed financial
analysis and pro forma and other information with respect to the companies and
delivered its written opinion to the effect that, as of such date, the
consideration to be paid pursuant to the Agreement was fair from a financial
point of view to Pure (a copy of each of these opinions is annexed hereto, and
stockholders are urged to carefully review each opinion), and (v) the Pure
Board approved the Agreement and related agreements. See "--Opinions of Pure's
Financial Advisors."
In the afternoon of June 6, at a specially scheduled meeting of the Atria
Board, (i) management of Atria reported that agreement had been reached with
respect to the exchange ratio, (ii) the management of Atria again made
presentations to the Board regarding the risks and benefits of the Merger,
(iii) Atria's legal advisors held further discussions regarding the Board's
fiduciary duties in considering a strategic business combination and reviewed
proposed definitive terms of the Agreement and related documents, including
the Stock Option Agreements, (iv) Wessels delivered its written opinion to the
effect that, as of such date, the Exchange Ratio pursuant to the Agreement was
fair to Atria stockholders (a copy of this opinion is annexed hereto, and
stockholders are urged to carefully review this opinion) and (v) the Atria
Board approved the Agreement and related agreements. See "--Opinion of Atria's
Financial Advisor."
On June 6, following final approval by the Pure Board and the Atria Board,
the Agreement and the Stock Option Agreements were executed by both companies,
each of the members of the Board of Directors of each of Pure and Atria and
certain officers of each of Pure and Atria executed the Atria Voting
Agreement, the Pure Voting Agreement, the Atria Affiliate Agreements and the
Pure Affiliate Agreements and Pure and Atria issued a joint press release
announcing the Merger.
OPINIONS OF PURE'S FINANCIAL ADVISORS
DMG
Pure retained DMG to deliver a financial opinion letter in connection with
the Merger. DMG was selected by Pure's Board to provide an Opinion (the "DMG
Opinion") based on DMG's qualifications, expertise and reputation, as well as
DMG's investment banking relationship and familiarity with Pure.
At the meeting of the Pure Board on June 6, 1996, DMG rendered its oral
opinion, subsequently confirmed in writing that, as of such date, based upon
and subject to the various considerations set forth in the DMG Opinion, the
Exchange Ratio was fair from a financial point of view to Pure.
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THE FULL TEXT OF THE WRITTEN DMG OPINION DATED JUNE 6, 1996, WHICH SETS
FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED, MATTERS
CONSIDERED, AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY DMG IN
RENDERING THE DMG OPINION, IS ATTACHED AS ANNEX D TO THIS PROSPECTUS/JOINT
PROXY STATEMENT. PURE STOCKHOLDERS ARE URGED TO READ THE DMG OPINION CAREFULLY
AND IN ITS ENTIRETY. DMG DID NOT RECOMMEND TO PURE THAT ANY SPECIFIC EXCHANGE
RATIO CONSTITUTED THE ONLY APPROPRIATE EXCHANGE RATIO FOR THE MERGER. THE DMG
OPINION ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A FINANCIAL
POINT OF VIEW TO PURE AS OF THE DATE OF THE DMG OPINION, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF PURE AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE PURE MEETING. THE SUMMARY OF THE DMG OPINION
SET FORTH IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, DMG, among other things: (i) analyzed certain
publicly available financial statements and other information of Pure and
Atria, respectively; (ii) analyzed certain internal financial statements and
other financial and operating data concerning Pure prepared by the management
of Pure; (iii) analyzed certain operating plans relating to Pure prepared by
the management of Pure; (iv) discussed the past and current operations and
financial condition and the prospects of Pure with senior executives of Pure;
(v) analyzed certain internal financial statements and other financial and
operating data concerning Atria prepared by the management of Atria; (vi)
analyzed certain operating plans relating to Atria prepared by the management
of Atria; (vii) discussed the past and current operations and financial
condition and the prospects of Atria with senior executives of Atria; (viii)
analyzed the pro forma impact of the Merger on the earnings per share,
consolidated capitalization and other financial ratios of Pure and Atria,
respectively; (ix) reviewed the reported prices and trading activity for the
Pure Common Stock and the Atria Common Stock; (x) compared the financial
performance of Pure and Atria and the prices and trading activity of the Pure
Common Stock and the Atria Common Stock with that of certain other comparable
publicly-traded companies and their securities; (xi) reviewed the financial
terms, to the extent publicly available, of certain comparable merger and
acquisition transactions; (xii) reviewed and discussed with the senior
managements of Pure and Atria (a) the strategic rationale for the Merger and
their estimates of the benefits expected to be derived from the Merger and (b)
certain alternatives to the Merger; (xiii) participated in discussions and
negotiations among representatives of Pure and Atria and their financial and
legal advisors; (xiv) reviewed the Agreement and certain related agreements;
and (xv) considered such other factors as DMG deemed appropriate.
In rendering its opinion, DMG assumed and relied upon, without independent
verification, the accuracy and completeness of the information reviewed by it
for the purposes of the DMG Opinion. DMG assumed that the operating plans
which they relied upon and the earnings as estimated publicly by recognized
securities analysts which they relied upon were reasonably prepared on bases
reflecting the best currently available estimates and judgments of the future
financial performance of Pure and Atria, respectively, and relied upon,
without independent verification, Pure management's assessment of their
ability to retain key employees of both Pure and Atria. DMG also relied upon,
without independent verification, the assessment by the management of each of
Pure and Atria of the strategic and other benefits expected to result from the
Merger, as well as the assessment by Pure's management of Atria's technology
and products, the timing and risks associated with the integration of Pure
with Atria, and the validity of, and risks associated with, Atria's future
products and technology. DMG did not make any independent valuation or
appraisal of the assets, liabilities or technology of Pure or Atria,
respectively, and was not furnished with any such appraisals. The DMG Opinion
states that, in arriving at the DMG Opinion, DMG assumed that the Merger would
be accounted for as a "pooling-of-interests" business combination in
accordance with U.S. Generally Accepted Accounting Principles and would be
consummated in accordance with the terms set forth in the Agreement. The DMG
Opinion states that it is necessarily based on economic, market and other
conditions in effect on, and the information made available to DMG as of, the
date of the DMG Opinion.
The following is a summary of the analysis performed by DMG in preparation
of the DMG Opinion dated June 6, 1996, and reviewed with the Board of
Directors of Pure at a meeting held on June 6, 1996.
Certain analyses performed by DMG utilized earnings per share estimates for
Atria and Pure. Such estimates were based upon estimates published by research
analysts in the investment community.
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Comparative Stock Price Performance
As part of its analysis, DMG reviewed the recent stock price performance of
Pure and Atria and compared such performance with that of a group of high
growth software companies, including Advent Software Inc., Business Objects
S.A., Clarify, Inc., HNC Software, Inc., Remedy Corporation, Scopus
Technology, Inc., Vantive Corporation, (the "High Growth Software
Comparables") and a group of large client/server software companies, including
Baan Company, N.V., Microsoft Corporation, PeopleSoft, Inc. and SAP AG (the
"Large Client/Server Software Comparables"). DMG observed that over the period
from August 2, 1995, the date of the Pure initial public offering (the "IPO"),
and June 5, 1996, the day prior to the announcement of the Agreement, the
market price of the Pure Common Stock appreciated 37%, compared with
appreciation of 143% for Atria, 174% for an index of the High Growth Software
Comparables and 40% for an index of the Large Client/Server Software
Comparables. DMG also compared certain financial information of Pure and Atria
over time. Such financial information included stock price as a multiple of
next twelve months forecast earnings per share. For the purposes of this
analysis, the next twelve months forecast earnings per share estimates were
based upon estimates published by research analysts in the investment
community. As of December 31, 1995, March 31, 1996 and June 4, 1996, such
estimates were $0.33, $0.39 and $0.44 for Pure, and $0.50, $0.55 and $0.67 for
Atria, respectively. Such analysis showed that since December 31, 1995 for
Pure and September 30, 1994 for Atria (the first dates at which compilations
of quarterly earnings forecasts by securities research analysts were available
for Pure and Atria, respectively) the price of Pure Common Stock changed as a
multiple of the next twelve months forecasted earnings from 97.7 times to 92.0
times, while the price of Atria Common Stock changed as a multiple of the next
twelve months forecasted earnings from 51.7 times to 94.0 times.
Exchange Ratio Analysis
DMG reviewed the ratios of the closing stock prices of Atria to Pure for
each day over various periods starting as far back as August 2, 1995 (the date
of Pure's IPO) and ending June 5, 1996 and computed the premium or discount
represented by the exchange ratio of 1.544615 over the average of the daily
ratios over these various periods. The average of the daily ratios of the
closing stock prices of Atria to Pure for the various periods ending on June
5, 1996 were 1.194 for the period since August 2, 1995; 1.255 for the previous
180 days; 1.471 for the previous 90 days; 1.525 for the previous 60 days;
1.517 for the previous 30 days; 1.615 for the previous 10 days; and 1.545 for
June 5, 1996. The exchange ratio of 1.544615 represented a premium or
(discount) of 29.3%, 23.1%, 5.0%, 1.3%, 1.8%, (4.4)% and 0.0%, respectively,
over the aforementioned ratios of the Atria and Pure stock prices. DMG
observed that the Exchange Ratio was in the range of the ratios of Atria to
Pure stock prices over various periods during the previous 90 days.
Peer Group Comparison
DMG compared certain financial information of Pure and Atria with the High
Growth Software Comparables, the Large Client/Server Software Comparables,
SQA, Inc. and Mercury Interactive Corporation. SQA, Inc. and Mercury
Interactive Corporation were chosen on the basis of their similarity to Atria
with respect to business operations, products and customers. Such financial
information included, among other things, market valuation, stock price as a
multiple of earnings per share, aggregate market capitalization as a multiple
of revenues, latest twelve months operating margin and estimated five year
earnings per share growth rates. In particular, such analysis showed that as
of June 5, 1996, based on a compilation of earnings forecasts by securities
research analysts, Pure and Atria traded at 66.6 and 77.5 times calendar year
1997 forecasted earnings, respectively, and at 13.27 and 18.66 times latest
twelve months revenue, respectively, compared to a median of 66.2 times
calendar year 1997 forecasted earnings and 12.66 times latest twelve months
revenue for the High Growth Software Comparables, a median of 44.4 times
calendar year 1997 forecasted earnings and 9.86 times latest twelve months
revenue for the Large Client/Server Software Comparables, 68.3 times calendar
year 1997 forecasted earnings and 16.01 times latest twelve months revenue for
SQA, Inc., and 17.2 times calendar year 1997 forecasted earnings and 3.24
times latest twelve months revenue for Mercury Interactive Corporation. Such
analysis also showed latest twelve months operating margins and estimated mean
and median five year earnings per share growth rates (based on a compilation
of growth rate projections by securities research analysts) of
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18.8% and 52.5% and 52.5%, respectively, for Atria and 15.6% and 50.0% and
50.0%, respectively, for Pure compared to means of 14.0% and 42.4%,
respectively, for the High Growth Software Comparables, and 18.3% and 35.5%,
respectively, for the Large Client/Server Software Comparables, and medians of
11.8% and 47.0%, respectively, for the High Growth Software Comparables, and
15.1% and 35.7%, respectively, for the Large Client/Server Software
Comparables.
Selected Precedent Transactions
DMG examined selected stock-for-stock mergers since 1987, none of which was
deemed directly comparable to the Merger. The analysis indicated that for
these selected mergers the mean premium paid by the company issuing stock over
the market price of the company receiving stock one day prior to the
announcement of the respective transactions was 17.7% and the mean pro forma
ownership percentage of the company issuing stock was 52.6%, compared to 0.0%
and approximately 46.0%, respectively, for the Merger based on the Exchange
Ratio and Pure's and Atria's closing share prices on June 5, 1996.
Contribution Analysis
DMG analyzed the pro forma contribution by each of Pure and Atria to the
Combined Company if the Merger were to be consummated. Such analysis was based
on financial data provided in selected securities research analyst reports for
each of Pure and Atria. Such analysis showed that, for the calendar year 1996,
Pure would contribute approximately 52%, 47% and 46% of the revenues,
operating profit and net income of the Combined Company, respectively. These
figures compared to the pro forma ownership of the Pure stockholders in the
Combined Company of 46%. DMG observed that the contribution analysis does not
take into account the different multiples that the market ascribes to Pure and
Atria.
Pro Forma Analysis of the Merger
DMG analyzed the pro forma impact of the Merger on Pure's earnings per share
for the calendar years 1996 and 1997. Such analysis was based on earnings
estimates for Pure and Atria based on research analyst forecasts. DMG observed
that, assuming that the Merger were treated as a pooling of interests for
accounting purposes and before taking into account any one-time restructuring
charges or any synergies resulting from the combination, the Merger would
result in earnings per share dilution for Pure stockholders of (0.7%) and
(5.1%) for calendar years 1996 and 1997, respectively, assuming the exchange
ratio of 1.544615.
In connection with the review of the Merger by the Pure Board, DMG performed
a variety of financial and comparative analyses for purposes of the DMG
Opinion given in connection therewith. While the foregoing summary describes
all material analyses and factors reviewed by DMG with the Pure Board it does
not purport to be a complete description of the presentations by DMG to the
Pure Board or the analyses performed by DMG in arriving at the DMG Opinion.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. DMG
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all analyses and factors, could create a misleading view of the
processes underlying the DMG, Opinion. In addition, DMG may have given various
analyses more or less weight than other analyses, and may have deemed various
assumptions more or less probable than other assumptions, so that the range of
valuation resulting from any particular analysis described above should not be
taken to be DMG's view of the actual value of Pure or Atria. In performing its
analyses, DMG made numerous assumptions with respect to industry performance,
general business and economic conditions and other matters, many of which are
beyond the control of Pure or Atria. The analyses performed by DMG are not
necessarily indicative of actual values or actual future results, which may be
significantly more or less favorable than suggested by such analyses. In
addition, analyses relating to the value of businesses or assets do not
purport to be appraisals or to necessarily reflect the prices at which
businesses or assets may actually be sold. The analyses performed were
prepared solely as part of DMG's analysis of the fairness of the Exchange
Ratio, from a financial point of view, to Pure and were provided to the Pure
Board in connection with the delivery of the DMG Opinion.
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The Pure Board retained DMG to deliver a financial opinion letter in
connection with the Merger. DMG was selected by the Pure Board to provide the
DMG Opinion based on DMG's qualifications, expertise and reputation, as well
as DMG's investment banking relationship and familiarity with Pure. DMG is an
internationally recognized investment banking and advisory firm. DMG, as part
of its investment banking business, is continuously engaged in the valuation
of businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. In the ordinary course of DMG's trading and
brokerage activities, DMG or its affiliates may at any time hold long or short
positions, may trade or otherwise effect transactions, for its own account or
for the account of customers, in debt or equity securities of Pure or Atria.
As of July 12, 1996, DMG had no proprietary holdings in either Pure or Atria.
Pursuant to a letter of agreement between Pure and DMG dated May 6, 1996,
Pure has agreed to pay DMG a customary fee in connection with the rendering of
the DMG Opinion, payable upon delivery of the DMG Opinion; payment of the fee
to DMG is not contingent upon the closing of the Merger. Pure has agreed to
indemnify DMG against certain liabilities, including certain liabilities under
federal securities laws.
Morgan Stanley
Pursuant to a letter agreement dated as of May 29, 1996 (the "Engagement
Letter"), Morgan Stanley provided a financial fairness opinion in connection
with the Merger. Morgan Stanley was selected by the Board of Directors of Pure
to act as Pure's financial advisor based on Morgan Stanley's qualifications,
expertise and reputation and its knowledge of the business and affairs of
Pure. At the meeting of the Pure Board on June 6, 1996, Morgan Stanley
rendered its oral opinion, subsequently confirmed in writing on June 6, 1996,
that, as of such date, based upon and subject to the various considerations
set forth in the opinion, the Exchange Ratio was fair from a financial point
of view to Pure.
THE FULL TEXT OF THE WRITTEN OPINION OF MORGAN STANLEY DATED JUNE 6, 1996,
WHICH SETS FORTH, AMONG OTHER THINGS, ASSUMPTIONS MADE, PROCEDURES FOLLOWED,
MATTERS CONSIDERED AND LIMITATIONS ON THE SCOPE OF THE REVIEW UNDERTAKEN BY
MORGAN STANLEY IN RENDERING ITS OPINION, IS ATTACHED AS ANNEX E TO THIS
PROSPECTUS/JOINT PROXY STATEMENT. PURE STOCKHOLDERS ARE URGED TO READ THE
OPINION CAREFULLY AND IN ITS ENTIRETY IN CONJUNCTION WITH THIS
PROSPECTUS/JOINT PROXY STATEMENT. MORGAN STANLEY DID NOT RECOMMEND ANY
SPECIFIC EXCHANGE RATIO TO PURE OR THAT ANY SPECIFIC EXCHANGE RATIO
CONSTITUTED THE ONLY APPROPRIATE EXCHANGE RATIO FOR THE MERGER. MORGAN
STANLEY'S OPINION ADDRESSES ONLY THE FAIRNESS OF THE EXCHANGE RATIO FROM A
FINANCIAL POINT OF VIEW TO PURE AS OF THE DATE OF THE OPINION, AND DOES NOT
CONSTITUTE A RECOMMENDATION TO ANY STOCKHOLDER OF PURE AS TO HOW SUCH
STOCKHOLDER SHOULD VOTE AT THE PURE MEETING. THE SUMMARY OF THE OPINION OF
MORGAN STANLEY SET FORTH IN THIS PROSPECTUS/JOINT PROXY STATEMENT IS QUALIFIED
IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF SUCH OPINION.
In rendering its opinion, Morgan Stanley, among other things: (i) analyzed
certain publicly available financial statements and other information of Pure
and Atria, respectively; (ii) analyzed certain internal financial statements
and other financial and operating data concerning Pure prepared by the
management of Pure; (iii) analyzed certain operating plans relating to Pure
prepared by the management of Pure; (iv) discussed the past and current
operations and financial condition and the prospects of Pure with senior
executives of Pure; (v) analyzed certain internal financial statements and
other financial and operating data concerning Atria prepared by the management
of Atria; (vi) analyzed certain operating plans relating to Atria prepared by
the management of Atria; (vii) discussed the past and current operations and
financial condition and the prospects of Atria with senior executives of
Atria; (viii) analyzed the pro forma impact of the Merger on the earnings per
share, consolidated capitalization and other financial ratios of Pure and
Atria, respectively; (ix) reviewed the reported prices and trading activity
for the Pure Common Stock and the Atria Common Stock; (x) compared the
financial performance of Pure and Atria and the prices and trading activity of
the Pure Common Stock and the Atria Common Stock with that of certain other
comparable publicly-traded companies and their securities; (xi) reviewed the
financial terms, to the extent publicly available, of certain comparable
merger and acquisition
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transactions; (xii) reviewed and discussed with the senior management of Pure
and Atria (a) the strategic rationale for the Merger and their estimates of
the benefits expected to be derived from the Merger and (b) certain
alternatives to the Merger; (xiii) participated in discussions and
negotiations among representatives of Pure and Atria and their financial and
legal advisors; (xiv) reviewed the Agreement and certain related agreements;
and (xv) considered such other factors as it deemed appropriate.
Morgan Stanley assumed and relied upon, without independent verification,
the accuracy and completeness of the information reviewed by it for the
purposes of its opinion. With respect to the operating plans, Morgan Stanley
assumed that they were reasonably prepared on bases reflecting the best
available estimates and judgments of the future financial performance of Pure
and Atria, respectively. Morgan Stanley relied upon the assessment by the
management of Pure of their ability to retain key employees of both Pure and
Atria. Morgan Stanley also relied upon, without independent verification, the
assessment by the managements of Pure and Atria of the strategic and other
benefits expected to result from the Merger. Morgan Stanley also relied upon,
without independent verification, the assessment by Pure's management of
Atria's technology and products, the timing and risks associated with the
integration of Atria with Pure, and the validity of, and risks associated
with, Atria's existing and future products and technology. Morgan Stanley did
not make any independent valuation or appraisal of the assets, liabilities or
technology of Pure or Atria, nor was it furnished with any such appraisals.
Morgan Stanley assumed that the Merger would be accounted for as a "pooling-
of-interests" business combination in accordance with U.S. Generally Accepted
Accounting Principles and would be consummated in accordance with the terms
set forth in the Agreement. Morgan Stanley's opinion was necessarily based on
economic, market and other conditions as in effect on, and the information
made available to it as of, the date of the opinion.
The following is a brief summary of the analysis performed by Morgan Stanley
in preparation of its opinion letter dated June 6, 1996.
Certain analyses performed by Morgan Stanley utilized earnings per share
estimates for Pure and Atria. Such estimates were based on estimates published
by securities research analysts in the investment community.
Comparative Stock Price Performance
As part of its analysis, Morgan Stanley reviewed the recent stock price
performance of Pure and Atria and compared such performance with that of a
group of software companies, including PeopleSoft, Inc., The Baan Company,
N.V., Objective Systems Integrators, Inc., Remedy Corporation, Arbor Software
Corporation, HNC Software, Inc., Documentum, Inc., Clarify, Inc., The Vantive
Corporation and Scopus Technology, Inc. (collectively, the "High-Growth
Client/Server Application Companies") and SQA, Inc. and Mercury Interactive
Corporation (collectively, the "High-Growth Software Development Tools
Companies"). Morgan Stanley observed that over the period from January 1, 1996
to June 4, 1996, the market price of Pure Common Stock appreciated 26%,
compared with an appreciation of 61% for Atria, 39% for an index of the High
Growth Client/Server Application Companies, 80% for SQA, Inc. and a
depreciation of 21% for Mercury Interactive Corporation.
Peer Group Comparison
Morgan Stanley compared certain financial information of Pure and Atria with
the High-Growth Software Development Tools Companies and the High-Growth
Client/Server Application Companies. Such financial information included,
among other things, market valuation, stock price as a multiple of earnings
per share, and the ratio of calendar year 1997 price earnings multiple to
projected growth rate. In particular, such analysis showed that as of June 5,
1996, based on earnings per share and growth rate projections by securities
research analysts, Pure traded at a multiple of 99.4 times forecasted earnings
per share for the calendar year 1996 and a multiple of 68.3 times forecasted
earnings per share for the calendar year 1997 (representing a median multiple
of 1.37 times its forecasted growth rate), compared to multiples of 100.8
times and 75.2 times (representing a multiple of 1.43 times its forecasted
growth rate) for Atria, a median of 62.6 times and 40.2 times (representing
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a median multiple of 0.84 times forecasted growth rates) for the High-Growth
Software Development Tools Companies and a median of 107.3 times and 71.4
times (representing a median multiple of 1.75 times forecasted growth rates)
for the High-Growth Client/Server Application Companies based on a compilation
of securities research analyst forecasts. Such analysis also showed growth
rate projections of 50.0% for Pure, 52.5% for Atria and medians of 45.0% for
the High Growth Software Development Tools Companies and 47.5% for the High-
Growth Client Server Application Companies based on a compilation of
securities research analyst forecasts. Based on this analysis, Morgan Stanley
estimated a per share trading value range of $35.00 to $44.00 for the Pure
Common Stock and $55.00 to $68.00 for the Atria Common Stock.
Analysis of Selected Precedent Transactions
As part of this analysis, Morgan Stanley reviewed 29 large software
transactions since 1991 and, in particular, the following four transactions:
Intuit, Inc./Microsoft Corporation (not ultimately consummated), Powersoft
Corporation/Sybase, Inc., Tivoli Systems, Inc./International Business Machines
Corporation and The Learning Company/Softkey International, Inc.,
(collectively, the "Premium Software Transaction Universe"). Morgan Stanley
applied certain statistics for the Premium Software Transaction Universe to
the relevant financial statistics for Pure and Atria, respectively, to
establish an estimated value range for the hypothetical acquisition of Pure
and Atria, respectively. The analysis showed multiples of earnings ranging
from 54.7 times to 101.1 times one year forward earnings and
premiums/(discounts) paid to closing stock prices ranging from 25.8% to 73.1%
for one day prior to transaction announcement and 40.7% to 109.3% for one
month prior to transaction announcement. Based on this analysis, Morgan
Stanley estimated a hypothetical acquisition value range of $40.00 to $65.00
for the Pure Common Stock and $65.00 to $94.00 for the Atria Common Stock.
Discounted Equity Value
Morgan Stanley performed an analysis of the present value per share of
Pure's and Atria's respective future trading prices based on a range of
earnings per share estimates for Pure and Atria for calendar years 1998 and
1999, illustrative multiples of earnings per share ranging from 55.0 times to
75.0 times next calendar year's earnings per share for Pure and 60.0 times to
80.0 times next calendar year's earnings per share for Atria and illustrative
discount rates ranging from 15.0% to 25.0% based on Morgan Stanley estimates
of the theoretical return required by shareholders to hold shares of Pure and
Atria, respectively. Based on this analysis, Morgan Stanley estimated a
present value of the potential future trading price per share ranging from
$45.00 to $55.00 for the Pure Common Stock and $76.00 to $95.00 for the Atria
Common Stock. Additionally, Morgan Stanley compared the present value per
share of Pure to the pro forma present value per share assuming consummation
of the Merger. This analysis showed values ranging from $48.75 to $58.50 for
Pure on a stand-alone basis based on Pure's current multiple of next calendar
year's earnings per share of 68.3 times and an illustrative discount rate of
25.0% and values ranging from $49.18 to $62.19 for Pure assuming consummation
of the Merger based on a range of multiples of next calendar year's earnings
per share of 72.0 times (the Combined Company's current weighted average
multiple of next calendar year's earnings per share) to 75.2 times (Atria's
current multiple of next calendar year's earnings per share) and an
illustrative discount rate of 25.0%. This analysis suggested that, based on
the aforementioned earnings per share estimates, multiples of earnings and
discount rates, the range of present values of the potential future trading
price per share for the Combined Company would be higher than for Pure as a
stand-alone entity.
Relative Contribution Analysis
Morgan Stanley analyzed the pro forma contribution of each of Pure and Atria
to the Combined Company assuming consummation of the Merger and based on
securities research analyst forecasts. This analysis showed that in terms of
revenue, operating income and net income, Pure would contribute 52.7%, 47.0%
and 45.8%, respectively, in calendar year 1996 and 54.0%, 48.0% and 46.7%,
respectively, in calendar year 1997. These figures, adjusted to reflect each
company's respective capital structure, were compared to the pro forma
ownership of the Combined Company by Pure stockholders of 44.4% on a primary
basis and 46.0% on a fully converted basis based on the Exchange Ratio.
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Exchange Ratio Analysis.
Morgan Stanley compared the exchange ratios implied by average historical
exchange ratios, the Discounted Equity Value Analysis and the Relative
Contribution Analysis to the Exchange Ratio. Morgan Stanley reviewed the
ratios of the closing stock prices of Atria to Pure over various periods
starting as far back as August 2, 1995 (the date of the initial public
offering of the Pure Common Stock) and ending June 5, 1996 and computed the
premiums represented by the Exchange Ratio over the averages of these daily
ratios over various periods. The averages of the daily ratios of the closing
stock prices of Atria and Pure were 1.608 for the previous 10 trading days,
1.614 for the previous 20 trading days, 1.531 for the previous 60 trading days
and 1.197 for the period beginning August 2, 1995. The Exchange Ratio
represented premiums/(discounts) of (4.0)%, (4.3)%, 0.9% and 29.0%,
respectively, over the aforementioned average ratios of the Atria and Pure
stock prices. Additionally, Morgan Stanley computed the exchange ratios
implied by each company's respective discounted equity value per share
assuming a discount rate of 25.0%, based on the high end of the range of the
Morgan Stanley estimates of the theoretical return required by shareholders to
hold shares of Pure and Atria, respectively, and current multiples of next
calendar year's earnings per share of 68.3 times and 75.2 times for Pure and
Atria, respectively. The ratios of the discounted equity values per share were
1.570 based on earnings per share of $0.89 and $1.27 for Pure and Atria,
respectively, and 1.597 based on earnings per share of $1.34 and $1.94 for
Pure and Atria, respectively, for calendar years 1998 and 1999, respectively.
The aforementioned earnings per share projections were based on a combination
of securities research analyst earnings per share and growth rate projections.
The Exchange Ratio represented discounts of 1.6% and 3.3%, respectively, over
the aforementioned ratios of the discounted equity values per share. Morgan
Stanley also reviewed the exchange ratios implied by the relative contribution
of earnings by each company to the combined entity of 1.551 and 1.500 based on
calendar years 1996 and 1997, respectively. The Exchange Ratio represented
premiums/(discounts) of (0.4)% and 2.9%, respectively, over the aforementioned
exchange ratios implied by earnings contribution.
Pro Forma Analysis of the Merger
Morgan Stanley analyzed the pro forma impact of the Merger on Pure's
earnings per share for the calendar years 1996 and 1997. Such analysis was
based on earnings estimates for Pure and Atria based on securities research
analyst forecasts for the corresponding periods. Morgan Stanley observed that,
assuming that the Merger was treated as a pooling of interests for accounting
purposes and before taking into account any one-time restructuring charges or
any synergies resulting from the combination, the Merger would result in
earnings per share dilution for Pure stockholders of 0.8% and 5.1% for
calendar years 1996 and 1997, respectively, based on the Exchange Ratio.
In connection with the review of the Merger by the Pure Board, Morgan
Stanley performed a variety of financial and comparative analyses for purposes
of its opinion given in connection therewith. While the foregoing summary
describes all material analyses and factors reviewed by Morgan Stanley with
the Pure Board, it does not purport to be a complete description of the
presentations by Morgan Stanley to the Pure Board or the analyses performed by
Morgan Stanley in arriving at its opinion. The preparation of a fairness
opinion is a complex process and is not necessarily susceptible to partial
analysis or summary description. Morgan Stanley believes that its analyses
must be considered as a whole and that selecting portions of its analyses and
of the factors considered by it, without considering all analyses and factors,
could create a misleading view of the processes underlying its opinion. In
addition, Morgan Stanley may have given various analyses more or less weight
than other analyses and may have deemed various assumptions more or less
probable than other assumptions, so that the range of valuation resulting from
any particular analysis described above should not be taken to be Morgan
Stanley's view of the actual value of Pure or Atria. Any estimates contained
herein are not necessarily indicative of future results or actual values,
which may be significantly more or less favorable than those suggested by such
estimates. In addition, estimates relating to the value of businesses or
assets do not purport to be appraisals or necessarily to reflect the prices at
which businesses or assets may actually be sold. The analyses performed were
prepared solely as part of Morgan Stanley's analysis of the fairness of the
Exchange Ratio, from a financial point of view, to Pure and were provided to
the Pure Board in connection with the delivery of Morgan Stanley's opinion.
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The Pure Board retained Morgan Stanley based upon Morgan Stanley's
qualifications, experience and expertise. Morgan Stanley is an internationally
recognized investment banking and advisory firm. Morgan Stanley, as part of
its investment banking business, is continuously engaged in the valuation of
businesses and securities in connection with mergers and acquisitions,
negotiated underwritings, competitive biddings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. Recent services rendered to Pure include serving
as lead manager in the initial public offering of common stock in 1995 and as
financial advisor in the acquisition of Performix Inc. In the ordinary course
of Morgan Stanley's trading and brokerage activities, Morgan Stanley or its
affiliates may at any time hold long or short positions, may trade or
otherwise effect transactions, for its own account or for the account of
customers, in the equity securities of Pure or Atria. As of July 12, 1996,
Morgan Stanley and its affiliates owned a net of 2,400 shares of Atria Common
Stock and held a short position of 67,100 shares of Pure Common Stock.
Pursuant to the Engagement Letter, Morgan Stanley provided a financial
fairness opinion in connection with the Merger and Pure has agreed to pay an
opinion related fee to Morgan Stanley if the Merger is consummated. In
addition, Pure has also agreed to indemnify Morgan Stanley and its affiliates,
their respective directors, officers, agents and employees and each person, if
any, controlling Morgan Stanley or any of its affiliates against certain
liabilities and expenses, including certain liabilities under the federal
securities laws, related to Morgan Stanley's engagement.
OPINION OF ATRIA'S FINANCIAL ADVISOR
Wessels has acted as financial advisor to Atria in connection with the
Merger. Pursuant to an engagement letter dated May 31, 1996 (the "Wessels
Engagement Letter"), Atria retained Wessels to furnish financial advisory and
investment banking services with respect to a possible merger of Atria and to
render an opinion as to the fairness, from a financial point of view, to the
Atria stockholders of the consideration offered in any proposed merger. The
Exchange Ratio in the Merger was determined through negotiations between Atria
management and Pure and not by Wessels, although Wessels did assist Atria
management in these negotiations. Wessels rendered its written opinion on June
6, 1996 to the Atria Board that, as of such date and based on the procedures
followed, factors considered and assumptions made by Wessels as set forth
therein, the Exchange Ratio pursuant to the Agreement is fair from a financial
point of view to the holders of Atria Common Stock. A copy of the Wessels
opinion dated June 6, 1996 (the "Wessels Opinion"), which sets forth the
assumptions made, the factors considered, the scope and limitations of the
review undertaken and the procedures followed by Wessels is attached as Annex
F to this Prospectus/Joint Proxy Statement. Atria stockholders are urged to
read the Wessels Opinion in its entirety. The summary of the Wessels Opinion
set forth herein is qualified in its entirety by reference to the Wessels
Opinion. The Wessels Opinion applies only to the fairness of the Exchange
Ratio as provided by the terms of the Agreement and should not be deemed to
constitute a recommendation by Wessels as to how Atria stockholders should
vote in connection with any matter presented in this Prospectus/Joint Proxy
Statement. The Atria Board did not impose any limitations on the scope of the
investigation of Wessels with respect to rendering its opinion. As of July 18,
1996, Wessels owned 14,714 shares of Atria Common Stock and 46,654 shares of
Pure Common Stock.
In connection with its review of the Merger, and in arriving at its opinion,
Wessels has: (i) reviewed and analyzed the financial terms of the Agreement
and various related documents, (ii) reviewed and analyzed certain publicly
available financial statements and other information of Atria and Pure; (iii)
reviewed and analyzed certain internal financial statements and other
financial and operating data concerning Atria prepared by the management of
Atria; (iv) reviewed and analyzed certain internal financial statements and
other financial and operating data concerning Pure prepared by the management
of Pure; (v) reviewed and analyzed the operating plan prepared by the
management of Atria; (vi) reviewed and analyzed the operating plan prepared by
the management of Pure; (vii) conducted discussions with members of the senior
management of Atria with respect to the business and prospects of Atria;
(viii) conducted discussions with members of the senior management of Pure
with respect to the business and prospects of Pure; (ix) analyzed the pro
forma impact of the Merger on Pure's results of operations; (x) reviewed the
reported prices and trading activity for Atria Common Stock and Pure Common
Stock; (xi) compared the financial performance of Atria and Pure and the
prices of Atria Common
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Stock and Pure Common Stock with that of certain other comparable publicly-
traded companies and their securities; (xii) reviewed the financial terms, to
the extent publicly available, of certain comparable merger transactions; and
(xiii) participated in discussions and negotiations among representatives of
Atria and Pure and their respective financial and legal advisors.
Based on this information, Wessels performed a variety of analyses and
examinations of the Merger and considered such financial, economic and market
criteria as it deemed necessary in arriving at its opinion. The following is a
summary of the financial analyses performed by Wessels in connection with the
delivery of the Wessels Opinion.
Exchange Ratio Analysis
Wessels analyzed the historical stock prices of both Atria and Pure and
compared the daily relationship between the two stock prices since November 2,
1995. Since November 2, 1995, the exchange ratio, defined for these purposes
as Atria's closing stock price divided by Pure's closing stock price, has
averaged 1.34. Over the timeframe analyzed, the exchange ratio ranged from
1.77 on May 20, 1996 to 1.00 on November 2, 1995. The Exchange Ratio of
approximately 1.54 pursuant to the Agreement represents a 14.9% premium to the
average exchange ratio during the timeframe analyzed.
Pro Forma Analysis of the Merger
Wessels then analyzed the pro forma impact of the Merger on the Combined
Company's earnings per share for the calendar years 1996 and 1997. Such
analysis was based on earnings estimates for Pure and Atria based on published
Wessels Institutional Research. Wessels observed that, assuming that the
Merger were treated as a pooling of interests for accounting purposes and
before taking into account any one-time restructuring charges or any synergies
resulting from the combination, the Merger would result in earnings per share
for the Combined Company's shareholders of $0.41 and $0.60 for calendar years
1996 and 1997, respectively, assuming the Exchange Ratio of 1.54. Wessels then
analyzed the effect of the Merger on the estimated earnings per share
attributable to an Atria share for the calendar years ended 1996 and 1997,
using published estimates provided by Wessels Institutional Research, which
was not specifically engaged by Wessels to provide information to Wessels
utilized in Wessels' various analyses of the Merger. The earnings per share
estimates of Wessels Institutional Research for Atria are $0.62 and $0.83 for
1996 and 1997, respectively. The earnings per share estimates of Wessels
Institutional Research for Pure were $0.41 and $0.63 per share in 1996 and
1997, respectively. The estimated pro forma earnings per share for the
combined companies is $0.41 and $0.61, respectively. Although the estimated
earnings per share for the Combined Company is less than the estimated
earnings per share for Atria, each Atria share will be converted into
approximately 1.54 shares in the Combined Company pursuant to the Agreement.
Therefore, the estimated earnings per share attributable to an original Atria
share is equal to the product of 1.54 and $0.41, or $0.63, and the product of
1.54 and $0.60, or $0.93, for the calendar years ended 1996 and 1997,
respectively. This represents an increase of $0.01 and $0.10 per share for the
years ended 1996 and 1997, respectively.
Comparable Company Analysis
Wessels used a comparable company analysis to analyze Atria's operating
performance relative to a group of publicly-traded companies which Wessels
deemed for purposes of its analysis to be comparable to Atria. In such
analysis, Wessels compared multiples of selected financial data for Atria with
those of the following publicly-traded companies in the software development
industry: Forte Software, Mercury Interactive Corp., Pure, Rational Software
Corporation, Segue Software, Inc. and SQA, Inc. (collectively referred to as
the "Comparable Companies"). Although such companies were considered
comparable to Atria for the purpose of this analysis based on certain
characteristics of their respective businesses, none of such companies
possessed characteristics identical to those of Atria. Wessels calculated the
following valuation multiples based on, as to Atria, a total value of $62.75
per share (the closing stock price of Atria Common Stock on June 5, 1996, the
last trading day before execution of the Agreement), and, as to the Comparable
Companies, on market prices and
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other information available as of the date of the Wessels Opinion. The
exchange ratio of 1.544615 shares of Pure Common Stock for each share of Atria
Common Stock was calculated by dividing Atria's Common Stock price on June 5,
1996 of $62.75 by Pure's stock price on the same date of $40.625. Multiples of
future earnings were based on earnings as estimated publicly by recognized
securities analysts and Wessels Institutional Research. The mean and median
for price per share as a multiple of each of the indicated statistics for
Atria and the Comparable Companies is as follows: (i) projected calendar year
1996 earnings per share, 101.3x for Atria as compared to a mean of 100.1x and
a median of 99.2x for the Comparable Companies and (ii) projected calendar
year 1997 earnings per share, 75.2x for Atria, as compared to a mean of 77.6x
and a median of 70.0x for the Comparable Companies. In each of the comparisons
of the value to be achieved by the Atria stockholders in the Merger as
compared to the mean and median of the multiples of operating results realized
by the stockholders of the Comparable Companies, the multiples of operating
results achieved by the Atria stockholders was approximately equal to that
realized by the stockholders of the Comparable Companies.
Comparable Transactions
Wessels compared multiples of selected financial data and other financial
data relating to the proposed Merger with multiples paid in, and other
financial data from, 11 selected mergers (the "Comparable Transactions") since
1993 of publicly-traded companies in the software industry. The Comparable
Transactions were selected based primarily on the target company's involvement
in the software industry and the size of the transaction which, in each case,
exceeded $100 million. Wessels calculated the following valuation multiples
based on, as to Atria, a total value of $1,004.0 million (based on $62.75, the
Atria Common Stock price on June 5, 1996, multiplied by Atria's fully-diluted
shares outstanding on such date, approximately 16,000,000 shares), and, as to
the Comparable Transactions, on the consideration paid to the target company.
The exchange ratio of 1.544615 shares of Pure Common Stock for each share of
Atria Common Stock was calculated by dividing Atria's Common Stock price on
June 5, 1996 of $62.75 by the Pure Common Stock price on the same date of
$40.625. Multiples of latest twelve month revenue, latest twelve month
operating income and latest twelve month net income, were based on data
provided by Securities Data Corporation. The mean for the value of the
transaction as a multiple of each of the indicated statistics for Atria and
the Comparable Transactions is as follows: (i) latest twelve months revenue,
22.0x for Atria as compared to a mean of 7.9x for the Comparable Transactions,
(ii) latest twelve months operating income, 117.4x for Atria, as compared to a
mean of 59.6x for the Comparable Transactions, (iii) latest twelve months net
income, 142.5x for Atria as compared to a mean of 63.3x for the Comparable
Transactions. The mean for the value of the transaction as a multiple of
latest twelve months revenue, latest twelve months operating income and latest
twelve months net income represented a 178.5%, 97.0% and 125.1% premium,
respectively, over the mean transaction multiple for the Comparable
Transactions.
Contribution Analysis
Wessels analyzed the percentage of revenue and operating profits that Atria
and Pure contributed over the last twelve months, and the last quarter on an
annualized basis, to the proposed Combined Company in relation to the
percentage of the Combined Company that each would receive pursuant to the
Agreement. Atria's revenue over the last twelve months was $45.6 million, or
47.3% of the proposed Combined Company's revenue over the last twelve months.
Atria's revenue over the last quarter on an annualized basis was $54.0
million, or 47.2% of the proposed Combined Company's revenue over the last
quarter on an annualized basis. Atria's operating profit over the last twelve
months was $8.6 million, or 51.9% of the proposed Combined Company's operating
profit over the last twelve months. Atria's operating profit over the last
quarter on an annualized basis was $11.0 million, or 54.0% of the proposed
Combined Company's operating profit over the last quarter on an annualized
basis. Atria, however, is to receive 55.3% of the shares in the Combined
Company pursuant to the Agreement. The percentage of the shares in the
proposed Combined Company which Atria is to receive pursuant to the Agreement
represents a premium to Atria's contribution to latest twelve months revenue,
latest quarter revenue, latest twelve months operating profit and latest
quarter operating profit of 16.9%, 17.2%, 6.6% and 2.4%, respectively. Wessels
also analyzed the relationship of estimated revenue and operating profit for
each company, based on published estimates prepared by Wessels Institutional
Research, to the percentage of the proposed
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Combined Company that each is to receive pursuant to the Agreement, and found
that Atria is to receive a greater percentage of shares in the Combined
Company than it is estimated to contribute in revenue and operating profit.
Discounted Cash Flow Analysis
Wessels estimated present values of Atria using a discounted cash flow
analysis based on published estimates of future operations prepared by Wessels
Institutional Research. Wessels calculated present values of operating cash
flows after net changes to working capital over the period between June 6,
1996 and December 31, 2000 using discount rates ranging from 15.0% to 19.0%.
Wessels calculated approximate terminal values as of December 31, 2000 of
30.0x Atria's calendar year 2000 operating income. Wessels determined this
multiple by analyzing the relationship between Atria's current operating
income growth rate and its current market multiple of operating income and
applying this relationship to estimated future operating income as of 2000.
The terminal value was discounted to present value using the same discount
rates as the cash flows. Wessels calculated an implied valuation of Atria by
adding the present value of the cash flows and the terminal value. The implied
value of Atria based on this analysis ranged from $582.3 million to $807.2
million. Wessels determined that, at the time of the Wessels Opinion, the
value of the consideration to be received by the Atria stockholders in the
Merger of $1,004.0 million was greater than the present value of Atria's cash
flows under the range of discounted cash flow valuations discussed above.
The preparation of a fairness opinion is a complex process and is not
necessarily susceptible to partial analysis or summary description. Wessels
believes that its analyses must be considered as a whole and that selecting
portions of its analyses and of the factors considered by it, without
considering all factors and analyses, could create an incomplete or misleading
view of the processes underlying its opinion. In arriving at its fairness
determination, Wessels considered the results of all such analyses. In view of
the wide variety of factors considered in connection with its evaluation of
the fairness of the Merger consideration, Wessels did not find it practicable
to assign relative weights to the factors considered in reaching its opinion.
No company or transaction used in the above analysis as a comparison is
identical to Atria or Pure or the proposed Merger. The analyses were prepared
solely for purposes of Wessels providing its opinion as to the fairness of the
Merger consideration pursuant to the Agreement to Atria and do not purport to
be appraisals or necessarily reflect the prices at which businesses or
securities actually may be sold. Analyses based upon forecast of future
results are not suggested by such analyses. As described above, the Wessels
Opinion and presentation to the Atria Board was one of the many factors taken
into consideration by the Atria Board in making its determination to approve
the Agreement.
Wessels assumed and relied upon the accuracy and completeness of the
financial, legal, tax, operating and other information provided by Atria and
Pure and did not independently verify such information. Further, Wessels
assumed that the Merger will be accounted for as a pooling of interests.
Wessels did not perform an independent evaluation or appraisal of any of the
respective assets or liabilities of Atria. The Wessels Opinion was based on
the conditions as they existed and the information available to Wessels on the
date of the Wessels Opinion. Events occurring after the date of the Wessels
Opinion may materially affect the assumptions used in preparing the Wessels
Opinion. Further, the Wessels Opinion speaks only as of the date thereof and
is based on the conditions as they existed and information with which Wessels
was supplied as of the date thereof.
Wessels provides research coverage on, and makes a market in, Atria Common
Stock and may continue to provide investment banking services to Atria in the
future. In the course of its market-making activities, Wessels may, from time
to time, have a long or short position in, buy or sell securities of Atria. In
May 1994 and August 1995, Wessels participated as a managing underwriter in
the initial public offerings of Atria and Pure, respectively, and in each case
received usual and customary underwriter's compensation. Wessels is a
nationally recognized investment banking firm and is regularly engaged in the
valuation of businesses and securities in connection with mergers and
acquisitions, negotiated underwritings, secondary distributions of listed and
unlisted securities, private placements and valuations for corporations. Atria
selected Wessels as its financial advisor based on Wessels' experience in
mergers and acquisitions and in securities valuation generally.
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Pursuant to the Wessels Engagement Letter, Atria paid Wessels a
nonrefundable opinion fee (the "Opinion Fee") of $300,000 upon the rendering
of the Wessels Opinion; payment of the Opinion Fee to Wessels is not
contingent upon the closing of the Merger. In addition, pursuant to the
Wessels Engagement Letter, Atria has agreed to pay Wessels, upon the closing
of the Merger pursuant to the Agreement, a transaction fee (the "Transaction
Fee") of $4,000,000. The Opinion Fee will be credited against the Transaction
Fee. Payment of the Transaction Fee is contingent upon the closing of the
Merger. Atria has also agreed to reimburse Wessels for its reasonable out-of-
pocket expenses, and to indemnify Wessels against certain liabilities relating
to or arising out of services performed by Wessels as financial advisor to
Atria. The terms of the Wessels Engagement Letter, which are customary in
transactions of this nature, were negotiated at arm's length between Atria and
Wessels and the Atria Board was aware of such fee arrangement at the time of
its approval of the Agreement.
CERTAIN FEDERAL INCOME TAX CONSIDERATIONS
The following discussion summarizes the material federal income tax
considerations of the Merger that are generally applicable to holders of Atria
Common Stock. This discussion does not deal with all income tax considerations
that may be relevant to particular Atria stockholders in light of their
particular circumstances, such as stockholders who are dealers in securities,
foreign persons, stockholders who acquired their shares in connection with
previous mergers involving Atria or an affiliate, or stockholders who acquired
their shares in connection with stock option or stock purchase plans or in
other compensatory transactions. In addition, the following discussion does
not address the tax consequences of transactions effectuated prior to or after
the Merger (whether or not such transactions are in connection with the
Merger), including without limitation transactions in which shares of Atria
Common Stock were or are acquired or shares of Pure Common Stock were or are
disposed of. Furthermore, no foreign, state or local tax considerations are
addressed herein. ACCORDINGLY, ATRIA STOCKHOLDERS ARE URGED TO CONSULT THEIR
OWN TAX ADVISORS AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER, INCLUDING
THE APPLICABLE FEDERAL, STATE, LOCAL AND FOREIGN TAX CONSEQUENCES TO THEM OF
THE MERGER.
The Merger is intended to constitute a "reorganization" within the meaning
of Section 368(a) of the Code, with each of Pure, Merger Sub and Atria
intended to qualify as a "party to the reorganization" under Section 368(b) of
the Code, in which case the following tax consequences will result (subject to
the limitations and qualifications referred to herein):
(a) No gain or loss will be recognized by holders of Common Stock of
Atria solely upon their receipt of Pure Common Stock in the Merger (except
to the extent of cash received in lieu of a fractional share thereof) in
exchange therefor;
(b) The aggregate tax basis of the Pure Common Stock received in the
Merger by an Atria stockholder will be the same as the aggregate tax basis
of Atria Common Stock surrendered in exchange therefor;
(c) The holding period of the Pure Common Stock received in the Merger by
an Atria stockholder will include the period during which the stockholder
held the Atria Common Stock surrendered in exchange therefor, provided that
the Atria Common Stock is held as a capital asset at the time of the
Merger;
(d) An Atria stockholder who exercises appraisal rights with respect to
all of such holder's shares of Common Stock of Atria will generally
recognize gain or loss for federal income tax purposes, measured by the
difference between the holder's basis in such shares and the amount of cash
received, provided that the payment is neither essentially equivalent to a
dividend within the meaning of Section 302 of the Code nor has the effect
of a distribution of a dividend within the meaning of Section 356(a)(2) of
the Code (collectively, a "Dividend Equivalent Transaction"). Such gain or
loss will be capital gain or loss, provided that the Atria Common Stock is
held as a capital asset at the time of the Merger. A sale of Common Stock
of Atria pursuant to an exercise of appraisal rights will generally not be
a Dividend Equivalent Transaction if, as a result of such exercise, the
stockholder exercising appraisal rights owns no shares of Pure Common Stock
or Atria Common Stock (either actually or constructively within the meaning
of Section 318 of the Code). If, however, a stockholder's sale for cash of
Atria Common Stock pursuant to an exercise of appraisal rights is a
Dividend Equivalent Transaction, then such stockholder will generally
recognize income for federal income tax purposes in an amount up to the
entire amount of cash so received; and
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(e) None of Pure, Merger Sub or Atria will recognize material amounts of
gain or loss solely as a result of the Merger.
The parties are not requesting a ruling from the Internal Revenue Service
("IRS") in connection with the Merger. Pure and Atria have each received an
opinion from their respective legal counsel, Wilson Sonsini Goodrich & Rosati,
Professional Corporation, and Testa, Hurwitz & Thibeault, LLP, respectively,
to the effect that, for federal income tax purposes, the Merger will
constitute a "reorganization" within the meaning of Section 368(a) of the
Code. These opinions, which are collectively referred to herein as the "Tax
Opinions," neither bind the IRS nor preclude the IRS from adopting a contrary
position. In addition, the Tax Opinions are subject to certain assumptions and
qualifications and are based on the truth and accuracy of certain
representations made by Pure, Merger Sub and Atria, including representations
in certificates delivered to counsel by the respective managements of Pure,
Merger Sub and Atria. Of particular importance are those assumptions and
representations relating to the "continuity of interest" requirement.
To satisfy the continuity of interest requirement, Atria stockholders must
not, pursuant to a plan or intent existing at or prior to the Merger, dispose
of or transfer so much of either (i) their Common Stock of Atria in
anticipation of the Merger or (ii) the Pure Common Stock to be received in the
Merger (collectively, "Planned Dispositions"), such that the Atria
stockholders, as a group, would no longer have a substantial proprietary
interest in the Atria business being conducted by Pure after the Merger.
Planned Dispositions include, among other things, shares disposed of pursuant
to the exercise of appraisal rights. Atria stockholders will generally be
regarded as having retained a substantial proprietary interest as long as the
Pure Common Stock received in the Merger (after reduction for any Planned
Dispositions), in the aggregate, represents a substantial portion of the
entire consideration received by the Atria stockholders in the Merger. If the
continuity of interest requirement were not satisfied, the Merger would not be
treated as a "reorganization."
A successful IRS challenge to the "reorganization" status of the Merger (as
a result of a failure of the "continuity of interest" requirement or
otherwise) would result in an Atria stockholder recognizing gain or loss with
respect to each share of Atria Common Stock surrendered equal to the
difference between the stockholder's basis in such share and the fair market
value, as of the Effective Time of the Merger, of the Pure Common Stock
received in exchange therefor. In such event, a stockholder's aggregate basis
in the Pure Common Stock so received would equal its fair market value and his
holding period for such stock would begin the day after the Merger.
GOVERNMENTAL AND REGULATORY APPROVALS
Pure and Atria are aware of no governmental or regulatory approvals required
for consummation of the Merger, other than compliance with the federal
securities laws and applicable securities and "blue sky" laws of the various
states.
ACCOUNTING TREATMENT
The Merger is intended to qualify as a pooling of interests for financial
reporting purposes in accordance with generally accepted accounting
principles. Consummation of the Merger is conditioned upon receipt by Pure and
Atria of letters from their respective independent accountants regarding those
firms' concurrence with Pure management's and Atria management's conclusions,
respectively, as to the appropriateness of pooling of interests accounting for
the Merger under APB No. 16, if closed and consummated in accordance with the
Agreement.
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TERMS OF THE MERGER
EFFECTIVE TIME
The Merger will become effective upon the filing of Articles of Merger with
the Secretary of State of the Commonwealth of Massachusetts or at such later
time as may be agreed in writing by Pure, Atria and Merger Sub and specified
in the Articles of Merger (the "Effective Time"). The Closing Date will occur
at a time and date to be specified by Pure, Atria and Merger Sub no later than
the second business day after the satisfaction or waiver of the conditions to
the Merger, or at such other time as Pure, Atria and Merger Sub agree in
writing. Assuming all conditions to the Merger are met or waived prior
thereto, it is anticipated that the Closing Date and Effective Time will be on
or about August 26, 1996.
MANNER AND BASIS OF CONVERTING SHARES
At the Effective Time of the Merger, Merger Sub will merge with and into
Atria and Pure will own all of the capital stock of Atria. As a result of the
Merger, each outstanding share of Atria Common Stock, other than shares as to
which appraisal rights pursuant to the MBCL have been exercised and shares
held in the treasury of Atria or owned by Merger Sub, Pure or any wholly owned
subsidiary of Pure or Atria, will be converted into the right to receive
1.544615 shares of Pure Common Stock, and each outstanding option or right to
purchase Atria Common Stock under the Atria Stock Option Plans and Atria Stock
Purchase Plan will be assumed by the Combined Company and will become an
option or right to purchase Combined Company Common Stock, with appropriate
adjustments to be made to the number of shares issuable thereunder and the
exercise price thereof based on the Exchange Ratio. See "--Interests of
Certain Persons."
No fractional shares will be issued by virtue of the Merger, but in lieu
thereof each holder of shares of Atria Common Stock who would otherwise be
entitled to a fraction of a share (after aggregating all fractional shares to
be received by such holder) will receive from the Combined Company an amount
of cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction, multiplied by (ii) the average closing price of a share of Pure
Common Stock for the ten most recent days that Pure Common Stock has traded
ending on the trading day immediately prior to the Effective Time, as reported
on Nasdaq.
At or promptly after the Effective Time, the Combined Company, acting
through the Exchange Agent, will deliver to each Atria stockholder of record a
letter of transmittal with instructions to be used by such stockholder in
surrendering certificates which, prior to the Merger, represented shares of
Atria Common Stock. CERTIFICATES SHOULD NOT BE SURRENDERED BY THE HOLDERS OF
ATRIA COMMON STOCK UNTIL SUCH HOLDERS RECEIVE THE LETTER OF TRANSMITTAL FROM
THE EXCHANGE AGENT. At the Effective Time, each then outstanding option to
purchase Atria Common Stock, whether vested or unvested, will be assumed by
the Combined Company without any action on the part of the holder thereof.
OPTION AGREEMENTS NEED NOT BE SURRENDERED.
No later than two business days after the Closing Date, the Combined Company
will file a registration statement of Form S-8 under the Securities Act
covering the shares of Combined Company Common Stock issuable upon exercise of
options to purchase Atria Common Stock to be assumed by Pure at the Effective
Time.
STOCK OWNERSHIP FOLLOWING THE MERGER
Based upon the capitalization of Atria as of the close of business on July
1, 1996 (including the number of shares of Atria Common Stock outstanding and
the number of shares issuable upon exercise of outstanding options to purchase
Atria Common Stock), and assuming that no holder of Atria Common Stock
exercises appraisal rights, an aggregate of approximately 22,200,461 shares of
Pure Common Stock will be issued to Atria stockholders in the Merger and Pure
will assume options for up to approximately 2,598,602 additional shares of
Combined Company Common Stock. Based upon the number of shares of Pure Common
Stock issued and outstanding as of July 1, 1996, and after giving effect to
the issuance of Pure Common Stock as described in the previous sentence, the
former holders of Atria Common Stock would hold, and have voting power with
respect
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to, approximately 55.7% of the Combined Company's total issued and outstanding
shares, and holders of former Atria options would hold options exercisable for
approximately 6.1% of the Combined Company's total issued and outstanding
shares (assuming the exercise of only such options). The foregoing numbers of
shares and percentages are subject to change in the event that the
capitalization of either Pure or Atria changes subsequent to July 1, 1996 and
prior to the Effective Time, and there can be no assurance as to the actual
capitalization of Pure or Atria at the Effective Time or of the Combined
Company at any time following the Effective Time.
As a result of the Merger and pursuant to the terms of the Atria Stock
Option Plans, the exercisability of outstanding options and the lapse of
repurchase rights under such plans will accelerate by 2 1/2 years from the
Effective Time of the Merger. Of the 1,210,387 shares of Atria Common Stock
subject to outstanding options under the Atria 1994 Stock Plan and the Atria
1994 Non-Employee Director Stock Option Plan as of July 1, 1996, 161,197
shares would be exercisable as of August 30, 1996 and, assuming the Merger is
consummated on such date, an additional 663,317 shares would become
exercisable as a result of such acceleration provisions. Of the 1,194,500
shares of Atria Common Stock issued pursuant to or issuable pursuant to
outstanding options under the 1990 Stock Option Plan as of July 1, 1996,
295,578 shares would be subject to repurchase rights as of August 30, 1996
and, assuming the Merger is consummated on such date, the number of shares
subject to repurchase would be reduced to 5,045. See "--Interests of Certain
Persons" and "Atria--Securities Ownership of Certain Beneficial Owners and
Management of Atria."
CONDUCT OF COMBINED COMPANY FOLLOWING THE MERGER
Once the Merger is consummated, Merger Sub will cease to exist as a
corporation, and all of the business, assets, liabilities and obligations of
Merger Sub will be merged into Atria with Atria remaining as the surviving
corporation (the "Surviving Corporation"). Following the Merger, the
headquarters of the Combined Company will be in Sunnyvale, California.
Pursuant to the Agreement, the Articles of Organization of Merger Sub in
effect immediately prior to the Effective Time will become the Articles of
Organization of the Surviving Corporation and the Bylaws of Merger Sub will
become the Bylaws of the Surviving Corporation. The Board of Directors of the
Surviving Corporation will consist of the directors who are serving as
directors of Merger Sub immediately prior to the Effective Time. The officers
of Merger Sub immediately prior to the Effective Time will remain as officers
of the Surviving Corporation, until their successors are duly elected or
appointed or qualified.
Following the Effective Time and pursuant to the Agreement, the Combined
Company's Board of Directors will take action to cause the Board of Directors
of the Combined Company, immediately after the Effective Time, to consist of
six persons, three of whom who have served on the Board of Directors of Pure
immediately prior to the Effective Time (one of whom will be Reed Hastings and
two of whom will be non-employee directors and are expected to be Thomas A.
Jermoluk and Larry W. Sonsini), and three of whom will have served on the
Atria Board (one of whom will be Paul Levine and two of whom will be non-
employee directors and are expected to be David A. Litwack and Louis J.
Volpe). If, prior to the Effective Time, any of the Pure or Atria designees
decline or are unable to serve as directors of the Combined Company, then the
company designating such person will designate another person to serve in such
person's stead, which person will be reasonably acceptable to the other
company. In addition, the Board of Directors of the Combined Company will take
action to cause its Audit Committee, immediately after the Effective Time, to
consist of three members, two of whom will have served on the Pure Board
immediately prior to the Effective Time and one who will have served on the
Atria Board immediately prior to the Effective Time. Moreover, the Board of
Directors of the Combined Company will take action to cause its Compensation
Committee, immediately after the Effective Time, to consist of three members,
two of whom will have served on the Atria Board immediately prior to the
Effective Time and one who will have served on the Pure Board immediately
prior to the Effective Time.
Pursuant to the Agreement, at the Effective Time, Paul Levine will become
the Chairman of the Board of the Combined Company, Reed Hastings will become
the President and Chief Executive Officer of the Combined Company, and Chuck
Bay will become the Vice President, Finance, and Chief Financial Officer of
the Combined Company.
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CONDUCT OF PURE'S AND ATRIA'S BUSINESS PRIOR TO THE MERGER
Pursuant to the Agreement, each of Pure and Atria have agreed, on behalf of
itself and its subsidiaries, that during the period from the date of the
Agreement and continuing until the earlier of the termination of the Agreement
pursuant to its terms or the Effective Time, except as set forth in certain
disclosure schedules or to the extent that the other party shall otherwise
consent in writing, to carry on its business diligently and in accordance with
good commercial practice and to carry on its business in the usual, regular
and ordinary course, in substantially the same manner as heretofore conducted,
to pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and
policies to preserve intact its present business organization, keep available
the services of its present officers and employees and preserve its
relationships with customers, suppliers, distributors, licensors, licensees,
and others with which it has business dealings. In furtherance of the
foregoing and subject to applicable law, Pure and Atria have agreed to confer,
as promptly as practicable, prior to taking any material actions or making any
material management decisions with respect to the conduct of business. In
addition, except as set forth in certain disclosure schedules to the
Agreement, without the prior written consent of the other, each of Pure and
Atria have agreed that it shall neither do any of the following nor permit its
subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create standards or
agreements with "Standards" bodies;
(c) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other, or adopt
any new severance plan;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the intellectual
property necessary or required for the conduct of their respective
businesses as presently conducted, or enter into grants to future patent
rights, other than in the ordinary course of business;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock except pursuant to rights of repurchase of any such shares
under any employee, consultant or director stock plan;
(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire and shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (i) the issuance of shares of Pure Common Stock or
Atria Common Stock, as the case may be, pursuant to the exercise of stock
options therefor outstanding as of the date of the Agreement, (ii) options
to purchase shares of Pure Common Stock or Atria Common Stock, as the case
may be, to be granted at fair market value in the ordinary course of
business, consistent with past practice and in accordance with existing
stock option plans, (iii) shares of Pure Common Stock or Atria Common
Stock, as the case may be, issuable upon the exercise of the options
referred to in clause (ii), and (iv) shares of Pure Common Stock or Atria
Common Stock, as the case may be, issuable to participants the Pure
Employee Stock Purchase Plan or the Atria Stock Purchase Plan consistent
with the terms thereof;
(h) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
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(i) Acquire or agree to acquire by merging or consolidating with, or by
purchasing any equity interest in or a material portion of the assets of,
or by any other manner, any business or any corporation, partnership
interest, association or other business organization or division thereof,
or otherwise acquire or agree to acquire any assets which are material,
individually or in the aggregate, to the business of Pure or Atria, as the
case may be, or enter into any joint ventures, strategic partnerships or
alliances, other than in the ordinary course of business consistent with
past practice;
(j) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the
business of Pure or Atria, as the case may be, except in the ordinary
course of business consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire debt securities of Pure or
Atria, as the case may be, or guarantee any debt securities of others;
(l) Adopt or amend any employee benefit or stock purchase or option plan,
or enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its officers or employees other than in the ordinary course of
business, consistent with past practice;
(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(n) Make any grant of exclusive rights to any third party; or
(o) Agree in writing or otherwise to take any of the actions described in
the foregoing.
NO SOLICITATION
Under the terms of the Agreement, until the earlier of the Effective Time or
termination of the Agreement pursuant to its terms, each of Pure and Atria
have agreed that they will not, and will instruct their respective directors,
officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly encourage
submission of, any proposals or offers by any person, entity or group (other
than Atria or Pure, respectively, and its respective affiliates, agents and
representatives), or (ii) participate in any discussions or negotiations with,
or disclose any non-public information concerning itself or any of its
subsidiaries to, or afford any access to the properties, books or records of
itself or any of its subsidiaries to, or otherwise assist or facilitate, or
enter into any agreement or understanding with, any person, entity or group
(other than Atria or Pure, respectively, and its respective affiliates, agents
and representatives), in connection with any Acquisition Proposal with respect
to itself. For the purposes of the Agreement, an "Acquisition Proposal" with
respect to an entity means any proposal or offer relating to (i) any merger,
consolidation, sale of substantial assets or similar transactions involving
the entity or any subsidiaries of the entity (other than sales of assets or
inventory in the ordinary course of business or permitted under the terms of
the Agreement), (ii) sale of 10% or more of the outstanding shares of capital
stock of the entity (including without limitation by way of a tender offer or
an exchange offer), (iii) the acquisition by any person of beneficial
ownership or a right to acquire beneficial ownership of, or the formation of
any "group" (as defined under Section 13(d) of the Exchange Act and the rules
and regulations thereunder) which beneficially owns, or has the right to
acquire beneficial ownership of, 10% or more of the then outstanding shares of
capital stock of the entity (except for acquisitions for passive investment
purposes only in circumstances where the person or group qualifies for and
files a Schedule 13G with respect thereto); or (iv) any public announcement of
a proposal, plan or intention to do any of the foregoing or any agreement to
engage in any of the foregoing. Each of Pure and Atria have agreed to cease
any and all existing activities, discussions or negotiations with any parties
conducted prior to the signing of the Agreement with respect to any of the
foregoing. Each of Pure and Atria have agreed to (i) notify Atria or Pure,
respectively, as promptly as practicable if any inquiry or proposal is made or
any information or access is requested in writing in connection with an
Acquisition Proposal or potential Acquisition
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Proposal and (ii) as promptly as practicable notify Atria or Pure,
respectively, of the significant terms and conditions of any such Acquisition
Proposal. In addition, subject to the other provisions set forth in this
section, from and after the date of the Agreement until the earlier of the
Effective Time and termination of the Agreement pursuant to its terms, each of
Pure and Atria and its subsidiaries have agreed to not, and have agreed to
instruct their respective directors, officers, employees, representatives,
investment bankers, agents and affiliates not to, directly or indirectly, make
or authorize any public statement, recommendation or solicitation in support
of any Acquisition Proposal made by any person, entity or group (other than
Atria or Pure, respectively); provided, however, that nothing in the Agreement
will prohibit the Board of Directors of either Pure or Atria from taking and
disclosing to its stockholders a position with respect to a tender offer
pursuant to Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
Notwithstanding the foregoing, each of Pure and Atria may, to the extent its
Board of Directors determines, in good faith, after consultation with outside
legal counsel, that such Board's fiduciary duties under applicable law require
it to do so, participate in discussions or negotiations with, and, subject to
the requirements of the following paragraph, furnish information to any
person, entity or group after such person, entity or group has delivered to
either Pure or Atria, as the case may be, in writing, an unsolicited bona fide
Acquisition Proposal which the Board of Directors of such company in its good
faith reasonable judgment determines, after consultation with its independent
financial advisors, would result in a transaction more favorable to the
stockholders of such company from a financial point of view than the Merger
and for which financing, to the extent required, is then committed or which,
in the good faith reasonable judgment of the Board of Directors of such
company (based upon the advice of independent financial advisors), is
reasonably capable of being financed by such person, entity or group, and
which is likely to be consummated (a "Superior Proposal"). In the event either
Pure or Atria receives a Superior Proposal, nothing contained in the Agreement
will prevent the Board of Directors of such company from approving such
Superior Proposal or recommending such Superior Proposal to its stockholders,
if the Board determines that such action is required by its fiduciary duties
under applicable law; provided, however, that Pure or Atria have agreed not to
accept or recommend to their respective stockholders, or enter into any
agreement concerning, a Superior Proposal for a period of not less than 48
hours after the receipt by Atria or Pure, as the case may be, of a copy of
such Superior Proposal (or a description of the significant terms and
conditions thereof, if not in writing).
BREAK UP FEES; EXPENSES
Except as set forth below, all fees and expenses incurred in connection with
the Agreement and the transactions contemplated thereby will be paid by the
party incurring such expenses, whether or not the Merger is consummated.
Each of Pure and Atria have agreed that if it accepts a Superior Proposal,
if the Board of Directors of such company recommends a Superior Proposal to
the stockholders of such company, or if the stockholders of such company fail
to approve the Merger following a publicly disclosed (and not withdrawn)
Acquisition Proposal with regard to such company, then, such company will
immediately pay to the other party the sum of $25 million. Each of Pure and
Atria have agreed that if the stockholders of such company fail to approve the
Merger following the withholding, withdrawal or modification by the Board of
Directors of such company, in a manner adverse to the other party, of its
recommendation in favor of the Merger (and the $25 million sum is not
otherwise payable), then such company will immediately pay to the other party
the sum of $15 million. And each of Pure and Atria have agreed that if the
stockholders of such company fail to approve the Merger under circumstances
not described in the preceding sentences, then such company will immediately
pay to the other party the sum of $5 million.
CONDITIONS TO THE MERGER
The respective obligations of each party to the Agreement to effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time
of the following conditions: (a) the Agreement shall have been approved and
adopted by the requisite vote under applicable law by the stockholders of
Atria, and the issuance of shares of Pure Common Stock by virtue of the Merger
shall have been duly approved by the requisite vote
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under the rules of the National Association of Securities Dealers, Inc. by the
stockholders of Pure, (b) the SEC shall have declared the Registration
Statement effective and no stop order suspending the effectiveness of the
Registration Statement or any part thereof shall have been issued and no
proceeding for that purpose, and no similar proceeding in respect of the Proxy
Statement, shall have been initiated or threatened in writing by the SEC, (c)
no court, administrative agency or commission or other governmental authority
or instrumentality shall have enacted, issued, promulgated, enforced or
entered any statute, rule, regulation, executive order, decree, injunction or
other order (whether temporary, preliminary or permanent) which is in effect
and which has the effect of making the Merger illegal or otherwise prohibiting
consummation of the Merger, (d) Atria and Pure shall each have received
substantially identical written opinions from their counsel, Wilson Sonsini
Goodrich & Rosati, Professional Corporation, and Testa, Hurwitz & Thibeault,
LLP, respectively, in form and substance reasonably satisfactory to them, to
the effect that the Merger will constitute a reorganization within the meaning
of Section 368(a) of the Code, (e) the shares of Pure Common Stock issuable to
stockholders of Atria pursuant to the Agreement and such other shares required
to be reserved for issuance in connection with the Merger shall have been
authorized for listing on Nasdaq upon official notice of issuance, (f) each of
Pure and Atria shall have received letters from each of KPMG Peat Marwick LLP
and Ernst & Young LLP, each dated within two (2) business days prior to the
Effective Time, regarding those firms' concurrence with Pure managements' and
Atria managements' conclusions as to the appropriateness of pooling of
interest accounting for the Merger under Accounting Principles Board Opinion
No. 16, if the Merger is consummated in accordance with the Agreement.
In addition, the obligations of Atria to consummate and effect the Merger
are subject to the satisfaction at or prior to the Effective Time of each of
the following conditions, any of which may be waived, in writing, exclusively
by Atria: (a) the representations and warranties of Pure and Merger Sub
contained in the Agreement shall be true and correct on and as of the
Effective Time, except for changes contemplated by the Agreement and except
for those representations and warranties which address matters only as of a
particular date (which shall remain true and correct as of such particular
date), with the same force and effect as if made on and as of the Effective
Time, except, in all such cases where the failure to be so true and correct,
would not have a material adverse effect on Pure, and Atria shall have
received a certificate to such effect signed on behalf of Pure by the
President and the Chief Financial Officer of Pure; (b) Pure and Merger Sub
shall have performed or complied in all material respects with all agreements
and covenants required by the Agreement to be performed or complied with by
them on or prior to the Effective Time, and Atria shall have received a
certificate to such effect signed on behalf of Pure by the President and the
Chief Financial Officer of Pure; (c) no material adverse effect with respect
to Pure shall have occurred since the date of the Agreement; and (d) Atria
shall have received a legal opinion from Wilson Sonsini Goodrich & Rosati,
Professional Corporation, counsel to Pure, in a form reasonably acceptable to
Atria.
Further, the obligations of Pure and Merger Sub to consummate and effect the
Merger shall be subject to the satisfaction at or prior to the Effective Time
of each of the following conditions, any of which may be waived, in writing,
exclusively by Pure: (a) the representations and warranties of Atria contained
in the Agreement shall be true and correct on and as of the Effective Time,
except for changes contemplated by the Agreement and except for those
representations and warranties which address matters only as of a particular
date (which shall remain true and correct as of such particular date), with
the same force and effect as if made on and as of the Effective Time, except,
in all such cases where the failure to be so true and correct, would not have
a material adverse effect on Atria, and Pure and Merger Sub shall have
received a certificate to such effect signed on behalf of Atria by the
President and the Chief Financial Officer of Atria; (b) Atria shall have
performed or complied in all material respects with all agreements and
covenants required by the Agreement to be performed or complied with by it on
or prior to the Effective Time, and Pure shall have received a certificate to
such effect signed on behalf of Atria by the President and the Chief Financial
Officer of Atria; (c) no material adverse effect with respect to Atria shall
have occurred since the date of the Agreement; and (d) Pure shall have
received a legal opinion from Testa, Hurwitz & Thibeault, LLP, counsel to
Atria, in a form reasonably acceptable to Pure.
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TERMINATION OF THE AGREEMENT
The Agreement provides that it may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger
by the stockholders of Pure and Atria: (a) by mutual written consent duly
authorized by the Boards of Directors of Pure and Atria; (b) by either Pure or
Atria if the Merger shall not have been consummated by December 31, 1996;
provided, however, that the right to so terminate the Agreement shall not be
available to any party whose action or failure to act has been a principal
cause of or resulted in the failure of the Merger to occur on or before such
date and such action or failure to act constitutes a breach of the Agreement;
(c) by either Pure or Atria if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action, in any case
having the effect of permanently restraining, enjoining or otherwise
prohibiting the Merger, which order, decree or ruling is final and
nonappealable; (d) by either Pure or Atria if the required approvals of the
stockholders of Pure or Atria contemplated by the Agreement shall not have
been obtained by reason of the failure to obtain the required vote upon a vote
taken at a meeting of stockholders duly convened therefor or at any
adjournment thereof (provided that the right to so terminate the Agreement
shall not be available to any party where the failure to obtain stockholder
approval of such party shall have been caused by the action or failure to act
of such party in breach of the Agreement); (e) by either Pure or Atria, if
Atria shall have accepted a Superior Proposal or if the Atria Board recommends
an Atria Superior Proposal to the stockholders of Atria; (f) by Pure, if the
Atria Board shall have withheld, withdrawn or modified in a manner adverse to
Pure its recommendation in favor of approving the issuance of the shares of
Pure Common Stock by virtue of the Merger; (g) by either Pure or Atria, if
Pure shall have accepted a Pure Superior Proposal or if the Pure Board
recommends a Pure Superior Proposal to the stockholders of Pure; (h) by Atria,
if the Pure Board shall have withheld, withdrawn or modified in a manner
adverse to Atria its recommendation in favor of the Merger; (i) by Atria, upon
a breach of any representation, warranty, covenant or agreement on the part of
Pure set forth in the Agreement, or if any representation or warranty of Pure
shall have become untrue, in either case such that the conditions set forth in
subsections (a) and (b) of the second to last paragraph of the preceding
section would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided that if
such inaccuracy in Pure's representations and warranties or breach by Pure is
curable by Pure through the exercise of its commercially reasonable efforts
within five (5) days of the time such representation or warranty shall have
become untrue or such breach, then Atria may not so terminate the Agreement
during such five-day period provided Pure continues to exercise such
commercially reasonable efforts; (j) by Pure, upon a breach of any
representation, warranty, covenant or agreement on the part of Atria set forth
in the Agreement, or if any representation or warranty of Atria shall have
become untrue, in either case such that the conditions set forth in
subsections (a) and (b) of the last paragraph of the preceding section would
not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in Atria's representations and warranties or breach by Atria is
curable by Atria through the exercise of its commercially reasonable efforts
within five (5) days of the time such representation or warranty shall have
become untrue or such breach, then Pure may not so terminate the Agreement
during such five-day period provided Atria continues to exercise such
commercially reasonable efforts; (k) by Atria, if there shall have occurred
any material adverse effect with respect to Pure since the date of the
Agreement; (l) by Pure, if there shall have occurred any material adverse
effect with respect to Atria since the date of the Agreement; or (m) by either
Pure or Atria if the earnings per share reported by the other party for the
fiscal quarter ending June 30, 1996 are below the average of earnings per
share estimates published by securities analysts as of the date of the
Agreement, if such shortfall is material in the opinion of the terminating
party determined in its sole good faith judgment; provided, that the right to
so terminate the Agreement shall be null and void if not exercised within 5
days following such report of earnings.
STOCK OPTION AGREEMENTS
The following discussion summarizes the terms of the Pure Option Agreement
(as defined below) and the Atria Option Agreement (as defined below). The
following is not, however, a complete statement of all provisions of such
agreements and the discussion herein is qualified in its entirety by reference
to the more detailed information set forth in such agreements, attached to
this Prospectus/Joint Proxy Statement as Annex B.
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As an inducement to Atria to enter into the Agreement, Pure entered into a
Stock Option Agreement with Atria dated June 6, 1996 (the "Pure Option
Agreement") pursuant to which Pure granted Atria the right (the "Pure
Option"), under certain conditions, to purchase up to 2,646,096 shares of Pure
Common Stock by exchanging therefore shares of Atria Common Stock at the rate
of 0.64741 of a share of Atria Common Stock for each option share and/or, at
Atria's election, by paying cash of $40.625 per share.
Subject to certain conditions, the Pure Option may be exercised in whole or
in part by Atria (i) upon the commencement of a tender or exchange offer for
25% or more of any class of Pure's capital stock, (ii) in the event Pure shall
have accepted a Superior Proposal or if the Pure Board recommends a Superior
Proposal to the stockholders of Pure or (iii) in the event the stockholders of
Pure fail to approve the issuance of shares of Pure Common Stock by virtue of
the Merger if prior to such failure there shall have occurred an Acquisition
Proposal with respect to Pure which shall have been publicly disclosed and not
withdrawn (any of the events specified in clauses (i), (ii) or (iii) of this
sentence are referred to herein as a "Pure Exercise Event"). The Pure Option
Agreement terminates upon the earlier of (i) at the Effective Time, (ii) 180
days following the termination of the Agreement if a Pure Exercise Event shall
have occurred on or prior to the date of such termination, and (iii) the date
on which the Agreement is terminated if a Pure Exercise Event shall not have
occurred on or prior to such date; provided, however, with respect to clause
(ii) of this sentence, that if the Pure Option cannot be exercised by reason
of any applicable government order shall not have expired or been terminated,
then the Pure Option Agreement shall not terminate until the tenth business
day after such impediment to exercise shall have been removed or shall have
become final and not subject to appeal. Notwithstanding the foregoing, the
Pure Option may not be exercised if Atria is in breach in any material respect
of any of its covenants or agreements contained in the Agreement.
As an inducement to Pure to enter into the Agreement, Atria entered into a
Stock Option Agreement with Pure dated June 6, 1996 (the "Atria Option
Agreement") pursuant to which Atria granted Pure the right (the "Atria
Option"), under certain conditions, to purchase up to 2,149,038 shares of
Atria Common Stock by exchanging therefore shares of Pure Common Stock at the
rate of 1.544615 shares of Pure Common Stock for each option share and/or, at
Pure's election, by paying cash of $62.75 per share.
Subject to certain conditions, the Atria Option may be exercised in whole or
in part by Pure (i) upon the commencement of a tender or exchange offer for
25% or more of any class of Atria's capital stock, (ii) in the event Atria
shall have accepted a Superior Proposal or if the Board of Directors of Atria
recommends a Superior Proposal to the stockholders of Atria or (iii) in the
event the stockholders of Atria fail to approve the Agreement and the Merger
if prior to such failure there shall have occurred an Acquisition Proposal
with respect to Atria which shall have been publicly disclosed and not
withdrawn (any of the events specified in clauses (i), (ii) or (iii) of this
sentence are referred to herein as an "Atria Exercise Event"). The Atria
Option Agreement terminates upon the earlier of (i) at the Effective Time,
(ii) 180 days following the termination of the Agreement if an Atria Exercise
Event shall have occurred on or prior to the date of such termination, and
(iii) the date on which the Agreement is terminated if an Atria Exercise Event
shall not have occurred on or prior to such date; provided, however, with
respect to clause (ii) of this sentence, that if the Atria Option cannot be
exercised by reason of any applicable government order shall not have expired
or been terminated, then the Atria Option Agreement shall not terminate until
the tenth business day after such impediment to exercise shall have been
removed or shall have become final and not subject to appeal. Notwithstanding
the foregoing, the Atria Option may not be exercised if Pure is in breach in
any material respect of any of its covenants or agreements contained in the
Agreement.
VOTING AGREEMENTS
Each of the members of the Pure Board, including Reed Hastings, Audrey
MacLean for the Audrey MacLean and Michael M. Clair Trust u/a/d/ December 1,
1990, Aki Fujimura, Andrew S. Rachleff, Thomas Jermoluk and Larry Sonsini and
Chuck Bay, Pure's Vice President, Finance, Chief Financial Officer, General
Counsel and Secretary (who own an aggregate of 4,513,021 shares of Pure Common
Stock and options exercisable within 60 days of the Pure Record Date to
purchase 686,683 shares of Pure Common Stock,
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representing approximately 25.43% of the votes entitled to be cast by holders
of shares of Pure Common Stock issued and outstanding as of the Pure Record
Date, and 28.21% of such votes assuming exercise of all options held by such
persons) has entered into a Pure Voting Agreement with Atria. Pursuant to the
Pure Voting Agreement, which is irrevocable, each of the foregoing Pure
stockholders has agreed to vote in favor of the Merger and against approval of
any proposal made in opposition or competition with consummation of the
Merger.
Each of the members of the Atria Board (including Paul H. Levine, Paul J.
Ferri, Gardner C. Hendrie, David A. Litwack, Robert D. Pavey and Louis J.
Volpe) and Elliot M. Katzman, Atria's Vice President, Finance and
Administration and Chief Financial Officer; John C. Leary, Atria's Vice
President, Sales, Norris H. Evans, Atria's Vice President, Research and
Development; and David B. Leblang, Atria's Chief Technical Officer; (who own
an aggregate of 773,839 shares of Atria Common Stock and options exercisable
within 60 days of the Atria Record Date to purchase 197,400 shares of Atria
Common Stock, representing approximately 5.4% of the votes entitled to be cast
by holders of shares of Atria Common Stock issued and outstanding as of the
Atria Record Date and 6.7% of such votes assuming exercise of all options held
by such persons) has entered into an Atria Voting Agreement with Pure.
Pursuant to the Atria Voting Agreement, which is irrevocable, each of the
foregoing Atria stockholders has agreed to vote in favor of the Merger and
against approval of any proposal made in opposition or competition with
consummation of the Merger.
AFFILIATE AGREEMENTS
Each of the members of the Board of Directors of Pure and certain officers
of Pure have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of
Pure Common Stock held by them to help ensure that the Merger will be treated
as a pooling of interests for accounting and financial reporting purposes.
Each of the members of the Board of Directors of Atria and certain officers of
Atria have entered into agreements restricting sales, dispositions or other
transactions reducing their risk of investment in respect of the shares of
Atria Common Stock held by them prior to the Merger and the shares of Pure
Common Stock received by them in the Merger so as to comply with the
requirements of applicable federal securities and tax laws and to help ensure
that the Merger will be treated as a pooling of interests for accounting and
financial reporting purposes.
LICENSING AND MARKETING AGREEMENT
Pure and Atria have also entered into a License and Marketing Agreement in
connection with the Agreement. The License and Marketing Agreement would
become effective only in the event that the Agreement is terminated under
certain circumstances. The License and Marketing Agreement, if effective,
would permit Atria to market, distribute, support and maintain the PureDDTS
defect tracking system product, and modify and create derivative works of the
product. Atria would pay Pure a royalty of 30% of the net revenue Atria
recognizes from the licensing of the product, or from support services
provided by Atria for the product, and a royalty of 50% of the net revenue
Atria recognizes from support services sold by Atria but provided by Pure. The
initial term of the License and Marketing Agreement is five years, with
automatic renewals unless terminated by either party in accordance with the
License and Marketing Agreement. The License and Marketing Agreement contains
customary warranty, indemnity and confidentiality provisions.
INTERESTS OF CERTAIN PERSONS
Atria Options
The number of shares exercisable pursuant to options issued under the Atria
1994 Stock Plan and the Atria 1994 Non-Employee Director Stock Option Plan is
subject, pursuant to the terms of such plans and option agreements issued
pursuant thereto, to partial acceleration as a result of the Merger such that
the number of shares that shall become exercisable immediately preceding the
Effective Time of the Merger shall equal that number of shares that would be
fully exercisable as of the date that is 2 1/2 years after the Effective Time
of the Merger if such option otherwise would have remained outstanding for
such period.
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The options granted under the Atria 1990 Stock Option Plan are exercisable
in full immediately upon grant. The shares issued pursuant to options granted
under the 1990 Stock Option Plan are subject to the right of Atria to
repurchase such shares from the optionees at the optionee's cost until such
time as the shares vest according to a schedule set forth in the option
agreement. Pursuant to the terms of the Atria 1990 Stock Option Plan, the
repurchase right with respect to any such shares will lapse as a result of the
Merger such that the number of shares that shall remain subject to such
repurchase right shall equal that number of shares that would be no longer be
subject to Atria's repurchase right as of the date that is 2 1/2 years after
the effective date of the Merger if such vesting shall have continued pursuant
to the terms of the option agreement for such period. See "--Stock Ownership
Following the Merger" and "Atria--Securities Ownership of Certain Beneficial
Owners and Management of Atria."
Indemnification
Section 67 of the MBCL provides that idemnification of directors, officers,
employees and other agents of a corporation, and persons who serve at its
request as directors, officers, employees or other agents of another
organization, may be provided by it to whatever extent specified in or
authorized by (i) the articles of organization, (ii) a by-law adopted by the
stockholders or (iii) a vote adopted by the holders of a majority of the
shares of stock entitled to vote on the election of directors.
Atria's Restated Articles of Organization, as amended, include provisions
eliminating the personal liability of Atria's directors for monetary damages
resulting from breaches of their fiduciary duty except (i) for any breach of
the director's duty of loyalty to Atria or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Sections 61 and 62 of the MBCL, or any
amendatory or successor provisions thereto, or (iv) with respect to any
transaction from which the director derived an improper personal benefit.
Atria's By-Laws provide indemnification to directors and officers against
claims brought under state or Federal securities laws to the full extent
allowable under Massachusetts law. Atria also has entered into indemnification
agreements with its directors and executive officers providing, among other
things, that Atria will provide defense costs against any such claim, subject
to reimbursement in certain events. Atria also maintains a directors and
officers liability insurance policy.
Employee Retention Plan
Effective upon the Closing Date of the Merger, the Employee Retention Plan
(the "Retention Plan") of the Combined Company would become effective. The
purpose of the Retention Plan is to provide employees of Atria and Pure who
were employed prior to the Merger and who will continue to be employed
following the Merger with an incentive to continue to be so employed. The
Retention Plan provides that in the event that an employee experiences an
employment change (as defined in the Plan) other than for cause (as defined in
the Plan) during the twelve month period following the Closing Date then (i)
the employee shall have the right to remain employed with the Combined Company
without the employment change (and continue to receive his salary and other
benefits) for a specified notice period and (ii) the employee's options to
purchase Combined Company Common Stock would continue to vest and be
exercisable during the notice period, all to the extent the employee remains
so employed. For purposes of the Retention Plan, the notice period for
officers and all other employees would be nine months and six months
respectively.
APPRAISAL RIGHTS
If the Agreement is approved by the required vote of Atria stockholders and
the Merger becomes effective, holders of Atria Common Stock who did not vote
to approve the Agreement may, by complying with Sections 85 through 98 of
Chapter 156B of the MBCL, be entitled to appraisal rights as described therein
("Appraisal Rights"). The stockholders of record of Atria Common Stock which
are eligible to, and do, exercise their Appraisal Rights with respect to the
Merger are referred to herein as "Atria Dissenting Stockholders," and the
shares of stock with respect to which they exercise Appraisal Rights are
referred to herein as "Dissenting Shares." If an Atria stockholder has a
beneficial interest in shares of Atria Common Stock that are held of record
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in the name of another person, and such stockholder desires to perfect
whatever Appraisal Rights such beneficial stockholder may have, such
beneficial stockholder must act promptly to cause the stockholder of record
timely and properly to follow the steps summarized below.
Pursuant to the MBCL, a stockholder of Atria may dissent from the proposed
corporate action to approve the Agreement and receive the right to an
appraisal of such stockholder's shares. Attached hereto as part of Annex C is
a copy of Sections 85 through 98 of the MBCL.
If the Merger is consummated, the Atria Dissenting Stockholders will be
entitled, if they strictly comply with the provisions of the MBCL, to have the
fair value of their shares judicially determined and paid to them. The
following discussion is not a complete statement of the MBCL relating to
Appraisal Rights, and is qualified in its entirety by reference to Sections 85
through 98 of the MBCL attached to this Prospectus/Joint Proxy Statement as
Annex C and incorporated herein by reference. This discussion and Sections 85
through 98 of the MBCL should be reviewed carefully by any stockholder who
wishes to exercise statutory Appraisal Rights or wishes to preserve the right
to do so, since failure to comply with the required procedures will result in
the loss of such rights. A stockholder of Atria who votes for the adoption and
approval of the Merger will be deemed to have waived such stockholder's right
to exercise Appraisal Rights with respect to all shares of Atria Common Stock
held by such stockholder. Any holder who is considering dissenting should
consult his or her legal advisor.
1. To exercise Appraisal Rights, a stockholder must (1) file with Atria,
before the taking of the stockholders' vote on the approval of the Agreement
at the Atria Meeting, a written objection to the Agreement stating the
intention of such stockholder to demand payment for shares owned by such
stockholder if the Agreement is approved and the Merger becomes effective, and
(2) the stockholder must not vote in favor of the Agreement. A vote in favor
of the Agreement will waive such stockholder's Appraisal Rights. However, a
stockholder's failure to vote on the Agreement will not in itself be a waiver
of such holder's Appraisal Rights. A vote against the Agreement does not,
alone, constitute a written objection. A stockholder who dissents and demands
Appraisal Rights must do so as to all shares of Atria Common Stock held by
such stockholder. A stockholder may not assert Appraisal Rights with respect
to less than all of such stockholder's shares.
2. If the Agreement is approved and adopted by the Atria stockholders, within
10 days after the Effective Time of the Merger, the Combined Company must give
written notice that the Merger has become effective to each stockholder who
gave notice, before the taking of the stockholders' vote on the Agreement at
the Atria Meeting, of such stockholder's objection to the Agreement and who
did not vote in favor of the Agreement.
3. If the stockholder did not vote in favor of the Agreement, such Atria
Dissenting Stockholder may, within 20 days after the mailing of the notice
that the Merger is effective, make written demand (the "Demand Notice") on the
Combined Company for the payment of the fair value of such stockholder's
Dissenting Shares. Any stockholder failing to make demand for payment within
the 20-day period shall be bound by the Merger.
4. Within 30 days after the expiration of the Atria Dissenting Stockholders'
20-day notice period, the Combined Company receiving demand for payment by the
Atria Dissenting Stockholder must deliver to the Atria Dissenting Stockholder
payment of the fair value of the shares.
5. If, during the 30-day period after the expiration of the period during with
the demand may be made, the Atria Dissenting Stockholder and the Combined
Company do not agree as to the fair value of the Dissenting Shares, then
either of them may file a bill in equity in the Superior Court in Middlesex
County, Massachusetts (the "Court") requesting a determination of the value of
such stockholder's Dissenting Shares. The bill in equity must be filed within
four months after the date of expiration of the foregoing 30-day period.
6. If the bill in equity is timely filed, the Court or an appointed special
master will hold a hearing. After the hearing on the petition, the Court shall
enter a decree determining the fair value of the Dissenting Shares and shall
order the Combined Company to make payment of such value, together with
interest, from the date of
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the vote approving the Agreement to the Atria Dissenting Stockholders entitled
to said payment, subject to receipt of duly endorsed certificates for the
Dissenting Shares. Pursuant to the MBCL the fair value of the Dissenting
Shares is the value thereof as of the day immediately preceding the Atria
Meeting, excluding any element of value arising from the expectation or
accomplishment of the Merger. The "fair value" of the Dissenting Shares could
be more than, the same as or less than the value of Atria Common Stock on the
date of the determination of the Exchange Ratio. All court costs, including
appraisers' fees, shall be allocated by the Court in a manner it determines to
be fair and equitable.
7. Upon consummation of the Merger, each Atria Dissenting Stockholder will
cease to have any rights of a stockholder except the right to be paid the fair
value of the Dissenting Shares and the right to receive other distributions,
if any, payable to a stockholder of record prior to the Effective Time and any
other rights under applicable Massachusetts law.
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UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL INFORMATION
FINANCIAL STATEMENTS
The following unaudited pro forma combined condensed financial statements
have been prepared to give effect to the Merger, using the pooling of
interests method of accounting.
The unaudited pro forma combined condensed financial statements reflect
certain assumptions deemed probable by management regarding the Merger (e.g.,
that share information used in the unaudited pro forma information
approximates actual share information at the effective date). No adjustments
to the unaudited pro forma combined condensed financial information have been
made to account for different possible results in connection with the
foregoing, as management believes that the impact on such information of the
varying outcomes, individually or in the aggregate, would not be materially
different.
The unaudited pro forma combined condensed balance sheet as of March 31,
1996 gives effect to the Merger as if it had occurred on March 31, 1996, and
combines the unaudited condensed consolidated balance sheet of Pure and the
unaudited condensed consolidated balance sheet of Atria as of March 31, 1996.
The unaudited pro forma combined condensed statements of operations combine
the historical consolidated statements of operations of Pure and Atria for
each of the years in the three-year period ended December 31, 1995 and the
three months ended March 31, 1996, in each case as if the Merger had occurred
at the beginning of the earliest period presented.
Pure and Atria estimate that they will incur direct transaction costs of
approximately $10.0 million associated with the Merger, which will be charged
to operations upon consummation of the Merger. In addition, it is expected
that following the Merger, the Combined Company will incur an additional
significant charge to operations, which is not currently reasonably estimable,
to reflect costs associated with integrating the two companies. There can be
no assurance that the Combined Company will not incur additional charges to
reflect costs associated with the Merger or that management will be successful
in its efforts to integrate the operations of the two companies.
Such unaudited pro forma combined condensed financial information is
presented for illustrative purposes only and is not necessarily indicative of
the financial position or results of operations that would have actually been
reported had the Merger occurred at the beginning of the periods presented,
nor is it necessarily indicative of future financial position or results of
operations. These unaudited pro forma combined condensed financial statements
are based upon the respective historical consolidated financial statements of
Pure and Atria and should be read in conjunction with the respective
historical consolidated financial statements and notes thereto of Pure and
Atria included elsewhere in this Prospectus/Joint Proxy Statement, and do not
incorporate, nor do they assume, any benefits from cost savings or synergies
of operations of the Combined Company.
60
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED BALANCE SHEET
MARCH 31, 1996
(IN THOUSANDS)
<TABLE>
<CAPTION>
PRO PRO
FORMA FORMA
PURE ATRIA ADJUSTMENTS COMBINED
------- ------- ----------- --------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents........... $ 8,229 $21,638 $ $ 29,867
Short-term investments.............. 31,775 23,157 54,932
Accounts receivable, net............ 14,532 5,236 19,768
Prepaid expenses and other current
assets............................. 1,838 2,586 4,424
------- ------- ------ --------
Total current assets.............. 56,374 52,617 108,991
Property and equipment, net........... 6,503 3,445 9,948
Other assets, net..................... 1,635 830 2,465
------- ------- ------ --------
Total assets...................... $64,512 $56,892 $ -- $121,404
======= ======= ====== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank borrowings
and capital lease obligations...... $ 257 $ -- $ $ 257
Accounts payable.................... 2,706 679 3,385
Accrued payroll and related ex-
penses............................. 2,365 2,390 4,755
Other accrued expenses.............. 1,663 6,321 7,984
Accrued integration and merger
costs.............................. 426 -- 10,000 2(a) 10,426
Deferred revenue.................... 11,286 6,264 17,550
Income taxes........................ 3,011 1,836 (3,400)2(a) 1,447
------- ------- ------ --------
Total current liabilities......... 21,714 17,490 6,600 45,804
------- ------- ------ --------
Deferred revenue and other............ -- 553 553
------- ------- ------ --------
Total liabilities..................... 21,714 18,043 6,600 46,357
------- ------- ------ --------
Stockholders' equity:
Common stock........................ 2 143 (141) 4
Additional paid-in capital.......... 49,585 30,390 141 80,116
Cumulative translation adjustments.. (167) 8 (159)
Retained earnings (accumulated defi-
cit)............................... (6,622) 8,308 (6,600)2(a) (4,914)
------- ------- ------ --------
Total stockholders' equity........ 42,798 38,849 (6,600) 75,047
------- ------- ------ --------
Total liabilities and stockhold-
ers' equity...................... $64,512 $56,892 $ -- $121,404
======= ======= ====== ========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
61
<PAGE>
UNAUDITED PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ --------------------
1993 1994 1995 1995 1996
------- ------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Revenues......................... $21,187 $42,758 $ 84,185 $ 16,265 $ 28,630
Cost of revenues................. 1,849 3,982 7,865 1,395 2,814
------- ------- -------- --------- --------
Gross margin................. 19,338 38,776 76,320 14,870 25,816
------- ------- -------- --------- --------
Operating expenses:
Sales and marketing............ 10,298 18,934 39,063 7,583 13,227
Research and development....... 5,101 9,465 15,468 3,170 5,185
General and administrative..... 2,349 4,450 7,791 1,538 2,335
In-process research and devel-
opment........................ -- -- 11,600 10,100 --
Merger and integration......... -- -- 2,961 -- --
------- ------- -------- --------- --------
Total operating expenses..... 17,748 32,849 76,883 22,391 20,747
------- ------- -------- --------- --------
Income (loss) from operations.... 1,590 5,927 (563) (7,521) 5,069
Other income..................... 139 835 2,404 427 761
------- ------- -------- --------- --------
Income (loss) before income
taxes....................... 1,729 6,762 1,841 (7,094) 5,830
Income taxes..................... 83 1,335 5,363 738 1,979
------- ------- -------- --------- --------
Net income (loss)............ $ 1,646 $ 5,427 $(3,522) $ (7,832) $ 3,851
======= ======= ======== ========= ========
Net income (loss) per share...... $ 0.09
========
Pro forma net income (loss) per
share:
Income (loss) before income
taxes, as reported............ $ 6,762 $ 1,841 $ (7,094)
Pro forma income taxes......... 1,630 6,087 959
------- -------- ---------
Pro forma net income (loss).... $ 5,132 $ (4,246) $ (8,053)
------- -------- ---------
Pro forma net income (loss) per
share........................... $ 0.14 $ (0.11) $ (0.22)
======= ======== =========
Shares used in per share computa-
tions........................... 36,394 37,600 36,278 43,399
======= ======== ========= ========
</TABLE>
See accompanying notes to pro forma combined condensed financial statements.
62
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS
(1) PRO FORMA BASIS OF PRESENTATION
These unaudited pro forma combined financial statements reflect the issuance
of 20,055,386 shares of Pure Common Stock in exchange for an aggregate of
14,278,889 shares of Atria Common Stock (outstanding as of March 31, 1996) in
connection with the Merger, based on the Exchange Ratio of 1.544615 set forth
in the following table.
<TABLE>
<S> <C>
Atria Common Stock outstanding as of March 31, 1996............. 14,278,889
Exchange Ratio.................................................. 1.544615:1.0
-------------
Number of shares of Pure Common Stock exchanged................. 20,055,386
Number of shares of Pure Common Stock outstanding as of March
31, 1996....................................................... 17,537,811
-------------
Number of shares of Combined Company Common Stock outstanding
after completion of the Merger................................. 39,593,197
=============
</TABLE>
The actual number of shares of Pure common stock to be issued will be
determined at the Effective Time based on the number of shares of Atria Common
Stock outstanding on that date.
(2) PRO FORMA COMBINED BALANCE SHEET
(a) Pure and Atria estimate they will incur direct transaction costs of
approximately $10 million associated with the Merger consisting of transaction
fees for investment bankers, attorneys, accountants, financial printing and
other related charges. These nonrecurring transaction costs will be charged to
operations upon consummation of the Merger.
(b) It is expected that following the Merger, the Combined Company will
incur an additional significant charge to operations, which is not currently
reasonably estimable, to reflect costs associated with integrating the two
companies. This charge has not been reflected in the pro forma condensed
balance sheet. There can be no assurance that the Combined Company will not
incur additional charges to reflect costs associated with the Merger or that
management will be successful in its efforts to integrate the operations of
the two companies.
The direct transaction costs and additional significant charge are not
reflected in the pro forma combined condensed statements of operations.
63
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED CONDENSED FINANCIAL STATEMENTS--
(CONTINUED)
(3) PRO FORMA COMBINED CONDENSED STATEMENTS OF OPERATIONS
The following is a summary of the historical results of operations of Pure
and Atria and their pro forma combined amounts to reflect the Merger as if it
were effected for all periods presented below:
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- ----------------
1993 1994 1995 1995 1996
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
TOTAL REVENUES:
Pure............................... $11,925 $21,993 $44,042 $ 8,245 $15,128
Atria.............................. 9,262 20,765 40,143 8,020 13,502
------- ------- ------- ------- -------
$21,187 $42,758 $84,185 $16,265 $28,630
======= ======= ======= ======= =======
COST OF REVENUES:
Pure............................... $ 1,208 $ 2,017 $ 3,750 $ 599 $ 1,292
Atria.............................. 641 1,965 4,115 796 1,522
------- ------- ------- ------- -------
$ 1,849 $ 3,982 $ 7,865 $ 1,395 $ 2,814
======= ======= ======= ======= =======
SALES AND MARKETING:
Pure............................... $ 5,640 $ 9,493 $21,315 $ 4,020 $ 7,508
Atria.............................. 4,658 9,441 17,748 3,563 5,719
------- ------- ------- ------- -------
$10,298 $18,934 $39,063 $ 7,583 $13,227
======= ======= ======= ======= =======
RESEARCH AND DEVELOPMENT:
Pure............................... $ 2,638 $ 5,204 $ 7,494 $ 1,598 $ 2,631
Atria.............................. 2,463 4,261 7,974 1,572 2,554
------- ------- ------- ------- -------
$ 5,101 $ 9,465 $15,468 $ 3,170 $ 5,185
======= ======= ======= ======= =======
GENERAL AND ADMINISTRATIVE:
Pure............................... $ 1,558 $ 2,799 $ 4,790 $ 938 $ 1,367
Atria.............................. 791 1,651 3,001 600 968
------- ------- ------- ------- -------
$ 2,349 $ 4,450 $ 7,791 $ 1,538 $ 2,335
======= ======= ======= ======= =======
IN-PROCESS RESEARCH AND DEVELOPMENT:
Pure............................... $ -- $ -- $10,100 $10,100 $ --
Atria.............................. -- -- 1,500 -- --
------- ------- ------- ------- -------
$ -- $ -- $11,600 $10,100 $ --
======= ======= ======= ======= =======
MERGER AND INTEGRATION:
Pure............................... $ -- $ -- $ 2,961 $ -- $ --
Atria.............................. -- -- -- -- --
------- ------- ------- ------- -------
$ -- $ -- $ 2,961 $ -- $ --
======= ======= ======= ======= =======
OTHER INCOME:
Pure............................... $ 20 $ 160 $ 818 $ 122 $ 307
Atria.............................. 119 675 1,586 305 454
------- ------- ------- ------- -------
$ 139 $ 835 $ 2,404 $ 427 $ 761
======= ======= ======= ======= =======
INCOME TAXES:
Pure............................... $ 73 $ 593 $ 3,145 $ 200 $ 862
Atria.............................. 10 742 2,218 538 1,117
------- ------- ------- ------- -------
$ 83 $ 1,335 $ 5,363 $ 738 $ 1,979
======= ======= ======= ======= =======
NET INCOME (LOSS):
Pure............................... $ 828 $ 2,047 $(8,695) $(9,088) $ 1,775
Atria.............................. 818 3,380 5,173 1,256 2,076
------- ------- ------- ------- -------
$ 1,646 $ 5,427 $(3,522) $(7,832) $ 3,851
======= ======= ======= ======= =======
</TABLE>
64
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
CONDENSED FINANCIAL STATEMENTS--(CONTINUED)
(4) PRO FORMA NET INCOME (LOSS) PER SHARE
On November 21, 1995, Pure acquired Performix. The acquisition was accounted
for as a pooling of interests. Pro forma net income (loss) includes a
provision for income taxes as if Performix had been a C Corporation, fully
subject to federal and state income taxes. Prior to its acquisition by Pure,
Performix had elected S Corporation status for income tax purposes and,
consequently, historical results as they relate to Performix do not include a
provision for income taxes.
The following table reconciles the number of shares used in the pro forma
per share computations to the numbers set forth in Pure's and Atria's
historical statements of operations:
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED ENDED
DECEMBER 31, MARCH 31,
------------------- --------------------
1994 1995 1995 1996
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
SHARES USED IN PER SHARE CALCULATION
(IN THOUSANDS, EXCEPT THE
APPLICABLE RATIO):
Historical -- Pure................ 15,838 15,784 14,505 19,905
--------- --------- --------- ---------
Historical -- Atria............... 13,308 15,006 14,932 15,210
Options to purchase common
stock(1)....................... -- (882) (836) --
--------- --------- --------- ---------
13,308 14,124 14,096 15,210
Exchange Ratio.................. 1.544615 1.544615 1.544615 1.544615
--------- --------- --------- ---------
20,556 21,816 21,773 23,494
--------- --------- --------- ---------
Pro forma combined.............. 36,394 37,600 36,278 43,399
========= ========= ========= =========
</TABLE>
(1) To exclude common stock equivalents arising from options to purchase Atria
Common Stock during periods where they would be antidilutive on a pro forma
combined basis.
COMBINED COMPANY FOLLOWING THE MERGER
The Atria Board and the Pure Board have determined that the Combined Company
would have the potential to realize long-term improved operating and financial
results and a stronger competitive position. Pure and Atria believe that there
is a strategic fit among software quality, SCM and CRM software systems and
that, in order to succeed in the market served by these systems, suppliers
will need to expand their product offerings to address a wider range of
customer requirements. Pure and Atria also believe that the Merger will
provide greater opportunities to develop business relationships, license
technology, and engage in other strategic combinations and transactions
involving their respective products and technologies than would be the case if
the companies otherwise independently engaged in these activities. In this
way, the Merger could provide the Combined Company with the range of products
and services required to play a defining role in the market for software
quality, SCM, CRM and other software development management products.
However, these anticipated benefits will depend in part on whether the
companies' operations can be integrated in an efficient and effective manner.
There can be no assurance that this will occur. The combination of the
companies will require, among other things, integration of the companies'
respective product offerings and coordination of the companies' sales,
marketing and research and development efforts. Historically, the sales models
used by Pure's and Atria's sales organizations have differed significantly,
although each employs direct and telesales personnel. As compared to Atria,
Pure's product line has traditionally experienced a shorter sales cycle and
its sales model has relied more heavily on telesales. There can be no
assurance that the Combined Company will be able to take full advantage of the
combined sales force's efforts. Pure and Atria also use a
65
<PAGE>
number of distribution channels in the various geographic markets in which
their respective products are sold and there can be no assurance that channel
conflict will not develop following the Merger as the Combined Company
attempts to integrate these channels.
The success of the integration process will be significantly influenced by
the ability of the Combined Company to attract and retain key management,
sales, marketing and research and development personnel. There is no assurance
that the foregoing will be accomplished smoothly or successfully. The
integration of operations following the Merger will require the dedication of
management resources, which may distract attention from the day-to-day
operations of the Combined Company. The inability of management to
successfully integrate the operations of the companies could have a material
adverse effect upon the business, operating results and financial condition of
the Combined Company. See "Risk Factors" for additional risks associated with
the Merger.
66
<PAGE>
ADDITIONAL MATTERS BEING SUBMITTED TO A VOTE OF ONLY PURE STOCKHOLDERS
PROPOSAL TWO--AMENDMENT TO RESTATED CERTIFICATE OF INCORPORATION
Pure's Certificate provides that the name of Pure is "Pure Software Inc."
Pursuant to the Agreement, Pure has agreed to propose and recommend that the
Certificate be amended at the Effective Time to change Pure's name to "Pure
Atria Corporation." The Board of Directors of Pure has authorized such
amendment of the Certificate at the Effective Time, subject to stockholder
approval. Under the proposed amendment, subject to and upon consummation of
the Merger, Article I of the Certificate would be amended and restated to read
as follows:
"The name of the corporation is Pure Atria Corporation."
The Pure stockholders are being asked to approve such amendment. The
affirmative vote of the holders of a majority of the shares of Pure Common
Stock issued and outstanding on the Pure Record Date will be required to
approve the amendment of the Certificate. The effect of an abstention is the
same as that of a vote against the proposal.
THE PURE BOARD UNANIMOUSLY RECOMMENDS THAT THE PURE STOCKHOLDERS VOTE "FOR"
THE AMENDMENT OF THE PURE RESTATED CERTIFICATE OF INCORPORATION TO CHANGE THE
CORPORATE NAME OF PURE TO "PURE ATRIA CORPORATION" SUBJECT TO AND UPON
CONSUMMATION OF THE MERGER.
PROPOSAL THREE--AMENDMENT OF THE 1995 STOCK OPTION PLAN
Pure's 1995 Stock Option Plan (the "Pure Stock Option Plan") was initially
adopted by the Pure Board on May 16, 1995 and initially approved by the Pure
stockholders on July 17, 1995. The Pure Stock Option Plan authorizes the grant
of stock to employees, non-employee directors and consultants of the Combined
Company. A total of 3,449,329 shares of Pure Common Stock, plus an additional
number of shares on the first trading day of the 1996, 1997 and 1998 calendar
years equal to 5% of the number of shares of Pure Common Stock outstanding on
the last day of the preceding calendar year were originally reserved for
issuance under the Pure Stock Option Plan. Options granted under the Pure
Stock Option Plan may be either "incentive stock options" as defined in
Section 422 of the Code, or nonstatutory stock options, as determined by the
Administrator. Stock appreciation rights may also be granted under the Pure
Stock Option Plan.
As of July 1, 1996, options to purchase 3,224,433 shares of Pure Common
Stock granted under the Pure Stock Option Plan were outstanding (including
those assumed from the Pure 1992 Stock Option Plan), 662,667 shares remained
available for future option grants and options covering 420,071 shares had
been exercised.
On June 6, 1996, the Pure Board approved a further increase of 2,200,000
shares (approximately 5% of Pure Common Stock to be outstanding or issuable
following the Merger, based on the capitalization of Atria and Pure on July 1,
1996) for issuance under the Pure Stock Option Plan, which, if approved by the
Pure stockholders, would increase the total shares reserved for issuance under
the Pure Stock Option Plan since its inception and as of the date immediately
following approval of this proposal to 6,506,781 shares.
Pure stockholders are requested to approve this amendment to the Pure Stock
Option Plan. The Pure Board believes this increase is in the best interests of
the Combined Company following the Merger, as the increase can contribute to
ensuring that the Combined Company will have an adequate reserve of shares
under the Pure Stock Option Plan, providing additional long term incentives to
help retain key personnel in the Combined Company following the Merger and in
light of the acceleration of Atria options and lapse of repurchase rights
pursuant to the terms of the Atria Stock Option Plans and as a result of the
Merger.
The affirmative vote of a majority of the votes cast with regard to this
proposal will be required to approve the amendment to the Pure Stock Option
Plan. Abstentions will be counted toward the number of shares represented and
voting at the Pure Meeting.
THE PURE BOARD UNANIMOUSLY RECOMMENDS A VOTE "FOR" THE AMENDMENT OF THE PURE
STOCK OPTION PLAN.
67
<PAGE>
General
The Pure Stock Option Plan was initially adopted by the Pure Board on May
16, 1995 and initially approved by the stockholders on July 17, 1995. The Pure
Stock Option Plan authorizes the grant of stock to employees, non-employee
directors and consultants of Pure. A total of 3,449,329 shares of Pure Common
Stock, plus an additional number of shares on the first trading day of the
1996, 1997 and 1998 calendar years equal to 5% of the number of shares of Pure
Common Stock outstanding on the last day of the preceding calendar year were
originally reserved for issuance under the Pure Stock Option Plan. Options
granted under the Pure Stock Option Plan may be either "incentive stock
options" as defined in Section 422 of the Code, or nonstatutory stock options,
as determined by the Administrator. Stock appreciation rights may also be
granted under the Pure Stock Option Plan.
Purpose
The general purpose of the Pure Stock Option Plan is to attract and retain
the best available personnel, to provide additional incentive to employees,
non-employee directors and consultants of Pure and to promote the success of
Pure's business.
Administration
The primary committee administers the Pure Stock Option Plan for all
employees subject to Section 16 of the Exchange Act. The primary committee
consists of two or more non-employee directors appointed by the Pure Board.
With respect to all other participants in the Pure Stock Option Plan, the
Board of Directors may either administer the Pure Stock Option Plan directly
or appoint a committee from among its members, including the primary
committee, to administer the Pure Stock Option Plan (collectively, the
"Administrator"). Subject to the other provisions of the Pure Stock Option
Plan, the Administrator has the authority to: (i) grant options and rights;
(ii) interpret the Pure Stock Option Plan; (iii) select the persons to whom
options and rights are to be granted; (iv) determine the number of shares to
be made subject to each option and right; (v) prescribe, amend and rescind
rules and regulations relating to the Pure Stock Option Plan; (vi) prescribe
the terms and conditions of each option and right (including the exercise
price, whether an option will be classified as an incentive stock option or a
nonstatutory stock option and the provisions of the stock option or stock
purchase agreement to be entered into between Pure and the grantee); and (vii)
to make all other determinations deemed necessary or advisable for the
administration of the Pure Stock Option Plan. All decisions, interpretations
and other actions of the Administrator shall be final and binding on all
holders of options and on all persons deriving their rights therefrom.
Notwithstanding the foregoing, administration of the automatic option grant
program (described below) for Pure's non-employee directors shall be self-
executing, and the Administrator shall not possess any discretionary functions
with respect to option grants made thereunder.
Eligibility
The Pure Stock Option Plan provides that options and stock appreciation
rights may be granted to Pure's employees and consultants (as such terms are
defined in the Pure Stock Option Plan). Incentive stock options may be granted
only to employees. Non-employee directors may only receive nonstatutory stock
options under the automatic option grant program.
Section 162(m) Limitations
Section 162(m) of the Code limits the deductibility of compensation paid to
certain executive officers of Pure. To maximize Pure's deduction attributable
to options granted to such persons, the Pure Stock Option Plan requires that
no participant may receive options or separately exercisable stock
appreciation rights for more than 500,000 shares of Pure Common Stock over the
term of the Pure Stock Option Plan.
Terms and Conditions of Discretionary Options
Each option granted under the Pure Stock Option Plan is evidenced by a
written stock agreement between the optionee and Pure and is subject to the
following terms and conditions:
68
<PAGE>
(a) Exercise Price. The Administrator determines the exercise price of an
option to purchase shares of Pure Common Stock at the time the option is
granted. The exercise price of an incentive stock option must not be less
than 100% of the fair market value of the Pure Common Stock on the date the
option is granted and the exercise price of a nonstatutory stock option
must not be less than 85% of the fair market value of the Pure Common Stock
on the date the option is granted; provided, however, that the exercise
price of an incentive stock option granted to an optionee who owns more
than 10% of the combined voting power of all classes of outstanding stock
of Pure (a "10% Stockholder") must be at least 110% of the fair market
value of the Pure Common Stock on the date of grant. Generally, the fair
market value shall be the closing sales price for such stock on the date of
determination, as quoted on Nasdaq and as reported in The Wall Street
Journal.
(b) Form of Consideration. The means of payment for shares issued upon
exercise of an option is specified in each option agreement and generally
may be made by cash, check, promissory note, certain other shares of Pure
Common Stock owned by the optionee, delivery of an exercise notice together
with irrevocable instructions to a broker to deliver the exercise price to
Pure from the sale or loan proceeds (a "cashless exercise") or any
combination of the foregoing methods.
(c) Term of the Option. Each stock option agreement will specify the type
of option, the term of the option and the date when the option is to become
exercisable. However, the term of an option granted under the Pure Stock
Option Plan shall be no longer than ten years from the date of grant;
provided, however, that in the case of an incentive stock option granted to
a 10% Stockholder, the term of an incentive stock option shall be no longer
than five years from the date of grant.
(d) Termination of Employment or Consulting Relationship. Except as
provided below, if an optionee's employment or consultancy terminates for
any reason (other than death or permanent disability), the optionee may
exercise his or her option, but only within 90 days (or such other period
of time as is determined by the Administrator at the time of grant) from
the date of such termination, and only to the extent that the optionee was
entitled to exercise it at the date of such termination (and in no event
later than the expiration of the term of such option as set forth in the
option agreement). To the extent that the optionee was not entitled to
exercise the option at the date of such termination, and to the extent that
the optionee does not exercise such option (to the extent otherwise so
entitled) within the time permitted, the option shall terminate.
(e) Permanent Disability and Death. If an optionee's employment or
consultancy with Pure terminates as a result of disability (as defined in
Section 22(e)(3) of the Code) or death, then all of his or her options
under the Pure Stock Option Plan shall expire six months after the date of
such termination (or such other period of time as determined by the
Administrator at the time of grant), but in no event later than the
expiration of the term of such option as set forth in the option agreement.
The optionee, executor or other legal representative of the optionee may
exercise all or part of his or her option at any time before such
expiration date to the extent that such option was exercisable at the time
of termination of employment. To the extent that the optionee was not
entitled to exercise the option at the date of such termination, and to the
extent that the optionee does not exercise such option (to the extent
otherwise so entitled) within the time permitted, the option shall
terminate.
(f) Misconduct. If an optionee's employment or consultancy is terminated
as a result of misconduct, any option held by such optionee shall
immediately terminate. Misconduct is defined in the Pure Stock Option Plan
and includes, but is not limited to: (i) acts of fraud, embezzlement or
dishonesty; (ii) unauthorized use or disclosure of confidential information
or trade secrets of Pure; or (iii) other intentional acts of misconduct by
the optionee harmful to Pure or any parent or subsidiary of Pure.
(g) Limitations. To the extent that the aggregate fair market value of
the shares of Pure Common Stock subject to an incentive stock option that
becomes exercisable for the first time during any calendar year exceeds
$100,000, such excess shall be treated as nonstatutory stock option.
Nontransferability of Options and Stock Appreciation Rights
During a participant's lifetime, his or her options and rights shall be
exercisable only by the participant and shall not be transferable other than
by will or laws of descent and distribution; provided, however, that
69
<PAGE>
nonstatutory stock options may be assigned pursuant to a Qualified Domestic
Relations Order (as such term is defined by the Code).
Stock Appreciation Rights
A stock appreciation right granted in connection with an option entitles the
optionee to exercise the stock appreciation right by surrendering to Pure the
corresponding and unexercised portion of the related option. In exchange, the
optionee receives from Pure an amount equal to the excess of the fair market
value of the Pure Common Stock covered by the surrendered portion of such
option on the date of surrender, over the exercise price. When a stock
appreciation right granted in connection with an option is exercised, the
related option, to the extent surrendered, ceases to be exercisable. A stock
appreciation right granted in connection with an option remains exercisable
until, and expires no later than, the date on which the related option ceases
to be exercisable or expires.
With respect to employees subject to Section 16 of the Exchange Act, the
Administrator may grant limited stock appreciation rights in connection with
an option. The limited stock appreciation rights may only be exercised upon
the occurrence of a hostile take-over (as such term is defined by the Pure
Stock Option Plan). In the event of a hostile take-over, each limited stock
appreciation right that has been held for at least six months may be exercised
for thirty days after the hostile take-over for a cash distribution equal to
the higher of (i) the take-over price for the number of shares subject to the
related option, or (ii) the exercise price of the related option.
As determined by the Administrator, Pure's obligation arising upon the
exercise of a stock appreciation right may be paid in Pure Common Stock, cash
or a combination thereof.
Automatic Grant Program for Non-Employee Directors
Options granted to non-employee directors may only be granted pursuant to
the automatic grant provisions of the Pure Stock Option Plan.
Grant of Options
The Pure Stock Option Plan provides for grants of options to be made to non-
employee directors as follows:
(a) Each non-employee director is automatically granted a nonstatutory
stock option to purchase 15,000 shares of Pure Common Stock on the date on
which such individual first becomes a director (the "First Option"); and
(b) On the date of the annual stockholder's meeting, each director who
has been a director for at least six (6) months is automatically granted a
nonstatutory stock option to purchase 5,000 shares of Pure Common Stock
(the "Subsequent Option").
Terms and Conditions of Options
Each option granted to a non-employee director is subject to a written stock
option agreement between Pure and the optionee. The terms and conditions of
such grants are listed below:
(a) Exercise and Vesting of Options. The First and Subsequent Options are
fully exercisable at the time of grant, subject to repurchase by Pure upon
the optionee's termination of service before vesting. The First and
Subsequent Options vest as to 1/4th of the shares subject to the option at
the end of each year following their date of grant. Each option has a term
of ten years from the date of grant, subject to earlier termination if the
optionee ends his or her status as a non-employee director.
(b) Exercise Price. The exercise price of options granted to non-employee
directors is 100% of the fair market value of the Pure Common Stock on the
date the option is granted. Generally, the fair market value of the Pure
Common Stock is the closing price on the relevant date as quoted on Nasdaq
and as reported in the Wall Street Journal.
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(c) Termination of Directorship. If the optionee's status as a non-
employee director of Pure terminates for any reason, the optionee may, but
only within twelve months following the date of such termination, exercise
his or her option to the extent such option is then vested. However, if the
optionee terminates the optionee's status as a non-employee director
because of death or a permanent disability, the option will become fully
vested and exercisable. In no event may an option be exercised later than
the expiration of its ten year term. To the extent that the option is not
exercised within such twelve month period, the option shall terminate.
Stock Withholding; Stock Delivery
The Administrator may allow holders of nonstatutory stock options to satisfy
their withholding obligations by either electing: (i) to have that number of
shares of stock which would be received pursuant to the exercise of the option
or the vesting of the underlying shares to be withheld by Pure; or (ii) to
deliver to Pure the number of shares of stock required to be withheld.
Adjustment Upon Changes in Capitalization
Subject to any required action by the shareholders of Pure, in the event
that the stock of Pure is changed by reason of any stock split, reverse stock
split, stock dividend, combination, reclassification or other increase or
decrease in the number of issued shares of Pure Common Stock effected without
receipt of consideration by Pure, appropriate proportional adjustments will be
made in the number and class of shares of stock under the Pure Stock Option
Plan, the number of shares of stock subject to any option or right outstanding
under the Pure Stock Option Plan, and the exercise price of any such
outstanding option or right. Any such adjustment will be made by the
Administrator, whose determination shall be conclusive.
Merger or Asset Sale
In connection with the merger of Pure with or into another corporation, or
sale of all or substantially all of the assets of Pure, each outstanding
option shall be assumed or an equivalent option substituted by the successor
corporation. If the successor corporation does not assume the option or
substitute a substantially equivalent option, each option shall become fully
vested and exercisable for a period of time determined by the Administrator.
Any option assumed or substituted for will automatically become fully vested
and exercisable if an optionee's employment or consultancy is involuntarily
terminated within eighteen months after the merger or asset sale. Such option
will expire at the end of its term or one year after the involuntary
termination. In addition, any repurchase option on Pure Common Stock will
terminate and the stock will fully vest upon a merger or asset sale unless the
repurchase option is assigned to the successor corporation. Any such
repurchase option assigned in the merger or asset sale will end and the shares
subject to the repurchase option will immediately vest in full if the
optionee's employment or consultancy is involuntarily terminated within
eighteen months of the merger or asset sale. Notwithstanding the foregoing,
each outstanding option granted to a non-employee director pursuant to the
automatic grant provisions of the Pure Stock Option Plan shall become fully
vested before the effective date of merger or sale of assets, and shall
terminate after consummation of the transaction unless assumed by the
successor corporation.
Change in Control
The Administrator has the discretion to make any outstanding option fully or
partially vested and exercisable upon a change in control, or condition such
acceleration upon the involuntary termination of an optionee's employment or
consultancy following the change in control. A change in control means (i)
certain changes in the composition of the Pure Board over a three year period,
or (ii) the acquisition of more than half of the beneficial ownership of Pure
by any person or group accomplished by a tender offer which the Pure Board
does not recommend the stockholders accept. Notwithstanding the foregoing, in
the case of options granted to non-employee directors under the automatic
grant provision of the Pure Stock Option Plan, immediately prior to the
effective date of a change in control, each option will become fully vested
and exercisable and will remain fully vested and exercisable until the end of
the option term or the surrender of the option in a hostile take-over. In the
event of a hostile take-over, the optionee may exchange within a thirty day
period all options held for more than six months for cash equal to the greater
of (i) the total exercise price of the option, or (ii) the take-over price
offered for the number of shares covered by such option.
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Amendments, Suspensions and Termination of the Pure Stock Option Plan
The Administrator may amend, suspend or terminate the Pure Stock Option Plan
at any time; provided, however, that stockholder approval is required for any
amendment which would (i) materially increase the number of shares under the
Pure Stock Option Plan, (ii) materially increase the maximum number of shares
allowed for grants to any participant, (iii) materially change the class of
persons eligible to receive grants of options or rights, or (iv) materially
increase the benefits to participants under the Pure Stock Option Plan.
Notwithstanding the foregoing, the automatic grant provisions of the Pure
Stock Option Plan, and options outstanding under such provisions, shall not be
amended more than once every 6 months, except as required by tax or pension
laws. In any event, the Pure Stock Option Plan will terminate automatically in
2005.
FEDERAL INCOME TAX CONSEQUENCES
Incentive Stock Options
An optionee who is granted an incentive stock option does not recognize
taxable income at the time the option is granted or upon its exercise,
although the exercise may subject the optionee to the alternative minimum tax.
Upon a disposition of the shares more than two years after grant of the option
and one year after exercise of the option, any gain or loss is treated as
long-term capital gain or loss. If these holding periods are not satisfied,
the optionee recognizes ordinary income at the time of disposition 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. Any gain or loss recognized on such a premature disposition of
the shares in excess of the amount treated as ordinary income is treated as
long-term or short-term capital gain or loss, depending on the holding period.
A different rule for measuring ordinary income upon such a premature
disposition may apply if the optionee is also an officer, director, or 10%
Stockholder. Pure is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee.
Nonstatutory Stock Options
An optionee does not recognize any taxable income at the time he or she is
granted a nonstatutory stock option. Upon exercise, the optionee recognizes
taxable income generally measured by the excess of the then fair market value
of the shares over the exercise price. Any taxable income recognized in
connection with an option exercise by an employee of Pure is subject to tax
withholding by Pure. Pure is entitled to a deduction in the same amount as the
ordinary income recognized by the optionee. Upon a disposition of such shares
by the optionee, any difference between the sale price and the optionee's
exercise price, to the extent not recognized as taxable income as provided
above, is treated as long-term or short-term capital gain or loss, depending
on the holding period.
Stock Appreciation Rights
No income will be recognized by a recipient in connection with the grant of
a stock appreciation right. When the stock appreciation right is exercised,
the recipient generally will be required to include as taxable ordinary income
in the year of exercise an amount equal to the sum of the cash received and
the fair market value of any Pure Common Stock received on the exercise. In
the case of a recipient who is also an employee, any income recognized on
exercise of a stock appreciation right will constitute wages for which
withholding will be required. Pure will be entitled to a tax deduction in the
same amount. If the optionee receives Pure Common Stock upon the exercise of a
stock appreciation right, any gain or loss on the subsequent sale of such
stock will be treated in the same manner as discussed above under
"Nonstatutory Stock Options."
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME TAXATION
UPON OPTIONEES AND PURE WITH RESPECT TO THE GRANT AND EXERCISE OF OPTIONS AND
STOCK APPRECIATION RIGHTS UNDER THE PURE STOCK OPTION PLAN. IT DOES NOT
PURPORT TO BE COMPLETE, AND DOES NOT DISCUSS THE TAX CONSEQUENCES OF THE
EMPLOYEE'S OR CONSULTANT'S DEATH OR THE PROVISIONS OF THE INCOME TAX LAWS OF
ANY MUNICIPALITY, STATE OR FOREIGN COUNTRY IN WHICH THE EMPLOYEE OR CONSULTANT
MAY RESIDE.
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PURE
PURE BUSINESS
BACKGROUND
Pure develops, markets and supports a comprehensive, integrated suite of
software products that are designed to enable the production of reliable,
high-quality software and improve the software development process. Pure's
products, which include Purify, Quantify, PureCoverage, PureLink, PureDDTS,
PureTestExpert, PureVision and PurePerformix, comprise a family of tools for
use from initial software development through quality assurance and
deployment. These products are designed to improve software reliability,
reduce development and testing cost, shorten time-to-market and increase the
predictability of software development cycles.
Pure's products are sold directly by telephone and field sales personnel in
North America, Europe and Japan and through distributors in these and a
variety of other countries. Pure's products are used by information systems
departments that develop software to support internal operations, engineering
departments that develop software as a component of a manufactured product and
independent software vendors that develop software for resale.
RECENT DEVELOPMENTS
In September 1995, Pure began shipping PureVision 1.0, the first Internet-
based software program that automatically connects software users with
software suppliers. In the same month, Pure released PureDDTS 3.2, the first
new version of PureDDTS since the acquisition of QualTrak Corporation.
Additionally, Pure announced and delivered PureDDTS WebTracker, a Web-based
version of PureDDTS. PureDDTS WebTracker is the first commercial web-based
defect tracking system and it began shipping in December 1995.
Pure completed its acquisition of Performix, Inc., a provider of
client/server load and performance testing tools, in November 1995. This
acquisition broadened Pure's presence in the client/server testing market.
Most recently, Pure added two additional executives to its board of
directors: Thomas Jermoluk of Silicon Graphics, Inc. and Larry Sonsini of
Wilson Sonsini Goodrich & Rosati, Professional Corporation.
PRODUCTS
The complex and unpredictable nature of software development drives the
requirements for automated software quality tools. These tools must provide
early detection of problems in software, track and coordinate across multiple
groups and automate complex test suites. Pure Software's products are designed
to address the needs of developers, quality assurance professionals and
managers at each stage of the software development process.
PURIFY Locates a broad range of software errors related to
memory usage, enabling developers to identify errors
earlier in the development process.
QUANTIFY Locates performance bottlenecks, which lets developers
remove software instructions that slow overall operation.
PURECOVERAGE Identifies which lines of code have been tested, ensuring
that each software application is fully tested before
release.
PURELINK
Accelerates the software build process by reducing link
time by relinking only the portions of a software program
that have changed since the last link.
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PUREDDTS
Tracks and records critical defect information throughout
the product life-cycle to help companies efficiently
manage their quality processes.
PURETESTEXPERT Automates the management, organization and execution of
software tests to help companies manage their quality
assurance procedures.
PUREVISION Enables software development teams to automatically
capture data from software users.
PUREPERFORMIX Load-tests client/server applications to ensure multi-
user quality, performance and scalability.
SALES AND MARKETING
Pure sells its products to software development and quality assurance
professionals within a variety of organizations, such as telecommunications,
aerospace, financial services and transportation companies, independent
software vendors, and consultants.
Pure markets and distributes its products worldwide through a direct sales
force, which is a combination of telesales, field sales and sales engineers,
and, to a lesser extent, through indirect channels such as Value Added
Resellers ("VARs"), System Integrators ("SIs") and distributors. As of March
31, 1996, Pure had 119 sales people worldwide, of which 78 were located in the
U.S. and 41 were located overseas. To support its worldwide sales force, Pure
conducts a variety of programs intended to market and position its suite of
software quality products. These programs include advertising, direct mail,
telemarketing, public relations, product seminars, electronic newsletters, web
pages and training sessions for sales personnel. Promotional offers and
bundles are designed to convert individual sales into multi-product sales.
In North America, Pure currently markets and distributes its products
primarily through its direct sales force. Pure is in the process of expanding
its marketing and sales organization and diversifying distribution in North
America to include VARs and SIs. Pure has operations in both Europe and Japan.
Pure's European headquarters is in The Netherlands, with additional sales
offices located in France, Germany and the United Kingdom. Pure also has a
Japanese subsidiary, which is based in Tokyo, and sells product both directly
and through business partners throughout Japan. In addition, Pure works with
distribution partners in Europe and the Asia Pacific region. Pure intends to
diversify its sales efforts in international markets by expanding its direct
sales force, adding distributors and pursuing strategic relationships.
For 1993, 1994 and 1995, international sales represented 21%, 20% and 30%,
respectively, of Pure's total revenues and for the first quarter of 1995 and
1996, international sales represented 25% and 32%, respectively, of Pure's
total revenues. Historically, Pure has used indirect sales channels to sell
its products internationally. In 1993 and 1994, sales of products through a
European distributor represented 12% and 7%, respectively, of total revenues.
Pure's agreement with this distributor was terminated in 1994 when Pure
established operations in Europe.
Over the last year, Pure has made substantial investments in developing and
expanding international markets for its products. This expansion has required
and will continue to require significant management attention and financial
resources and could adversely affect Pure's operating margins. In order to
successfully expand international sales in subsequent periods, Pure must
establish additional foreign operations, hire additional personnel and recruit
additional international resellers. To the extent that Pure is unable to do so
in a timely and cost-effective manner, Pure's growth in international sales
will be limited, and Pure's business, operating results and financial
condition could be materially adversely affected. In addition, there can be no
assurance that Pure will be able to maintain or increase international market
demand for Pure's products.
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Pure's international sales are currently denominated in either U.S. or local
currency and Pure does not currently engage in any hedging activities.
Although exposure to currency fluctuations to date has been insignificant, to
the extent that international sales denominated in foreign currencies
increase, Pure's operating results could be adversely affected. Additional
risks inherent in Pure's international business activities include unexpected
changes in regulatory requirements, tariffs and other trade barriers, costs of
localizing products for foreign countries, lack of acceptance of localized
products in foreign countries, longer accounts receivable payment cycles,
difficulties in collecting payment, difficulties in managing international
operations, potentially adverse tax consequences including repatriation of
earnings, reduced protection for intellectual property and the burdens of
complying with a wide variety of foreign laws. There can be no assurance that
such factors will not have a material adverse effect on Pure's future
international sales and, consequently, Pure's business, operating results and
financial condition.
CUSTOMER SUPPORT AND UPGRADES
Pure believes that a high level of customer support is important to the
successful marketing and sale of Pure's products. A majority of Pure's
customers currently have maintenance agreements that entitle them to product
upgrades, as well as technical support and training. To address technical
support issues, Pure has established support by telephone, e-mail and
facsimile. Pure also offers optional training on all products on a regular
basis. Other training, usually provided at the customer site, is available on
request. Pure also provides consulting services to assist customers in the
customization and integration of Pure's products.
RESEARCH AND DEVELOPMENT
Pure believes that its future success will depend in large part on its
ability to maintain and enhance its current product line, develop new
products, maintain technological competitiveness and meet an expanding range
of customer requirements. Pure's research and development organization is
divided into product development teams consisting of development engineers,
quality assurance professionals and technical writers. In addition to product
development, Pure's research and development organization is responsible for
exploring new directions and applications of the core technologies, migrating
new technologies into the existing product lines and maintaining strong
relationships outside Pure both within industry and in academia. Pure uses all
of its own products to improve software quality and to improve its software
development process. In addition, Pure has an internal tools group that
develops new tools for improving software quality and process automation for
internal use.
Since inception, Pure has made substantial investments in product
development and related activities. Currently, over one-third of research and
development resources are dedicated to development of new products. Pure is
also in the process of porting certain of its existing products to other Unix
platforms. Further, Pure recognizes that substantial development activity
occurs on platforms other than Unix, particularly Windows 95 and Windows NT,
and is dedicating significant engineering resources to address the needs of
developers on those platforms.
Software products as complex as Pure's are subject to delay and there can be
no assurance that Pure will not encounter difficulties that could delay or
prevent the successful and timely development, introduction and marketing of
these products. In addition, because the market for these tools is an emerging
market, there can be no assurance that these products will achieve any
significant degree of market acceptance. Failure to release these products in
a timely manner and on a cost-effective basis, or failure of these products to
achieve any significant degree of market acceptance, could have a material
adverse effect upon the business, operating results and financial condition of
Pure.
Pure expects to continue to enhance its existing products, develop new
products and augment its product base through acquisitions. As of March 31,
1996, Pure's research and development organization consisted of 76
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full-time employees. During 1993, 1994 and 1995, research and development
expenses were $2.6 million, $5.2 million and $7.5 million, or 22%, 24% and 17%
of total revenues, respectively. During the first quarter of fiscal 1995 and
fiscal 1996, research and development expenses were $1.6 million and $2.6
million, or 19.3% and 17.2% of total revenues, respectively. Historically,
Pure has expensed its product costs as incurred. Pure anticipates that it will
continue to commit substantial resources to research and development in the
future.
COMPETITION
The market for automated software quality tools is highly competitive and
subject to rapid technological change. Pure faces direct competition with
respect to a number of its individual products. For example, CenterLine's
TestCenter product competes with Purify and PureCoverage, and AIB's Sentinel
product also competes with Purify. With the acquisition of Performix, Pure
Software competes directly with GUI testing vendors, including Mercury
Interactive Corporation and SQA, Inc., in the area of load testing.
In addition to direct competition, Pure faces indirect competition from its
existing and potential customers, many of which internally design and develop
their own software quality tools for their particular needs and therefore may
be reluctant to purchase products offered by independent vendors such as Pure.
As a result, Pure must educate prospective customers as to the advantages of
Pure's products versus internally developed software quality systems. There
can be no assurance that Pure will be able to compete effectively.
Pure expects additional competition from other established and emerging
companies. Some system vendors, such as Sun Microsystems, Inc. ("Sun") already
have products, such as Workshop, that provide features that could compete with
Pure's products if offered on a stand-alone basis. There can be no assurance
that Sun, which has a license to Pure's patents, would not introduce products
that compete with Pure. Many of Pure's current and potential competitors have
longer operating histories, significantly greater financial, technical and
marketing resources, greater name recognition and a larger installed customer
base than Pure. In addition, any of these established competitors may be able
to respond more quickly to new or emerging technologies and changes in
customer requirements, and to devote greater resources to the development,
promotion and sale of their products than Pure. Furthermore, because there are
relatively low barriers to entry in the software industry, Pure expects
additional competition from other established and emerging companies, which
may choose to enter the market by developing products that compete with those
offered by Pure or by acquiring companies, businesses, products or product
lines that compete with Pure. For example, Platinum Technology, Inc. recently
acquired AIB Software Inc., and now offers products Memory Advisor and Test
Advisor (formerly Sentinel I and Sentinel II), that compete with Purify. There
can be no assurance that Pure's current or potential competitors will not
develop or acquire products comparable or superior to those developed by Pure,
combine or merge to form significant competitors or adapt more quickly than
Pure to new technologies, evolving industry trends and changing customer
requirements. Increased competition could result in price reductions, reduced
margins or loss of market share, any of which could materially and adversely
affect Pure's business, operating results and financial condition. There can
be no assurance that Pure will be able to compete successfully against current
and future competitors or that competitive pressures faced by Pure will not
have a material adverse effect on its business, operating results and
financial condition. If Pure is unable to compete successfully against current
and future competitors, Pure's business, operating results and financial
condition will be materially and adversely affected. In addition, competitors
and potential competitors may resort to litigation as a means of competition.
Pure competes on the basis of certain factors, including product quality,
first-to-market product capabilities, product performance, ease of use and
customer support. Pure believes that it currently competes favorably overall
with respect to these factors, particularly product quality and customer
support.
PATENTS AND PROPRIETARY RIGHTS
Pure relies on a combination of patent, copyright and trademark laws, trade
secrets, confidentiality procedures and contractual provisions to protect its
technology. Pure also believes that factors such as the technological and
creative skills of its personnel, new product developments, frequent product
enhancements,
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name recognition and reliable product maintenance are essential to
establishing and maintaining a technology leadership position.
Pure currently holds two U.S. patents and has additional pending patent
applications on file at the U.S. Patent and Trademark Office. Pure also has
corresponding foreign patent applications pending. Pure's issued patents
expire in the year 2010. There can be no assurance that any patent owned by
Pure will not be invalidated, circumvented or challenged, that the rights
granted thereunder will provide competitive advantages to Pure or that any of
Pure's pending or future patent applications, whether or not being currently
challenged by applicable governmental patent examiners, will be issued with
the scope of the claims sought by Pure, if at all. Furthermore, there can be
no assurance that others will not develop technologies that are similar or
superior to Pure's technology or design around the patents owned by Pure.
The source code for Pure's proprietary software is protected both as a trade
secret and as an unpublished copyrighted work. Despite these precautions, it
may be possible for a third party to otherwise obtain and use Pure's products
or technology without authorization or to develop similar technology
independently. In addition, effective copyright and trade secret protection
may be unavailable or limited in certain foreign countries. Pure generally
enters into confidentiality or license agreements with its employees,
distributors and customers and limits access to and distribution of its
software, documentation and other proprietary information. Nevertheless, there
can be no assurance that the steps taken by Pure will prevent misappropriation
of its technology.
Despite Pure's efforts to protect its proprietary rights, unauthorized
parties may attempt to copy aspects of Pure's products or to obtain and use
information that Pure regards as proprietary. Policing unauthorized use of
Pure's products is difficult, and while Pure is unable to determine the extent
to which piracy of its software products exists, software piracy can be
expected to be a persistent problem. In selling its products, Pure relies on
"shrink wrap" licenses that are not signed by licensees and, therefore, may be
unenforceable under the laws of certain jurisdictions. In addition, the laws
of some foreign countries do not protect Pure's proprietary rights to as great
an extent as do the laws of the United States. There can be no assurance that
Pure's means of protecting its proprietary rights will be adequate or that
Pure's competitors will not independently develop similar technology or design
around patents issued to Pure.
Pure expects that software product developers will be increasingly subject
to infringement claims as the number of products and competitors in Pure's
industry segment grows and the functionality of products in different industry
segments overlaps. There can be no assurance that infringement or invalidity
claims (or claims for indemnification resulting from infringement claims) will
not be asserted against Pure or that any such assertions will not materially
adversely affect Pure's business, operating results and financial condition.
Any such claims, whether with or without merit, could be time-consuming,
result in costly litigation and diversion of resources, cause product shipment
delays or require Pure to enter into royalty or licensing agreements. Such
royalty or licensing agreements, if required, may not be available on terms
acceptable to Pure or at all. In the event of a successful claim of product
infringement against Pure and failure or inability of Pure to license the
infringed or similar technology, Pure's business, operating results and
financial condition could be materially adversely affected.
Pure also relies on certain software that it licenses from third parties,
including software that is integrated with internally developed software and
used in Pure's products to perform key functions. There can be no assurance
that these third-party software licenses will continue to be available to Pure
on commercially reasonable terms. The loss of or inability to maintain any of
these software licenses could result in delays or reductions in product
shipments until equivalent software could be developed, identified, licensed
and integrated, which would adversely affect Pure's business, operating
results and financial condition.
EMPLOYEES
As of March 31, 1996, Pure had a total of 310 employees, of which 251 were
based in the United States and 59 were based overseas. Of the total, 146 were
engaged in sales and marketing, 39 were in customer support, 76 were in
research and development and 49 were in administration and finance. Pure's
success depends in
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significant part upon the continued service of its key technical and senior
management personnel and its continuing ability to attract and retain highly
qualified technical, sales and managerial personnel. Competition for such
personnel is intense and there can be no assurance that Pure will be able to
retain its key technical, sales and managerial employees or that it will be
able to attract, assimilate or retain other highly qualified technical, sales
and managerial personnel in the future. None of Pure's employees is
represented by a labor union. Pure has not experienced any work stoppages and
considers its relations with its employees to be good.
PROPERTIES
Pure's principal administrative, sales, marketing, support and research and
development facility is located in a building providing approximately 54,000
square feet of available space in Sunnyvale, California. The leases on the
office space in Sunnyvale expire in 1997, 1999 and 2002. Pure leases
approximately 7,000 square feet of office space in McLean, Virginia;
approximately 7,000 square feet of office space in Hoofddorp, The Netherlands;
and approximately 2,000 square feet of office space in Tokyo, Japan. These
leases expire between 1996 and 2002. Pure believes that suitable additional or
alternative space will be available in the future on commercially reasonable
terms as needed.
LEGAL PROCEEDINGS
Litigation has been necessary in the past, and may be necessary in the
future, to enforce Pure's patents and other intellectual property rights,
protect Pure's trade secrets, determine the validity and scope of the
proprietary rights of others or defend against claims of infringement or
invalidity. In March of 1995, Pure brought suit against AIB Software Inc.
("AIB") in the U.S. District Court for the Northern District of California,
asserting that AIB's Sentinel II product infringes one of Pure's patents and
seeking injunctive relief and damages. AIB responded by filing suit against
Pure in the U.S. District Court for the Eastern District of Virginia for
Declaratory Judgement of noninfringement, invalidity and unenforceability of
Pure's U.S. Pat. Nos. 5,193,180 and 5,335,344 and seeking $1,000,000 in
compensatory and $10,000,000 in punitive damages under U.S. copyright law and
various Virginia trade secret and computer laws; these claims were later
transferred to the Northern District of California. Pure is vigorously
defending these claims, as well as continuing to pursue Pure's claims of
infringement against AIB. On September 29, 1995, a motion by Pure for Summary
Judgement, or Dismissal in the alternative, on AIB's copyright law and various
Virginia trade secret and computer law claims was granted in Pure's favor.
Although patent and intellectual property disputes in the software area have
often been settled through licensing, cross-licensing or similar arrangements,
costs associated with such arrangements may be substantial. The pending
litigation against AIB and any future litigation involving Pure, whether as
plaintiff or defendant, regardless of the outcome, may result in substantial
costs and expenses to Pure and significant diversion of effort by Pure's
technical and management personnel. Any such litigation could have a material
adverse effect upon Pure's business, operating results and financial
condition.
Pure has incurred and may continue to incur significant costs with respect
to the prosecution and defense of these claims, which costs if material or not
offset by payments received from adverse parties could have a material adverse
effect on Pure's business, operating results and financial condition. In the
event of an adverse ruling in any intellectual property litigation that now
exists or might arise in the future, Pure might be required to discontinue the
use of certain technology, cease the sale and support of infringing products,
expend significant resources to develop non-infringing technology or license
the infringed technology or similar technology. There can be no assurance,
however, that under such circumstances, a license would be available under
commercially reasonable terms or at all. In the event of a successful claim
against Pure, Pure's business, operating results and financial condition could
be adversely affected.
On July 27, 1995, Pure entered into a Settlement and License Agreement with
Sun pursuant to which Sun and Pure agreed to cross-license certain of each
other's patents, including Pure's U.S. Pat. Nos. 5,193,180 and 5,335,344 and
Sun's U.S. Pat. No. 5,404,499. Sun and Pure have also agreed to engage for a
period of time in joint marketing and technical activities. In addition, Sun
and Pure agreed to release one another with respect to certain prior claims
made regarding their respective patents.
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PURE MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE DISCUSSION IN "MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS" CONTAINS TREND ANALYSIS AND OTHER
FORWARD-LOOKING STATEMENTS WITHIN THE MEANING OF SECTION 27A OF THE SECURITIES
ACT, AND SECTION 21E OF THE EXCHANGE ACT. ACTUAL RESULTS COULD DIFFER
MATERIALLY FROM THOSE SET FORTH IN THE FORWARD-LOOKING STATEMENTS AS A RESULT
OF THE FACTORS SET FORTH ELSEWHERE HEREIN, INCLUDING "RISK FACTORS."
RESULTS OF OPERATIONS
The following table sets forth, as a percentage of total net revenues,
consolidated statement of operations data for the periods indicated. These
operating results are not necessarily indicative of the results for any future
period.
<TABLE>
<CAPTION>
THREE MONTHS
YEARS ENDED ENDED
DECEMBER 31, MARCH 31,
---------------- ---------------
1993 1994 1995 1995 1996
---- ---- ---- ------ ------
<S> <C> <C> <C> <C> <C>
Revenues:
Product................................... 80% 73% 74% 73% 70%
Maintenance and other..................... 20 27 26 27 30
--- --- --- ------ -----
Total revenues.......................... 100 100 100 100 100
Cost of revenues:
Product................................... 2 1 3 1 3
Maintenance and other..................... 8 8 6 6 6
--- --- --- ------ -----
Total cost of revenues.................. 10 9 9 7 9
--- --- --- ------ -----
Gross margin............................ 90 91 91 93 91
Operating expenses:
Sales and marketing....................... 47 43 48 49 49
Research and development.................. 22 24 17 19 17
General and administrative................ 13 13 11 11 9
Merger and integration.................... -- -- 7 -- --
In-process research and development....... -- -- 23 123 --
--- --- --- ------ -----
Total operating expenses................ 82 80 106 202 75
--- --- --- ------ -----
Income (loss) from operations............... 8 11 (15) (109) 16
Other income, net........................... -- 1 2 1 2
--- --- --- ------ -----
Income (loss) before income taxes......... 8 12 (13) (108) 18
Income taxes................................ 1 3 7 2 6
--- --- --- ------ -----
Net income (loss)....................... 7% 9% (20)% (110)% 12%
=== === === ====== =====
</TABLE>
Quarter Ended June 30, 1996
For the three months ended June 30, 1996, Pure reported revenue of $16.5
million, an increase of 60% over revenue of $10.3 million for the same period
of 1995. Net income increased 100% to $2.2 million for the three months ended
June 30, 1996, compared with $1.1 million for the same period of 1995.
Earnings per share for the three months ended June 30, 1996 were $.11, up 120%
from pro forma earnings per share of $.05 for the same period of 1995. The
company's financial position remained strong as its cash position, consisting
of cash, cash equivalents and short-term investments, was approximately $44.7
million at June 30, 1996, versus $37.4 million at December 31, 1995.
79
<PAGE>
Revenues
Pure's revenues are derived from license fees for its software products,
from software maintenance fees and from other sources. Product revenues are
derived from product licensing fees. Maintenance and other revenues are
derived from software maintenance fees, from training fees, from consulting
fees and from royalties for technology licenses. Fees for maintenance,
training and consulting are generally billed separately from licenses for
Pure's products. Pure recognizes revenue in accordance with the provisions of
American Institute of Certified Public Accountants Statement of Position No.
91-1, Software Revenue Recognition. Product revenues from the sale of software
licenses are recognized upon shipment to an end-user if collection is probable
and remaining vendor obligations are insignificant. Product returns and sales
allowances are estimated and provided for at the time of sale. Maintenance
revenues from ongoing customer support and product upgrades are recognized
ratably over the term of the maintenance agreement. Payments for maintenance
fees are generally received in advance and are nonrefundable. Revenues for
training and consulting are recognized when the services are performed.
Revenues from royalties for technology licenses are recognized when earned and
when collection is probable.
Total revenues increased 83% from $8.2 million for the three months ended
March 31, 1995 to $15.1 million for the three months ended March 31, 1996.
Total revenues were $11.9 million, $22.0 million and $44.0 million in 1993,
1994 and 1995, respectively, representing increases of 84% from 1993 to 1994
and 100% from 1994 to 1995. Sales derived through indirect channels accounted
for approximately 13%, 11% and 6% of Pure's total revenues in 1993, 1994 and
1995, respectively. Total revenues increased primarily due to increased unit
sales of software licenses and increased maintenance, training and consulting
fees resulting from a larger installed base. Pure distributes the majority of
its products through its direct sales force and continues to expand its multi-
channel distribution strategy as well as expand international operations.
PRODUCT REVENUES
Revenues from product licenses increased 74% from $6.1 million for the three
months ended March 31, 1995 to $10.5 million for the three months ended March
31, 1996. Revenues from product licenses were $9.5 million, $16.0 million and
$32.8 million in 1993, 1994 and 1995, respectively. This represents increases
of 69% from 1993 to 1994 and 105% from 1994 to 1995. Substantially all of the
period-to-period growth in product revenues was due to higher unit sales of
software licenses that resulted from an increase in the number of direct sales
personnel and, to a lesser extent, the addition of several products to Pure's
product line. In particular, in connection with the acquisition of QualTrak,
Pure added two new products, Pure DDTS and PureTestExpert.
MAINTENANCE AND OTHER REVENUES
Maintenance and other revenues increased 110% from $2.2 million for the
three months ended March 31, 1995 to $4.6 million for the three months ended
March 31, 1996. The growth was primarily attributable to a larger installed
base requiring incremental maintenance, training and consulting.
Maintenance and other revenues were $2.4 million, $6.0 million and $11.3
million in 1993, 1994 and 1995, respectively, representing increases of 144%
from 1993 to 1994 and 89% from 1994 to 1995. The growth in each period was
primarily attributable to a larger installed base requiring incremental
maintenance and training. For the years 1993, 1994 and 1995, maintenance and
other revenues as a percentage of total revenues was 20%, 27% and 26%,
respectively. The increase as a percentage of total revenues from 1993 to 1994
and the decrease in maintenance and other revenues as a percentage of total
revenues from 1994 to 1995 were due primarily to fluctuations in the
proportion of Performix service revenues to total license revenues.
INTERNATIONAL REVENUES
International revenues as a percentage of total revenues increased from 25%
for the three months ended March 31, 1995 to 32% for the three months ended
March 31, 1996. The increase was primarily due to the increase in the number
of direct sales and marketing personnel.
80
<PAGE>
International revenues accounted for 21%, 20% and 30% of total revenues in
1993, 1994 and 1995, respectively. The majority of international sales were
made within Europe, with lower amounts in Canada and Asia. In 1993 and 1994,
the constant volume of international sales was primarily attributable to the
establishment of Pure's European marketing efforts and international resellers
marketing Pure's products. The increase in 1995 was primarily due to the
significant increase in the number of direct sales and marketing personnel
located within Europe and to a significant sale to a customer located in
Japan. Pure intends to continue increasing the number of direct sales and
marketing personnel within Europe and is establishing a direct sales and
marketing office within Japan. A significant portion of Pure's international
sales are denominated in foreign currencies and, accordingly, Pure is subject
to foreign currency exchange risk. Pure has not engaged in foreign currency
hedging activities.
Cost of Revenues
COST OF PRODUCT REVENUES
Cost of product revenues consists primarily of product media and
duplication, manuals, packaging materials and shipping expenses. Cost of
product revenues increased 274% from $109,000 for the three months ended
March 31, 1995 to $408,000 for the three months ended March 31, 1996,
representing 2% and 4% of the related product revenues for each respective
period. The increase in dollar amount and as a percentage of related product
revenue was primarily due to the higher volume of products shipped and the
amortization of certain intangible assets capitalized in connection with the
QualTrak acquisition. In connection with the acquisition of QualTrak,
purchased software of $420,000 and prepaid royalties of $250,000 were
capitalized and are amortized as a cost of product revenues over 18 months and
three years, respectively. For the three months ended March 31, 1996, Pure
amortized $21,000 of prepaid royalties and $70,000 of purchased software.
Cost of product revenues was $277,000, $307,000 and $1.2 million in 1993,
1994 and 1995, respectively, representing 3%, 2% and 4% of the related product
revenues for each year, respectively. Cost of product revenues increased 11%
from 1993 to 1994 and 306% from 1994 to 1995. The increase in dollar amount
and as a percentage of related product revenues was primarily due to the
amortization of certain intangible assets capitalized in connection with the
QualTrak acquisition. For the year ended December 31, 1995, Pure amortized
$273,000 related to these intangible assets.
COST OF MAINTENANCE AND OTHER REVENUES
Cost of maintenance and other revenues consists primarily of costs incurred
in providing telephone support, shipment of product upgrades and training and
consulting to customers. Cost of maintenance and other revenues increased 80%
from $490,000 for the three months ended March 31, 1995 to $884,000 for the
three months ended March 31, 1996, representing 22% and 19% of related
maintenance and other revenue for each period, respectively. Cost of
maintenance and other revenues was $931,000, $1.7 million and $2.5 million in
1993, 1994 and 1995, respectively, representing 38%, 29% and 22% of the
related maintenance and other revenues each year. Cost of maintenance and
other revenues increased 84% from 1993 to 1994 and 46% from 1994 to 1995. The
increases in dollar amount was primarily due to the increase in the number of
customer support, training and consulting personnel and related overhead costs
necessary to support a larger installed base and expanded product line. Pure
believes that the cost of maintenance and other revenues will increase in
dollar amount in the future.
Operating Expenses
SALES AND MARKETING
Sales and marketing expenses consist primarily of salaries, commissions and
bonuses of sales and marketing personnel and promotional expenses. Sales and
marketing expenses increased 87% from $4.6 million for the three months ended
March 31, 1995 to $7.5 million for the three months ended March 31, 1996,
representing 49% and 50%, respectively, of total revenues. Sales and marketing
expenses were $5.6 million, $9.5 million and
81
<PAGE>
$21.3 million, or 47%, 43% and 48% as a percentage of total revenues, in 1993,
1994 and 1995, respectively. The decrease in percentage from 1993 to 1994 was
as a result of achieving efficiencies in the sales channels whereas the
increase in percentage from 1994 to 1995 was primarily due to the
international expansion of Pure's sales force. The increase in sales and
marketing expenses in dollar amount and as a percentage of total revenues for
each period was primarily due to the domestic and international expansion of
Pure's sales force and related travel expenses and increased marketing
activities, including trade shows, seminars and promotional expenses. Pure
believes that sales and marketing expenses will increase in dollar amounts in
the future as Pure expands its sales and marketing staff, particularly in
Europe and Asia.
RESEARCH AND DEVELOPMENT
Research and development expenses increased 65% from $1.6 million for the
three months ended March 31, 1995 to $2.6 million for the three months ended
March 31, 1996, representing 19% and 17% respectively, of total revenues.
Research and development expenses were $2.6 million, $5.2 million and $7.5
million, or 22%, 24% and 17% as a percentage of total revenues, in 1993, 1994
and 1995, respectively. The increase in research and development expense in
dollar amount was primarily due to increased staffing and associated support
for software engineers required to expand and enhance Pure's product line.
Pure believes that research and development expenses will continue to increase
in dollar amounts in the future. As of March 31, 1996, all research and
development costs had been expensed as incurred.
GENERAL AND ADMINISTRATIVE
General and administrative expenses increased 46% from $938,000 for the
three months ended March 31, 1995 to $1.4 million for the three months ended
March 31, 1996, representing 11% and 9%, respectively, of total revenues. The
increase in dollar amount was primarily due to increased staffing and
associated expenses necessary to manage and support Pure's growth. Pure has
recorded $720,000 in goodwill associated with the acquisition of QualTrak
which was capitalized and is being amortized over five years. For the three
months ended March 31, 1996, Pure amortized $37,000 of goodwill.
General and administrative expenses were $1.6 million, $2.8 million and $4.8
million, or 13%, 13% and 11% as a percentage of total revenues, in 1993, 1994
and 1995, respectively. The increase in dollar amounts in each of these
periods was also primarily the result of increased staffing and associated
expenses necessary to manage and support Pure's growth. For the year ended
December 31, 1995, Pure amortized $89,000 of goodwill related to the QualTrak
acquisition. In addition, during 1994, Pure incurred legal expenses related to
patent litigation, which decreased significantly in 1995. Pure believes that
its general and administrative expenses will increase in dollar amounts in the
future as Pure expands its administrative staff.
IN-PROCESS RESEARCH AND DEVELOPMENT
On March 17, 1995, Pure acquired QualTrak for a purchase price of $11.9
million, of which $10.1 million was allocated to in-process research and
development and expensed at the time of acquisition.
MERGER AND INTEGRATION
Merger-related expenses of $3.0 million were recorded during the year ended
December 31, 1995 as a result of transaction costs of approximately $734,000,
telecommunication and computer system write-offs of approximately $331,000,
severance costs of approximately $112,000, contract termination costs of
approximately $200,000 and other costs totaling approximately $1.6 million in
connection with the acquisition of Performix.
Other Income
Other income consists of the net effect of interest income, interest expense
and miscellaneous income and expense items. Other income was $122,000 for the
three months ended March 31, 1995 as compared to $307,000 for the three months
ended March 31, 1996, and was $20,000, $160,000 and $818,000 for the years
ended December 31, 1993, 1994 and 1995, respectively. The increase in other
income for each period primarily resulted from interest income generated from
higher average cash balances.
82
<PAGE>
Income Taxes
Pure's effective income tax rate for the three month period ended March 31,
1995 was 2% and was 33% for the three month period ended March 31, 1996. These
rates differ from the statutory rate primarily due to state income tax in 1996
and nonrecurring charges incurred in connection with the acquisition of
QualTrak in 1995. Pure incurred income tax expense of $200,000 for the three
months ended March 31, 1995 despite its operating loss because the in-process
research and development expense incurred in connection with the acquisition
of QualTrak was not deductible for tax purposes. Income tax expense for the
three months ended March 31, 1996 was $862,000.
The effective tax rates for 1993, 1994 and 1995 were 8%, 23% and 57%,
respectively. These rates differ from the statutory rate primarily due to
nonrecurring charges incurred in connection with the acquisition of QualTrak,
a deferred tax liability recorded in connection with the acquisition of
Performix, and state income tax offset by certain research and development
credits. Pure incurred income tax expense for the year ended December 31, 1995
despite its operating loss because approximately $2.2 million of the $3.0
million of merger and integration costs incurred in connection with the
acquisition of Performix, as well as the in-process research and development
expense incurred in connection with the acquisition of QualTrak, were not
deductible for tax purposes.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, Pure has financed its operations primarily through the sale
of stock and cash generated from operations. Cash and cash equivalents totaled
$5.8 million at December 31, 1995 compared to $8.2 million at March 31, 1996.
The increase in cash and cash equivalents was primarily due to cash generated
by operations and proceeds from the issuance of common stock, partially offset
by capital additions related to the expansion of operations. As of March 31,
1996, Pure had short-term investments of $31.8 million with a maturity date of
greater than three months from the date of purchase.
In the three months ended March 31, 1995 and in the three months ended March
31, 1996, $500,000 and $3.4 million, respectively, was generated by
operations. For the three months ended March 31, 1995, net cash was provided
by operations primarily because the net loss of $9.1 million included a non-
cash charge of $10.1 million related to in-process research and development in
connection with the QualTrak acquisition. For the three months ended March 31,
1996, net cash was provided by operations primarily as a result of the net
income and deferred revenue generated during the period. In each period, Pure
experienced significant growth in receivables, accompanying Pure's increased
sales volumes, which was partially offset by increases in accounts payables
and deferred revenue. For the three months ended March 31, 1996, there was a
reduction in the merger and integration accrual of $1.5 million as the result
of payment of certain costs related to the Performix acquisition.
In 1993, 1994 and 1995, $729,000, $4.0 million and $7.1 million,
respectively, was generated by operations. For the years ended December 31,
1993 and 1994, net cash was provided by operations primarily as a result of
the net income and deferred revenue generated during each period. In the year
ended December 31, 1995, net cash was provided by operations primarily because
the net loss of $8.7 million included a noncash charge of $10.1 million
related to in-process research and development acquired in the QualTrak
acquisition and an accrual of $1.9 million for merger and integration costs
related to the acquisition of Performix. In each period, Pure experienced
significant growth in receivables, accompanying Pure's increased sales
volumes, which was partially offset by increases in accounts payable, deferred
revenue and other current liabilities.
In the three months ended March 31, 1995 and in the three months ended March
31, 1996, Pure utilized $860,000 and $1.9 million, respectively, of cash to
purchase property and equipment. The purchases of property and equipment were
primarily for computer hardware and software to support Pure's growing
employee base. In the three months ended March 31, 1995, Pure also used cash
of $1.4 million in connection with the acquisition of QualTrak. Pure expects
that the rate of purchases of property and equipment will remain constant or
increase.
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<PAGE>
In 1993 and 1994, Pure's investing activities consisted primarily of
purchases of property and equipment. In those years, Pure used $841,000 and
$1.9 million, respectively, of cash to purchase property and equipment,
primarily computer hardware and software for Pure's growing employee base. In
the year ended December 31, 1995, Pure used cash of $4.9 million for the
purchase of property and equipment and $1.6 million in connection with the
acquisition of QualTrak. As of December 31, 1995, Pure had short-term
investments of $31.6 million with maturities of less than one year from the
date of purchase.
In the three months ended March 31, 1995 net cash was used primarily for
repayment of bank borrowings. Net cash provided by financing activities in the
three months ended March 31, 1996 consisted primarily of $1.2 million from the
issuance of common stock though the employee stock purchase plan and exercise
of stock options.
Net cash used by financing activities in the year ended December 31, 1993
was primarily due to S Corporation distributions to the stockholders of
Performix. Net cash provided by financing activities in the year ended
December 31, 1994 consisted primarily of $4.1 million for the issuance of
redeemable convertible preferred stock. In the year ended December 31, 1995,
net cash of $28.4 million was provided by financing activities primarily from
the sale of common stock in connection with Pure's initial public offering
partially offset by S Corporation distributions to the stockholders of
Performix.
From time to time, Pure evaluates acquisitions of businesses, products or
technologies that complement Pure's business. Pure has no present
understandings, commitments or agreements with respect to any material
acquisitions of other businesses, products or technologies. Any such
transactions, if consummated, may use a portion of Pure's working capital or
require the issuance of additional debt or equity instruments.
Pure believes that its current cash balances, short-term investments, and
anticipated cash flow from operations will be sufficient to meet its working
capital and capital expenditure requirements for at least the next twelve
months.
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<PAGE>
PURE CERTAIN TRANSACTIONS
In March 1995, Pure completed its acquisition of QualTrak Corporation
("QualTrak"). In connection with the QualTrak acquisition, Charles M. Manley,
a former executive officer of Pure, received in exchange for his QualTrak
stock, 787,556 shares of Pure's Series D Preferred Stock, $1,915,341 in cash
and a contingent right to receive additional shares of Pure's Common Stock,
which right has terminated. In connection with the QualTrak acquisition, Mr.
Manley entered into an employment agreement with Pure. The terms of the
agreement provide for employment of Mr. Manley by Pure for the two years
following the QualTrak acquisition. In the event of an involuntary termination
of Mr. Manley by Pure during the term of the employment agreement, Mr. Manley
would have received three months of base salary and medical insurance coverage
for three months as severance. Mr. Manley resigned effective January 1, 1996.
The employment agreement also provides that Mr. Manley will not compete with
Pure for a period of one year following termination of his employment with
Pure.
In addition, pursuant to the QualTrak acquisition, Pure agreed to provide a
nonrecourse loan to Mr. Manley in the amount of any federal and state income
taxes, together with any penalties and interest and additions to tax, due as a
result of the QualTrak acquisition failing to qualify as a tax-free
reorganization under Section 368 of the Internal Revenue Code or due as a
result of the deferred issuance of shares pursuant to the contingent right.
The contingent right has terminated without any deferred issuance of shares.
Any such loan would bear interest at the prime rate then in effect and,
subject to certain acceleration events, would be due three years after the
date of such loan. In no event, however, will the aggregate amount of such
loan, if any, exceed $6,000,000. Absent commencement of an audit proceeding
regarding such federal or state income taxes, Pure's obligation to make such
loan terminates on September 17, 1996.
On April 17, 1995, Pure loaned $200,000 to Mr. Anderson, Vice President,
North American Sales and Corporate Marketing, in connection with a negotiated
employment arrangement with Pure. The note bears interest at nine percent (9%)
per annum. Interest accrues from April 17, 1995, and is payable on August 7,
1996 with respect to 50% of the principal and unpaid accrued interest as of
such date, and on August 7, 1997 with respect to remaining amounts of
principal and unpaid accrued interest as of such date. The note is secured by
a stock pledge agreement that grants Pure a security interest in all stock of
Pure issues or which is issuable to Mr. Anderson pursuant to his option to
purchase 200,000 shares.
In October 1995, Pure retained Wilson Sonsini Goodrich & Rosati,
Professional Corporation, as its outside legal counsel. Larry W. Sonsini
became a director of Pure in February 1996, and has been a member of Wilson
Sonsini Goodrich & Rosati, Professional Corporation, since 1970.
PURE MANAGEMENT AND EXECUTIVE COMPENSATION
MANAGEMENT
The executive officers and directors of Pure and their ages as of March 1,
1996 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Reed Hastings................. 35 Chairman of the Board of Directors, President
and Chief Executive Officer
Chuck Bay..................... 38 Vice President, Finance, Chief Financial
Officer, General Counsel and Secretary
Aki Fujimura.................. 37 Director, Vice President, Systems Business
Unit and Customer Satisfaction Group
Robert H. Dickerson........... 39 Vice President, Developer Business Unit
David E. Anderson............. 40 Vice President, North American Sales and
Corporate Marketing
Paul Holland.................. 35 Vice President, Europe
Audrey MacLean................ 44 Director
Andrew S. Rachleff............ 37 Director
Thomas A. Jermoluk............ 39 Director
Larry W. Sonsini.............. 55 Director
</TABLE>
85
<PAGE>
MR. HASTINGS, the founder of Pure, has served as President, Chief Executive
Officer and as a director since the inception of Pure in October 1991. From
October 1990 to September 1991, Mr. Hastings was initially a full-time
employee and later a part-time consultant at ADAPTIVE, Inc., a manufacturer of
high speed communication switching products.
MR. BAY has served as Vice President, Finance, Chief Financial Officer and
General Counsel since January 1995, and as Secretary since March 1995. From
April 1994 to January 1995, Mr. Bay held various positions with Software
Alliance Corporation, a software development and integration company, most
recently as President and Chief Operating Officer. From April 1993 to April
1994, Mr. Bay held various positions with Spatial Technology, Inc., a software
development company, most recently as President and Chief Financial Officer.
From April 1989 to April 1993, Mr. Bay held various positions, including
Treasurer, of NeXT Computer, Inc., a software development company.
MR. FUJIMURA has served as a director since joining Pure in April 1993. From
April 1993 until December 1995, he served as Vice President, Engineering, and
since December 1995, he has been Vice President, Systems Business Unit and
Customer Satisfaction Group. From 1988 until joining Pure, Mr. Fujimura held
various positions at Cadence Design Systems, Inc., an electronic design
automation company, most recently as Vice President, Framework Group.
MR. DICKERSON has served as Vice President, Developer Business Unit since
December 1995. From March 1994 to December 1995, Mr. Dickerson was Pure's Vice
President, Marketing. From 1987 to March 1994, Mr. Dickerson held various
positions at Borland International, a personal computer software vendor, most
recently as Senior Vice President of the Client/Server Division.
MR. ANDERSON has served as Vice President, North American Sales and
Corporate Marketing since December 1995. From March 1995 to December 1995, Mr.
Anderson was Vice President, North American Sales. From February 1992 to March
1995, Mr. Anderson held various positions at Mercury Interactive Corporation,
a software development company, most recently as Vice President, North
American Sales. From January 1990 to February 1992, Mr. Anderson was Northwest
Regional Manager of Sales at Interactive Development Environments, a software
development company.
MR. HOLLAND has served as Vice President, Europe since January 1996. From
October 1994 to January 1996 he served as Managing Director, Europe; from May
1993 through September 1993 as Business Development Executive; from August
1992 to May 1993 as Sales Manager; and from June 1992 to August 1992 as
Account Executive. From September 1991 through June 1992, Mr. Holland was
President of Consultants Marketing Strategies, a business consulting firm.
From January 1989 to September 1991, Mr. Holland was Director, Marketing and
Sales of Rothchild Consultants, a business consulting firm.
MS. MACLEAN has been a director of Pure since June 1992. Since January 1995,
Ms. MacLean has been a private investor. From 1993 through 1994, Ms. MacLean
was Chairman of the Board of Kidsoft, a software company. From 1988 to 1993,
Ms. MacLean served as Chief Executive Officer of ADAPTIVE, Inc., a
manufacturer of high speed communication switching products. In 1993,
ADAPTIVE, Inc. merged with Network Equipment Technologies, a publicly traded
supplier of wide area networking products that Ms. MacLean co-founded in 1983.
Ms. MacLean is a director of Pete's Brewing Company and several privately held
companies.
MR. RACHLEFF has been a director of Pure since September 1992. Mr. Rachleff
has been a General Partner of MPAE V Management Company, L.P., which is the
general partner or Merrill, Pickard, Anderson & Eyre V, L.P. and MPAE V
Affiliates Fund, L.P., a venture capital firm, since 1989, and a General
Partner of Benchmark Capital, a venture capital firm, since January 1995. Mr.
Rachleff is a director of C*ATS Software Inc., a publicly traded supplier of
client/server software products for financial risk management, and several
privately held companies.
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<PAGE>
MR. JERMOLUK has been a director of Pure since February 1996. Mr. Jermoluk
has been President and Chief Operating Officer of Silicon Graphics, Inc.
("SGI") since 1994. From 1991 to 1994 he was Executive Vice President of SGI,
and from 1988 to 1991 he was Vice President and General Manager of SGI's
Advanced System Division. He is a director of SGI and Forte Software, Inc.
MR. SONSINI has been a director of Pure since February 1996. Mr. Sonsini has
been an attorney with the law firm of Wilson Sonsini Goodrich & Rosati,
Professional Corporation, since 1966. He has been a member of that firm since
1970 and serves as Chairman of its Executive Committee. He is a director of
Lattice Semiconductor Corporation, Novell, Inc., Pixar, Inc. and Silicon
Valley Group Inc.
There is no family relationship between any director or executive officer of
Pure.
EXECUTIVE COMPENSATION
The following table sets forth the compensation paid to or earned by Pure's
Chief Executive Officer and Pure's four other most highly compensated officers
whose salary plus bonus exceeded $100,000 during the last fiscal year for
services rendered to Pure during the fiscal years ended December 31, 1993,
1994 and 1995:
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
--------------------- ------------
SECURITIES
NAME AND BONUS UNDERLYING
PRINCIPAL POSITION YEAR SALARY($) ($)(1) OPTIONS (#)
------------------ ---- ----------- --------- ------------
<S> <C> <C> <C> <C>
Reed Hastings.......................... 1993 100,000 40,000 --
Chairman of the Board, President 1994 125,000 42,500 --
and Chief Executive Officer 1995 145,208 23,000 --
Chuck Bay.............................. 1993 -- -- --
Vice President, Finance, Chief Finan-
cial 1994 -- -- --
Officer, General Counsel and Secretary 1995 122,167 27,094 180,000
Aki Fujimura........................... 1993 89,330 40,000 540,000
Director, Vice President, Systems
Business 1994 130,000 41,000 --
Unit and Customer Satisfaction Group 1995 140,000 31,000 --
Robert H. Dickerson.................... 1993 -- -- --
Vice President, Developer Business
Unit 1994 94,154 28,385 400,000
1995 120,000 48,105 --
David E. Anderson...................... 1993 -- -- --
Vice President, North American Sales
and 1994 -- -- --
Corporate Marketing 1995 83,425 53,103 200,000
</TABLE>
- --------
(1) Includes bonuses earned or accrued with respect to services rendered in
the fiscal year indicated, whether or not such bonus was actually paid
during such fiscal year.
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OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS
------------------------- POTENTIAL REALIZABLE
NUMBER OF VALUE AT ASSUMED
SECURITIES % OF TOTAL ANNUAL RATES OF STOCK
UNDERLYING OPTIONS PRICE APPRECIATION FOR
OPTIONS GRANTED TO EXERCISE OPTION TERM(4)
GRANTED EMPLOYEES IN PRICE EXPIRATION -----------------------
NAME (#)(1) FISCAL YEAR(2) ($/SH) DATE(3) 5%($) 10%($)
---- ---------- -------------- -------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Reed Hastings........... -- -- -- -- -- --
Chuck Bay............... 180,000 12.1% 1.50 01/22/05 169,802 430,310
Aki Fujimura............ -- -- -- -- -- --
Robert H. Dickerson..... -- -- -- -- -- --
David E. Anderson....... 200,000 13.5% 3.00 03/31/05 377,337 956,245
</TABLE>
- --------
(1) Options in this table are either nonstatutory or incentive stock options,
were granted under the 1992 Stock Option Plan and have exercise prices
equal to the fair market value on the date of grant. All such options have
ten-year terms, are exercisable immediately upon grant, and are subject to
Pure's repurchase option which (except for Mr. Anderson's option, which is
subject to limited acceleration under certain circumstances) lapses as to
25% of the option shares upon completion of one year of service from the
vesting commencement date and as to the balance of the option shares in a
series of equal monthly installments over the next 36 months of employment
thereafter.
(2) Pure granted options to purchase 1,165,005 shares of Pure Common Stock to
employees in fiscal 1995 and assumed options to purchase 318,070 shares of
Pure Common Stock in connection with the acquisitions of QualTrak and
Performix.
(3) Options may terminate before their expiration upon the termination of
optionee's status as an employee or consultant, the optionee's death or an
acquisition of Pure.
(4) Potential realizable value assumes that the stock price increases from the
date of grant until the end of the option term (10 years) at the annual
rate specified (5% and 10%). Annual compounding results in total
appreciation of 63% (at 5% per year) and 159% (at 10% per year). If the
price of Pure's Common Stock were to increase at such rates from the price
at 1995 fiscal year end ($32.25 per share) over the next 10 years, the
resulting stock price at 5% and 10% appreciation would be $52.53 and
$83.65, respectively. The assumed annual rates of appreciation are
specified in SEC rules and do not represent Pure's estimate or projection
of future stock price growth. Pure does not necessarily agree that this
method can properly determine the value of an option.
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OPTION EXERCISES AND HOLDINGS
The following table sets forth, for each of the officers named in the
Summary Compensation Table, certain information concerning stock options
exercised during fiscal 1995, and the number of shares subject to both
exercisable and unexercisable stock options as of December 31, 1995. Also
reported are values for "in-the-money" options that represent the positive
spread between the respective exercise prices of outstanding stock options and
the fair market value of Pure's Common Stock as of December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
SHARES VALUE YEAR-END (#) FISCAL YEAR END ($)(1)
ACQUIRED ON REALIZED ------------------------- -------------------------
NAME EXERCISE (#) ($) EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ------------ -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Reed Hastings........... -- -- -- -- -- --
Chuck Bay............... 500 15,125 179,500 -- 5,519,625 --
Aki Fujimura............ 400 14,692 539,600 -- 17,358,932 --
Robert H. Dickerson..... -- -- 400,000 -- 12,792,000 --
David E. Anderson....... -- -- 200,000 -- 5,850,000 --
</TABLE>
- --------
(1) Market value of underlying securities based on the closing price of Pure's
Common Stock on December 29, 1995 (the last trading day of fiscal 1995) on
Nasdaq of $32.25 minus the exercise price.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
Pure's Compensation Committee was formed in May 1995 and is currently
composed of Ms. MacLean, Mr. Rachleff and Mr. Sonsini. No interlocking
relationship exists between any member of Pure's Board of Directors or
Compensation Committee and any member of the board of directors or
compensation committee of any other company, nor has any such interlocking
relationship existed in the past. No member of the Compensation Committee is
or was formerly an officer or an employee of Pure or its subsidiaries.
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PURE STOCK INFORMATION
PURE PRINCIPAL STOCKHOLDERS
The following table sets forth the beneficial ownership of the Pure Common
Stock as of July 1, 1996 for the following: (i) each person or entity who is
known by Pure to own beneficially more than 5% of the outstanding shares of
Pure's Common Stock ("Principal Stockholders"); (ii) each of Pure's directors;
(iii) each of the officers named in Pure's Summary Compensation Table ("Named
Officers"); and (iv) all directors and executive officers of Pure as a group:
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY PERCENTAGE
NAME OWNED(1) BENEFICIALLY OWNED
---- ------------ ------------------
<S> <C> <C>
PRINCIPAL STOCKHOLDERS:(2)
Reed Hastings(3).............................. 4,100,200 23.2%
c/o Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, CA 94087
Atria Software, Inc.(4)....................... 7,015,078 34.5%
20 Maguire Road
Lexington, MA 02173
DIRECTORS:
Audrey MacLean(6)............................. 220,299 1.2%
Andrew S. Rachleff(5)......................... 251,093 1.4%
Aki Fujimura(7)............................... 501,783 2.8%
Thomas A. Jermoluk(8)......................... 15,000 *
Larry W. Sonsini(9)........................... 15,656 *
NAMED OFFICERS:
Chuck Bay(10)................................. 159,500 *
Robert H. Dickerson(11)....................... 340,600 1.9%
David E. Anderson(12)......................... 190,600 1.1%
ALL DIRECTORS AND EXECUTIVE OFFICERS AS A
GROUP:
(10 persons)(13).............................. 5,854,454 31.0%
</TABLE>
- --------
* Represents less than 1% of the outstanding shares.
(1) The number and percentage of shares beneficially owned is determined
under rules of the SEC, and the information is not necessarily indicative
of beneficial ownership for any other purpose. Under such rules,
beneficial ownership includes any shares as to which the individual has
sole or shared voting power or investment power and also any shares which
the individual has the right to acquire within sixty days of July 1, 1996
through the exercise of any stock option or other right. Unless otherwise
indicated in the footnotes, each person has sole voting and investment
power (or shares such powers with his or her spouse) with respect to the
shares shown as beneficially owned.
(2) This information was obtained from filings made with the SEC pursuant to
Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as
amended.
(3) Mr. Hastings is also Chairman of the Board, President and Chief Executive
Officer of Pure.
(4) Includes 2,646,096 shares which Atria has the right to acquire under
certain circumstances pursuant to the Pure Option Agreement. If acquired,
Atria will have sole voting and sole investment power over such shares.
Also includes 4,368,982 shares as to which Atria shares voting power with
the Pure Board and with those officers of Pure that are parties to the
Pure Voting Agreement. Atria does not have sole or shared investment
power over these shares.
(5) Includes 181,086 shares held by Merrill, Pickard, Anderson & Eyre V, L.P.
("MPAE V") and 6,180 shares held by MPAE V Affiliates Fund, L.P. ("MPAE V
Affiliates"). Mr. Rachleff, a director of Pure, is a General Partner of
MPAE V Management Company, L.P., which is the General Partner of MPAE V
and MPAE V Affiliates. Mr. Rachleff disclaims beneficial ownership of the
shares held by these entities except
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to the extent of his pecuniary interest therein arising from his general
partnership interest in MPAE V Management Company, L.P. Also includes
43,827 shares of Common Stock held by Andrew Rachleff and Debra Rachleff
Trustees, u/a/d May 19, 1992, The Rachleff Revocable Trust, and 20,000
shares of Pure Common Stock subject to options exercisable within sixty
days of July 1, 1996 held by Mr. Rachleff.
(6) All shares are held by Audrey MacLean and Michael M. Clair, as Trustees
of the Audrey MacLean and Michael M. Clair Trust Agreement, u/a/d
December 1, 1990, a revocable trust. Also includes 20,000 shares of Pure
Common Stock subject to options exercisable within sixty days of July 1,
1996.
(7) Mr. Fujimura is also Vice President, Systems Business Unit and Customer
Satisfaction Group of Pure. Includes 487,183 shares of Pure Common Stock
subject to options exercisable within sixty days ofJuly 1, 1996.
(8) Represents 15,000 shares of Pure Common Stock subject to options
exercisable within sixty days ofJuly 1, 1996.
(9) Includes 15,000 shares of Pure Common Stock subject to options
exercisable within sixty days ofJuly 1, 1996. Mr. Sonsini is a member of
Wilson Sonsini Goodrich and Rosati, Professional Corporation, counsel to
Pure.
(10) Includes 149,500 shares of Pure Common Stock subject to options
exercisable within sixty days fromJuly 1, 1996.
(11) Represents 340,000 shares of Pure Common Stock subject to options
exercisable within sixty days ofJuly 1, 1996.
(12) Includes 190,000 shares of Pure Common Stock subject to options
exercisable within sixty days of July 1, 1996.
(13) Includes 1,234,600 shares of Pure Common Stock subject to options
exercisable within sixty days ofJuly 1, 1996 held by executive officers
and directors of Pure.
PURE STOCK PRICE AND DIVIDEND INFORMATION
Pure Common Stock has been traded on Nasdaq under the symbol "PRSW" since
Pure's initial public offering in August 1995. The following table sets forth
the range of high and low closing prices for the Pure Common Stock as reported
on Nasdaq for the periods indicated.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
Fiscal 1995
Third Quarter*.............................................. $43.75 $27.75
Fourth Quarter.............................................. 39.75 31.50
Fiscal 1996
First Quarter............................................... 35.25 25.00
Second Quarter.............................................. 41.00 32.50
Third Quarter (through July 19, 1996)....................... 41.00 27.625
</TABLE>
- -------
* Third Quarter data reflects the period from Pure's initial public offering
in August through September 31, 1995.
As of June 5, 1996, the last day prior to the announcement of the execution
of the Agreement, the closing price for the Pure Common Stock as reported on
Nasdaq was $40.625. As of July 19, 1996, the closing price for the Pure Common
Stock as reported on Nasdaq was $27.625.
Pure has not paid any dividends since its inception and does not intend to
pay any dividends in the foreseeable future.
At the Pure Record Date, there were approximately 355 Pure stockholders of
record.
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ATRIA
ATRIA BUSINESS
GENERAL
Atria develops, markets and supports software that facilitates the
management of complex software development, enhancement and maintenance.
Atria's SCM products are used by professional software development teams to
control the software development process, develop releases more efficiently,
improve software quality and shorten time to market.
From time to time, information provided by Atria or statements made by its
employees may contain "forward looking" information which involve risks and
uncertainties. In particular, statements set forth under the headings "Atria
Business Strategy" and "Product Development" below, regarding the efforts
required to develop Atria's products for additional operating systems, and the
intention of Atria to expand its product offerings and to introduce new
products, are "forward looking" statements. Atria's actual results may vary
significantly from those stated in any forward looking statements. Factors
that may cause such differences include, but are not limited to, technical
difficulties in adapting Atria's products for use on other operating systems,
limitations on financial and other resources required to engage in product
development activities or to acquire or license third party technology,
factors adversely affecting the demand for, or use of, operating systems, and
any changes to the underlying components of an operating system that would
require changes to Atria's products. In addition, broad market acceptance of
Atria's products, including acceptance in markets characterized by greater
usage of the Windows and Windows NT operating systems, is critical to Atria's
future success. Atria believes that factors affecting the ability of Atria's
products to achieve broad market acceptance include: product performance,
price, ease of adoption and displacement of existing approaches. Each of these
factors, and others, are discussed from time to time in Atria's filings with
the SEC.
INDUSTRY BACKGROUND
Competitive pressures on organizations to deliver more sophisticated
products and services and to operate more efficiently have increased demand
for large, complex, technology-based solutions. Software has become an
increasingly critical component of technology-driven products and services,
and the functional requirements of software have increased significantly.
Regardless of the target market for the software, the sophistication of the
tools used to create it or the environment into which it will be deployed,
software development management complexity has increased steadily over time.
This management complexity is driven by the size and scope of the software
development project, the number of developers and the increasing pressures for
simultaneous development activities. While the initial release of newly
developed software may be created with a highly focused effort, the software
development teams creating and maintaining subsequent releases of this
software perform many diverse and often conflicting tasks concurrently.
Developers must maintain the initial release, respond to incremental
enhancement demands, develop major new features and support a constantly
evolving underlying hardware and system software base. These tasks are further
complicated by the need to address increasing time-to-market competitive
pressures.
Factors contributing to the increased complexity of software development
management include the following:
The shift in software development environments from centralized mainframe
computing to distributed client/server computing.
Larger, more complex software applications.
Larger teams for development, documentation, quality assurance and support,
frequently across multiple sites.
More interrelated applications that share software elements.
Larger numbers of products, platform ports and releases.
More tools used throughout the development environment and across the
development life cycle.
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In addition, the growing importance of software as a strategic asset has
increased the demand for adherence to quality standards, thereby placing a
greater burden on the management of the software development process.
At the heart of managing the complexity of software development is the need
to coordinate the conflicting activities of team members working concurrently
through "version control," "configuration management" and "change request
management."
A software application is made up of many individual software elements.
During it's lifetime, each software element undergoes change. Each change
results in the creation of a new version of that software element. The process
of maintaining the evolution and history of software elements being changed is
referred to as "version control." The management of the interrelationships
among separately evolving software elements (such as the relationship between
the font size manager and line justification module in a desktop publishing
application, where a change to one of these elements requires a change to the
other) is called "configuration management." "Change request management"
involves tracking enhancement requests, defect corrections and other changes
that are made to the software, providing a context for why particular changes
were made to the software.
SCM systems maintain a history of changes made to each software element, and
reliably record in a software "bill-of-materials" the process by which
specific versions of these elements are combined to produce a complete
software system release. CRM systems track defect and enhancement requests
throughout the software development and maintenance process. With CRM systems,
software engineering organizations can act on the same lifecycle information,
improving the team's overall performance. Integrated SCM/CRM systems are
designed to provide a historical record answering questions frequently asked
by software development organizations: Who changed the software? When did the
software change? What changes were made to the software? How do the changes
relate to each other? Why did the software change? This information is
essential for the continued enhancement and maintenance of the software.
Atria believes that there is a market need for a sophisticated SCM system
that enables software developers to work more effectively in parallel on
large, complex software projects. Atria developed the ClearCase family of
products to address this need.
ATRIA BUSINESS STRATEGY
Atria's objective is to become a leading supplier of integrated solutions to
support software development teams. To achieve its business objectives, Atria
is pursuing the following strategies:
Technology Leadership
Atria believes that technological leadership is a result of continual
product development and enhancement. Atria plans to build upon its technology
base by adding new features and functionality to its existing products,
broadening its product line, adding support for new computing environments and
providing new tools for software development.
Leverage Configuration Management
SCM systems control and maintain the entire software asset of an
organization. Atria believes that the value of the information stored in
configuration management repositories can be further enhanced by the
introduction of related software development team tools and facilities. To
this end, in July of 1994, Atria introduced ClearCase MultiSite, an add-on
module for ClearCase that facilitates parallel development among
geographically separated team members, and in the first quarter of 1996, Atria
released ClearTrack, a CRM system. Atria introduced ClearTrack with the goal
of providing, through the combination of ClearCase and ClearTrack, an
effective and comprehensive SCM/CRM solution from a single vendor.
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Focus on Client/Server Environments
Atria believes that client/server computing environments such as UNIX,
Microsoft Windows, and Microsoft Windows NT, which are characterized by
powerful desktop systems connected to multiple servers, represent a growth
opportunity for software development support products. Atria's future
financial performance will depend in large part on continued growth in the
number of organizations adopting client/server software development
environments and the number of applications developed for use in those
environments. There can be no assurance that this market will continue to grow
or that Atria will be able to respond effectively to the evolving requirements
of this market. Historically Atria has focused its resources primarily on the
UNIX, and more recently on the Windows and Windows NT, operating systems
client/server software development market. Any factor adversely affecting the
demand for, or use of, these operating systems could have a material adverse
effect on Atria's financial condition and results of operations. Additionally,
any changes to the underlying components of these operating systems that would
require changes to Atria's products would materially adversely affect Atria if
it were not able to successfully develop or implement such changes in a timely
fashion. In anticipation of increased adoption of non-UNIX client/server
software development environments, Atria has adapted ClearCase for use with
certain versions of Microsoft Windows NT, which initially shipped late in the
first quarter of 1995. In addition, in the second quarter of 1995 Atria
released ClearCase Attache, which extends certain features of ClearCase to
Windows developers as a desktop client. Atria may develop versions of its
products for use with other operating systems in the future. There can be no
assurance, however, that Atria will be able to complete such developments on a
timely basis or that any such versions will gain market acceptance. Atria
believes that efforts to develop versions of its products for other operating
systems, if determined by Atria to be necessary in the future, would involve a
comparable level of effort as Atria's prior development efforts for its
various UNIX, Windows and Windows NT versions.
Focus on Ease-of-Adoption
Atria believes that successful deployment of any SCM solution depends on
both minimizing disruption caused by its adoption and maximizing the direct
benefits it offers. Atria believes its products offer distinctive ease-of-
adoption features by allowing its customers to preserve their existing data,
the organization of that data and the use of existing tools, while automating
many error-prone and time-consuming tasks common to software developers.
Focus on Successful Deployment
Atria believes that initial customer success in using its products is an
essential factor in the customer's decision to deploy Atria's products
throughout the enterprise. In order to encourage repeat sales of Atria's
products, provide a foundation for the sale of future add-on products and
create a loyal customer base, Atria focuses on successful and extensive
deployment of its products by offering comprehensive training, consulting and
customer support services.
Establish Direct Sales and Support Relationships
Atria believes that implementation of SCM is a strategic corporate decision
and requires a direct selling approach. Consequently, Atria has a direct sales
force with offices throughout the United States, and in France, Germany and
the United Kingdom. Atria provides installation, training and post-sale
consulting support to build long-term customer relationships. Similar direct
sales and support services are provided in additional key foreign markets
through independent local distributors.
PRODUCTS
Atria provides SCM and CRM products and associated training and
implementation services to support a wide range of software developers. Atria
targets independent software vendors that develop applications for resale,
custom or in-house software developers that develop applications for the
particular requirements of an organization and product suppliers that develop
software-controlled consumer or industrial devices. Atria's core
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product is its ClearCase SCM system. Supplementing its ClearCase product,
Atria offers ClearCase MultiSite to support geographically distributed
development teams, and ClearCase Attache to extend certain features of
ClearCase to Windows developers as a desktop client. Atria also offers
ClearCase application programming interfaces and integration kits for third
party software development tools, as well as product maintenance and support,
training and consulting services. In the first quarter of 1996 Atria began
commercial shipments of ClearTrack, a CRM system, which can be used with
ClearCase or as an independent CRM product. Atria's products are used by
professional software development teams whose functions include system design,
implementation, documentation, test and release management.
The principal features of Atria's core product, ClearCase, are as follows:
VERSION CONTROL to manage concurrently developed variants of evolving
software elements.
WORKSPACE MANAGEMENT to allow each developer to flexibly and reproducibly
establish an appropriate development environment, and to allow for parallel
development (which is the ability for software developers to work on the
same source code concurrently).
BUILD MANAGEMENT to speed software construction through database sharing
and distribution of build steps across multiple computers and to
automatically produce a software bill-of-materials for each build.
PROCESS CONTROL FACILITIES to support the implementation of project
development policies and procedures.
TRANSPARENT ACCESS to enable ClearCase to work smoothly with established
practices, operating system software, commercial applications and in-house
software tools by making the SCM system and the complexity of the data it
manages invisible or transparent to the developer.
COMPATIBILITY WITH MAKEFILES to preserve the user's investment in existing
makefiles, software builds under ClearCase control are specified by
makefile (which can also increase development productivity and software
maintainability by automatically detecting source dependencies and creating
a software bill-of-materials for every build).
ClearCase is based on permanent data repositories containing data that is
shared by all developers. Each repository includes current and historical
versions of source data created by data editing tools, along with objects
derived from sources by compilers, program linkers and other code construction
tools. In addition, the repository stores information on the development
process itself: who created a particular version, what versions of sources
were used to produce a particular derived object and other relevant
information.
To facilitate access to the objects and configuration management data
contained within its repository, ClearCase implements file system views.
Through views, ClearCase automatically selects and presents correct file
versions for a given configuration using simple rules defined by the
developer. By specifying a few rules, a developer can quickly construct a
workspace containing any desired configuration without creating copies of the
information--ClearCase automatically selects the necessary versions and
dynamically updates views so that each team member works with the latest
information.
ClearCase MultiSite is a layered product option for ClearCase that supports
parallel software development and software reuse across geographically
distributed project teams. ClearCase MultiSite allows project teams using
ClearCase to access, develop, and integrate software across multiple
locations. ClearCase MultiSite is also available for use with ClearCase
Attache.
ClearCase Attache extends certain ClearCase functionality to developers that
use Microsoft Windows 3.1 or Windows for Workgroups 3.11 as their desktop
development platform. ClearCase Attache manages local workspaces of version-
controlled elements associated with a ClearCase view. It provides direct
access to ClearCase server commands via a combined graphical/character
interface.
ClearTrack is a CRM system initially released in the first quarter of 1996
on various UNIX platforms. Most software changes occur as a result of a defect
being found or a request for enhancement being made. ClearTrack
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captures important data to describe the defect or enhancement request,
including who submitted the request, what project it is associated with, who
is assigned to address the request and various other information needed to
track the request. Individuals submitting change requests are kept informed of
any status changes. The system can be implemented and customized to meet the
specific requirements of the software development organization. ClearTrack can
be used as a standalone system or in conjunction with ClearCase.
PRODUCT PRICING
Atria licenses all of its products on a perpetual, fully-paid-up basis.
Atria licenses ClearCase and ClearCase MultiSite on a "floating" active user
license basis. "Floating" licenses control the number of simultaneous users in
a network, rather than being associated with either specific computers or
specific users. However, Atria believes that, in practice, the majority of
full-time software developers will each require their own ClearCase license.
The domestic end-user list price for a single active user license is $4,000
for ClearCase and $1,500 for ClearCase MultiSite; however, license fees are
subject to varying discounts depending on customer volume and other factors.
Since ClearCase specifically addresses the needs of software development
teams, ClearCase is typically licensed to teams requiring more than five
ClearCase licenses. Based on Atria's limited operating history, a typical
initial purchase from Atria by a domestic end-user ranges from $2,000 to
$3,000 per ClearCase license, depending on volume and other factors. Atria's
international distributors and OEMs license Atria's products at a discount for
relicensing.
ClearCase Attache has a domestic end-user list price of $995 per license for
purchases of 1 to 20 licenses. License fees are subject to varying discounts
depending on customer volume and other factors. ClearCase Attache is licensed
on a regular user basis, which essentially requires that each user have his or
her own license.
ClearTrack is licensed either on a floating active user license basis or a
regular user license basis, depending on customer preference. The domestic
price for 1 to 20 licenses is $1,795 for an active user license, and $795 for
a regular user license, however license fees are subject to varying discounts
depending upon volume and other factors.
Atria offers an annual maintenance program to its licensees that includes
product updates and hotline support. Annual domestic end user maintenance
pricing is approximately 15% to 20% of the license fee realized.
CUSTOMERS
Software development is performed by three distinct groups: independent
software vendors that develop applications for resale; custom or in-house
software developers that develop applications for the particular requirements
of an organization; and product suppliers that develop software-controlled
consumer or industrial devices. As of March 31, 1996, approximately 34,500
ClearCase licenses have been sold to approximately 760 customers worldwide.
In 1995, no single customer accounted for more than 10% of revenues. In
1994, two customers each accounted for more than 10% of Atria's total revenue:
revenue from Hewlett-Packard accounted for approximately 11% of Atria's total
revenue, of which approximately 8% consisted of royalties and fees paid to
Atria in connection with Hewlett-Packard's distribution of ClearCase, while
the remaining 3% of such revenues consisted of license and other fees paid by
Hewlett-Packard as an end-user of ClearCase; revenue from Motorola accounted
for approximately 11% of total revenue, consisting of license and other fees
as an end-user of ClearCase. In 1993, revenue from Hewlett-Packard accounted
for approximately 14% of Atria's total revenue, of which approximately 10%
consisted of royalties and fees paid to Atria in connection with Hewlett-
Packard's distribution of ClearCase, while the remaining 4% of such revenues
consisted of license and other fees paid by Hewlett-Packard as an end-user of
ClearCase.
SALES AND MARKETING
Atria believes that implementation of SCM is a strategic corporate decision
and requires a direct selling approach. Consequently, Atria has established a
direct sales force in the United States, France, Germany and the
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United Kingdom to penetrate new accounts and sell additional products to
current customers. In addition to its support and maintenance programs, Atria
provides installation, training and post-sale consulting support to build
long-term customer relationships. As of March 31, 1996, Atria's sales and
marketing organization consisted of 105 people located in Atria's headquarters
in Lexington, Massachusetts and in field sales offices in ten other cities
located throughout the United States as well as offices in France, Germany and
the United Kingdom. Atria's direct sales force accounted for approximately 94%
of revenue in the three months ended March 31, 1996, 93% of revenue in 1995,
84% of revenue in 1994, and 74% of revenue in 1993.
Atria's sales and marketing organization is complemented by international
distributors in Europe and the Pacific Rim and, to a lesser extent, by its OEM
relationships with Digital Equipment Corporation, Hewlett-Packard and Silicon
Graphics, Inc. These distributors and OEMs license Atria's products at a
discount for relicensing, and may provide training, support, and consulting
services to their end-users. Atria receives a fee for the support and
maintenance Atria provides these distributors and OEMs.
Atria and its distribution partners generally sell Atria's products and
related services through sales teams consisting of a sales representative and
a pre-sales support engineer. To further encourage sales, Atria conducts
comprehensive marketing programs that include direct mail, public relations,
advertising seminars, trade shows, an Atria Internet World-Wide Web page, and
ongoing customer communication programs. Atria sponsors user groups, an
electronic bulletin board and customer advisory boards as a source of feedback
about its customers' needs.
FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT SALES
The information required by this item may be found under Note 10 of the
Notes to Consolidated Financial Statements and under the section captioned
"Atria Management's Discussion and Analysis of Financial Condition and Results
of Operations."
CUSTOMER SUPPORT
Because many of Atria's customers depend on Atria's products to support
development of complex, large-scale applications on which the success of their
organizations may depend, a high level of customer service and technical
support is critical. Atria's customer support operations in Lexington,
Massachusetts and Munich, Germany provide telephone support coverage for a
total of 18 hours a day between the two sites, in addition to 24-hour bulletin
board and World-Wide Web access. Distributors and OEMs each offer first-level
customer support to their end-user customers, and rely on Atria for any
additional support as needed.
Atria offers comprehensive training programs to customers. Training is
offered at in-house facilities at Atria's headquarters and at its offices in
Mountain View, California, Munich, Germany and in Atria's United Kingdom
office. The price of a standard two-day training course is $995 per person in
the United States. Atria also provides on-site training and implementation
service consulting upon customer request.
PRODUCT DEVELOPMENT
Since its inception, Atria has made substantial investments in research and
development for products to serve teams of software developers. In the
development of new products and enhancements to existing products, Atria uses
its own tools extensively. Atria believes that its future success depends upon
its ability to enhance its existing products and to develop and introduce new
products that keep pace with technological developments in the marketplace and
address the increasingly sophisticated needs of its customers. Atria intends
to expand its existing product offerings and to introduce new products that
are designed to keep pace with technological developments in the marketplace
and address the increasingly sophisticated needs of its customers. There can
be no assurance that Atria will be successful in identifying, developing,
manufacturing and marketing new products in a timely and cost effective
manner, that Atria's products will be accepted in the marketplace or that
products
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or technologies developed by others will not render Atria's products or
technologies uncompetitive. Atria believes that factors affecting the ability
of Atria to achieve the required market acceptance include: product
performance, price, ease of adoption and displacement of existing approaches.
While Atria expects that certain of its new products will be developed
internally, Atria may, based on timing and cost considerations, acquire
technology and/or products from third parties or consultants.
In the first quarter of 1996, Atria began commercial shipment of ClearTrack,
which utilizes technology acquired from Silicon Graphics, Inc. in 1995. Atria
also began shipping a new version of ClearCase for the Microsoft Windows NT
operating system in the first quarter of 1996. In 1995 Atria began commercial
shipment of ClearCase 2.1 for UNIX, and the original versions of ClearCase for
the UNIXWARE operating system, ClearCase for the Microsoft Windows NT
operating system, and ClearCase Attache. During 1994, Atria introduced
ClearCase 2.0, a version of ClearCase for the IBM RS6000 hardware platform
running AIX, and ClearCase MultiSite.
As of March 31, 1996, Atria's product development staff consisted of 80
employees. Atria's total expenses for research and development for the three
months ended March 31, 1996, and the years ended December 31, 1995, 1994 and
1993 were $2,554,000, $7,974,000, $4,261,000, and $2,463,000, respectively. To
date, Atria has not capitalized any software development costs.
COMPETITION
The software development market is intensely competitive. In the SCM market
Atria currently faces three basic types of competition.
The first category includes utilities commonly bundled with versions of
UNIX, such as SCCS and RCS. While Atria believes these products are limited to
version control and provide substantially less functionality than ClearCase,
Atria must frequently address the cost/benefit advantages of ClearCase. Many
of Atria's customers on the UNIX platforms were using SCCS or RCS before
adopting ClearCase.
The second group consists of companies that offer products directly
competitive with Atria in the UNIX marketplace, including Sun, which offers
TeamWare, IBM, which offers Configuration Management/Version Control (CMVC),
Computer Associates (CA) through its acquisition of LEGENT Corporation, which
offers its Endeavor WSX product, and Platinum Technologies through its
acquisition of Softool Corp., which markets CCC Harvest. In addition, there
are several smaller, privately held companies that market competitive
products, including Continuous Software Corporation, which markets
Continuous/CM. Those companies that are publicly held each have significantly
greater financial, technological and marketing resources than Atria.
The third group consists of companies that have offered version control or
configuration management products outside the UNIX market. The primary
companies in this category are CA, Intersolv and Microsoft. CA has a large
installed base of its configuration management product on IBM mainframes.
Intersolv has a large installed base of DOS and Windows software developers.
In 1994, Microsoft acquired OneTree Software which offers a version control
product. These companies have significantly greater financial, technological
and marketing resources than Atria.
In the CRM market, most CRM products exist as part of a broader product
offering. Some of the companies who provide SCM or software quality solutions
(including Pure) also provide CRM products. There are companies in the
customer support business who provide CRM as part of their offering. In
addition certain hardware vendors offer a product that provides CRM
functionality and some software development organizations provide CRM as part
of an internally developed system.
Atria believes that it competes effectively in the software development
software market on the basis of product functionality, product reliability,
price/performance characteristics, ease of product adoption and use, end-user
support and corporate reputation. However, there can be no assurance that
Atria will be able to continue
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to compete effectively in the software development market or that its
profitability or financial performance will not be adversely affected by
increased competition. Further there can be no assurance that Atria's current
competitors or other entities will not develop configuration management or
change request management software products or other technologies offering
significant advantages over Atria's technology, which could have a material
adverse effect on Atria's business and financial results. In addition, as
Atria introduces new products and expands its product offerings in the non-
UNIX client/server development environments, Atria may confront new
competitors with substantially greater financial, technical and marketing
resources than Atria. There can be no assurance that Atria can compete
effectively in these markets.
INTELLECTUAL PROPERTY AND OTHER PROPRIETARY RIGHTS
Atria primarily relies upon a combination of copyright, trademark and trade
secret laws and license agreements to establish and protect proprietary rights
in its products. The source code for Atria's products is protected both as a
trade secret and as an unpublished copyrighted work. Despite these
precautions, it may be possible for a third party to copy or otherwise obtain
and use Atria's products or technology without authorization or to develop
similar technology independently. In addition, effective copyright and trade
secret protection may be unavailable or limited in certain foreign countries.
Because the software development industry is characterized by rapid
technological change, Atria believes that factors such as technological and
creative skills of its personnel, new product developments, frequent product
enhancements, name recognition and reliable product maintenance are more
important to establishing and maintaining a technology leadership position
than the various legal protections of its technology.
Atria does not hold any patents, although Atria has filed three U.S. patent
applications on various elements of its products. There can be no assurance
that patents will be issued with respect to any of these applications or, if
issued, that the patents will provide meaningful protection for Atria.
Certain technology used in Atria's products is licensed on a perpetual,
fully-paid, non-royalty bearing basis from third parties. As part of a
ClearCase distribution agreement, Atria has also secured perpetual, non-
royalty bearing licensing rights for certain patents and intellectual property
owned by a former employer of Atria's founders. Atria is a perpetual source
code licensee of the more significant licensed technology included in its
products, and is not dependent on the original supplier for continued
enhancement. Where Atria does not have source code rights, it has purchased
support and maintenance from the supplier of the licensed technology. If any
event occurred that rendered technology licensed from a third party and
incorporated in Atria's products unavailable to Atria, or if the technology is
not appropriately supported and enhanced by the licensor, Atria would be
forced to expend financial and development resources to replace that
technology. Such expenditures could materially adversely affect Atria's
business, financial condition and results of operations.
Atria, Atria Software and ClearCase are registered trademarks of Atria in
the United States and certain foreign jurisdictions. The Atria logo, ClearCase
MultiSite, ClearCase Attache and ClearTrack are trademarks of Atria.
Atria is not aware that any of its products infringes the proprietary rights
of third parties. There can be no assurance, however, that third parties will
not claim such infringement by Atria or its licensers with respect to current
or future products. Atria expects that software product developers will
increasingly be subject to such claims as the number of products and
competitors in Atria's industry segment grows and the functionality of
products in different industry segments overlaps. Any such claims, with or
without merit, could be time-consuming, result in costly litigation, cause
product shipment delays or might require Atria to enter into royalty or
licensing agreements. Such royalty or licensing agreements, if required, may
not be available on terms acceptable to Atria.
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EMPLOYEES
As of March 31, 1996, Atria had 244 full-time employees, consisting of 80
employees in product development, 105 employees in sales and marketing, 23
employees in general and administrative functions, and 36 employees in
training, consulting and customer support. No employees are covered by any
collective bargaining agreements. Atria believes that its relationship with
its employees is good. The future success of Atria depends in a large part on
its ability to attract and retain qualified personnel. Competition for
qualified personnel is intense, and there can be no assurance that Atria will
be able to attract and retain qualified personnel in the future.
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ATRIA MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
The following table sets forth certain financial data as a percentage of
revenue for the periods indicated. In view of Atria's significant growth in
the past three years, Atria believes that period-to-period comparisons of its
financial results should be relied upon as an indication of future
performance.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------
1993 1994 1995 1995 1996
------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C>
Revenue:
License fees...................... 78.3% 77.3% 73.2% 75.0% 71.4%
Services.......................... 21.7% 22.7% 26.8% 25.0% 28.6%
------- ------- ------- ------ ------
100.0% 100.0% 100.0% 100.0% 100.0%
------- ------- ------- ------ ------
Cost of revenue:
License fees...................... 3.1% 2.6% 1.7% 1.4% 1.1%
Services.......................... 3.8% 6.9% 8.6% 8.5% 10.1%
------- ------- ------- ------ ------
6.9% 9.5% 10.3% 9.9% 11.2%
------- ------- ------- ------ ------
Gross profit........................ 93.1% 90.5% 89.7% 90.1% 88.8%
------- ------- ------- ------ ------
Operating expenses:
Research and development.......... 26.6% 20.5% 19.9% 19.6% 18.9%
In-process research and
development...................... -- -- 3.7% -- --
Sales and marketing............... 50.3% 45.5% 44.2% 44.4% 42.4%
General and administrative........ 8.5% 8.0% 7.5% 7.5% 7.2%
------- ------- ------- ------ ------
85.4% 74.0% 75.3% 71.5% 68.5%
------- ------- ------- ------ ------
Income from operations.............. 7.7% 16.5% 14.4% 18.6% 20.3%
Dividend and interest income........ 1.3% 3.3% 4.0% 3.8% 3.4%
------- ------- ------- ------ ------
Income before income taxes.......... 9.0% 19.8% 18.4% 22.4% 23.7%
------- ------- ------- ------ ------
Provision for income taxes.......... 0.1% 3.6% 5.5% 6.7% 8.3%
------- ------- ------- ------ ------
Net income.......................... 8.9% 16.2% 12.9% 15.7% 15.4%
======= ======= ======= ====== ======
Gross margins:
License fees...................... 96.1% 96.7% 97.7% 98.1% 98.4%
Services.......................... 82.2% 69.6% 68.0% 66.1% 64.6%
------- ------- ------- ------ ------
93.1% 90.5% 89.7% 90.1% 88.8%
======= ======= ======= ====== ======
</TABLE>
Three and Six Months Ended June 30, 1996
For the three months ended June 30, 1996, Atria reported revenue of
$15,496,000, an increase of 68% over revenue of $9,209,000 for the same period
of 1995. Net income increased 73% to $2,441,000 or $.16 per share for the
three months ended June 30, 1996, compared with $1,412,000 or $.09 per share
for the same period of 1995. For the six months ended June 30, 1996, Atria
reported revenue of $28,998,000, an increase of 68% over revenue of
$17,229,000 for the same period of 1995. Net income increased 69% to
$4,517,000 or $.30 per share for the six months ended June 30, 1996, compared
with $2,668,000 or $.18 per share for the same period of 1995. The company's
financial position remained strong as its cash position, consisting of cash,
cash equivalents, and short-term investments, was approximately $47,111,000 at
June 30, 1996 versus $41,099,000 at December 31, 1995.
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Three Months Ended March 31, 1995 and 1996
Revenue. Total revenue increased 68% from $8,020,000 in the three months
ended March 31, 1995 to $13,502,000 in the three months ended March 31, 1996.
Revenue growth was affected by expanded sales and marketing activities as well
as expanded product offerings. Approximately 91% of Atria's total revenue in
the three months ended March 31, 1995 was attributable to Atria's direct sales
force compared with approximately 94% in the three months ended March 31,
1996. This increase was primarily due to the expansion of the direct sales
force. Revenue from customers outside North America increased from
approximately 20% of total revenue in the three months ended March 31, 1995
compared to approximately 22% in the three months ended March 31, 1996. This
increase is the result of Atria's continuing penetration of international
markets, primarily in Europe through the efforts of its direct sales force
located in the United Kingdom, France and Germany.
Atria expects that revenue from customers outside North America will
increase as a percentage of total revenue as Atria continues its penetration
of international markets and that continued growth and profitability will
require further expansion of sales in these markets. However, future growth in
and expansion of international sales and operations are subject to risks and
uncertainties. Some of the factors that could adversely affect such growth
are: the imposition of government controls, export license requirements and
restrictions, political and economic conditions and instability, trade
restrictions, currency fluctuations, changes in tariffs and taxes,
difficulties in staffing and managing international operations, and high local
wage scales and other operating costs and expenses.
License fee revenue increased 60% from $6,011,000 in the three months ended
March 31, 1995 to $9,640,000 in the three months ended March 31, 1996. The
principal reason for this increase was the continued increase in customer
acceptance of Atria's products, which Atria believes was strengthened by
expanded sales and marketing efforts and releases of new versions of Atria's
products. This increased customer acceptance resulted in an expansion of the
customer base as well as strong repeat orders from existing customers.
Services revenue increased 92% from $2,009,000 in the three months ended
March 31, 1995 to $3,862,000 in the three months ended March 31, 1996. The
increase in services revenue was primarily attributable to increased software
maintenance, training and consulting revenue that was realized principally as
a result of the growth in the installed base. To date, substantially all of
Atria's direct customers have purchased annual service contracts on initial
sale and have renewed such contracts upon expiration. Atria expects that
services revenue will increase over time as support and maintenance revenues
increase with the growth of the installed base.
Cost of revenue. Total cost of revenue increased 91% from $796,000 in the
three months ended March 31, 1995 to $1,522,000 in the three months ended
March 31, 1996, and increased as a percentage of total revenue from 9.9% to
11.2%.
Cost of license fee revenue consists of the cost of product packaging,
documentation and tapes that are shipped to customers, and royalties payable
upon the license of products for which another party is entitled to receive
compensation. Such royalties are incurred on a per license basis and are
included in cost of revenue in the period in which the associated revenue is
recognized. Atria is not currently obligated to pay any minimum royalty
amounts to third parties. Cost of license fee revenue increased 33% from
$115,000 in the three months ended March 31, 1995 to $153,000 in the three
months ended March 31, 1996 and decreased as a percentage of license fee
revenue from 1.9% to 1.6%. This percentage decrease is primarily due to a
continued decrease in Atria's cost of reproducing and distributing
documentation, associated with an increase in customers' utilization of
camera-ready documentation. Royalty expense as a percentage of license fee
revenue remained approximately the same in the three months ended March 31,
1995 versus the three months ended March 31, 1996. To date, Atria has not
capitalized any software development costs.
Cost of services revenue consists principally of personnel costs for
training, consulting and customer support. Cost of services revenue increased
101% from $681,000 in the three months ended March 31, 1995 to $1,369,000 in
the three months ended March 31, 1996 and increased as a percentage of
services revenue from
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33.9% to 35.4%. The increase is the net result of higher costs due primarily
to increased staffing of Atria's customer support and training organizations
in the United States and Germany. While Atria expects to make continued
investments in its service organization in the future to expand service
capabilities in order to support an increasing number of users in the
installed customer base operating on an increased number of platforms, Atria
expects that such expenditures as a percentage of services revenue will remain
approximately the same.
Research and development. Research and development expenses, consisting
primarily of salaries, benefits and related costs, increased 62% from
$1,572,000 in the three months ended March 31, 1995 to $2,554,000 in the three
months ended March 31, 1996 and decreased as a percentage of total revenue
from 19.6% to 18.9%. This increase in research and development expenses
resulted primarily from growth in the research and development staff for the
continued development of new software products, as well as the enhancement and
support of existing products. While Atria intends to increase the amount of
resources dedicated to product development in the future, it expects that such
expenses as a percentage of total revenue will remain approximately the same.
To date, the Company has not capitalized any software development costs.
Sales and Marketing. Sales and marketing expenses, consisting primarily of
salaries, commissions and promotional costs, increased 61% from $3,563,000 in
the three months ended March 31, 1995 to $5,719,000 in the three months ended
March 31, 1996 and decreased as a percentage of total revenue from 44.4% to
42.4%. This increase in sales and marketing expenses was primarily due to an
increase in the number of sales and marketing personnel, an increase in the
amount of sales commissions associated with increased revenue and an increase
in promotional spending. While Atria intends to increase the amount of sales
and marketing expenditures in the future, it expects that such expenses as a
percentage of total revenue will remain approximately the same.
General and Administrative. General and administrative expenses, consisting
primarily of the corporate, finance, and administrative expenses of Atria,
increased 61% from $600,000 in the three months ended March 31, 1995 to
$968,000 in the three months ended March 31, 1996, but decreased as a
percentage of total revenue from 7.5% to 7.2%. This increase in general and
administrative expenses was primarily due to an increase in the number of
financial and administrative personnel required to build and maintain an
infrastructure to support Atria's growth, as well as increased costs
associated with being a public company. While Atria intends to increase the
amount of general and administrative expenses in the future, it expects that
such expenses as a percentage of total revenue will remain approximately the
same.
Dividend and Interest Income. Dividend and interest income, consisting of
dividends and interest earned on Atria's excess cash balances, increased 49%
from $305,000 in the three months ended March 31, 1995 to $454,000 in the
three months ended March 31, 1996. The increase is due to an increase in the
average cash balance invested during the three months ended March 31, 1996,
which was primarily due to higher cash generated by operations.
Provision for Income Taxes. The provision for income taxes was $538,000 in
the three months ended March 31, 1995 and $1,117,000 in the three months ended
March 31, 1996 representing 30% and 35% of pretax income, respectively. The
provision for the three months ended March 31, 1995 was lower than the three
months ended March 31, 1996 due primarily to tax benefits resulting from the
utilization of research and development tax credits. Atria expects that its
tax rate will normalize in future years.
Year Ended December 31, 1994 and 1995
Revenue. Total revenue increased 93% from $20,765,000 in 1994 to $40,143,000
in 1995. Revenue growth was affected by expanded sales and marketing
activities as well as expanded product offerings. Approximately 84% of Atria's
total revenue in 1994 was attributable to Atria's direct sales force compared
with approximately 93% in 1995. This increase was primarily due to the
expansion of the direct sales force. Revenue from customers outside North
America increased from approximately 18% of total revenue in 1994 compared to
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approximately 21% in 1995. This increase is the result of Atria's continuing
penetration of international markets through the efforts of its direct sales
teams established in the United Kingdom, France and Germany in 1994.
License fee revenue increased 83% from $16,057,000 in 1994 to $29,368,000 in
1995. The principal reason for the increase in license fee revenue in 1995
over 1994 was the continued increase in customer acceptance of Atria's
products, which Atria believes was strengthened by the release of ClearCase
2.0 and ClearCase MultiSite in late 1994 and the initial releases of ClearCase
for Microsoft Windows NT in the first quarter of 1995 and ClearCase Attache in
the second quarter of 1995, as well as by the expansion of platform support
for the UNIX-based products. This increased customer acceptance resulted in an
expansion of the customer base as well as strong repeat orders from existing
customers.
Services revenue increased 129% from $4,708,000 in 1994 to $10,775,000 in
1995. The increase in services revenue was primarily attributable to increased
software maintenance, training and consulting revenue that was realized
principally as a result of the growth in the installed base. To date,
substantially all of Atria's direct customers have purchased annual service
contracts on initial sale and have renewed such contacts upon expiration.
Cost of Revenue. Total cost of revenue increased 109% from $1,965,000 in
1994 to $4,115,000 in 1995, and increased as a percentage of total revenue
from 9.5% to 10.3%. Cost of license fee revenue consists of the cost of
product packaging, documentation and tapes that are shipped to customers, and
royalties payable upon the license of products for which another party is
entitled to receive compensation. Such royalties are incurred on a per license
basis and are included in cost of revenue in the period in which the
associated revenue is recognized. Atria is not currently obligated to pay any
minimum royalty amounts to third parties. Cost of license fee revenue
increased 24% from $534,000 in 1994 to $664,000 in 1995 and decreased as a
percentage of license fee revenue from 3.3% to 2.3%. This percentage decrease
is primarily due to a continued decrease in Atria's cost of reproducing and
distributing documentation, associated with an increase in customers'
utilization of camera-ready documentation. Also, royalty expenses as a
percentage of license fee revenue was lower in 1995 than in 1994.
Cost of services revenue consists principally of personnel costs for
training, consulting and customer support. Cost of services revenue increased
141% from $1,431,000 in 1994 to $3,451,000 in 1995 and increased a percentage
of services revenue from 30.4% to 32.0%. The increase is the result of higher
costs due primarily to increased staffing of Atria's customer support and
training organizations, including the operation of a support center in Germany
that was established in the first quarter of 1995.
Research and Development. Research and development expenses, consisting
primarily of salaries, benefits and related costs, increased 87% from
$4,261,000 in 1994 to $7,974,000 in 1995 but decreased as a percentage of
total revenue from 20.5% to 19.9%. The increase in expenses resulted primarily
from growth in the research and development staff for the continued
development of new software products, as well as the enhancement and support
of existing products.
In-Process Research and Development. During the quarter ended September 30,
1995, Atria recorded a one-time pre-tax charge of $1,500,000 for in-process
research and development expenses in connection with the acquisition of
technology. This technology is incorporated in Atria's new ClearTrack product,
a client/server change request management product that tracks defects and
enhancement requests throughout the software lifecycle. Atria began shipping
ClearTrack in the first quarter of 1996.
Sales and Marketing. Sales and marketing expenses, consisting primarily of
salaries, commissions and promotional costs, increased 88% from $9,441,000 in
1994 to $17,748,000 in 1995 but decreased as a percentage of total revenue
from 45.5% to 44.2%. The increase in expenses during 1995 was primarily due to
an increase in the number of sales and marketing personnel, an increase in the
amount of sales commissions associated with increased revenue and an increase
in promotional spending.
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General and Administrative. General and administrative expenses, consisting
primarily of the corporate, finance, and administrative expenses of Atria,
increased 82% from $1,651,000 in 1994 to $3,001,000 in 1995, but decreased as
a percentage of total revenue from 8.0% to 7.5%. The increase in expenses
during 1995 was primarily due to an increase in the number of financial and
administrative personnel required to build an infrastructure to support
Atria's growth, as well as increased costs associated with being a public
company.
Dividend and Interest Income. Dividend and interest income, consisting of
dividends and interest earned on Atria's excess cash balances, increased 135%
from $675,000 in 1994 to $1,586,000 in 1995. The increase is due to an
increase in the average cash balance invested during 1995, which was primarily
due to higher cash generated by operations as well as having the proceeds of
Atria's initial public offering (IPO) of May 13, 1994 for the full fiscal
year.
Provision for Income Taxes. The provision for income taxes was $742,000 in
1994 and $2,218,000 in 1995 representing 18.0% and 30.0% of pretax income,
respectively. The provision for 1994 was lower than 1995 due primarily to tax
benefits resulting from the utilization of net operating loss carryforwards as
well as tax credits. The loss carryforwards were fully utilized at the end of
1994.
Years Ended December 31, 1993 and 1994
Revenue. Total revenue increased 124% from $9,262,000 in 1993 to $20,765,000
in 1994. Revenue growth was affected by expanded sales and marketing
activities, including the establishment of a direct sales presence in Europe.
Approximately 74% of Atria's total revenue in 1993 was attributable to its
direct sales force compared with approximately 84% in 1994. This increase was
primarily due to the expansion of the direct sales force. Revenue from
customers outside North America accounted for approximately 14% of total
revenue in 1993 compared with approximately 18% in 1994.
License fee revenue increased 121% from $7,253,000 in 1993 to $16,057,000 in
1994. The principal reason for the increase in license fee revenue in 1994
over 1993 was the increased customer acceptance of Atria's products, which
Atria believes was strengthened by the release of ClearCase 2.0 and ClearCase
MultiSite, as well as by the expansion of the UNIX-based platform support for
those products. This increased customer acceptance resulted in expansion of
the customer base as well as strong repeat orders from existing customers.
Services revenue increased 134% from $2,009,000 in 1993 to $4,708,000 in
1994. The increase in services revenue was primarily attributable to increased
volume of support and training services principally as a result of the
increase in the installed base.
Cost of Revenue. Total cost of revenue increased 207% from $641,000 in 1993
to $1,965,000 in 1994, and increased as a percentage of total revenue from
6.9% to 9.5%. Cost of license fee revenue increased 89% from $283,000 in 1993
to $534,000 in 1994 and decreased as a percentage of license fee revenue from
3.9% to 3.3%. This decrease is primarily due to a decrease in Atria's cost of
reproducing and distributing documentation, resulting from an increase in
customers' utilization of camera-ready documentation.
Cost of services revenue increased 300% from $358,000 in 1993 to $1,431,000
in 1994 and increased as a percentage of services revenue from 17.8% to 30.4%.
The increase was due primarily to increased staffing of Atria's customer
support and training organizations during 1994 to support the rapidly growing
customer base.
Research and Development. Research and development expenses increased 73%
from $2,463,000 in 1993 to $4,261,000 in 1994, but decreased as a percentage
of total revenue from 26.6% to 20.5%. The increase in expenses resulted
primarily from growth in the research and development staff for the continued
development of new software products, as well as the enhancement and support
of existing products. Atria did not capitalize any software development costs
in 1993 or 1994.
Sales and Marketing. Sales and marketing expenses increased 103% from
$4,658,000 in 1993 to $9,441,000 in 1994 but decreased as a percentage of
total revenue from 50.3% to 45.5%. The increase in
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expenses during 1994 was primarily due to an increase in the number of sales
personnel, an increase in the amount of sales commissions associated with
increased revenue and an increase in promotional spending.
General and Administrative. General and administrative expenses increased
109% from $791,000 in 1993 to $1,651,000 in 1994, but decreased as a
percentage of total revenue from 8.5% to 8.0%. The increase in expenses during
1994 was primarily due to an increase in the number of financial and
administrative personnel required to build an infrastructure to support
Atria's growth, as well as increased costs associated with being a public
company.
Dividend and Interest Income. Dividend and interest income increased 467%
from $119,000 in 1993 to $675,000 in 1994. The increase is due to an increase
in excess cash balances, which were generated primarily by the net proceeds of
Atria's initial public offering on May 13, 1994 of $21,402,000, and also by
higher cash generated by operations.
Provision for Income Taxes. The provision for income taxes was $10,000 in
1993 and $742,000 in 1994 representing 1.2% and 18.0% of pretax income,
respectively. The provision for 1993 and 1994 was significantly reduced by the
tax benefits resulting from the utilization of net operating loss
carryforwards as well as tax credits. The loss carryforwards were fully
utilized at the end of 1994.
LIQUIDITY AND CAPITAL RESOURCES
Atria currently meets its cash requirements through cash provided by
operations. On May 13, 1994, Atria received net proceeds of approximately
$21,402,000 relating to the initial public offering (IPO) of 3,940,000 shares
of common stock (adjusted for the two-for-one stock split effective September
18, 1995). Atria expects to use the proceeds for general corporate purposes,
including working capital. A portion of these proceeds may also be used for
the acquisition of businesses, products and technologies that are
complementary to those of Atria. Pending such uses, these proceeds are
invested in short-term investments as discussed below. Prior to the IPO, Atria
was funded by cash provided by operations and by the private sale of equity
securities.
Atria's financial position remained strong as its cash position, consisting
of cash, cash equivalents, and short-term investments, was approximately
$41,099,000 at December 31, 1995 versus $44,795,000 at March 31, 1996. Net
cash provided by operations totaled $1,387,000 and $4,398,000 for the three
months ended March 31, 1995 and 1996, respectively. Net cash provided by
operations for the three months ended March 31, 1996 consisted principally of
net income, adjusted for increased depreciation and amortization, deferred
revenue and income taxes payable, offset by growth in accounts receivable
(reflecting a slightly increased Days Sales Outstanding as well as increased
revenue levels) and an increase in prepaid expenses. Atria expects that Days
Sales Outstanding will increase as international revenue increases, Atria
expands into new markets, and the customer base expands.
Atria utilized $895,000 and $1,652,000 of net cash for investing activities
for the three months ended March 31, 1995 and 1996. Net cash used for
investing activities consists of the amount utilized for the purchase of
available-for-sale securities and for the purchase of property and equipment,
principally computers and related software, offset by the proceeds from the
sale of available-for-sale securities. For the three months ended March 31,
1995, Atria utilized $782,000 for purchases of property and equipment as
compared to $1,092,000 for the three months ended March 31, 1996. The increase
is primarily due to costs related to the increase in Atria's employee base.
Atria expects that additional purchases of equipment will be made as the
employee base grows. As of March 31, 1996, Atria had no material commitments
for capital expenditures. The purchase and sale of available-for-sale
securities represents the investment of Atria's excess funds in both taxable
and tax-exempt short-term investments. The investment of excess funds consists
mainly of municipal bonds, money market funds and short-term commercial paper.
As of March 31, 1996, all of these investments have been classified as
available-for-sale securities as defined by Statement of Financial Accounting
Standards No. 115, "Accounting for Certain Investments in Debt and Equity
Securities".
106
<PAGE>
Net cash provided by financing activities totaled $47,000 and $448,000 for
the three months ended March 31, 1995 and 1996, consisting of the proceeds
from stock option exercises.
As of December 31, 1995, Atria had working capital of $32,674,000 compared
with working capital of $35,127,000 at March 31, 1996. Atria does not have a
bank line of credit. Atria believes that existing cash balances and the cash
flow generated by operations will be sufficient to meet its working capital
and capital expenditure requirements at least through 1996.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
From time to time, information provided by Atria or statements made by its
employees may contain "forward-looking" information which involves risk and
uncertainties. In particular, statements contained in the Management's
Discussion and Analysis of Financial Condition and Results of Operations which
are not historical facts (including, but not limited to, statements concerning
anticipated operating expense levels and such expense levels relative to
Atria's total revenues) are "forward-looking statements." Atria's actual
future results may differ significantly from those stated in any forward-
looking statements. Factors that may cause such differences include, but are
not limited to, the factors discussed below as well as the accuracy of Atria's
internal estimates of revenue and operating expense levels. Each of these
factors, and others, are discussed from time to time in Atria's Securities and
Exchange Commission filings.
Atria's future results are subject to substantial risks and uncertainties.
Atria currently derives substantially all of its revenue from licenses of
ClearCase and related products and services. As a result, any factor adversely
affecting sales of ClearCase would have a material adverse effect on Atria. In
addition, broad market acceptance of Atria's products, including acceptance in
markets characterized by greater usage of the Windows and Windows NT operating
system, is critical to Atria's future success. Atria believes that factors
affecting the ability of Atria's products to achieve broad market acceptance
include: product performance, price, ease of adoption and displacement of
existing approaches. The application development software industry is
extremely competitive and is subject to rapid technological change, frequent
new product introductions and evolving domestic and international industry
standards that may render existing products and services obsolete. To be
successful in the future, Atria must respond promptly and effectively to the
challenges of technological change and its competitors' innovations by
continually enhancing its current products and developing new products on a
timely basis. Atria expects to confront new competitors as it introduces new
products and expands into new markets. Certain current and potential
competitors of Atria are more established, benefit from greater market
recognition and have substantially greater financial, development and
marketing resources than Atria. Competitive pressures or other factors,
including entry into new markets, may result in significant price erosion that
could have a material adverse effect on Atria's results of operations.
Atria believes that its operating results could vary significantly from
quarter to quarter. Atria's license fee revenue in any quarter is
substantially dependent on orders booked and shipped in that quarter. The
timing of license fee revenue is influenced by a number of factors, including:
the timing of individual orders and shipments of its products, seasonal
customer buying patterns, changes and delays in product development, and the
amount and timing of sales and marketing expenditures. Because Atria's
operating expenses are based on anticipated revenue levels and a high
percentage of Atria's expenses are relatively fixed in the short term,
variations in the timing of recognition of revenue can cause significant
fluctuations in operating results from quarter to quarter and may result in
unanticipated quarterly earnings, shortfalls or losses. In such event, the
price of Atria Common Stock would likely be materially adversely affected.
107
<PAGE>
SECURITIES OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF ATRIA
The following table sets forth as of July 1, 1996 (unless otherwise
indicated), certain information regarding beneficial ownership of Atria's
Common Stock by: (i) each person who is known to beneficially own more than 5%
of the outstanding shares of Atria Common Stock; (ii) each director of Atria;
(iii) each executive officer named in the Summary Compensation Table on page
113; and (iv) all directors and executive officers of Atria as a group.
<TABLE>
<CAPTION>
AMOUNT AND PERCENTAGE OF ATRIA
NATURE OF COMMON STOCK
NAME AND ADDRESS OF BENEFICIAL OWNER OWNERSHIP(1) OUTSTANDING(2)
- ------------------------------------ ------------ -------------------
<S> <C> <C>
Pure Software Inc. (3)........................ 2,932,877 17.8%
1309 South Mary Avenue
Sunnyvale, CA 94087
Amerindo Investment Advisors Inc.(4).......... 1,631,872 11.4%
One Embarcadero Center
Suite 2300
San Francisco, CA 94111
Investment Advisors, Inc. (5)................. 841,100 5.9%
3700 First Bank Place
Box 357
Minneapolis, MN 55440
Duncan-Hurst Capital Management, Inc. (5)..... 722,450 5.0%
4635 Executive Drive
Suite 1520
San Diego, CA 92121
Paul H. Levine(6)............................. 354,600 2.5%
David B. Leblang(7)........................... 273,400 1.9%
John C. Leary(8).............................. 90,400 *
Elliot M. Katzman(9).......................... 92,400 *
Gardner C. Hendrie(10)........................ 80,991 *
Louis J. Volpe(11)............................ 35,964 *
David A. Litwack(12).......................... 13,800 *
Robert D. Pavey(13)........................... 13,232 *
Paul J. Ferri(14)............................. 12,052 *
All executive officers and directors as a
group (10 persons)(15)....................... 971,239 6.7%
</TABLE>
- --------
* Less than one percent of the outstanding Atria Common Stock.
(1) The persons named in the table have sole voting and investment power with
respect to all shares shown as beneficially owned by them, except as
noted in the footnotes below. All share information has been adjusted to
give effect to the two-for-one stock split in the form of a 100% stock
dividend effective in September 1995.
(2) The number of shares of Atria Common Stock deemed outstanding on July 1,
1996 includes (i) 14,372,812 shares of Atria Common Stock outstanding on
such date and (ii) all options that are currently exercisable or will
become exercisable within 60 days of July 1, 1996 by the person or group
in question. The option information included in the above table does not
include any options that will become exercisable immediately prior to the
Effective Time of the Merger due to certain acceleration provisions.
Atria's 1994 Stock Plan and Atria's 1994 Non-Employee Director Stock
Option Plan and option agreements issued thereunder provide that if Atria
is merged or consolidated with or into another entity, or if all or
substantially all of Atria's assets are acquired by another entity, then
the exercisability of the option accelerates such that the number of
shares that shall become exercisable immediately preceding the
108
<PAGE>
Effective Time of the Merger shall equal that number of shares that would
be fully exercisable as of the date that is 2 1/2 years after the Effective
Time of the Merger if such option otherwise would have remained outstanding
for such period. The information in the above table includes shares issued
or issuable pursuant to Atria's 1990 Stock Option Plan that are currently
subject to repurchase by Atria. Atria's 1990 Stock Option Plan and option
agreements thereunder provide that if Atria is merged or consolidated with
or into another entity, or if all or substantially all of Atria's assets
are acquired by another entity, then the repurchase rights will partially
lapse such that the number of shares that shall become vested (and no
longer subject to repurchase) shall equal that number of shares that would
be fully vested as of the date that is 2 1/2 years after the Effective Time
of the Merger if such vesting would have continued pursuant to the terms of
the option agreements for such period. The Merger, if consummated, will
trigger the above provisions of Atria's Stock Option Plans and option
agreements. See footnotes (6)-(15) below for further information regarding
the impact of these acceleration provisions on certain beneficial owners
included in the above table.
(3) Includes 2,149,038 shares which Pure has the right to acquire under
certain circumstances pursuant to the Atria Stock Option Agreement. If
acquired, Pure will have sole voting power and sole investment power over
such shares. Also includes 783,839 shares as to which Pure shares voting
power with the Atria Board and those officers of Atria who are parties to
the Atria Voting Agreement. Pure does not have sole or shared investment
power over those shares.
(4) These securities are owned in the aggregate by Amerindo Investment
Advisors Inc., a California corporation, Amerindo Advisors (U.K.)
Limited, Amerindo Investment Advisors, Inc., a Panama corporation,
Alberto W. Vilar and Gary A. Tanaka, based on information as of December
31, 1995 obtained from a Schedule 13D, a copy of which was received by
Atria; however, these stockholders expressly disclaim that they are, in
fact, the beneficial owner of such securities.
(5) This information was obtained from filings made with the SEC pursuant to
Section 13(d) or 13(g) of the Exchange Act.
(6) Includes 59,600 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include options to purchase 28,000
shares of Atria Common Stock that will become exercisable immediately
prior to the Effective Time of the Merger due to the acceleration
provisions discussed in footnote (2) above. Also includes 200,000 shares
of Atria Common Stock issued or issuable pursuant to the Atria 1990 Stock
Option Plan as of July 1, 1996, of which 100,000 shares would be subject
to repurchase as of August 30, 1996 and, assuming the Merger is
consummated on such date, none of these shares would be subject to
repurchase.
(7) Includes 25,400 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 15,000 shares of Atria
Common Stock that will become exercisable immediately prior to the
Effective Time of the Merger due to the acceleration provisions discussed
in footnote (2) above. Also includes 20,000 shares of Atria Common Stock
issued or issuable pursuant to the Atria 1990 Stock Option Plan as of
July 1, 1996, of which 10,000 shares would be subject to repurchase as of
August 30, 1996 and, assuming the Merger is consummated on such date,
none of these shares would be subject to repurchase.
(8) Includes 65,400 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 15,000 shares of Atria
Common Stock that will become exercisable immediately prior to the
Effective Time of the Merger due to the acceleration provisions discussed
in footnote (2) above. Also includes 60,000 shares of Atria Common Stock
issued or issuable pursuant to the Atria 1990 Stock Option Plan as of
July 1, 1996, of which 42,500 shares would be subject to repurchase as of
August 30, 1996 and, assuming the Merger is consummated on such date,
none of these shares would be subject to repurchase.
(9) Includes 2,400 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 15,000 shares of Atria
Common Stock that will become exercisable immediately prior to the
Effective Time of the Merger due to the acceleration provisions discussed
in footnote (2) above. Also includes 90,000 shares of Atria Common Stock
issued or issuable pursuant to the Atria 1990 Stock Option Plan as of
July 1, 1996,
109
<PAGE>
of which 81,000 shares would be subject to repurchase as of August 30,
1996 and, assuming the Merger is consummated as of such date, none of
these shares would be subject to repurchase.
(10) Includes 1,600 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 4,000 shares of Atria Common
Stock that will become exercisable immediately prior to the Effective
Time of the Merger due to the acceleration provisions discussed in
footnote (2) above.
(11) Includes 21,600 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 4,000 shares of Atria Common
Stock that will become exercisable immediately prior to the Effective
Time of the Merger due to the acceleration provisions discussed in
footnote (2) above. Also includes 20,000 shares of Atria Common Stock
issued or issuable pursuant to the Atria 1990 Stock Option Plan as of
July 1, 1996, of which 7,000 shares would be subject to repurchase as of
August 30, 1996 and, assuming the Merger is consummated on such date,
none of these shares would be subject to repurchase.
(12) Includes 13,800 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 4,000 shares of Atria Common
Stock that will become exercisable immediately prior to the Effective
Time of the Merger due to the acceleration provisions discussed in
footnote (2) above. Also includes 13,000 shares of Atria Stock Option
Plan as of July 1, 1996, of which 11,000 shares would be subject to
repurchase as of August 30, 1996 and, assuming the Merger is consummated
on such date, the number of shares subject to repurchase would be reduced
to 1,000 shares.
(13) Includes 1,600 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 4,000 shares of Atria Common
Stock that will become exercisable immediately prior to the Effective
Time of the Merger due to the acceleration provisions discussed in
footnote (2) above. Also includes 7,755 shares of Atria Common Stock
owned by the Pavey Family Partnership. Mr. Pavey is a general partner of
the Pavey Family Partnership and may be deemed to share voting and
investment power with respect to such shares. Mr. Pavey disclaims
beneficial ownership of the shares of Atria Common Stock owned by the
Pavey Family Partnership, except to the extent of his proportionate
pecuniary interest therein.
(14) Includes 1,600 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 4,000 shares of Atria Common
Stock that will become exercisable immediately prior to the Effective
Time of the Merger due to the acceleration provisions discussed in
footnote (2) above.
(15) Includes 197,400 shares of Atria Common Stock issuable pursuant to stock
options that are currently exercisable or will become exercisable within
60 days of July 1, 1996 but does not include 113,000 shares of Atria
Common Stock issuable pursuant to stock options that will become
exercisable immediately prior to the Effective Time of the Merger due to
the acceleration provisions discussed in footnote (2) above. Also
includes 428,000 shares of Atria Common Stock issued or issuable pursuant
to the Atria 1990 Stock Option Plan as of July 1, 1996, of which 251,500
shares would be subject to repurchase as of August 30, 1996 and, assuming
the Merger is consummated by such date, the number of shares subject to
repurchase would be reduced to 1,000 shares.
110
<PAGE>
OCCUPATIONS OF DIRECTORS AND EXECUTIVE OFFICERS OF ATRIA
The following table sets forth for each Director and the executive officers
of Atria, their ages and present positions with Atria:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Paul H. Levine............. 42 President, Chief Executive Officer and Director
Elliot M. Katzman.......... 39 Vice President, Finance and Administration, and
Chief Financial Officer
John C. Leary.............. 50 Vice President, Sales
David B. Leblang........... 40 Chief Technical Officer
Norris H. Evans............ 50 Vice President, Research and Development
Paul J. Ferri(1)(2)........ 57 Director
Gardner C. Hendrie(1)...... 64 Director
David A. Litwack........... 49 Director
Robert D. Pavey(2)......... 54 Director
Louis J. Volpe(1)(2)....... 46 Director
</TABLE>
- --------
(1) Member of Compensation Committee.
(2) Member of Audit Committee.
PAUL H. LEVINE, a founder of Atria, has served as the President, Chief
Executive Officer and a director of Atria since February 1990. From May 1989
to February 1990, Mr. Levine was Vice President, Research and Development of
Boston Technology, Inc. Prior to 1989, Mr. Levine held various positions at ON
Technology, Inc., Apollo Computer, Inc. and Prime Computer, Inc.
ELLIOT M. KATZMAN has served as Atria's Vice President, Finance and
Administration, Chief Financial Officer since November 1993, and was Clerk of
Atria from November 1993 to January 1996. Mr. Katzman was also Treasurer of
Atria from November 1993 to May 1996. From September 1990 through October
1993, Mr. Katzman was Vice President, Finance, Chief Financial Officer and
Treasurer of Epoch Systems, Inc. From September 1988 through August 1990, Mr.
Katzman was the Vice President, Chief Financial Officer and Treasurer of
Vitronics Corporation. Prior to 1988, Mr. Katzman held various positions at
Prime Computer, Inc. and Wheelabrator Frye, Inc. and was a Certified Public
Accountant at Deloitte & Touche.
JOHN C. LEARY has served as Atria's Vice President, Sales since September
1991. From 1988 through August 1991, Mr. Leary was District Manager at MIPS
Computer Systems, Inc. Prior to 1988, Mr. Leary held various positions at BBN
Software Products, Inc., Envision Technology, Inc. and Data General
Corporation.
DAVID B. LEBLANG, a founder of Atria, has served as Atria's Chief Technical
Officer since its inception in January 1990, and was Chairman of the Board of
Directors from January 1990 to March 1993. From 1982 through 1989, Mr. Leblang
held various positions at Apollo Computer, Inc. (which was acquired by
Hewlett-Packard in 1989), including most recently that of Senior Consulting
Engineer. Prior to 1982, Mr. Leblang held various positions at Digital
Equipment Corporation.
NORRIS H. EVANS has served as Atria's Vice President, Research and
Development since January 1996, and was Engineering Manager since July 1995.
From September 1990 to July 1995, Mr. Evans was Director of Software
Development at Alpha Software Corporation, a personal computer database
software company. Prior to joining Alpha Software Corporation, Mr. Evans was
the Founder and President of Mikros Inc., a privately held software
development and publishing company.
PAUL J. FERRI has been a director of Atria since May 1990. Since 1970, Mr.
Ferri has been a general partner of Matrix Partners, a venture capital firm.
From 1988 to 1989, Mr. Ferri also served as the Chairman and Chief Executive
Officer at Paradyne Corp. Mr. Ferri is a director of Applix, Inc., BancTec
Inc., Cascade Communications Corp., Stratus Computer, Inc., TechForce Corp.
and VideoServer, Inc., which are publicly-traded companies.
111
<PAGE>
GARDNER C. HENDRIE has been a director of Atria since May 1990. Since 1989,
Mr. Hendrie has been a general partner of Sigma Partners, a venture capital
firm. Mr. Hendrie is a director of Stratus Computer, Inc., which is a
publicly-traded company.
DAVID A. LITWACK has been a director of Atria since March 1994. Since July
1995, Mr. Litwack has been Senior Vice President of Sybase, Inc., which is a
publicly-traded company. Since January 1994, Mr. Litwack has been President of
the Powersoft Division of Sybase. From January 1992 to January 1994, Mr.
Litwack was the President of Powersoft Corporation. From 1988 to January 1992,
Mr. Litwack was the Senior Vice President, Research and Development of
Powersoft Corporation.
ROBERT D. PAVEY has been a director of Atria since May 1992. Since 1969, Mr.
Pavey has been with Morgenthaler Ventures, a venture capital firm, and has
been a general partner of Morgenthaler Ventures since 1971. Mr. Pavey is a
director of Gliatech, Inc., and is a nominee to become director of Electro
Scientific Industries, Inc., which are publicly-traded companies.
LOUIS J. VOLPE has been a director of Atria since March 1993. Since February
1996, Mr. Volpe has been Senior Vice President of Sales and Marketing of
GeoTel Communications Corporation. From January 1995 to February 1996, Mr.
Volpe was the Executive Assistant for Business Development with Parametric
Technology Corporation and as such was responsible for developing and
marketing mechanical design automation software. From May 1993 to January
1995, Mr. Volpe was the Senior Vice President of Marketing and Operations of
Parametric Technology Corporation. From September 1989 to May 1993, Mr. Volpe
was the Vice President of Marketing and Operations of Parametric Technology
Corporation. Mr. Volpe is a director of Softdesk, Inc., which is a publicly-
traded company.
Executive officers of Atria are elected by the Board of Directors on an
annual basis and serve until their successors have been duly elected and
qualified. There are no family relationships among any of the executive
officers or directors of Atria.
COMPENSATION OF DIRECTORS
During the fiscal year ended December 31, 1995, outside directors were
reimbursed for their reasonable out-of-pocket expenses incurred in attending
meetings.
MARKET PRICE OF ATRIA COMMON STOCK
Atria's Common Stock is quoted on Nasdaq under the symbol "ATSW." The
following table sets forth for the periods indicated the high and low sale
prices for Atria's Common Stock.
<TABLE>
<CAPTION>
HIGH LOW
------ ------
<S> <C> <C>
1994
Second Quarter (from May 13, 1994)........................... $ 8.25 $ 5.75
Third Quarter................................................ 13.63 6.88
Fourth Quarter............................................... 15.63 11.32
1995
First Quarter................................................ 26.00 13.00
Second Quarter............................................... 25.75 21.25
Third Quarter................................................ 31.25 24.00
Fourth Quarter............................................... 42.75 27.75
1996
First Quarter................................................ 55.50 31.75
Second Quarter............................................... 70.75 49.50
Third Quarter (through July 19, 1996)........................ 54.25 41.25
</TABLE>
As of June 5, 1996, the last day prior to the announcement of the execution
of the Agreement, the closing price for Atria Common Stock as reported on
Nasdaq was $62.75.
As of July 19, 1996, the closing price for Atria Common Stock as reported on
Nasdaq was $40.50.
Atria has not paid any cash dividends since its inception and does not
intend to pay any cash dividends in the foreseeable future.
At the Atria Record Date, there were approximately 180 Atria stockholders of
record.
112
<PAGE>
COMPENSATION AND OTHER INFORMATION
CONCERNING DIRECTORS AND OFFICERS OF ATRIA
EXECUTIVE COMPENSATION SUMMARY
The following table sets forth the annual and long-term compensation of
Atria's Chief Executive Officer and each of Atria's four most highly
compensated executive officers (the "Named Executive Officers") for the fiscal
years ended December 31, 1995, 1994 and 1993.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS(1)
------------------------------------- -----------------------
COMMISSIONS
SALARY AND BONUSES OPTIONS ALL OTHER
NAME AND PRINCIPAL POSITION YEAR ($) ($)(2) (# OF SHARES)(3) COMPENSATION(4)
- --------------------------- ---- -------- ----------- ---------------- ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Paul H. Levine........... 1995 $160,000 $120,000 20,000 $ 510
President and Chief 1994 150,000 49,500 -- 332
Executive Officer 1993 140,000 30,000 200,000 288
John C. Leary............ 1995 100,000 348,405 12,000 1,440
Vice President, Sales 1994 105,772 216,788 60,000 565
1993 104,570 115,661 -- 288
Howard Spilke(5)......... 1995 145,000 90,000 12,000 870
Vice President, Research 1994 135,000 33,000 20,000 332
and Development 1993 110,000 20,000 -- 288
Elliot M. Katzman(6)..... 1995 138,000 60,000 12,000 330
Vice President, Finance
and Administration, 1994 130,000 33,000 -- 215
Chief Financial Officer
and Treasurer 1993 21,667 -- 180,000 36
David B. Leblang......... 1995 135,000 60,000 12,000 330
Chief Technical Officer 1994 120,000 33,000 20,000 215
1993 110,000 15,000 -- 288
</TABLE>
- --------
(1) Atria did not grant any restricted stock awards or stock appreciation
rights ("SARs") or make any long-term incentive plan payouts during fiscal
years 1995, 1994 or 1993.
(2) Bonuses are reported in the year earned, even if actually paid in a
subsequent year.
(3) All share information has been adjusted to give effect to the two-for-one
stock split in the form of a 100% stock dividend effective in September
1995.
(4) Consists of premiums for term life insurance paid by Atria on behalf of
the Named Executive Officer.
(5) Mr. Spilke has taken a leave of absence from Atria for an indefinite
period of time effective March 1, 1996 and ceased being an executive
officer as of such date.
(6) Mr. Katzman's employment with Atria began in November 1993.
113
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth grants of stock options pursuant to Atria's
1994 Stock Plan granted during the fiscal year ended December 31, 1995 to the
Named Executive Officers. Atria did not grant any stock options pursuant to
Atria's 1990 Stock Option Plan, which plan was terminated upon the closing of
Atria's initial public offering in May 1994, or any stock appreciation rights
to the Named Executive Officers during the fiscal year ended December 31,
1995.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
INDIVIDUAL GRANTS(1) POTENTIAL REALIZABLE
--------------------------------- VALUE AT ASSUMED
PERCENT ANNUAL RATES OF
OF TOTAL STOCK PRICE
OPTIONS APPRECIATION
OPTION GRANTED TO EXERCISE FOR OPTION TERM(2)
GRANTED EMPLOYEES IN OR BASE EXPIRATION ---------------------
NAME (#) FISCAL YEAR PRICE ($/SH) DATE 5%($) 10%($)
- ---- ------- ------------ ------------ ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Paul H. Levine.......... 20,000 3.4% $14.5625 1/25/05 $ 183,165 $ 464,177
John C. Leary........... 12,000 2.1% 14.5625 1/25/05 109,899 278,506
Howard Spilke (3)....... 12,000 2.1% 14.5625 1/25/05 109,899 278,506
Elliot M. Katzman....... 12,000 2.1% 14.5625 1/25/05 109,899 278,506
David B. Leblang........ 12,000 2.1% 14.5625 1/25/05 109,899 278,506
</TABLE>
- --------
(1) All options were granted by the Compensation Committee at "fair market
value" determined as of the last business day for which prices are
available prior to the date an option is granted and means the last
reported sale price (on that date) of Atria Common Stock on Nasdaq. All
information has been adjusted to give effect to the two-for-one stock
split in the form of a 100% stock dividend effective in September 1995.
(2) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of Atria's Common Stock on the date of option grant
over the term of the options. These numbers are calculated based on rules
promulgated by the SEC and do not reflect Atria's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Atria's
Common Stock holdings are dependent on the timing of such exercise and the
future performance of Atria's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
(3) Mr. Spilke has taken a leave of absence from Atria for an indefinite
period of time effective March 1, 1996 and ceased being an executive
officer as of such date.
114
<PAGE>
OPTION EXERCISES AND FISCAL YEAR-END VALUES
The following table sets forth information with respect to options to
purchase Atria's Common Stock granted under Atria's 1990 Stock Option Plan and
1994 Stock Plan to the Named Executive Officers, including (i) the number of
shares of Atria Common Stock purchased upon exercise of options in the fiscal
year ended December 31, 1995; (ii) the net value realized upon such exercise;
(iii) the number of unexercised options outstanding at December 31, 1995; and
(iv) the value of such unexercised options at December 31, 1995.
AGGREGATED OPTION EXERCISES IN LAST FISCAL
YEAR AND FISCAL YEAR-END OPTION VALUES
<TABLE>
<CAPTION>
NUMBER OF UNEXERCISED VALUE OF UNEXERCISED
SHARES VALUE OPTIONS AT IN-THE-MONEY OPTIONS AT
ACQUIRED ON REALIZED DECEMBER 31, 1995 (#)(1) DECEMBER 31, 1995 ($)(3)
NAME EXERCISE (#)(1) ($)(2) EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
---- --------------- -------- ------------------------- -------------------------
<S> <C> <C> <C> <C>
Paul H. Levine ......... -- -- 53,000/17,000 $1,979,938/$417,563
John C. Leary .......... -- -- 61,800/10,200 2,316,713/ 250,537
Howard Spilke (4)....... -- -- 21,800/10,200 801,713/ 250,537
Elliot M. Katzman ...... 1,800 $29,687 -- /10,200 0 / 250,537
David B. Leblang ....... -- -- 21,800/10,200 801,713/ 250,537
</TABLE>
- --------
(1) All share information has been adjusted to give effect to the two-for-one
stock split in the form of a 100% stock dividend effective in September
1995. The information in the above table does not include any options to
purchase shares of Atria Common Stock that will become exercisable
immediately prior to the Effective Time due to certain acceleration
provisions. Atria's 1994 Stock Plan and Atria's 1994 Non-Employee Director
Stock Option Plan and the option agreements issued thereunder provide that
if Atria is merged or consolidated with or into another entity, or if all
or substantially all of Atria's assets are acquired by another entity,
then the exercisability of the option accelerates such that the number of
shares that shall become exercisable immediately preceding the Effective
Time of the Merger shall equal that number of shares that would be fully
exercisable as of the date that is 2 1/2 years after the Effective Time of
the Merger if such option otherwise would have remained outstanding. The
information in the above table includes shares issuable pursuant to
Atria's 1990 Stock Option Plan that are currently subject to repurchase by
Atria. Atria's 1990 Stock Option Plan and option agreements issued
thereunder provide that if Atria is merged or consolidated with or into
another entity, or if all or substantially all of Atria's assets are
acquired by another entity, then the repurchase rights will partially
lapse such that the number of shares that shall become vested (and no
longer subject to repurchase) shall equal that number of shares that would
be fully vested as of the date that is 2 1/2 years after the Effective
Time of the Merger if such vesting would have continued pursuant to the
terms of the option agreements for such period. The Merger, if
consummated, will trigger the above provisions of Atria's Stock Option
Plans and option agreements. See footnotes to "--Securities Ownership of
Certain Beneficial Owners and Management of Atria" for further information
regarding the impact of these acceleration provisions on the Named
Executive Officers included in the above table.
(2) Value is based on the difference between the option exercise price (after
giving effect to the stock split referred to above) and the fair market
value at December 29, 1995 ($39.125 per share as quoted on Nasdaq),
multiplied by the number of shares underlying the option.
(3) Amounts reported in these columns represent amounts that may be realized
upon exercise of the options immediately prior to the expiration of their
term assuming the specified compounded rates of appreciation (5% and 10%)
on the market value of Atria's Common Stock on the date of option grant
over the term of the options. These numbers are calculated based on rules
promulgated by the SEC and do not reflect Atria's estimate of future stock
price growth. Actual gains, if any, on stock option exercises and Atria
Common Stock holdings are dependent on the timing of such exercise and the
future performance of Atria's Common Stock. There can be no assurance that
the rates of appreciation assumed in this table can be achieved or that
the amounts reflected will be received by the individuals.
(4) Mr. Spilke has taken a leave of absence from Atria for an indefinite
period of time effective March 1, 1996 and ceased being an executive
officer as of such date.
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COMPARISON OF CAPITAL STOCK
DESCRIPTION OF PURE CAPITAL STOCK
The authorized capital stock of Pure consists of 80,000,000 shares of Common
Stock, $0.0001 par value per share, and 2,000,000 shares of Preferred Stock,
$0.0001 par value per share.
Pure Common Stock
As of the Pure Record Date, there were approximately 17,745,135 shares of
Pure Common Stock outstanding held of record by approximately 355
stockholders. Pure Common Stock is listed on Nasdaq under the symbol "PRSW."
Holders of Pure Common Stock are entitled to one vote per share on all matters
to be voted upon by the stockholders. The stockholders do not have a right to
take action by written consent nor may they cumulate votes in connection with
the election of Directors. The holders of Pure Common Stock are entitled to
receive ratably such dividends, if any, as may be declared from time to time
by the Board of Directors out of funds legally available therefor. In the
event of a liquidation, dissolution or winding up of Pure, the holders of Pure
Common Stock are entitled to share ratably in all assets remaining after
payment of liabilities. The Pure Common Stock has no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to the Pure Common Stock. All outstanding shares of Pure
Common Stock are fully paid and non-assessable, and the shares of Pure Common
Stock to be outstanding upon completion of the Merger will be fully paid and
non-assessable.
Preferred Stock
Pure has 2,000,000 shares of Preferred Stock authorized, of which, as of
July 1, 1996, no shares are outstanding. The Board of Directors has the
authority to issue these shares of Preferred Stock in one or more series and
to fix the rights, preferences, privileges and restrictions granted to or
imposed upon any unissued and undesignated shares of Preferred Stock and to
fix the number of shares constituting any series and the designations of such
series, without any further vote or action by the stockholders. Although it
presently has no intention to do so, the Board of Directors, without
stockholder approval, can issue Preferred Stock with voting and conversion
rights which could adversely affect the voting power or other rights of the
holders of Pure Common Stock and the issuance of Preferred Stock may have the
effect of delaying, deferring or preventing a change in control of Pure.
Transfer Agent and Registrar
The Transfer Agent and Registrar for the Pure Common Stock is U.S. Stock
Transfer Corp., 1745 Gardena Ave., Glendale, CA 91204 and its telephone number
is (818) 502-1404.
DESCRIPTION OF ATRIA CAPITAL STOCK
The authorized capital stock of Atria consists of 50,000,000 shares of Atria
Common Stock, $0.01 par value per share, and 2,000,000 shares of Preferred
Stock, $1.00 par value per share (the "Preferred Stock").
Atria Common Stock
As of the Atria Record Date, there were approximately 14,381,437 shares of
Atria Common Stock outstanding held of record by approximately 180
stockholders. Atria Common Stock is listed on Nasdaq under the trading symbol
"ATSW." Holders of Atria Common Stock are entitled to one vote per share on
all matters to be voted upon by the stockholders and to receive such lawful
dividends as may be declared by Atria's Board of Directors. In the event of
the liquidation, dissolution or winding up of Atria, the holders of shares of
Atria Common Stock will be entitled to share ratably in Atria's assets. All
outstanding shares of Atria Common Stock are fully paid and nonassessable.
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Preferred Stock
The Atria Board has the authority, without any further vote or action by the
stockholders, to provide for the issuance of up to 2,000,000 shares of
Preferred Stock in series, to establish from time to time the number of shares
to be included in each such series, to fix the designations, preferences,
limitations and relative, participating, optional or other special rights and
qualifications or restrictions of the shares of each series, and to determine
the voting powers, if any, of such shares. The issuance of Preferred Stock
could adversely affect, among other things, the rights of existing
stockholders or could delay or prevent a change in control of Atria without
further action by the stockholders. The issuance of Preferred Stock could
decrease the amount of earnings and assets available for distribution to
holders of Atria Common Stock. In addition, any such issuance could have the
effect of delaying, deferring or preventing a change in control of Atria and
could make the removal of the present management of Atria more difficult.
Atria has no current plans to issue any Preferred Stock.
The Transfer Agent and Registrar for Atria Common Stock is Boston EquiServe,
150 Royall Street, Canton, Massachusetts.
COMPARISON OF CAPITAL STOCK
After consummation of the Merger, the holders of Atria Common Stock who
receive Pure Common Stock under the terms of the Agreement will become
stockholders of Pure. As stockholders of Atria, their rights are presently
governed by Massachusetts law and by the Atria Restated Articles of
Organization, as amended (the "Atria Charter") and the Restated By-laws (the
"Atria By-laws"). As stockholders of Pure, their rights will be governed by
Delaware law and by the Pure Certificate and Pure By-laws (the "Pure By-
laws"). The following discussion summarizes the material differences between
the rights of holders of Pure Common Stock and holders of Atria Common Stock
and differences between the charters and by-laws of Pure and Atria. This
summary does not purport to be complete and is qualified in its entirety by
reference to the Pure Certificate and By-laws, the Atria Charter and By-laws
and the relevant provisions of Delaware and Massachusetts law.
Special Meeting of Stockholders
Delaware law provides that special meetings of stockholders may be called by
the directors or by any other person as may be authorized by the corporation's
certificate of incorporation or by-laws. The Pure By-laws provides that
special meetings may be called by the president and shall be called by the
president or secretary upon written request of (i) a majority of the board of
directors or (ii) stockholders owning not less than ten percent of the entire
capital stock issued and outstanding and entitled to vote. Massachusetts law
provides that special meetings of stockholders of a corporation with a class
of voting stock registered under the Exchange Act (a "public company"), may be
called by a corporation's president or directors, and, unless otherwise
provided in the articles of organization or by-laws, must be called by its
clerk or any other officer upon written application of the owners of at least
40% of the corporation's stock entitled to vote at such meeting. Atria is a
public company, and the Atria By-laws provide that, upon written application
of one or more stockholders who hold at least 40% in interest of the capital
stock entitled to vote at a meeting, a special meeting shall be called by the
clerk.
Inspection Rights
Inspection rights under Delaware law are more extensive than under
Massachusetts law. Under Delaware law, stockholders, upon the demonstration of
a proper purpose, have the right to inspect a corporation's stock ledger,
stockholder list, and other books and records. The Pure By-laws provide that a
stockholder list prepared for a stockholder meeting shall be open to the
examination of any stockholder, for any purpose germane to the meeting, during
ordinary business hours, for a period of at least ten days prior to the
meeting. Under Massachusetts law, a corporation's stockholders have the right
for a proper purpose to inspect the corporation's articles of organization,
by-laws, records of all meetings of incorporators and stockholders, and stock
and transfer
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records, including the stockholder list. The Atria By-laws parallel the
statutory requirements but also provide that access to corporate records will
not be granted for the purpose of securing a list of stockholders in order to
sell such list or for using such list for a purpose other than in the interest
of the stockholder relative to the affairs of the corporation. In addition,
stockholders of a Massachusetts business corporation have a qualified common
law right under certain circumstances to inspect other books and records of
the corporation.
Action by Consent of Stockholders
Under Delaware law, unless the certificate of incorporation provides
otherwise, any action to be taken by stockholders may be taken without a
meeting, without prior notice, and without a vote, if the stockholders having
the number of votes that would be necessary to take such action at a meeting
at which all stockholders were present and voted consent to the action in
writing. The Pure Certificate, however, provides that any action required or
permitted to be taken by its stockholders cannot be effected by written
consent, but must be effected at a duly called annual or special meeting of
stockholders. Under Massachusetts law, any action to be taken by stockholders
may be taken without a meeting if all stockholders entitled to vote on the
matter consent to the action in writing, and such consents must be filed with
the records of meetings of stockholders.
Cumulative Voting
Under Delaware law, a corporation may provide in its certificate of
incorporation for cumulative voting by stockholders in elections of directors
(i.e., each stockholder casts as many votes for directors as he has shares of
stock multiplied by the number of directors to be elected). The Pure
Certificate does not provide for cumulative voting. Massachusetts has no
cumulative voting provision. The Atria Charter does not provide for cumulative
voting.
Dividends and Repurchases of Stock
Under Delaware law, a corporation generally is permitted to declare and pay
dividends out of surplus or out of net profits for the current and/or
preceding fiscal year, provided that such dividends will not reduce capital
below the amount of capital represented by all classes of stock having a
preference upon the distribution of assets. Also under Delaware law, a
corporation may generally redeem or repurchase shares of its stock if such
redemption or repurchase will not impair the capital of the corporation. Under
Massachusetts law, the payment of dividends and the repurchase of the
corporation's stock are generally permissible if such actions are not taken
when the corporation is insolvent, do not render the corporation insolvent or
bankrupt, and do not violate the corporation's articles of organization.
Classification of the Board of Directors
Delaware law permits (but does not require) classifications of a
corporation's board of directors into one, two or three classes. The Pure
Certificate does not provide for classes of directors. Massachusetts law
permits classification of a corporation's board of directors, but in the case
of a public company, Massachusetts law requires classification into three
classes and imposes certain requirements unless the corporation makes an
election not to be governed by the statutory provisions. Atria has not made
such an election and, therefor, its board of directors is classified into
three classes.
Removal of Directors
Under Delaware law, although stockholders may generally remove directors
with or without cause by a majority vote, stockholders may remove members of
classified boards only for cause unless the certificate of incorporation
provides otherwise. Under Delaware law, directors are not permitted to remove
other directors.
Under Massachusetts law, stockholders may remove directors with or without
cause by a majority of shares entitled to vote. However, the Atria By-laws, in
conformity with statutory provisions, provide that if the directors
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are classified with respect to the time for which they severally hold office
pursuant to Section 50A(a) of the MBCL, the stockholders may, by the
affirmative vote of a majority of the shares outstanding and entitled to vote,
remove any director, directors or the entire board of directors only for
cause. Under Massachusetts law, directors may remove other directors for cause
by a majority vote.
Vacancies on the Board of Directors
Under both Massachusetts and Delaware law, unless otherwise provided in the
charter or by-laws, vacancies on the board of directors and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by the remaining directors.
Exculpation of Directors
Delaware law and Massachusetts law have substantially similar provisions
relating to exculpation of directors. Each state's law permits, and the Pure
Certificate and the Atria Charter provide, that no director shall be
personally liable to Pure and Atria, respectively, or their respective
stockholders for monetary damages for breaches of fiduciary duty except where
such exculpation is expressly prohibited by law. The circumstances under which
exculpation is prohibited are substantially similar in Delaware and
Massachusetts.
Neither Atria nor Pure may eliminate the liability of directors to the
extent that such liability is provided by applicable law, (i) for any breach
of the director's duty of loyalty to the corporation or its stockholders, (ii)
for acts or omissions not in good faith or that involve intentional misconduct
or a knowing violation of law, (iii) for any transaction from which the
director derived an improper personal benefit or (iv) for unauthorized
distributions and loans to insiders with respect to corporations governed by
Massachusetts law or for unlawful payments of dividends, unlawful stock
purchases or redemptions with respect to corporations governed by Delaware
law.
Indemnification of Directors, Officers and Others
Both Delaware and Massachusetts law generally permit indemnification of
directors and officers for expenses incurred by them by reason of their
position with the corporation, if the director or officer has acted in good
faith and with the reasonable belief that his conduct was in the best
interests of the corporation. However, Delaware law, unlike Massachusetts law,
does not permit a corporation to indemnify persons against judgments in
actions brought by or in the right of the corporation (although it does permit
indemnification in such situations if approved by the Delaware Court of
Chancery and for expenses of such actions). The Pure Certificate authorizes
Pure to provide indemnification to its agents to the maximum extent legally
permissible. Pure's By-laws provide indemnification to its directors to the
maximum extent legally permissible. In addition, Pure's By-laws provide that
the Board of Directors has the power to indemnify any person, other than a
director, made a party to any action, suit or proceeding by reason of the fact
that he, his testator or intestate, is or was an officer or employee of the
corporation. Atria's By-laws provide for indemnification to its directors and
officers to the maximum extent legally permissible and Atria has entered into
Indemnification Agreements with each of its directors and officers.
Interested Director Transactions
Delaware law provides that no transaction between a corporation and one or
more of its directors or officers or any entity in which one or more of its
directors or officers are directors or officers or have a financial interest,
shall be void or voidable solely for that reason. In addition, no such
transaction shall be void or voidable solely because the director or officer
is present at, participates in, or votes at the meeting of the board of
directors or committee which authorizes the transaction. In order that such a
transaction not be found void or voidable, it must, after disclosure of
material facts, be approved by a vote of a majority of the disinterested
directors, or a committee of disinterested directors, or the stockholders, or
the transaction must be fair as to the corporation. Massachusetts law has no
comparable provisions. The Pure Certificate or By-laws do not address this
issue. The
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Atria By-laws parallel the Delaware statutory provisions and contain
provisions relating to certain contracts and transactions involving officers,
directors, stockholders or employees. Such a transaction shall not be void or
voidable if all material facts were known or disclosed to the directors or
stockholders voting at the meeting on the contract or transaction.
Sales, Lease or Exchange of Assets and Mergers
Delaware law requires the approval of the directors and the vote of the
holders of a majority of the outstanding stock entitled to vote thereon for
the sale, lease, or exchange of all or substantially all of a corporation's
property and assets or a merger or consolidation of the corporation into any
other corporation, although the certificate of incorporation may require a
higher stockholder vote. The Pure Certificate does not require a higher vote.
Massachusetts law provides that a vote of two-thirds of the shares of each
class of stock outstanding and entitled to vote thereon is required to
authorize the sale, lease, or exchange of all or substantially all of a
corporation's property and assets or a merger or consolidation of the
corporation into any other corporation, except that the articles of
organization may provide that the vote of a greater or lesser proportion, but
not less than a majority of the outstanding shares of each class, is required.
Under Massachusetts law, the articles of organization or by-laws may provide
that all outstanding classes of stock shall vote as a single class, but, in
the case of a merger or consolidation, the separate vote of all classes of
stock, the rights of which would be adversely affected by the transaction, is
also required. The Atria Charter reduces the stockholder vote required to
approve such transactions from two-thirds to a majority of each class
outstanding and entitled to vote thereon if such transaction has been approved
by the board of directors.
Amendments to Charter
Under Delaware law, charter amendments require the approval of the directors
and the vote of the holders of a majority of the outstanding stock and a
majority of each class of stock outstanding and entitled to vote thereon as a
class, unless the certificate of incorporation requires a greater proportion.
The Pure Certificate not require a greater proportion to amend the Pure
Certificate. In addition, Delaware law requires a class vote when, among other
things, an amendment will adversely affect the powers, preferences or special
rights of a class of stock. Under Massachusetts law, amendments to a
corporation's articles of organization relating to certain changes in capital
or in the corporate name require the vote of at least a majority of each class
of stock outstanding and entitled to vote thereon. Amendments relating to
other matters require a vote of at least two-thirds of each class outstanding
and entitled to vote thereon or, if the articles of organization so provide, a
greater or lesser proportion but not less than a majority of the outstanding
shares of each class. Under Massachusetts law, the articles of organization or
by-laws may provide that all outstanding classes of stock shall vote as a
single class, but the separate vote of any class of stock the rights of which
would be adversely affected by the amendment is also required. The Atria
Charter reduces the stockholder vote required to approve such amendments from
two-thirds to a majority of each class of stock outstanding and entitled to
vote thereon.
Amendments to By-laws
Both Delaware and Massachusetts law provide that stockholders may amend the
by-laws and, if provided in its charter, the board of directors also has this
power. Under Delaware law, the power to adopt, amend or repeal by-laws lies in
stockholders entitled to vote; provided, however, that any corporation may, in
its certificate of incorporation, confer the power to adopt, amend or repeal
by-laws upon the directors. Under Massachusetts law, the power to make, amend
or repeal by-laws also lies in the stockholders; provided that if authorized
by the articles of organization, the by-laws may provide that the directors
may also make, amend or repeal the by-laws, except with respect to any
provision which by law, the articles of organization or the by-laws requires
action by the stockholders. The Pure Certificate gives the board of directors
the power to make, alter, amend or repeal by-laws. The Atria By-laws may be
amended by an affirmative vote of at least a majority of stockholders present
at a meeting of the stockholders and entitled to vote, provided that notice of
the proposed amendment was given in the notice for the meeting. The Atria
Charter provides that the directors may amend or repeal the By-laws in whole
or in part, except with respect to any provision thereof which by law or the
By-laws requires action by the stockholders.
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Appraisal Rights
Dissenting stockholders have the right to obtain the fair value of their
shares (so-called "appraisal rights") in more circumstances under
Massachusetts law than under Delaware law. Under Delaware law, appraisal
rights are available in connection with a statutory merger or consolidation in
certain specified situations. Appraisal rights are not available when a
corporation is to be the surviving corporation and no vote of its stockholders
is required to approve the merger. In addition, unless otherwise provided in
the charter, no appraisal rights are available to holders of shares of any
class of stock which is either: (a) listed on a national securities exchange
or designated as a national market system security on an inter-dealer
quotation system by the National Association of Securities Dealers, Inc. or
(b) held of record by more than 2,000 stockholders, unless such stockholders
are required by the terms of the merger to accept anything other than: (i)
shares of stock of the surviving corporation; (ii) shares of stock of another
corporation which are or will be so listed on a national securities exchange
or designated as a national market system security on an inter-dealer
quotation system by Nasdaq or held of record by more than 2,000 stockholders;
(iii) cash in lieu of fractional shares of such stock or (iv) any combination
thereof.
Appraisal rights are not available under Delaware law in the event of the
sale, lease, or exchange of all or substantially all of a corporation's assets
or the adoption of an amendment to its certificate of incorporation, unless
such rights are granted in the corporation's certificate of incorporation. The
Pure Certificate does not grant such rights. Under Massachusetts law, a
properly dissenting stockholder is entitled to receive the appraised value of
his shares when the corporation votes (i) to sell, lease, or exchange all or
substantially all of its property and assets, (ii) to adopt an amendment to
its articles of organization which adversely affects the rights of the
stockholder, or (iii) to merge or consolidate with another corporation.
"Anti-Takeover" Statutes
Business Combination Statute
Delaware's "business combination" statute is substantially similar to
Massachusetts' business combination statute. However, while the Delaware
statute provides that, if a person acquires 15% or more of the stock of a
Delaware corporation without the approval of the board of directors of that
corporation (an "interested stockholder"), he may not engage in certain
transactions with the corporation for a period of three years, the
Massachusetts statute has a 5% threshold with certain persons excluded. Both
the Delaware and Massachusetts statutes include certain exceptions to this
prohibition; for example, if the board of directors approves the acquisition
of stock or the transaction prior to the time that the person became an
interested stockholder, or if the interested stockholder acquires 85% (in the
Delaware statute) or 90% (in the Massachusetts statute) of the voting stock of
the corporation (excluding voting stock owned by directors who are also
officers and certain employee stock plans) in one transaction, or if the
transaction is approved by the board of directors and by the affirmative vote
of two-thirds of the outstanding voting stock which is not owned by the
interested stockholder.
Control Share Acquisition Statute
Under the Massachusetts Control Share Acquisition statute for Massachusetts
corporations, a person (hereinafter, the "acquirer") who makes a bona fide
offer to acquire, or acquires, shares of stock of a corporation that when
combined with shares already owned, would increase the acquirer's ownership to
at least 20%, 33 1/3%, or a majority of the voting stock of the corporation,
must obtain the approval of a majority of shares held by all stockholders
except the acquirer and the officers and inside directors of the corporation,
in order to vote the shares acquired. The statute does not require the
acquirer to consummate the purchase before the stockholder vote is taken. The
Control Share Acquisition statute permits a Massachusetts corporation to elect
not to be governed by these provisions by including such an election in its
articles of organization or by-laws. The Atria By-laws state that the Control
Share Acquisition statute shall not apply to Atria. Delaware does not have a
Control Share Acquisition statute.
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Consideration of Societal Factors
Unlike Massachusetts, Delaware does not explicitly provide for the
consideration of societal interests by a corporation's board of directors in
making decisions. The Delaware Supreme Court has, however, held that, in
discharging their responsibilities, directors may consider constituencies
other than stockholders, such as creditors, customers, employees and perhaps
even the community in general, as long as there are rationally related
benefits accruing to stockholders as well. The Delaware Supreme Court has
held, however, the concern for non-stockholder interests is inappropriate when
a sale of the company is inevitable and an auction among active bidders is in
progress. The Pure Certificate and Pure By-laws do not directly discuss
consideration of societal factors.
Massachusetts law expressly provides that in determining what a director
reasonably believes to be in the best interests of the corporation, he may
consider the interests of the corporation's employees, suppliers, creditors
and customers; the economy of the state, region and nation; community and
societal considerations; and the long-term as well as short-term interests of
the corporation and its stockholders, including the possibility that these
interests may be best served by the continued independence of the corporation.
Thus, these interests could be considered even in connection with a decision
to sell a company. The Atria Charter and Atria By-laws do not discuss the
consideration of societal factors.
EXPERTS
The consolidated financial statements and schedule of Pure as of December
31, 1994 and 1995, and for each of the years in the three-year period ended
December 31, 1995, have been included in the Registration Statement and
Prospectus/Joint Proxy Statement in reliance upon the reports of KPMG Peat
Marwick LLP, independent auditors, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
The consolidated financial statements of Atria Software, Inc. as of December
31, 1994 and 1995, and for each of the three years ended December 31, 1995
appearing in this Prospectus/Joint Proxy Statement have been audited by Ernst
& Young LLP, independent auditors, as set forth in their report thereon
appearing elsewhere herein and are included in reliance upon the report, given
upon the authority of such firm as experts in accounting and auditing.
LEGAL MATTERS
The validity of the Pure Common Stock issuable pursuant to the Merger will
be passed on by Wilson Sonsini Goodrich & Rosati, Professional Corporation,
Palo Alto, California. Testa, Hurwitz & Thibeault, LLP, Boston, Massachusetts,
is acting as counsel for Atria in connection with certain legal matters
relating to the Merger and the transaction contemplated thereby. See "Pure--
Pure Stock Information--Pure Principal Stockholders."
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PURE SOFTWARE INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Pure Software Inc. and Subsidiaries:
Report of Independent Auditors.......................................... F-2
Consolidated Balance Sheets............................................. F-3
Consolidated Statements of Operations................................... F-4
Consolidated Statements of Redeemable Preferred Convertible Preferred
Stock and Stockholders' Equity......................................... F-5
Consolidated Statements of Cash Flows................................... F-6
Notes to Consolidated Financial Statements.............................. F-7
Atria Software, Inc.
Independent Auditors' Report............................................ F-17
Consolidated Balance Sheets............................................. F-18
Consolidated Statements of Operations................................... F-19
Consolidated Statements of Cash Flows................................... F-20
Consolidated Statements of Stockholders' Equity (Deficit)............... F-21
Notes to Consolidated Financial Statements.............................. F-22
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Pure Software Inc.:
We have audited the accompanying consolidated balance sheets of Pure
Software Inc. and subsidiaries as of December 31, 1994 and 1995, and the
related consolidated statements of operations, redeemable convertible
preferred stock and stockholders' equity, and cash flows for each of the years
in the three-year period ended December 31, 1995. 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 generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Pure
Software Inc. and subsidiaries as of December 31, 1994 and 1995, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1995, in conformity with generally
accepted accounting principles.
KPMG Peat Marwick LLP
San Jose, California
January 18, 1996
F-2
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 8,995 $ 5,835 $ 8,229
Short-term investments.......................... -- 31,600 31,775
Accounts receivable, net of allowances of $452,
$518, and $665 in 1994, 1995, and 1996......... 5,025 11,913 14,532
Prepaid expenses and other assets............... 985 1,030 1,133
Deferred taxes.................................. -- 705 705
------- ------- -------
Total current assets.......................... 15,005 51,083 56,374
Property and equipment, net....................... 2,162 5,288 6,503
Other assets, net................................. 148 1,731 1,635
------- ------- -------
Total assets.................................. $17,315 $58,102 $64,512
======= ======= =======
LIABILITIES, REDEEMABLE CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' EQUITY
Current liabilities:
Current portion of bank borrowings and capital
lease obligations.............................. $ 301 $ 254 $ 257
Accounts payable................................ 857 996 2,706
Accrued payroll and related expenses............ 974 3,075 2,365
Accrued merger and integration expenses......... -- 1,887 426
Other accrued expenses.......................... 908 1,264 1,663
Deferred revenue................................ 3,424 8,591 11,286
Income taxes.................................... 219 2,134 3,011
------- ------- -------
Total current liabilities..................... 6,683 18,201 21,714
Bank borrowings and capital lease obligations,
less current portion............................. 318 67 --
------- ------- -------
Total liabilities............................. 7,001 18,268 21,714
------- ------- -------
Commitments and contingencies
Redeemable convertible preferred stock; $.0001 par
value; 6,845,012 shares authorized; 6,057,456
shares issued and outstanding in 1994, no shares
authorized, issued or outstanding in 1995 and
1996 (liquidation preference of $6,518 in 1994).. 6,467 -- --
Stockholders' equity:
Preferred stock; $.0001 par value; 2,000,000
shares authorized; no shares issued and
outstanding.................................... -- -- --
Common stock; $.0001 par value; 30,000,000
shares authorized; 8,086,026, 17,161,273 and
17,537,811 shares issued and outstanding in
1994, 1995 and 1996............................ 1 2 2
Additional paid-in capital...................... 123 48,379 49,585
Cumulative translation adjustment............... -- (150) (167)
Retained earnings (accumulated deficit)......... 3,723 (8,397) (6,622)
------- ------- -------
Total stockholders' equity.................... 3,847 39,834 42,798
------- ------- -------
Total liabilities, redeemable convertible
preferred stock and stockholders' equity... $17,315 $58,102 $64,512
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------- --------------------
1993 1994 1995 1995 1996
------- -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenues:
Product..................... $ 9,482 $ 16,020 $ 32,765 $ 6,057 $ 10,524
Maintenance and other....... 2,443 5,973 11,277 2,188 4,604
------- -------- -------- --------- ---------
Total revenues............ 11,925 21,993 44,042 8,245 15,128
------- -------- -------- --------- ---------
Cost of revenues:
Product..................... 277 307 1,245 109 408
Maintenance and other....... 931 1,710 2,505 490 884
------- -------- -------- --------- ---------
Total cost of revenues.... 1,208 2,017 3,750 599 1,292
------- -------- -------- --------- ---------
Gross margin.............. 10,717 19,976 40,292 7,646 13,836
------- -------- -------- --------- ---------
Operating expenses:
Sales and marketing......... 5,640 9,493 21,315 4,020 7,508
Research and development.... 2,638 5,204 7,494 1,598 2,631
General and administrative.. 1,558 2,799 4,790 938 1,367
Merger and integration...... -- -- 2,961 -- --
In-process research and
development................ -- -- 10,100 10,100 --
------- -------- -------- --------- ---------
Total operating expenses.. 9,836 17,496 46,660 16,656 11,506
------- -------- -------- --------- ---------
Income (loss) from
operations................... 881 2,480 (6,368) (9,010) 2,330
Other income.................. 20 160 818 122 307
------- -------- -------- --------- ---------
Income (loss) before income
taxes...................... 901 2,640 (5,550) (8,888) 2,637
Income taxes.................. 73 593 3,145 200 862
------- -------- -------- --------- ---------
Net income (loss)........... $ 828 $ 2,047 $ (8,695) $ (9,088) $ 1,775
======= ======== ======== ========= =========
Net income per share.......... $ 0.09
=========
Pro forma net income (loss)
per share (unaudited):
Income (loss) before income
taxes, as reported......... $ 2,640 $ (5,550) $ (8,888)
Pro forma income taxes...... 888 3,869 421
-------- -------- ---------
Pro forma net income (loss)
........................... $ 1,752 $ (9,419) $ (9,309)
======== ======== =========
Pro forma net income (loss)
per share.................... $ 0.11 $ (0.60) $ (0.64)
======== ======== =========
Shares used in per share
computation.................. 15,838 15,784 14,505 19,905
======== ======== ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF REDEEMABLE CONVERTIBLE PREFERRED STOCK AND
STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
REDEEMABLE
CONVERTIBLE RETAINED
PREFERRED STOCK COMMON STOCK ADDITIONAL CUMULATIVE EARNINGS
----------------- -------------- PAID-IN TRANSLATION (ACCUMULATED
SHARES AMOUNT SHARES AMOUNT CAPITAL ADJUSTMENT DEFICIT) TOTAL
------- -------- ------ ------ ---------- ----------- ------------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances, December 31,
1992...................... 4,570 $ 2,436 8,409 $ 1 $ 115 $ -- $ 1,398 $ 1,514
Repurchase of Series B
redeemable convertible
preferred stock........... (48) (39) -- -- -- -- -- --
Exercise of stock options.. -- -- 389 -- 31 -- -- 31
Issuance of common stock to
consultants............... -- -- 4 -- -- -- -- --
Repurchase of common
stock..................... -- -- (419) -- (23) -- -- (23)
Contribution of common
stock by founder.......... -- -- (300) -- -- -- -- --
Distributions to
stockholders.............. -- -- -- -- -- -- (250) (250)
Net income................. -- -- -- -- -- -- 828 828
------- -------- ------ --- ------- ----- ------- -------
Balances, December 31,
1993...................... 4,522 2,397 8,083 1 123 -- 1,976 2,100
Issuance of Series C
redeemable convertible
preferred stock........... 1,536 4,070 -- -- -- -- -- --
Exercise of stock options.. -- -- 3 -- -- -- -- --
Distributions to
stockholders.............. -- -- -- -- -- -- (300) (300)
Net income................. -- -- -- -- -- -- 2,047 2,047
------- -------- ------ --- ------- ----- ------- -------
Balances, December 31,
1994...................... 6,058 6,467 8,086 1 123 -- 3,723 3,847
Issuance of Series D
redeemable convertible
preferred stock........... 788 9,706 -- -- -- -- -- --
Issuance of common stock in
initial public offering... -- -- 2,000 -- 30,396 -- -- 30,396
Conversion of preferred
stock..................... (6,846) (16,173) 6,846 1 16,172 -- -- 16,173
Exercise of stock options.. -- -- 229 -- 63 -- -- 63
Currency translation
adjustment................ -- -- -- -- -- (150) -- (150)
Distributions to
stockholders.............. -- -- -- -- -- -- (1,800) (1,800)
Reclassification of
undistributed
S Corporation earnings.... -- -- -- -- 1,625 -- (1,625) --
Net loss................... -- -- -- -- -- -- (8,695) (8,695)
------- -------- ------ --- ------- ----- ------- -------
Balances, December 31,
1995...................... -- -- 17,161 2 48,379 (150) (8,397) 39,834
======= ======== ====== === ======= ===== ======= =======
Exercise of stock options
(unaudited)............... 377 -- 1,206 -- 1,206
Currency translation
adjustment (unaudited).... -- -- -- -- -- (17) (17)
Net income (unaudited)........ -- -- -- -- -- -- 1,775 1,775
------- -------- ------ --- ------- ----- ------- -------
Balances, March 31, 1996
(unaudited)............... -- $ -- 17,538 $ 2 $49,585 $(167) $(6,622) $42,798
======= ======== ====== === ======= ===== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
-------------------------- ----------------
1993 1994 1995 1995 1996
------- ------- -------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)............... $ 828 $ 2,047 $ (8,695) $(9,088) $ 1,775
Adjustments to reconcile net
income (loss) to net cash
provided by operating
activities:
Depreciation and amortization... 351 897 1,680 303 822
Noncash integration costs....... -- -- 331 -- --
In-process research and
development.................... -- -- 10,100 10,100 --
Changes in operating assets and
liabilities:
Accounts receivable............ (1,863) (2,196) (6,310) (1,518) (2,619)
Prepaid expenses and other
current assets................ (343) 91 (444) (75) (103)
Deferred tax assets............ (176) (402) (377) (86) --
Accounts payable............... 290 442 121 283 1,710
Accrued payroll and related
expenses...................... 473 427 1,969 117 (710)
Accrued merger and
integration................... -- -- 1,887 -- (1,461)
Other accrued expenses......... 37 648 146 (151) 399
Deferred revenue............... 1,026 2,097 4,766 569 2,695
Income taxes................... 106 (22) 1,915 52 877
------- ------- -------- ------- -------
Net cash provided by operating
activities................... 729 4,029 7,089 506 3,385
------- ------- -------- ------- -------
Cash flows from investing
activities:
Purchases of property and
equipment...................... (841) (1,921) (4,940) (860) (1,867)
Other assets.................... (110) (43) (283) (14) (74)
Acquisition of QualTrak
Corporation, net of cash
acquired....................... -- -- (1,637) (1,439) --
Purchases of short-term
investments.................... -- -- (31,600) -- (175)
------- ------- -------- ------- -------
Net cash used for investing
activities................... (951) (1,964) (38,460) (2,313) (2,116)
------- ------- -------- ------- -------
Cash flows from financing
activities:
Bank borrowings................. 200 250 -- -- --
Repayments of bank borrowings
and capital leases............. -- (93) (298) (55) (64)
S Corporation distributions to
stockholders................... (250) (300) (1,800) -- --
Proceeds from issuance of common
stock.......................... 8 -- 30,459 -- --
Proceeds from issuance of
redeemable convertible
preferred stock................ -- 4,070 -- 4 1,206
------- ------- -------- ------- -------
Net cash provided (used) by
financing activities......... (42) 3,927 28,361 (51) 1,142
Effect of foreign currency
exchange rate changes on cash... -- -- (150) -- (17)
------- ------- -------- ------- -------
Net change in cash and cash
equivalents..................... (264) 5,992 (3,160) (1,858) 2,394
Cash and cash equivalents at
beginning of year............... 3,267 3,003 8,995 8,995 5,835
------- ------- -------- ------- -------
Cash and cash equivalents at end
of year......................... $ 3,003 $ 8,995 $ 5,835 $ 7,137 $ 8,229
======= ======= ======== ======= =======
Noncash investing and financing
activities:
Conversion of redeemable
preferred stock................ -- -- $ 16,173 -- --
======= ======= ======== ======= =======
Redeemable convertible preferred
stock issued in connection with
acquisition of QualTrak
Corporation.................... -- -- $ 9,706 $ 9,904 --
======= ======= ======== ======= =======
Cash paid during the year for:
Interest........................ $ 37 $ 66 $ 54 $ 16 $ 7
======= ======= ======== ======= =======
Income taxes.................... $ 280 $ 826 $ 1,622 $ 238 $ 12
======= ======= ======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF AND FOR THE THREE MONTHS ENDED MARCH 31, 1995 AND 1996 IS
UNAUDITED)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pure Software Inc. (the "Company") develops, markets and supports a
comprehensive, integrated suite of software products that enable the
production of reliable, high-quality software and improve the software
development process.
Acquisitions
On March 17, 1995, the Company acquired QualTrak Corporation ("QualTrak"), a
provider of quality assurance software tools. The acquisition was accounted
for as a purchase with the results of QualTrak included from the acquisition
date.
On November 21, 1995, the Company acquired Performix, Inc. ("Performix"), a
provider of client/server load and performance testing tools. The acquisition
was accounted for as a pooling of interests, and accordingly, the Company's
consolidated financial statements and notes thereto have been restated to
include the results of Performix for all periods presented.
Basis of Consolidation
The accompanying consolidated financial statements include the accounts of
Pure Software Inc. and its wholly owned subsidiaries. All intercompany
accounts and transactions have been eliminated.
Cash and Cash Equivalents and Short-Term Investments
The Company considers all highly liquid instruments with an original
maturity of 90 days or less to be cash equivalents. All of the Company's
investments are classified as available-for-sale and, consequently, are
reported at fair value. Any differences between their carrying value and fair
value are included as a separate component of stockholders' equity.
Property and Equipment
Property and equipment are stated at cost, net of accumulated depreciation
and amortization and are depreciated over their estimated useful lives of
three to seven years. Leasehold improvements are recorded at cost and
amortized over the lesser of their useful lives or the term of their related
leases.
Other Assets
Other assets, consisting principally of purchased software, goodwill and
prepaid royalties, are stated at cost, and are amortized over their estimated
useful lives. Purchased software is amortized over 18 months. Goodwill is
amortized over 5 years. Prepaid royalties are amortized over the life of the
related technology.
Revenue Recognition
The Company's revenues are derived from license fees for its software
products, from software maintenance fees and from other sources. Product
revenues are derived from product licensing fees. Maintenance and other
revenues are derived from software maintenance fees, from training fees and
from royalties for technology licenses. The Company recognizes revenue in
accordance with the provisions of American Institute of Certified Public
Accountants Statement of Position No. 91-1, Software Revenue Recognition.
Product revenues from the sale of software licenses are recognized upon
shipment to an end user if collection is probable and remaining vendor
obligations are insignificant. Product returns and sales allowances are
estimated and provided for at the time of sale. Maintenance revenues from
ongoing customer support and product upgrades are recognized ratably
F-7
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
over the term of the maintenance agreement. Payments for maintenance fees are
generally received in advance and are nonrefundable. Revenues from training
are recognized when the services are performed. Revenues from royalties on
technology licenses are recognized when earned and when collection is
probable.
Use of Estimates
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities to prepare these consolidated financial
statements in conformity with generally accepted accounting principles. Actual
results could differ from those estimates.
Research and Development Costs
Research and development costs are charged to operations as incurred. To
date, the Company has not capitalized software development costs after a
working model has been completed since costs incurred subsequent to the
establishment of technological feasibility have not been material.
Income Taxes
The Company records income taxes using the asset and liability method. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax bases of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse. Valuation allowances
are established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Concentrations of Credit Risk
Financial instruments potentially exposing the Company to a concentration of
credit risk principally consist of cash and cash equivalents, short-term
investments and accounts receivable.
Cash and cash equivalent balances consist of deposits with major commercial
banks, the maturity of which is under three months from date of purchase.
Short-term investments are placed with high quality financial, government or
corporate institutions.
The Company sells its products to companies in the software development
industry ("end users") and distributors, who remarket the product to end
users. The Company maintains reserves for potential credit losses, but
historically has not experienced any significant losses related to individual
customers or groups of customers in any particular industry or geographic
area.
Foreign Currency Translation
The functional currency of the Company's foreign subsidiaries is their local
currency. Accordingly, all assets and liabilities are translated at the
current exchange rate at the end of the period and income and expense accounts
are translated at the average rates in effect during the period. The
adjustment arising from translation of these subsidiaries' financial
statements is reflected as a separate component of stockholders' equity.
Per Share Computations
Pro forma net income (loss) per share is computed using pro forma net income
(loss) and is based on the weighted average number of shares outstanding of
common stock and redeemable convertible preferred stock, on an as-if converted
basis, and dilutive common equivalent shares from stock options using the
treasury stock method. In accordance with certain Securities and Exchange
Commission (SEC) Staff Accounting Bulletins, such
F-8
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
computations for periods preceding the initial public offering ("IPO") include
all common and common equivalent shares issued within the 12 months preceding
the IPO date as if they were outstanding for all prior periods presented using
the treasury stock method and the initial public offering price.
Pro forma net income (loss) includes a provision for income taxes as if
Performix had been a C Corporation, fully subject to federal and state income
taxes. Prior to its acquisition by the Company, Performix had elected S
Corporation status for income tax purposes and, consequently, historical
results as they relate to Performix do not include a provision for income
taxes.
Net income per share is computed using the weighted average number of shares
outstanding of common stock and dilutive common equivalent shares from stock
options using the treasury stock method.
The difference between primary and fully diluted net income (loss) per share
is either not significant or anti-dilutive in all periods presented.
Recent Accounting Pronouncements
In March 1995, the Financial Accounting Standards Board issued SFAS No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of." SFAS No. 121 is effective for fiscal years beginning after
December 15, 1995, and requires long-lived assets to be evaluated for
impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. The Company will adopt
SFAS No. 121 in fiscal 1996 and does not expect its provisions to have a
material effect on the Company's consolidated results of operations in the
year of adoption.
Interim Financial Information
The consolidated financial statements for the three month periods ended
March 31, 1995 and 1996 are unaudited, but include all adjustments (consisting
solely of normal recurring adjustments), which are, in the opinion of
management, necessary for a fair presentation. The results of operations for
the three month period ended March 31, 1996 are not necessarily indicative of
the results to be expected for the entire year.
(2) CASH AND CASH EQUIVALENTS AND SHORT-TERM INVESTMENTS
The Company's portfolio of investments consist of the following at December
31, 1995 (in thousands):
<TABLE>
<S> <C>
Cash and cash equivalents:
Cash and money market........................................... $ 4,835
Certificates of deposit......................................... 1,000
-------
$ 5,835
=======
Short-term investments:
Debt securities (municipal obligations)......................... 15,200
Auction rate securities......................................... 16,400
-------
$31,600
=======
</TABLE>
All short-term investments at December 31, 1995 are classified as available-
for-sale and have maturities of less than one year. Such investments are
recorded at cost, which at December 31, 1995, approximated market value.
Realized gains or losses on sales of available-for-sale securities were
immaterial for the year ended December 31, 1995.
F-9
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(3) PROPERTY AND EQUIPMENT
Property and equipment consist of the following (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
----------------
1994 1995
------- -------
<S> <C> <C>
Computer equipment....................................... $ 2,878 $ 5,835
Furniture and fixtures................................... 292 942
Office equipment......................................... 310 769
Leasehold improvements................................... 29 558
Construction in progress................................. 52 147
------- -------
3,561 8,251
------- -------
Less accumulated depreciation and amortization........... (1,399) (2,963)
------- -------
$ 2,162 $ 5,288
======= =======
</TABLE>
Property and equipment recorded under capital leases were $370,000 as of
December 31, 1994 and 1995. Related accumulated amortization was $203,000 and
$302,000 as of December 31, 1994 and 1995, respectively.
(4) COMMITMENTS AND CONTINGENCIES
Bank Borrowings
In March 1994, the Company converted borrowings under a line of credit into
a promissory note. Borrowings under the agreement bear interest at the bank's
prime index rate plus 1% (9.75% at December 31, 1995) and are collateralized
by accounts receivable, equipment, fixtures and inventories of the Company.
The agreement contains certain financial ratios and minimum tangible net worth
requirements. As of December 31, 1995, the Company had borrowings of $267,000
under the promissory note. Scheduled principal payments under the note are
$200,000 and $67,000 for 1996 and 1997, respectively.
Lease Obligations
As of December 31, 1995, the Company leased facilities under noncancelable
leases expiring between 1996 and 2002. Future minimum lease payments are as
follows (in thousands):
<TABLE>
<S> <C>
1996................................................................ $1,545
1997................................................................ 1,288
1998................................................................ 979
1999................................................................ 811
2000................................................................ 621
Thereafter.......................................................... 713
</TABLE>
Rent expense for the years ended December 31, 1993, 1994 and 1995 was
$370,000, $659,000, and $1,000,000, respectively.
(5) REDEEMABLE CONVERTIBLE PREFERRED STOCK
Prior to July 1995, the Company was authorized to issue 6,600,000 shares of
redeemable convertible preferred stock of which 6,057,456 shares were issued
and outstanding. The Company had 2,000,000 shares of Series A issued and
outstanding, 2,521,875 shares of Series B issued and outstanding and 1,535,581
shares of Series C issued and outstanding. Each outstanding share of preferred
stock automatically converted into one share of common stock upon the closing
of the Company's initial public offering in August 1995.
F-10
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(6) STOCKHOLDERS' EQUITY
Reincorporation
On July 19, 1995, the Company reincorporated as a Delaware corporation. The
articles of incorporation provide for 30,000,000 authorized shares of common
stock with a $.0001 par value per share and for 2,000,000 authorized shares of
preferred stock with a $.0001 par value per share. The consolidated financial
statements have been retroactively restated to give effect to the
reincorporation.
1992 Stock Option/Stock Issuance and Purchase Plans and 1995 Stock Option
Plan
On October 15, 1992, the Company's Board of Directors approved the 1992
Stock Option/ Stock Issuance Plan (the "Plan") which replaced the 1992 Stock
Purchase Plan (the "Purchase Plan"). Under the Purchase Plan, the Company
issued shares of stock to employees at fair market value. Stock issued under
the Purchase Plan was subject to repurchase upon termination of employment.
The Company's repurchase right generally lapses for 25% of the shares granted
one year from the date of the grantee's date of hire and ratably over the next
36 months for the remaining shares. Options granted under the Plan may be
either incentive stock options or nonstatutory stock options, as designated by
the Board of Directors. The Plan expires ten years after adoption.
The Plan provides that (i) the exercise price of an incentive stock option
will be no less than the fair market value of the Company's common stock at
the date of grant, (ii) the option exercise price per share for a nonstatutory
stock option shall not be less than eighty-five percent of the fair market
value, and (iii) the exercise price of an incentive stock option for an
optionee who possesses more than ten percent of the total combined voting
power of all classes of stock shall not be less than 110% of the fair market
value; all as determined by the Board of Directors. One year from the date of
grant, 25% of the options granted vest. The remaining balance vests ratably
over the next 36 months of continuous service.
In May 1995, the Company adopted the 1995 Stock Option Plan ("1995 Plan") to
succeed the Plan. Under the 1995 Plan, 3,449,329 shares of common stock have
been reserved for issuance. Beginning in 1996, an additional number of shares
will be reserved on the first trading day of calendar years 1996, 1997, and
1998 equal to 5% of the number of shares of common stock outstanding on the
last day of the preceding calendar year. Under the 1995 Plan, employees
(including officers) and independent consultants may be granted nonstatutory
options to purchase common stock at an exercise price of not less than 85% of
the fair market value at the date of the grant and/or incentive stock options
at an exercise price of no less than the fair market value at the date of
grant.
The 1995 Plan is administered by the Compensation Committee of the Board of
Directors. The Compensation Committee determines which eligible individuals
are to receive option grants, the number of shares subject to each such grant,
the status of any granted option as either an incentive option or a
nonstatutory option under the Federal tax laws, the vesting schedule to be in
effect for each option grant and the maximum term for which each granted
option is to remain outstanding.
The Board may amend or modify the 1995 Plan at any time. The 1995 Plan will
terminate on May 15, 2005, unless sooner terminated by the Board.
F-11
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Plan activity is summarized as follows:
<TABLE>
<CAPTION>
OUTSTANDING OPTIONS
SHARES ------------------------
AVAILABLE NUMBER OF PRICE
FOR GRANT SHARES PER SHARE
---------- --------- -------------
<S> <C> <C> <C>
Balance, December 31, 1992........... 2,646,687 240,313 $1.06 - 2.08
Options granted...................... (1,802,609) 1,802,609 0.08 - 2.08
Options exercised.................... -- (389,218) 0.08
Options canceled..................... 156,750 (156,750) 0.08
---------- ---------
Balance, December 31, 1993........... 1,000,828 1,496,954 0.08 - 2.08
Options granted...................... (1,131,465) 1,131,465 0.08 - 2.93
Options exercised.................... -- (2,708) 0.08
Options canceled..................... 112,500 (112,500) 0.08 - 0.60
---------- ---------
Balance, December 31, 1994........... (18,137) 2,513,211 0.08 - 2.93
Additional shares reserved........... 1,100,000 -- --
Options granted...................... (1,184,286) 1,184,286 1.50 - 37.00
Options exercised.................... -- (229,485) 0.08 - 11.00
Options canceled..................... 299,613 (299,613) 0.08 - 37.00
---------- ---------
Balance, December 31, 1995........... 197,190 3,168,399 $0.08 - 37.00
========== =========
</TABLE>
As of December 31, 1995, 1,374,987 options were vested and 44,375 shares
sold under the Purchase Plan were subject to a right of repurchase by the
Company.
Under the 1995 Plan, each individual serving as a non-employee director
received on the date of the initial public offering, and each individual who
first joins the Board as a non-employee director on or after the effective
date of the 1995 Plan, received at that time, an automatic option grant for
15,000 shares of the Company's common stock. In addition, at each annual
stockholders meeting, beginning in 1996, each non-employee director will
automatically be granted at that meeting, a stock option to purchase 5,000
shares of common stock, provided such individual has served on the Board for
at least six months prior to such meeting. Each option has an exercise price
equal to the fair market value of the common stock on the automatic grant date
and a maximum term of ten years, subject to earlier termination following the
optionee's cessation of Board service. The option is immediately exercisable
for all of the shares but the shares are subject to repurchase at original
cost. With respect to the 15,000 share option grant, the right lapses and the
optionee vests in a series of four equal annual installments over the
optionee's period of Board service, beginning one year from the grant date.
With respect to each 5,000 share option grant, the right lapses and the option
vests in full on the first anniversary of such option's date of grant.
However, vesting of the shares will automatically accelerate upon (i) an
acquisition of the Company by merger, consolidation or asset sale; (ii) a
hostile take-over of the Company effected by tender offer for more than 50% of
the outstanding voting stock or proxy contest for Board membership or (iii)
the death or disability of the optionee while serving as a Board member.
In the event that more than 50% of the Company's outstanding voting stock
were to be acquired pursuant to a hostile tender offer, each grant to non-
employee directors which has been outstanding for at least six months may be
surrendered to the Company in return for a cash distribution from the Company
based upon the tender offer price per share of common stock at the time
subject to the surrendered option.
Employee Stock Purchase Plan
The Company's Employee Stock Purchase Plan (the "Purchase Plan") was adopted
by the Board on May 16, 1995 and approved by the stockholders on July 17,
1995. The Company has reserved 300,000 shares of common stock for issuance
under the Purchase Plan. The Purchase Plan provides for 24-month offerings
with purchases occurring at six-month intervals, commencing on the effective
date of the Company's initial public offering. The Purchase Plan is
administered by the Compensation Committee of the Board. The price of stock
F-12
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
purchased under the Purchase Plan is 85% of the lower of the fair market value
of the common stock at the beginning of the 24-month offering period or on the
applicable semi-annual purchase date. The Purchase Plan will terminate in June
2005.
(7) INCOME TAXES
Income taxes for the three years in the period ended December 31, 1995
consisted of the following (in thousands):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------
1993 1994 1995
------- ------- --------
<S> <C> <C> <C>
Current:
Federal...................................... $ 191 $ 699 $ 2,868
State........................................ 58 229 647
Foreign...................................... -- 67 7
------- ------- --------
249 995 3,522
------- ------- --------
Deferred:
Federal...................................... (136) (307) (338)
State........................................ (40) (95) (39)
------- ------- --------
(176) (402) (377)
------- ------- --------
$ 73 $ 593 $ 3,145
======= ======= ========
</TABLE>
The components of the net deferred tax asset at December 31, 1994 and 1995
were as follows (in thousands):
<TABLE>
<CAPTION>
DECEMBER 31,
-------------
1994 1995
------ ------
<S> <C> <C>
Allowances and accrued expenses............................. $ 462 $ 693
Research credits............................................ 37 --
State income taxes.......................................... 13 118
Property, equipment and intangibles......................... 32 291
Deferred revenue............................................ 112 543
Accounts receivable......................................... -- (649)
----- ------
Net deferred tax asset before valuation allowance........... 656 996
Less valuation allowance.................................... (37) --
----- ------
Net deferred asset........................................ $ 619 $ 996
===== ======
</TABLE>
The Company's effective tax rate differs from the statutory federal income
tax rate as shown in the following schedule:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1993 1994 1995
-------- ------- --------
<S> <C> <C> <C>
Income tax benefit at statutory rate....... 34.0% 34.0% (34.0)%
Performix earnings during S Corporation
status.................................... (26.6) (9.9) (10.9)
Nondeductible acquisition-related charges.. -- -- 86.3
Performix acquired deferred tax liability.. -- -- 11.7
State income taxes, net of federal bene-
fit....................................... 1.3 4.2 7.2
Research and development credit............ (0.6) (5.8) (2.2)
Other...................................... -- -- (0.7)
Reduction in valuation allowance........... -- -- (0.7)
-------- ------- --------
Effective tax rate....................... 8.1% 22.5% 56.7%
======== ======= ========
</TABLE>
F-13
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
Management believes that it is more likely than not that the results of
future operations will generate sufficient taxable income to realize the net
deferred tax asset.
(8) FOREIGN OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-----------------------
1993 1994 1995
------- ------- -------
<S> <C> <C> <C>
Revenues:
North America................................... $11,925 $20,924 $33,374
Europe.......................................... -- 1,069 7,178
Asia Pacific.................................... -- -- 3,490
------- ------- -------
Consolidated................................... $11,925 $21,993 $44,042
======= ======= =======
Income (loss) from operations:
North America................................... $ 828 $ 1,985 $(5,780)
Europe.......................................... -- 62 (2,586)
Asia Pacific.................................... -- -- (329)
------- ------- -------
Consolidated................................... $ 828 $ 2,047 $(8,695)
======= ======= =======
Identifiable assets:
North America................................... $ 7,749 $16,941 $50,435
Europe.......................................... -- 374 5,926
Asia Pacific.................................... -- -- 1,741
------- ------- -------
Consolidated................................... $ 7,749 $17,315 $58,102
======= ======= =======
Export sales..................................... $ 2,507 $ 3,419 $ 2,438
======= ======= =======
</TABLE>
Revenues from one of the Company's distributors in Europe accounted for 12%
of total revenues in 1993. The Company's agreement with this distributor was
terminated in 1994 when the Company established operations in Europe. All
amounts receivable from this distributor have been collected.
(9) ACQUISITIONS
QualTrak Corporation
On March 17, 1995, the Company acquired QualTrak, a provider of quality
assurance software tools. Pursuant to the acquisition, all of the shares of
outstanding common stock of QualTrak and options therefor were exchanged for
822,363 shares of the Company's Series D redeemable convertible preferred
stock or options therefor and $2,000,000 in cash or the right to receive cash.
The acquisition was accounted for as a purchase with the results of QualTrak
included from the acquisition date. The total purchase price of $11,904,000
was assigned to the fair value of the net assets acquired, including $543,000
to the net tangible assets acquired, $10,100,000 to in-process research and
development, $591,000 to goodwill, $420,000 to purchased software and $250,000
to a royalty arrangement. The value of the in-process research and development
was charged to operations on the acquisition date. Goodwill, purchased
software and prepaid royalties will be amortized on a straight-line basis over
5 years, 18 months, and 3 years, respectively. For income tax purposes,
QualTrak was acquired in a tax free reorganization.
F-14
<PAGE>
PURE SOFTWARE INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
The following summary prepared on an unaudited pro forma basis combines the
consolidated results of operations as if QualTrak had been acquired as of the
beginning of the periods presented (in thousands, except per share data):
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS
----------------------- ENDED MARCH 31,
1994 1995 1995
----------- ----------- ---------------
<S> <C> <C> <C>
Revenues.......................... $ 25,235 $ 44,701 $8,904
Pro forma income from continuing
operations before nonrecurring
charge........................... $ 1,627 $ 598 $ 665
Pro forma income from continuing
operations before nonrecurring
charge per share................. $ 0.10 $ 0.03 $ 0.04
</TABLE>
The pro forma results exclude the $10,100,000 nonrecurring charge for in-
process research and development resulting from the acquisition. The pro forma
results are not necessarily indicative of what would have occurred if the
acquisition had been in effect for the periods presented. In addition, they
are not intended to be a projection of future results and do not reflect any
synergies that might be achieved from combined operations.
Performix, Inc.
On November 21, 1995, the Company acquired Performix, a provider of
client/server load and performance testing tools. Pursuant to the acquisition,
all of the shares of outstanding common stock of Performix were exchanged for
1,591,475 shares of the Companys common stock. Of the shares issued, 187,476
shares of the Company's common stock were placed in escrow, to be held as
security for any losses incurred by the Company in the event of certain
breaches by Performix of covenants, representations and warranties contained
in the Agreement and Plan of Reorganization. All options to purchase Performix
common stock then outstanding were assumed by the Company. Each assumed option
continues to have, and is subject to, the same terms and conditions set forth
in the respective option agreement applicable to such option immediately prior
to the date of acquisition, subject to adjustment of the number of shares and
exercise price thereof to reflect the exchange ratio of Performix shares for
the Companys shares.
The acquisition was accounted for as a pooling of interests, and
accordingly, the Company's Consolidated Financial Statements and Notes to
Consolidated Financial Statements have been restated to include the financial
position and results of Performix for all periods presented.
For income tax purposes, Performix was acquired in a tax free
reorganization. Performix was an S Corporation for federal income tax purposes
prior to its acquisition. Upon acquisition, the S Corporation status
terminated resulting in a one-time deferred tax expense of approximately
$650,000 in the fourth quarter. Also, in connection with the acquisition, the
Company incurred approximately $2.2 million of costs which are not deductible
for income tax purposes.
Separate results of operations for the periods prior to the acquisition are
as follows:
<TABLE>
<CAPTION>
PURE PERFORMIX COMBINED
------- --------- --------
(IN THOUSANDS)
<S> <C> <C> <C>
Year ended December 31, 1993
Net revenue...................................... $ 8,691 $3,234 $11,925
Net income....................................... 123 705 828
Year ended December 31, 1994
Net revenue...................................... $18,186 $3,807 $21,993
Net income....................................... 1,270 777 2,047
Nine months ended September 30, 1995
Net revenue...................................... $25,319 $5,528 $30,847
Net income (loss)................................ (8,132) 1,904 (6,228)
</TABLE>
F-15
<PAGE>
(10) SUBSEQUENT EVENTS (UNAUDITED)
On May 2, 1996, the shareholders of the Company approved an amendment to the
Certificate of Incorporation increasing the authorized number of shares of
common stock to 80,000,000.
On June 6, 1996, the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Atria Software, Inc. ("Atria"), a
publicly-held company that develops, markets and supports software that
facilitates the management of complex software development, enhancement and
maintenance. Under the terms of the Agreement, the Company will issue 1.544615
shares of common stock for each outstanding share of Atria common stock. In
addition, each outstanding option or right to purchase Atria common stock
under Atria's various stock option and purchase plans will be assumed by the
Company and will become an option or right to purchase the Company's common
stock after giving effect to the 1.544615 exchange ratio. Consummation of the
merger contemplated by the Agreement is conditioned upon the affirmative vote
of both companies' stockholders, among other conditions.
F-16
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Stockholders
Atria Software, Inc.
We have audited the accompanying consolidated balance sheets of Atria
Software, Inc. as of December 31, 1994 and 1995, and the related consolidated
statements of operations, stockholders' equity (deficit), and cash flows for
each of the three years in the period ended December 31, 1995. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position
of Atria Software, Inc. at December 31, 1994 and 1995, and the consolidated
results of its operations and its cash flows for each of the three years in
the period ended December 31, 1995, in conformity with generally accepted
accounting principles.
Ernst & Young LLP
Boston, Massachusetts
January 23, 1996
F-17
<PAGE>
ATRIA SOFTWARE, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
DECEMBER 31,
---------------- MARCH 31,
1994 1995 1996
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $11,530 $18,459 $21,638
Available-for-sale securities................... 22,007 22,640 23,157
Accounts receivable, net of allowance for doubt-
ful accounts of $140, $320 and $502............ 1,792 4,700 5,236
Prepaid expenses and other current assets....... 804 2,361 2,586
------- ------- -------
Total current assets.............................. 36,133 48,160 52,617
Property and equipment, net....................... 1,178 3,026 3,445
Other assets, net................................. 90 786 830
------- ------- -------
Total assets...................................... $37,401 $51,972 $56,892
======= ======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable................................ $ 349 $ 850 $ 679
Accrued payroll and other related expenses...... 829 2,647 2,390
Accrued other................................... 2,138 5,752 6,321
Deferred revenue................................ 3,917 5,012 6,264
Income tax payable.............................. 845 1,225 1,836
------- ------- -------
Total current liabilities......................... 8,078 15,486 17,490
Deferred revenue.................................. 190 342 432
Deferred rent..................................... -- 123 121
Stockholders' equity:
Preferred stock, $1.00 par value, 2,000,000
shares authorized; none issued................. -- -- --
Common stock, $.01 par value, 25,000,000 shares
authorized; 14,045,700, 14,194,544 and
14,278,889 shares issued....................... 140 142 143
Additional paid-in capital...................... 27,935 29,643 30,390
Retained earnings............................... 1,059 6,232 8,308
Treasury stock.................................. (1) -- --
Unrealized gain on available-for-sale securi-
ties........................................... -- 2 7
Cumulative foreign currency translation adjust-
ment........................................... -- 2 1
------- ------- -------
Total stockholders' equity........................ 29,133 36,021 38,849
------- ------- -------
Total liabilities and stockholders' equity........ $37,401 $51,972 $56,892
======= ======= =======
</TABLE>
See accompanying notes.
F-18
<PAGE>
ATRIA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT FOR PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
----------------------- -------------------
1993 1994 1995 1995 1996
------- ------- ------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Revenue:
License fees..................... $ 7,253 $16,057 $29,368 $ 6,011 $ 9,640
Services......................... 2,009 4,708 10,775 2,009 3,862
------- ------- ------- --------- ---------
9,262 20,765 40,143 8,020 13,502
------- ------- ------- --------- ---------
Cost of revenue:
License fees..................... 283 534 664 115 153
Services......................... 358 1,431 3,451 681 1,369
------- ------- ------- --------- ---------
641 1,965 4,115 796 1,522
------- ------- ------- --------- ---------
Gross profit....................... 8,621 18,800 36,028 7,224 11,980
------- ------- ------- --------- ---------
Operating expenses:
Research and development......... 2,463 4,261 7,974 1,572 2,554
In-process research and develop-
ment............................ -- -- 1,500 -- --
Sales and marketing.............. 4,658 9,441 17,748 3,563 5,719
General and administrative....... 791 1,651 3,001 600 968
------- ------- ------- --------- ---------
7,912 15,353 30,223 5,735 9,241
------- ------- ------- --------- ---------
Income from operations............. 709 3,447 5,805 1,489 2,739
------- ------- ------- --------- ---------
Dividend and interest income....... 119 675 1,586 305 454
------- ------- ------- --------- ---------
Income before income taxes......... 828 4,122 7,391 1,794 3,193
Provision for income taxes......... 10 742 2,218 538 1,117
------- ------- ------- --------- ---------
Net income......................... $ 818 $ 3,380 $ 5,173 $ 1,256 $ 2,076
======= ======= ======= ========= =========
Net income per share............... $ 0.08 $ 0.25 $ 0.34 $ 0.08 $ 0.14
======= ======= ======= ========= =========
Weighted average number of common
and dilutive common equivalent
shares outstanding................ 10,768 13,308 15,006 14,932 15,210
======= ======= ======= ========= =========
</TABLE>
See accompanying notes.
F-19
<PAGE>
ATRIA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
-------------------------- --------------------
1993 1994 1995 1995 1996
------ -------- -------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Operating activities:
Net income................. $ 818 $ 3,380 $ 5,173 $ 1,256 $ 2,076
Adjustments to reconcile
net income to net cash
provided by operating
activities:
Depreciation and
amortization............ 399 917 1,512 363 727
Provision for doubtful
accounts................ 100 40 180 75 182
Deferred income taxes.... -- (280) (1,859) -- --
Tax benefit from stock
options exercised....... -- 170 800 200 300
Loss on sale of property
and equipment........... 13 -- -- -- --
Changes in operating
assets and liabilities:
Accounts receivable.... (717) (469) (3,120) (823) (752)
Other current assets... (33) (398) (322) (127) (227)
Other assets........... (54) (75) (112) (14) (56)
Accounts payable....... 7 173 501 162 (171)
Accrued payroll and
other related
expenses.............. 104 558 1,815 200 (255)
Accrued other.......... 858 1,214 3,676 209 562
Income tax payable..... 10 835 380 (492) 611
Deferred revenue....... 373 2,004 1,259 405 1,352
Deferred rent.......... 9 (21) 151 -- 12
Other, net............. -- -- 28 (27) 37
------ -------- -------- --------- ---------
Total adjustments............ 1,069 4,668 4,889 131 2,322
------ -------- -------- --------- ---------
Net cash provided by operat-
ing activities.............. 1,887 8,048 10,062 1,387 4,398
------ -------- -------- --------- ---------
Investing activities:
Purchase of available-for-
sale securities........... -- (33,041) (15,378) (5,413) (3,100)
Proceeds from sale of
available-for-sale
securities................ -- 11,000 14,611 5,300 2,540
Purchase of property and
equipment................. (619) (1,330) (3,272) (782) (1,092)
Proceeds from sale of
property and equipment.... 2 -- -- -- --
------ -------- -------- --------- ---------
Net cash used in investing
activities.................. (617) (23,371) (4,039) (895) (1,652)
------ -------- -------- --------- ---------
Financing activities:
Issuance of Series B
redeemable convertible
preferred stock........... 50 -- -- -- --
Issuance of common stock... 112 22,187 920 47 448
Offering costs............. -- (583) -- -- --
Purchase of treasury
stock..................... -- (1) (9) -- --
------ -------- -------- --------- ---------
Net cash provided by financ-
ing activities.............. 162 21,603 911 47 448
------ -------- -------- --------- ---------
Effect of foreign currency
exchange rate changes on
cash........................ -- -- (5) 15 (15)
------ -------- -------- --------- ---------
Net increase in cash and cash
equivalents................. 1,432 6,280 6,929 554 3,179
------ -------- -------- --------- ---------
Cash and cash equivalents at
beginning of period......... 3,818 5,250 11,530 11,530 18,459
------ -------- -------- --------- ---------
Cash and cash equivalents at
end of period............... $5,250 $ 11,530 $ 18,459 $ 12,084 $ 21,638
====== ======== ======== ========= =========
</TABLE>
See accompanying notes.
F-20
<PAGE>
ATRIA SOFTWARE, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
(IN THOUSANDS, EXCEPT FOR SHARE AMOUNTS)
<TABLE>
<CAPTION>
CUMULATIVE
COMMON STOCK UNREALIZED FOREIGN TREASURY STOCK
------------------ ADDITIONAL RETAINED GAIN ON CURRENCY ---------------- STOCKHOLDERS'
NUMBER OF PAID-IN EARNINGS AVAILABLE-FOR- TRANSLATION NUMBER EQUITY
SHARES AMOUNT CAPITAL (DEFICIT) SALE SECURITIES ADJUSTMENT OF SHARES AMOUNT (DEFICIT)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT DECEMBER
31, 1992............. 793,400 $ 8 $ 15 $(3,139) -- -- -- -- $(3,116)
- -------------------------------------------------------------------------------------------------------------------------
Two-for-one stock
split................ 793,400 8 (8) -- -- -- -- -- --
Exercised stock op-
tions................ 345,950 3 108 -- -- -- -- -- 111
Net income........... -- -- -- 818 -- -- -- -- 818
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1993............. 1,932,750 $ 19 $ 115 $(2,321) -- -- -- -- $(2,187)
- -------------------------------------------------------------------------------------------------------------------------
Series A redeemable
convertible preferred
stock conversion to
common stock......... 1,392,946 14 2,038 -- -- -- -- -- 2,052
Series B redeemable
convertible preferred
stock conversion to
common stock......... 1,506,816 15 4,100 -- -- -- -- -- 4,115
Initial public offer-
ing, net of $583 of
offering costs....... 1,970,000 20 21,382 -- -- -- -- -- 21,402
Exercised stock op-
tions................ 220,338 2 200 -- -- -- -- -- 202
Purchase of treasury
stock................ -- -- -- -- -- -- (6,750) $(1) (1)
Income tax benefit
related to stock
plans................ -- -- 170 -- -- -- -- -- 170
Net income........... -- -- -- 3,380 -- -- -- -- 3,380
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1994............. 7,022,850 $ 70 $28,005 $ 1,059 -- -- (6,750) $ (1) $29,133
- -------------------------------------------------------------------------------------------------------------------------
Exercised stock op-
tions................ 195,682 2 465 -- -- -- -- -- 467
Two for one stock
split................ 7,022,850 70 (70) -- -- -- (6,750) -- --
Retirement of trea-
sury stock........... (75,500) -- (10) -- -- -- 75,500 10 --
Stock issued under
stock purchase plan.. 28,662 -- 453 -- -- -- -- -- 453
Purchase of treasury
stock................ -- -- -- -- -- -- (62,000) (9) (9)
Income tax benefit
related to stock
plans................ -- -- 800 -- -- -- -- -- 800
Cumulative foreign
currency translation
adjustment........... -- -- -- -- -- 2 -- -- 2
Unrealized gain from
sales of available-
for-sale securities.. -- -- -- -- 2 -- -- -- 2
Net income........... -- -- -- 5,173 -- -- -- -- 5,173
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT DECEMBER
31, 1995............. 14,194,544 $142 $29,643 $ 6,232 $ 2 $ 2 0 $ 0 $36,021
- -------------------------------------------------------------------------------------------------------------------------
Exercised stock op-
tions (Unaudited).... 84,345 1 447 -- -- -- -- -- 448
Cumulative foreign
currency translation
adjustment
(Unaudited).......... -- -- -- -- -- (1) -- -- (1)
Unrealized gain from
sales of available-
for-sale securities
(Unaudited).......... -- -- -- -- 5 -- -- -- 5
Income tax benefit
related to stock
plans (Unaudited).... -- -- 300 -- -- -- -- -- 300
Net income (Unau-
dited)............... -- -- -- 2,076 -- -- -- -- 2,076
- -------------------------------------------------------------------------------------------------------------------------
BALANCE AT MARCH 31,
1996 (UNAUDITED)..... 14,278,889 $143 $30,390 $ 8,308 $ 7 $ 1 -- -- $38,849
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
F-21
<PAGE>
ATRIA SOFTWARE, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) SIGNIFICANT ACCOUNTING POLICIES
(a) Business
Atria Software, Inc. (the Company) was incorporated in Massachusetts on
January 11, 1990. The Company develops, markets and supports software that
facilitates the management of complex software development, enhancement and
maintenance. The Company's customers are independent software vendors that
develop applications for resale, custom or in-house software developers that
develop applications for the particular requirements of an organization and
product suppliers that develop software-controlled consumer or industrial
devices. The Company also provides a comprehensive range of services including
customer support, training, and consulting.
The Company currently derives substantially all of its revenue from licenses
of ClearCase and related products and services. As a result, any factor
adversely affecting sales of ClearCase would have a material adverse effect on
the Company. In addition, broad market acceptance of the Company's products,
including acceptance in markets characterized by greater usage of the Windows
and Windows NT operating systems, is critical to the Company's future success.
Factors which may affect market acceptance of the Company's products include:
product performance, price, ease of adoption, and displacement of existing
approaches, as well as new and more established competitors.
The environment of rapid technological change and intense competition which
is characteristic of the software development industry results in frequent new
products and evolving industry standards. The Company's continued success
depends on its ability to enhance current products and develop new products on
a timely basis which keep pace with the changes in technology and competitors'
innovations.
International revenue, which has grown as a percentage of total revenue, is
subject to various risks including imposition of government controls, export
license requirements and restrictions, political and economic conditions and
instability, trade restrictions, currency fluctuations, changes in tariffs and
taxes, difficulties in staffing and managing international operations, and
high local wage scales and other operating costs and expenses.
The preparation of the financial statements in conformity with generally
accepted accounting principals requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities at the
date of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Some of the areas where estimates are
utilized include allowance for bad debts, property and equipment, income
taxes, and various accrued expenses. Actual results could differ from those
estimates.
(b) Interim Financial Statements
The condensed financial statements as of March 31, 1996 and for the three-
month periods ended March 31, 1995 and 1996 are unaudited and, in the opinion
of management, include all adjustments (consisting only of normal and
recurring adjustments) necessary for a fair presentation of results for these
interim periods. The results of operations for the three months ended March
31, 1996 are not necessarily indicative of the results to be expected for the
entire year.
F-22
<PAGE>
(c) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All intercompany accounts and transactions
have been eliminated in consolidation.
(d) Foreign Currency Translation
The translation of assets and liabilities of the Company's foreign
subsidiaries is made at year-end rates of exchange, while revenue and expense
accounts are recorded at average rates of exchange. The resulting translation
adjustments are excluded from net income and are charged or credited to
"Cumulative foreign currency translation adjustment" included as part of
stockholder's equity. Realized and unrealized exchange gains or losses from
transaction adjustments are reflected in operations and are not material.
(e) Revenue Recognition
The Company accounts for revenue in accordance with Statement of Position
91-1, Software Revenue Recognition, issued by the American Institute of
Certified Public Accountants. Specifically, revenue from licenses to end-users
is recognized upon product shipment. Sublicense fee revenue from sales through
distributors and other resellers is recognized in the period in which the
sublicense is reported to the Company. Prepaid sublicense fees are treated as
deferred revenue until either the reseller reports sales of a sublicense to
the Company or per the contract terms. Revenue from consulting services, which
include installation and post sale consulting support, is recognized when the
services are completed and revenue from training is recognized when the
training course is completed. Revenue from maintenance agreements is
recognized ratably over the term of the agreement.
(f) Cash and Cash Equivalents
The Company considers all highly liquid investments with a maturity of three
months or less at the date of purchase to be cash equivalents.
(g) Available-for-Sale Securities
Effective January 1, 1994, the Company adopted Statement of Financial
Accounting Standards No. 115, "Accounting for Certain Investments in Debt and
Equity Securities".
The Company's securities have maturities within one year and have been
classified as available-for-sale securities. Available-for-sale securities are
carried at fair value with unrealized holding gains and losses reported as a
component of stockholders' equity. The securities have been categorized as
obligations of state and political subdivisions. The Company believes that
there are no significant concentrations of credit risk regarding the regional
or economic characteristics of its investments. The amortized cost of these
securities was $22,007,000 and $22,638,000 at December 31, 1994 and 1995,
which approximates fair market value. There was an associated unrealized
holding gain of $2,000 at December 31, 1995.
(h) Property and Equipment
Property and equipment are stated at cost and are depreciated and amortized
using accelerated methods over the useful lives of the related assets which
range from three to seven years.
F-23
<PAGE>
(i) Accounting for the Impairment of Long-Lived Assets
The Company has adopted Statement of Financial Accounting Standards No. 121,
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets
to Be Disposed Of" (FAS 121) effective in 1995. The Statement requires
impairment losses to be recognized for long-lived assets used in operations
when indicators of impairment are present and the undiscounted cash flows are
not sufficient to recover the assets' carrying amount. The adoption of FAS 121
had no material impact on the Company's financial position.
(j) Capitalized Software Costs
The Company's policy is to capitalize certain software development costs in
accordance with Statement of Financial Accounting Standards No. 86,
"Accounting for the Costs of Computer Software to be Sold, Leased, or
Otherwise Marketed" (the Statement). Under the Statement, software development
costs are capitalized at the lower of cost or net realizable value beginning
with the establishment of technological feasibility of the related products as
defined in the Statement. At December 31, 1994 and 1995, such amounts are
immaterial.
(k) Income Taxes
The Company adopted the liability method of accounting for income taxes
required by Statement of Financial Accounting Standards No. 109, "Accounting
for Income Taxes," in 1993. The impact of this change was not material. Under
this method, deferred tax assets and liabilities are determined based on
differences between financial reporting and tax basis of assets and
liabilities and are measured using the enacted tax rates and laws that will be
in effect when the differences are expected to reverse.
(l) Net Income Per Share
The net income per share is computed based upon the weighted average number
of common shares outstanding and gives effect to certain adjustments described
below. Common equivalent shares are not included in the per share calculations
where the effect of their inclusion would be antidilutive, except that, in
accordance with Securities and Exchange Commission requirements, common and
common equivalent shares issued during the twelve-month period prior to the
filing of an initial public offering have been included in the calculation as
if they were outstanding for all periods, using the treasury stock method and
the initial public offering price.
(m) Stock Options
The Company grants stock options for a fixed number of shares to employees
with an exercise price equal to the fair value of the shares at the date of
grant. The Company accounts for stock option grants in accordance with APB
Opinion No. 25 "Accounting for Stock Issued to Employees," and intends to
continue to do so. Accordingly, the Company recognizes no compensation expense
for stock option grants.
(n) Reclassifications
Certain amounts in the financial statements for the year ended December 31,
1993 and 1994 have been reclassified to conform with 1995 classifications.
(2) COMMON STOCK SPLIT
On August 10, 1995, the Company's Board of Directors approved a two-for-one
common stock split effected in the form of a 100% stock dividend that was
payable on September 18, 1995 to stockholders of record as of August 28, 1995.
Accordingly, all presentations of shares outstanding and amounts per share
have been
F-24
<PAGE>
restated to reflect the stock split, except in the Consolidated Statements of
Stockholders' Equity (Deficit) where the stock split is reflected in the year
in which it occurred. The par value of the additional shares was transferred
from additional paid-in capital to common stock.
(3) PROPERTY AND EQUIPMENT
The cost and accumulated depreciation of property and equipment at December
31 were as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Furniture.................................................. $ 312 $ 1,014
Computer equipment......................................... 2,269 4,446
Leasehold improvements..................................... 34 399
------- -------
2,615 5,859
------- -------
Less accumulated depreciation and amortization............. (1,437) (2,833)
------- -------
Property and equipment, net................................ $ 1,178 $ 3,026
======= =======
</TABLE>
(4) ACCRUED OTHER
Accrued other expenses at December 31 were as follows:
<TABLE>
<CAPTION>
1994 1995
------- -------
(IN THOUSANDS)
<S> <C> <C>
Accrued occupancy expenses.................................. $ 572 $ 675
Accrued product support expenses............................ 202 839
Accrued sales and marketing expenses........................ 419 1,272
Other....................................................... 945 2,966
------- -------
Total accrued other......................................... $ 2,138 $ 5,752
======= =======
</TABLE>
(5) OPERATING LEASE OBLIGATIONS
The Company leases its facilities and equipment under various operating
leases which expire through the year 2000. In March 1995, the Company entered
into an operating lease for approximately 45,000 square feet of office space.
The term of the lease is five years and contains two three-year options to
renew. The Company also leases certain office equipment. Future minimum lease
payments under noncancelable operating lease agreements are as follows:
<TABLE>
<CAPTION>
(IN THOUSANDS)
<S> <C>
1996.......................................................... $1,212
1997.......................................................... 1,056
1998.......................................................... 838
1999.......................................................... 838
2000.......................................................... 142
</TABLE>
As of December 31, 1995, the Company had a letter of credit outstanding in
the amount of $250,000 guaranteeing certain rental payments.
Lease expense for the years ended December 31, 1993, 1994 and 1995 was
$260,000, $489,000 and $1,010,000.
F-25
<PAGE>
(6) SERIES A AND B REDEEMABLE CONVERTIBLE PREFERRED STOCK
On May 14, 1990, the Company entered into a Stock Purchase Agreement. In
connection with the Agreement, the Company amended its capital structure to
authorize 60,834 shares of $.01 par value preferred stock. The Company
subsequently issued 55,834 shares of Series A redeemable convertible preferred
stock to investors for $2,094,000.
On May 20, 1992, the Company entered into a second Stock Purchase Agreement.
In connection with the Agreement, the Company amended its capital structure to
authorize an additional 1,547,666 shares of $.01 par value preferred stock,
bringing the total of authorized preferred shares to 1,608,500 shares. The
Company subsequently issued 744,317 and 9,091 shares of Series B redeemable
convertible preferred stock to the investors for $4,094,000 and $50,000 in
1992 and 1993.
Voting
Prior to the closing of the initial public offering, holders of Series A and
B preferred stock had rights to vote upon any matter submitted to the
stockholders as though the common stock and Series A and B preferred stock
constituted a single class of stock.
Both Series A and B redeemable convertible preferred stock were converted to
common stock at the time of the initial public offering (see Note 7 ).
(7) STOCKHOLDERS' EQUITY (DEFICIT)
(a) Preferred Stock
The Company is authorized, subject to certain limitations, to issue from
time to time up to an aggregate of 2,000,000 shares of $1.00 par value
preferred stock in one or more series and to fix the powers, designations,
preferences and rights of each series. The issuance of preferred stock may
have the effect of delaying or preventing a change of control of the Company.
The Company has no present plans to issue any shares of preferred stock.
(b) Common Stock
During 1994, the Company completed an initial public offering of 3,940,000
shares of common stock at $6.00 per share. Pursuant to the terms of the
offering, the shares of the Series A and Series B redeemable convertible
preferred stock were converted into 2,785,892 and 3,013,632 shares of the
$0.01 par value common stock. These shares were converted at a rate of 49.896
shares and 4 shares of common stock for each share of Series A and B preferred
stock. Prior to the offering, there was no public market for the Company's
common stock. The net proceeds of the offering, after deducting applicable
issuance costs and expenses, were $21,402,000.
The Company increased its authorized common stock from 6,000,000 shares to
25,000,000 shares during the year ended December 31, 1994.
(8) STOCK OPTION AND PURCHASE PLANS
(a) Stock Option Plans
The Company has three stock option plans, the 1990 Stock Option Plan, (the
1990 Plan), the 1994 Stock Option Plan (the 1994 Plan) and the 1994 Non-
Employee Director Stock Option Plan (the 1994 Director Plan).
F-26
<PAGE>
The 1990 Plan was terminated upon the initial public offering except for
options then outstanding. Options to purchase 2,156,000 shares of common stock
were issued under the 1990 Plan of which 611,129 were outstanding at December
31, 1995. Options granted under the 1990 Plan are exercisable in full
immediately upon grant and are subject to the Company's right to repurchase
shares from the optionee at the optionee's cost until such time as the shares
vest.
In March 1994, the Board of Directors adopted, and the stockholders
approved, the 1994 Plan, which provides for the grant of incentive stock
options, non-qualified stock options, award of stock and opportunities for the
direct purchases of stock to employees of the Company and related
corporations, or any other individuals who provide services to the Company.
The 1994 Plan has reserved for issuance a maximum of 1,600,000 shares, plus,
effective as of January 1, 1996 and each January 1 thereafter during the term
of the Plan, an additional number of shares of common stock equal to 2% of the
total number of shares of common stock issued and outstanding as of the close
of business on December 31 of the preceding year. No more than an aggregate of
6,000,000 shares of common stock may be issued pursuant to the exercise of
incentive stock options. As of December 31, 1995, 762,873 options to purchase
common stock were outstanding, of which 68,416 were exercisable.
In March 1994, the stockholders also approved the 1994 Director Plan, which
provides for the grant of options to purchase a maximum of 120,000 shares of
common stock of the Company to non-employee directors of the Company. The
purpose of the 1994 Director Plan is to attract and retain qualified persons
who are not also officers or employees of the Company (the eligible directors)
to serve as directors of the Company and to encourage stock ownership in the
Company by such directors. Each eligible director will automatically receive
an option to purchase 4,000 shares on January 1, 1996 and on the same day each
year thereafter through January 1, 1999. As of December 31, 1995, 20,000
options to purchase common stock were outstanding, of which 3,000 were
exercisable.
Each of the Stock Option Plans is administered by the Compensation Committee
of the Board of Directors, which has the authority to determine the terms of
such options, including the number of shares, exercise price, duration and
times at which the options become exercisable. Generally, these options vest
ratably over a period of five years and expire ten years from date of grant.
All such vesting is subject to partial acceleration in the event of a merger,
consolidation or sale of substantially all of the assets of the Company.
The following summarizes stock option transactions under all plans for the
years ended December 31:
<TABLE>
<CAPTION>
1993 1994 1995
---------- ----------- ------------
<S> <C> <C> <C>
Outstanding options at beginning of
year.............................. 738,000 934,200 1,020,624
Granted ......................... 902,800 551,650 638,300
Exercised........................ (691,900) (440,676) (195,682)
Canceled......................... (14,700) (24,550) (69,240)
---------- ----------- ------------
Outstanding options at end of
year.............................. 934,200 1,020,624 1,394,002
========== =========== ============
Price range of outstanding op-
tions............................. $.10-$1.00 $.10-$13.75 $.10-$39.125
========== =========== ============
Price range of options exercised... $.10-$ .30 $.10-$ 4.25 $.10-$26.50
========== =========== ============
Exercisable at end of year......... 934,200 814,294 682,545
========== =========== ============
Available for grant at end of
year.............................. 1,320,300 1,391,550 907,140
========== =========== ============
</TABLE>
F-27
<PAGE>
The Company realized tax benefits of $170,000 and $800,000 in 1994 and 1995,
which were credited to equity and relate to the sale of shares acquired upon
exercise of incentive stock options which met the criteria of disqualifying
dispositions.
(b) 1994 Employee Stock Purchase Plan
In March 1994, the stockholders approved, effective in January 1995, the
1994 Employee Stock Purchase Plan (the 1994 Purchase Plan), which enables
eligible employees to purchase the Company's common stock at 85% of the fair
market value of the stock on the date a six month offering commences or the
date an offering terminates, whichever is lower. The 1994 Purchase Plan covers
substantially all employees subject to certain limitations. Each employee may
elect to have up to 10% of their regular pay withheld and applied toward the
purchase of shares in such offering, but in no case shall an employee be
entitled to purchase more than 500 shares in any offering period. In December
1995, the Board of Directors approved, effective January 1, 1996, a change in
the maximum amount of payroll deductions to 10% of an employee's regular pay
and commissions up to $100,000. The 500 share limitation per offering period
is unchanged. During the year ended December 31, 1995, 28,662 shares were
issued under the plan at an average price of $15.83 per share.
(c) 401(k) Plan
On January 1, 1994, the Company adopted a defined contribution plan (the
401(k) Plan). All current domestic employees, and future domestic employees
who are over the age of 21, are eligible to participate in the 401(k) Plan.
Participants in the 401(k) Plan may not contribute more than the greater of a
specified statutory amount or 15% of his or her pre-tax total compensation.
Eligible employees are 100% vested in their own contributions. The 401(k) Plan
permits, but does not require, additional contributions to the 401(k) Plan by
the Company. The Company did not make an additional contribution in either
1995 or 1994.
(9) INCOME TAXES
The provision for income taxes as of December 31 consists of the following:
<TABLE>
<CAPTION>
1993 1994 1995
---- ------ -------
(IN THOUSANDS)
<S> <C> <C> <C>
Current:
Federal ............................................. $ 3 $ 881 $ 3,465
State................................................ 7 141 612
--- ------ -------
Total current.......................................... 10 1,022 4,077
Deferred:
Federal ............................................. -- (280) (1,585)
State................................................ -- -- (274)
--- ------ -------
Total deferred......................................... -- (280) (1,859)
--- ------ -------
$10 $ 742 $ 2,218
=== ====== =======
</TABLE>
F-28
<PAGE>
The effective income tax rate differed from the statutory federal income tax
rate due to:
<TABLE>
<CAPTION>
1993 1994 1995
----- ----- ----
<S> <C> <C> <C>
Statutory federal income tax rate...................... 34.0% 34.0% 34.0%
State income taxes, net of federal benefit............. 0.6 2.3 3.0
Permanent differences.................................. -- (2.7) (3.2)
Research and development tax credits................... -- (11.2) (4.7)
Net operating loss carryforward less federal benefit
for state taxes reflected above....................... (33.8) (9.7) --
Alternative minimum tax................................ 0.4 -- --
Other.................................................. -- 5.3 0.9
----- ----- ----
Effective income tax rate.............................. 1.2% 18.0% 30.0%
===== ===== ====
</TABLE>
At December 31, 1994, the Company had available research and development tax
credit carryforwards of approximately $170,000. During 1994, the Company fully
utilized the tax net operating loss carryforwards of approximately $1,200,000.
At December 31, 1995, the Company fully used its research and development tax
credits accumulated through June 30, 1995 (the date the provision expired).
Deferred income taxes, included in other current assets ($280,000 and
$1,515,000 in 1994 and 1995) and in other assets ($0 and $624,000 in 1994 and
1995), reflect the net tax effects of temporary differences between the
carrying amounts of assets and liabilities for financial reporting purposes
and the amounts used for income tax purposes. Significant components of the
Company's current and noncurrent deferred tax assets as of December 31 are as
follows:
<TABLE>
<CAPTION>
1994 1995
----- ------
(IN
THOUSANDS)
<S> <C> <C>
Current deferred tax assets:
Tax in excess of book earnings:
Bad debt allowance...................................... $ 28 $ 136
Accrued expenses........................................ 252 1,437
Alternative minimum tax .................................. -- --
----- ------
Total current deferred tax assets........................... 280 1,573
Valuation allowance against current deferred tax assets... -- --
----- ------
Current deferred tax liabilities:
Prepaid assets............................................ -- (58)
----- ------
Net current deferred tax asset.............................. $ 280 $1,515
===== ======
Noncurrent deferred tax assets:
Book in excess of tax depreciation and amortization....... $ 73 $ 600
Tax in excess of book earnings:
Accrued expenses........................................ 83 --
Deferred revenue/rent................................... 42 24
Net operating loss carryforwards.......................... -- --
Tax credit carryforwards.................................. 170 --
----- ------
Total noncurrent deferred tax assets........................ 368 624
Valuation allowance against noncurrent deferred tax
assets................................................. (368) --
----- ------
Net noncurrent deferred tax asset........................... $ 0 $ 624
===== ======
</TABLE>
F-29
<PAGE>
The Company has not recognized a valuation allowance against its current
deferred tax assets as it is more likely than not that those assets will be
realized during 1996. There was a decrease in the valuation allowance against
the current and noncurrent deferred tax assets during 1995 of $0 and $368,000.
The Company paid income taxes of approximately $3,000, $17,000, and
$2,895,000 during the years ended December 31, 1993, 1994 and 1995.
(10) INDUSTRY SEGMENT, REVENUE FROM CUSTOMERS OUTSIDE OF NORTH AMERICA AND
SIGNIFICANT CUSTOMERS
The Company operates in a single industry segment. During each of the years
ended December 31, 1993, 1994 and 1995, revenue from customers outside North
America accounted for 14%, 18%, and 21% of total revenue. Also in the years
ended December 31, 1993 and 1994, there were sales to individual customers
that exceeded 10% of total revenue. For the year ended December 31, 1993, one
customer accounted for approximately 14% of total revenue, of which 10%
related to royalties and fees paid to the Company in connection with the
distribution of the Company's product and 4% consisted of license and other
fees as an end user of the Company's product. For the year ended December 31,
1994, two customers each accounted for more than 10% of total revenue. One
customer accounted for 11% of total revenue, of which 8% related to royalties
and fees paid to the Company in connection with the distribution of the
Company's product and 3% consisted of license and other fees as an end user of
the Company's product. The other customer also accounted for approximately 11%
of total revenue. For the year ended December 31, 1995, no single customer
accounted for more than 10% of the Company's annual revenue.
<TABLE>
<CAPTION>
% OF TOTAL REVENUE
--------------------
1993 1994 1995
------ ------ ------
<S> <C> <C> <C>
USA..................................................... 85% 81% 73%
Canada.................................................. 1% 1% 6%
------ ------ ------
Total North America..................................... 86% 82% 79%
Outside North America................................... 14% 18% 21%
------ ------ ------
Total................................................... 100% 100% 100%
====== ====== ======
</TABLE>
F-30
<PAGE>
<TABLE>
<C> <S> <C>
ANNEX A-- Agreement and Plan of Reorganization, dated as of June 6, 1996,
among Pure Software Inc., CST Acquisition Corporation and Atria
Software, Inc. ............................................... A-1
ANNEX B-- Stock Option Agreement dated as of June 6, 1996 between Pure
Software Inc. and Atria Software, Inc.......................... B-1
ANNEX C-- Sections 85-98 of the Massachusetts Business Corporation Law... C-1
ANNEX D-- Opinion of Deutsche Morgan Grenfell/C.J. Lawrence Inc. ........ D-1
ANNEX E-- Opinion of Morgan Stanley & Co. Incorporated................... E-1
ANNEX F-- Opinion of Wessels, Arnold & Henderson, L.L.C. ................ F-1
</TABLE>
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
PURE SOFTWARE INC.
CST ACQUISITION CORPORATION
AND
ATRIA SOFTWARE, INC.
DATED AS OF JUNE 6, 1996
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE I--THE MERGER.................................................. 2
1.1 The Merger...................................................... 2
1.2 Effective Time; Closing......................................... 2
1.3 Effect of the Merger............................................ 2
1.4 Articles of Organization; Bylaws................................ 2
1.5 Directors and Officers.......................................... 2
1.6 Effect on Capital Stock......................................... 2
1.7 Dissenting Shares............................................... 3
1.8 Surrender of Certificates....................................... 4
1.9 No Further Ownership Rights in East Capital Stock............... 5
1.10 Lost, Stolen or Destroyed Certificates.......................... 5
1.11 Tax and Accounting Consequences................................. 5
1.12 Taking of Necessary Action; Further Action...................... 5
ARTICLE II--REPRESENTATIONS AND WARRANTIES OF EAST..................... 5
2.1 Organization of East............................................ 5
2.2 East Capital Structure.......................................... 6
2.3 Obligations With Respect to Capital Stock....................... 6
2.4 Authority....................................................... 6
2.5 SEC Filings; East Financial Statements.......................... 7
2.6 Absence of Certain Changes or Events............................ 8
2.7 Taxes........................................................... 8
2.8 Intellectual Property........................................... 8
2.9 Compliance; Permits; Restrictions............................... 9
2.10 Litigation...................................................... 9
2.11 Brokers' and Finders' Fees...................................... 9
2.12 Employee Benefit Plans.......................................... 9
2.13 Absence of Liens and Encumbrances; Condition of Equipment....... 10
2.14 Environmental Matters........................................... 10
2.15 Labor Matters................................................... 10
2.16 Agreements, Contracts and Commitments........................... 11
2.17 Pooling of Interests............................................ 11
2.18 Change of Control Payments...................................... 12
2.19 Statements; Proxy Statement/Prospectus.......................... 12
2.20 Board Approval.................................................. 12
2.21 Fairness Opinion................................................ 12
2.22 Minute Books.................................................... 12
ARTICLE III--REPRESENTATIONS AND WARRANTIES OF WEST AND MERGER SUB..... 12
3.1 Organization of West............................................ 12
3.2 West Capital Structure.......................................... 13
3.3 Obligations With Respect to Capital Stock....................... 13
3.4 Authority....................................................... 13
3.5 Section 203 of the Delaware General Corporation Law Not
Applicable..................................................... 14
3.6 SEC Filings; West Financial Statements.......................... 14
3.7 Absence of Certain Changes or Events............................ 15
3.8 Taxes........................................................... 15
3.9 Intellectual Property........................................... 15
3.10 Compliance; Permits; Restrictions............................... 16
3.11 Litigation...................................................... 16
</TABLE>
i
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
3.12 Brokers' and Finders' Fees...................................... 16
3.13 Employee Benefit Plans.......................................... 17
3.14 Absence of Liens and Encumbrances; Condition of Equipment....... 17
3.15 Environmental Matters........................................... 17
3.16 Labor Matters................................................... 18
3.17 Agreements, Contracts and Commitments........................... 18
3.18 Pooling of Interests............................................ 19
3.19 Change of Control Payments...................................... 19
3.20 Statements; Proxy Statement/Prospectus.......................... 19
3.21 Board Approval.................................................. 19
3.22 Fairness Opinion................................................ 19
3.23 Minute Books.................................................... 19
ARTICLE IV--CONDUCT PRIOR TO THE EFFECTIVE TIME........................ 19
4.1 Conduct of Business............................................. 19
ARTICLE V--ADDITIONAL AGREEMENTS....................................... 21
5.1 Proxy Statement/Prospectus; Registration Statement; Other
Filings........................................................ 21
5.2 Meetings of Stockholders........................................ 22
5.3 Access to Information; Confidentiality.......................... 22
5.4 No Solicitation................................................. 22
5.5 Public Disclosure............................................... 25
5.6 Legal Requirements.............................................. 25
5.7 Third Party Consents............................................ 25
5.8 FIRPTA.......................................................... 25
5.9 Notification of Certain Matters................................. 25
5.10 Best Efforts and Further Assurances............................. 25
5.11 Stock Options; Employee Stock Purchase Plan..................... 25
5.12 Form S-8........................................................ 26
5.13 Indemnification and Insurance................................... 26
5.14 Tax-Free Reorganization......................................... 27
5.15 NMS Listing..................................................... 27
5.16 West Affiliate Agreement........................................ 27
5.17 East Affiliate Agreement........................................ 27
5.18 Board of Directors of West...................................... 27
5.19 Committees of the Board of Directors of West.................... 28
5.20 Headquarters of East............................................ 28
5.21 Officers of West................................................ 28
5.22 Change of Name.................................................. 28
5.23 Option Plan..................................................... 28
ARTICLE VI--CONDITIONS TO THE MERGER................................... 28
6.1 Conditions to Obligations of Each Party to Effect the Merger.... 28
6.2 Additional Conditions to Obligations of East.................... 29
6.3 Additional Conditions to the Obligations of West and Merger
Sub............................................................ 29
ARTICLE VII--TERMINATION, AMENDMENT AND WAIVER......................... 30
7.1 Termination..................................................... 30
7.2 Notice of Termination; Effect of Termination.................... 31
7.3 Fees and Expenses............................................... 31
7.4 Amendment....................................................... 32
7.5 Extension; Waiver............................................... 32
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<C> <S> <C>
ARTICLE VIII--GENERAL PROVISIONS......................................... 32
8.1 Non-Survival of Representations and Warranties.................... 32
8.2 Notices........................................................... 32
8.3 Interpretation; Knowledge......................................... 33
8.4 Counterparts...................................................... 33
8.5 Entire Agreement.................................................. 33
8.6 Severability...................................................... 33
8.7 Other Remedies; Specific Performance.............................. 34
8.8 Governing Law..................................................... 34
8.9 Rules of Construction............................................. 34
8.10 Assignment........................................................ 34
</TABLE>
iii
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "Agreement") is made and
entered into as of June 6th, 1996 among Pure Software Inc., a Delaware
corporation ("West"), CST Acquisition Corporation, a Massachusetts corporation
and a wholly-owned subsidiary of West ("Merger Sub"), and Atria Software,
Inc., a Massachusetts corporation ("East").
RECITALS
A. Upon the terms and subject to the conditions of this Agreement and in
accordance with the Massachusetts Business Corporation Law ("Massachusetts
Law"), West and East will enter into a business combination transaction
pursuant to which Merger Sub will merge with and into East (the "Merger").
B. The Board of Directors of West (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of West
and fair to, and in the best interests of, West and its stockholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has recommended that the stockholders of West vote to
approve the issuance of shares of West Common Stock (as defined below) to the
stockholders of East pursuant to the terms of the Merger.
C. The Board of Directors of East (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of East
and fair to, and in the best interests of, East and its stockholders, (ii) has
approved this Agreement, the Merger and the other transactions contemplated by
this Agreement and (iii) has recommended the approval of this Agreement by the
stockholders of East.
D. Concurrently with the execution of this Agreement, and as a condition and
inducement to West's and East's willingness to enter into this Agreement, West
shall execute and deliver a Stock Option Agreement in favor of East in
substantially the form attached hereto as Exhibit A (the "West Stock Option
Agreement") and East shall execute and deliver a Stock Option Agreement in
favor of West in substantially the form attached hereto as Exhibit B (the
"East Stock Option Agreement" and, together with the West Stock Option
Agreement, the "Stock Option Agreements"). The Board of Directors of West and
East have each approved the Stock Option Agreements.
E. Concurrently with the execution of this Agreement, and as a condition and
inducement to West's and East's willingness to enter into this Agreement, the
Chief Executive Officer of West and certain other affiliates of West shall
enter into a Voting Agreement in substantially the form attached hereto as
Exhibit C (the "West Voting Agreements"), and the Chief Executive Officer of
East and certain other affiliates of East shall enter into a Voting Agreement
in substantially the form attached hereto as Exhibit D (the "East Voting
Agreements" and, collectively with the West Voting Agreements, the "Voting
Agreements").
F. West, East and Merger Sub desire to make certain representations and
warranties and other agreements in connection with the Merger.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code
of 1986, as amended (the "Code").
Now, Therefore, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties agree as follows:
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ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and subject
to and upon the terms and conditions of this Agreement and the applicable
provisions of Massachusetts Law, Merger Sub shall be merged with and into East,
the separate corporate existence of Merger Sub shall cease and East shall
continue as the surviving corporation. East as the surviving corporation after
the Merger is hereinafter sometimes referred to as the "Surviving Corporation."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement, the
parties hereto shall cause the Merger to be consummated by filing Articles of
Merger (the "Articles of Merger") with the Secretary of State of the
Commonwealth of Massachusetts in accordance with the relevant provisions of
Massachusetts Law (the time of such filing (or such later time as may be agreed
in writing by the parties and specified in the Articles of Merger) being the
"Effective Time") as soon as practicable on or after the Closing Date (as
herein defined). Unless the context otherwise requires, the term "Agreement" as
used herein refers collectively to this Agreement and the Articles of Merger.
The closing of the Merger (the "Closing") shall take place at the offices of
Wilson, Sonsini, Goodrich & Rosati, Professional Corporation at a time and date
to be specified by the parties, which shall be no later than the second
business day after the satisfaction or waiver of the conditions set forth in
Article VI, or at such other time, date and location as the parties hereto
agree in writing (the "Closing Date").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
shall be as provided in this Agreement and the applicable provisions of
Massachusetts Law. Without limiting the generality of the foregoing, and
subject thereto, at the Effective Time all the property, rights, privileges,
powers and franchises of East and Merger Sub shall vest in the Surviving
Corporation, and all debts, liabilities and duties of East and Merger Sub shall
become the debts, liabilities and duties of the Surviving Corporation.
1.4 Articles of Organization; Bylaws.
(a) At the Effective Time, the Articles of Organization of Merger Sub, as
in effect immediately prior to the Effective Time, shall be the Articles of
Organization of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Organization; provided, however, that
at the Effective Time the Articles of Organization of the Surviving
Corporation shall be amended so that the name of the Surviving Corporation
shall be "Atria Software, Inc."
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the
Surviving Corporation until thereafter amended.
1.5 Directors and Officers. The directors of Merger Sub immediately prior to
the Effective Time shall be the initial directors of the Surviving Corporation,
until their respective successors are duly elected or appointed and qualified.
The officers of Merger Sub immediately prior to the Effective Time shall be the
initial officers of the Surviving Corporation, until their successors are duly
elected or appointed or qualified.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the Merger
and without any action on the part of Merger Sub, East or the holders of any of
the following securities:
(a) Conversion of East Capital Stock. Each share of Common Stock, par
value $.01 per share, of East (the "East Capital Stock") issued and
outstanding immediately prior to the Effective Time (other than any shares
of East Capital Stock to be canceled pursuant to Section 1.6(b) and any
Dissenting Shares (as defined in and to the extent provided in Section
1.7(a)) will be canceled and extinguished and automatically converted
(subject to Sections 1.6(e) and (f)) into the right to receive 1.544615
(the "Exchange Ratio") shares of Common Stock, par value $.0001 per share,
of West (the "West Common Stock") upon surrender of the certificate
representing such share of East Capital Stock in the manner provided in
Section 1.8 (or in the case of a lost, stolen or destroyed certificate,
upon delivery of an affidavit (and bond, if required) in the manner
provided in Section 1.10).
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(b) Cancellation of West-Owned Stock. Each share of East Capital Stock
held in the treasury of East or owned by Merger Sub, West or any direct or
indirect wholly owned subsidiary of East or of West immediately prior to
the Effective Time shall be canceled and extinguished without any
conversion thereof.
(c) Stock Options; Employee Stock Purchase Plan. At the Effective Time
all options to purchase East Capital Stock then outstanding under East's
1990 Stock Option Plan, 1994 Stock Plan and 1994 Non-Employee Director
Stock Option Plan (collectively, the "East Stock Option Plans") shall be
assumed by West in accordance with Section 5.11 hereof. In accordance with
the terms of the East Stock Option Plans, the exercisability of certain
options and lapse of repurchase rights will accelerate (by 2 1/2 years) at
the Effective Time. At the Effective Time, in accordance with the terms of
East's Employee Stock Purchase Plan (the "East Employee Stock Purchase
Plan"), all rights to purchase shares of East Capital Stock under the East
Employee Stock Purchase Plan shall be converted into rights to purchase a
number of shares of West Common Stock as provided in the East Employee
Stock Purchase Plan (based on the Exchange Ratio), all such rights shall be
assumed by West and the offering period in effect under the East Employee
Stock Purchase Plan immediately prior to the Effective Time shall not be
terminated early.
(d) Capital Stock of Merger Sub. Each share of Common Stock, par value
$.01 per share, of Merger Sub issued and outstanding immediately prior to
the Effective Time shall be converted into and exchanged for one validly
issued, fully paid and nonassessable share of Common Stock, par value $.01
per share, of the Surviving Corporation. Each stock certificate of Merger
Sub evidencing ownership of any such shares shall continue to evidence
ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be adjusted
to reflect fully the effect of any stock split, reverse stock split, stock
dividend (including any dividend or distribution of securities convertible
into West Common Stock or East Capital Stock), reorganization,
recapitalization or other like change with respect to West Common Stock or
East Capital Stock occurring on or after the date hereof and prior to the
Effective Time.
(f) Fractional Shares. No fraction of a share of West Common Stock will
be issued by virtue of the Merger, but in lieu thereof each holder of
shares of East Capital Stock who would otherwise be entitled to a fraction
of a share of West Common Stock (after aggregating all fractional shares of
West Common Stock to be received by such holder) shall receive from West an
amount of cash (rounded to the nearest whole cent) equal to the product of
(i) such fraction, multiplied by (ii) the average closing price of a share
of West Common Stock for the ten most recent days that West Common Stock
has traded ending on the trading day immediately prior to the Effective
Time, as reported on the Nasdaq National Market.
1.7 Dissenting Shares.
(a) Notwithstanding any provision of this Agreement to the contrary, the
shares of any holder of East Capital Stock who has demanded and perfected
appraisal rights for such shares in accordance with Massachusetts Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("Dissenting Shares"), shall not be converted into or
represent a right to receive West Common Stock pursuant to Section 1.6, but
the holder thereof shall only be entitled to such rights as are granted by
Massachusetts Law.
(b) Notwithstanding the foregoing, if any holder of shares of East
Capital Stock who demands appraisal of such shares under Massachusetts Law
shall effectively withdraw the right to appraisal, then, as of the later of
the Effective Time and the occurrence of such event, such holder's shares
shall automatically be converted into and represent only the right to
receive West Common Stock, without interest thereon, upon surrender of the
certificate representing such shares.
(c) East shall give West (i) prompt notice of any written demands for
appraisal of any shares of East Capital Stock, withdrawals of such demands,
and any other instruments served pursuant to Massachusetts Law and received
by East which relate to any such demand for appraisal and (ii) the
opportunity to participate in all negotiations and proceedings which take
place prior to the Effective Time with respect to demands for appraisal
under Massachusetts Law. East shall not, except with the prior written
consent of
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West or as may be required by applicable law, voluntarily make any payment
with respect to any demands for appraisal of East Capital Stock or offer to
settle or settle any such demands.
1.8 Surrender of Certificates.
(a) Exchange Agent. West shall select an institution reasonably
satisfactory to East to act as the exchange agent (the "Exchange Agent") in
the Merger.
(b) West to Provide Common Stock. Promptly after the Effective Time, West
shall make available to the Exchange Agent for exchange in accordance with
this Article I, the shares of West Common Stock issuable pursuant to
Section 1.6 in exchange for outstanding shares of East Capital Stock, and
cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions and holders
of shares of East Capital Stock may be entitled pursuant to Section 1.8(d).
(c) Exchange Procedures. Promptly after the Effective Time, West shall
cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "Certificates") which
immediately prior to the Effective Time represented outstanding shares of
East Capital Stock whose shares were converted into the right to receive
shares of West Common Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d), (i) a letter of transmittal
(which shall specify that delivery shall be effected, and risk of loss and
title to the Certificates shall pass, only upon delivery of the
Certificates to the Exchange Agent and shall be in such form and have such
other provisions as West may reasonably specify) and (ii) instructions for
use in effecting the surrender of the Certificates in exchange for
certificates representing shares of West Common Stock, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d). Upon surrender of a Certificate
for cancellation to the Exchange Agent or to such other agent or agents as
may be appointed by West, together with such letter of transmittal, duly
completed and validly executed in accordance with the instructions thereto,
the holder of such Certificate shall be entitled to receive in exchange
therefor a certificate representing the number of whole shares of West
Common Stock, payment in lieu of fractional shares which such holder has
the right to receive pursuant to Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.8(d), and the Certificate so
surrendered shall forthwith be canceled. Until so surrendered, each
outstanding Certificate will be deemed from and after the Effective Time,
for all corporate purposes, subject to Section 1.8(d) as to the payment of
dividends, to evidence the ownership of the number of full shares of West
Common Stock into which such shares of East Capital Stock shall have been
so converted and the right to receive an amount in cash in lieu of the
issuance of any fractional shares in accordance with Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
other distributions declared or made after the date of this Agreement with
respect to West Common Stock with a record date after the Effective Time
will be paid to the holder of any unsurrendered Certificate with respect to
the shares of West Common Stock represented thereby until the holder of
record of such Certificate shall surrender such Certificate. Subject to
applicable law, following surrender of any such Certificate, there shall be
paid to the record holder thereof certificates representing whole shares of
West Common Stock issued in exchange therefor, without interest, along with
the amount of dividends or other distributions with a record date after the
Effective Time payable with respect to such whole shares of West Common
Stock.
(e) Transfers of Ownership. If any certificate for shares of West Common
Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of
the issuance thereof that the Certificate so surrendered will be properly
endorsed and otherwise in proper form for transfer and that the person
requesting such exchange will have paid to West or any agent designated by
it any transfer or other taxes required by reason of the issuance of a
certificate for shares of West Common Stock in any name other than that of
the registered holder of the Certificate surrendered, or established to the
satisfaction of West or any agent designated by it that such tax has been
paid or is not payable.
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(f) No Liability. Notwithstanding anything to the contrary in this
Section 1.8, neither the Exchange Agent, West, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of West Common
Stock or East Capital Stock for any amount properly paid to a public
official pursuant to any applicable abandoned property, escheat or similar
law.
1.9 No Further Ownership Rights in East Capital Stock. All shares of West
Common Stock issued upon the surrender for exchange of shares of East Capital
Stock in accordance with the terms hereof (including any cash paid in respect
thereof pursuant to Section 1.6(f) and 1.8(d)) shall be deemed to have been
issued in full satisfaction of all rights pertaining to such shares of East
Capital Stock, and there shall be no further registration of transfers on the
records of the Surviving Corporation of shares of East Capital Stock which were
outstanding immediately prior to the Effective Time. If after the Effective
Time Certificates are presented to the Surviving Corporation for any reason,
they shall be canceled and exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of West Common Stock,
cash for fractional shares, if any, as may be required pursuant to Section
1.6(f) and any dividends or distributions payable pursuant to Section 1.8(d);
provided, however, that West may, in its discretion and as a condition
precedent to the issuance thereof, require the owner of such lost, stolen or
destroyed Certificates to deliver a bond in such sum as it may reasonably
direct as indemnity against any claim that may be made against West or the
Exchange Agent with respect to the Certificates alleged to have been lost,
stolen or destroyed.
1.11 Tax and Accounting Consequences. It is intended by the parties hereto
that the Merger shall constitute a reorganization within the meaning of Section
368 of the Code. The parties hereto adopt this Agreement as a "plan of
reorganization" within the meaning of Sections 1.368-2(g) and 1.368-3(a) of the
United States Income Tax Regulations. It is also intended by the parties hereto
that the Merger shall qualify for accounting treatment as a pooling of
interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of East and Merger Sub, the officers and directors of East and
Merger Sub are fully authorized in the name of their respective corporations or
otherwise to take, and will take, all such lawful and necessary action, so long
as such action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF EAST
East represents and warrants to West and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by East to West (the "East Schedules"), as follows:
2.1 Organization of East. East and each of its material subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect (as defined
below) on East. East has delivered to West a true and complete list of all of
East's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary and East's equity interest therein. East has delivered or made
available a true and correct copy of the Articles of Organization and Bylaws of
East and similar governing instruments of its material subsidiaries, each as
amended to date, to counsel for West. When used in connection with East, the
term "Material Adverse Effect" means, for purposes of this Agreement, any
change, event or effect that is
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materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of East and its subsidiaries taken
as a whole.
2.2 East Capital Structure. The authorized capital stock of East consists of
50,000,000 shares of Common Stock, par value $0.01 per share, of which there
were 14,326,919 shares issued and outstanding as of June 1, 1996 and 2,000,000
shares of Preferred Stock, par value $1.00 per share, of which no shares are
issued or outstanding. All outstanding shares of East Capital Stock are duly
authorized, validly issued, fully paid and non-assessable and are not subject
to preemptive rights created by statute, the Articles of Organization or Bylaws
of East or any agreement or document to which East is a party or by which it is
bound. As of June 1, 1996, East had reserved an aggregate of 2,408,648 shares
of Common Stock, net of exercises, for issuance to employees, consultants and
non- employee directors pursuant to the East Stock Option Plans, under which
options are outstanding for an aggregate of 1,706,737 shares. All shares of
East Capital Stock subject to issuance as aforesaid, upon issuance on the terms
and conditions specified in the instruments pursuant to which they are
issuable, would be duly authorized, validly issued, fully paid and
nonassessable. The East Schedules list each outstanding option to acquire
shares of the Common Stock of East at June 1, 1996, the name of the holder of
such option, the number of shares subject to such option, the exercise price of
such option, the number of shares as to which such option will have vested at
such date and whether the exercisability of such option will be accelerated in
any way by the transactions contemplated by this Agreement or for any other
reason, and indicate the extent of acceleration, if any. As of June 1, 1996,
there were 143 participants in East's 1994 Employee Stock Purchase Plan (the
"East Employee Stock Purchase Plan").
2.3 Obligations With Respect to Capital Stock. Except as set forth in Section
2.2, there are no equity securities of any class of East, or any securities
exchangeable or convertible into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except for securities East owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities of any class of any subsidiary of East, or any security exchangeable
or convertible into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 2.2, there are no
options, warrants, equity securities, calls, rights (including preemptive
rights), commitments or agreements of any character to which East or any of its
subsidiaries is a party or by which it is bound obligating East or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of East or any of its
subsidiaries or obligating East or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. There are no registration
rights and, to the knowledge of East there are no voting trusts, proxies or
other agreements or understandings with respect to any equity security of any
class of East or with respect to any equity security of any class of any of its
subsidiaries.
2.4 Authority.
(a) East has all requisite corporate power and authority to enter into
this Agreement and the East Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the consummation of the transactions contemplated
hereby, and the execution and delivery of the East Stock Option Agreement
and the consummation of the transactions contemplated thereby, have been
duly authorized by all necessary corporate action on the part of East,
subject only to the approval of this Agreement by East's stockholders and
the filing and recordation of the Articles of Merger pursuant to
Massachusetts Law. A vote of the holders of at least a majority of the
outstanding shares of the East Capital Stock is required for East's
stockholders to approve this Agreement. This Agreement and the East Stock
Option Agreement have been duly executed and delivered by East and,
assuming the due authorization, execution and delivery by West and, if
applicable, Merger Sub, constitute the valid and binding obligations of
East, enforceable in accordance with their terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles
of equity. The execution and delivery of this Agreement and the East Stock
Option Agreement by East do not, and the performance of this Agreement and
the East Stock Option Agreement by East will not, (i) conflict with or
violate the Articles of Organization or Bylaws of East or the equivalent
organizational documents of any of
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its subsidiaries, (ii) subject to obtaining the approval of East's
stockholders of the Merger as contemplated in Section 5.2 and compliance
with the requirements set forth in Section 2.4(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
East or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or
constitute a default (or an event that with notice or lapse of time or both
would become a default) under, or impair East's rights or alter the rights
or obligations of any third party under, or give to others any rights of
termination, amendment, acceleration or cancellation of, or result in the
creation of a lien or encumbrance on any of the properties or assets of
East or any of its subsidiaries pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which East or any of its subsidiaries is a
party or by which East or any of its subsidiaries or its or any of their
respective properties are bound or affected, except, with respect to
clauses (ii) and (iii), for any such conflicts, violations, defaults or
other occurrences that would not have a Material Adverse Effect on East.
The East Schedules list all material consents, waivers and approvals under
any of East's or any of its subsidiaries' agreements, contracts, licenses
or leases required to be obtained in connection with the consummation of
the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission
or other governmental authority or instrumentality ("Governmental Entity")
is required by or with respect to East in connection with the execution and
delivery of this Agreement and the East Stock Option Agreement or the
consummation of the transactions contemplated hereby or thereby, except for
(i) the filing of a Form S-4 Registration Statement (the "Registration
Statement") with the Securities and Exchange Commission ("SEC") in
accordance with the Securities Act of 1933, as amended (the "Securities
Act"), (ii) the filing of the Articles of Merger with the Secretary of
State of the Commonwealth of Massachusetts, (iii) the filing of the Proxy
Statement (as defined in Section 2.19) with the SEC in accordance with the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), (iv) the
filing of a Current Report on Form 8-K with the SEC, (v) such consents,
approvals, orders, authorizations, registrations, declarations and filings
as may be required under applicable federal and state securities laws and
the laws of any foreign country and (vi) such other consents,
authorizations, filings, approvals and registrations which, if not obtained
or made, would not have a Material Adverse Effect on East or West or have a
material adverse effect on the ability of the parties to consummate the
Merger. The provisions of the Massachusetts Control Share Acquisition Act,
Massachusetts Statutes Chapter 110D, will not apply to this Agreement, the
Merger or the transactions contemplated hereby (including, without
limitation, the transactions contemplated by the Voting Agreements).
2.5 SEC Filings; East Financial Statements.
(a) East has filed all forms, reports and documents required to be filed
with the SEC since May 13, 1994, and has made available to West such forms,
reports and documents in the form filed with the SEC. All such required
forms, reports and documents (including those that East may file subsequent
to the date hereof) are referred to herein as the "East SEC Reports." As of
their respective dates, the East SEC Reports (i) were prepared in
accordance with the requirements of the Securities Act or the Exchange Act,
as the case may be, and the rules and regulations of the SEC thereunder
applicable to such East SEC Reports, and (ii) did not at the time they were
filed (or if amended or superseded by a filing prior to the date of this
Agreement, then on the date of such filing) contain any untrue statement of
a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light
of the circumstances under which they were made, not misleading. None of
East's subsidiaries is required to file any forms, reports or other
documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in East SEC Reports (the "East
Financials"), including any East SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (y)
was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be
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permitted by the SEC on Form 10-Q under the Exchange Act) and (z) fairly
presented the consolidated financial position of East and its subsidiaries
as at the respective dates thereof and the consolidated results of its
operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments which were not, or are not expected to be,
material in amount. The balance sheet of East contained in East SEC Reports
as of March 31, 1996 is hereinafter referred to as the "East Balance
Sheet." Except as disclosed in the East Financials, neither East nor any of
its subsidiaries has any liabilities (absolute, accrued, contingent or
otherwise) of a nature required to be disclosed on a balance sheet or in
the related notes to the consolidated financial statements prepared in
accordance with GAAP which are, individually or in the aggregate, material
to the business, results of operations or financial condition of East and
its subsidiaries taken as a whole, except liabilities (i) provided for in
the East Balance Sheet, or (ii) incurred since the date of the East Balance
Sheet in the ordinary course of business consistent with past practices.
(c) East has heretofore furnished to West a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by East with the SEC pursuant
to the Securities Act or the Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the East Balance
Sheet through the date of this Agreement, there has not been: (i) any Material
Adverse Effect on East, (ii) any material change by East in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, or (iii) any revaluation by East of any of its assets having a Material
Adverse Effect on East, including, without limitation, writing down the value
of capitalized software or inventory or writing off notes or accounts
receivable other than in the ordinary course of business.
2.7 Taxes. East and each of its subsidiaries has filed all tax returns
required to be filed by any of them and has paid (or East has paid on its
behalf), or has set up an adequate reserve for the payment of, all material
taxes required to be paid as shown on such returns, and the most recent
financial statements contained in the East SEC Reports reflect an adequate
reserve for all material taxes payable by East and its subsidiaries accrued
through the date of such financial statements. Except as reasonably would not
be expected to have a Material Adverse Effect on East, no deficiencies for any
taxes have been proposed, asserted or assessed against East or any of its
subsidiaries. For the purpose of this Agreement, the term "tax" shall include
all Federal, state, local and foreign income, profits, franchise, gross
receipts, payroll, sales, employment, use, property, withholding, excise and
other taxes, duties or assessments of any nature whatsoever, together with all
interest, penalties and additions imposed with respect to such amounts.
2.8 Intellectual Property.
(a) East and its subsidiaries own, or have the right to use, sell or
license all intellectual property necessary or required for the conduct of
their respective businesses as presently conducted (such intellectual
property and the rights thereto are collectively referred to herein as the
"East IP Rights"), except for any failure to own or have the right to use,
sell or license that would not have a Material Adverse Effect on East.
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any East IP Rights (the
"East IP Rights Agreements"), will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any East IP Rights
or impair the right of East and its subsidiaries, the Surviving Corporation
or West to use, sell or license any East IP Rights or portion thereof,
except for the occurrence of any such breach, forfeiture, termination or
impairment that would not individually or in the aggregate, result in a
Material Adverse Effect on East.
(c) (i) neither the manufacture, marketing, license, sale or intended use
of any product or technology currently licensed or sold or under
development by East or any of its subsidiaries violates any license or
agreement between East or any of its subsidiaries and any third party or
infringes any intellectual property
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right of any other party; and (ii) there is no pending or, to the knowledge
of East, threatened claim or litigation contesting the validity, ownership
or right to use, sell, license or dispose of any East IP Rights, nor has
East received any written notice asserting that any East IP Rights or the
proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party, except, with respect to
clauses (i) and (ii), for any violations, infringements, claims or
litigation that would not have a Material Adverse Effect on East.
(d) East has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights
in, all East IP Rights.
2.9 Compliance; Permits; Restrictions.
(a) Neither East nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to East or any of its subsidiaries or by which its or any
of their respective properties is bound or affected, or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which East or any of its
subsidiaries is a party or by which East or any of its subsidiaries or its
or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations which would not have a Material Adverse
Effect on East. To the knowledge of East, no investigation or review by any
governmental or regulatory body or authority is pending or threatened
against East or its subsidiaries, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than,
in each such case, those the outcome of which would not have a Material
Adverse Effect on East.
(b) East and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of East and its subsidiaries
taken as a whole (collectively, the "East Permits"). East and its
subsidiaries are in compliance with the terms of East Permits, except where
the failure to so comply would not have a Material Adverse Effect on East.
2.10 Litigation. As of the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which East or
any of its subsidiaries has received any notice of assertion nor, to East's
knowledge, is there a threatened action, suit, proceeding, claim, arbitration
or investigation against East or any of its subsidiaries which would have a
Material Adverse Effect on East, or which in any manner challenges or seeks to
prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement.
2.11 Brokers' and Finders' Fees. Except for fees payable to Wessels, Arnold &
Henderson pursuant to the engagement letter dated May 31, 1996, a copy of which
has been provided to West, East has not incurred, nor will it incur, directly
or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.12 Employee Benefit Plans.
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of the Employee Retirement Income
Security Act of 1974, as amended ("ERISA")) maintained or contributed to by
East or any trade or business (an "ERISA Affiliate") which is under common
control with East within the meaning of Section 414 of the Code (the "East
Employee Plans"), East has made available to West a true and complete copy
of, to the extent applicable, (i) such East Employee Plan, (ii) the most
recent annual report (Form 5500), (iii) each trust agreement related to
such East Employee Plan, (iv) the most recent summary plan description for
each East Employee Plan for which such a description is required, (v) the
most recent actuarial report relating to any East Employee Plan subject to
Title IV of ERISA and (vi) the most recent United States Internal Revenue
Service ("IRS") determination letter issued with respect to any East
Employee Plan.
(b) Each East Employee Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
IRS covering the provisions of the Tax Reform Act of 1986
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stating that such East Employee Plan is so qualified and nothing has
occurred since the date of such letter that could reasonably be expected to
affect the qualified status of such plan. Each East Employee Plan has been
operated in all material respects in accordance with its terms and the
requirements of applicable law. Neither East nor any ERISA Affiliate of
East has incurred or is reasonably expected to incur any material liability
under Title IV of ERISA in connection with any East Employee Plan.
2.13 Absence of Liens and Encumbrances; Condition of Equipment. East and each
of its subsidiaries has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens or encumbrances except as reflected in the East
Financials and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which would not have a
Material Adverse Effect on East.
2.14 Environmental Matters.
(a) Hazardous Material. Except as would not have a Material Adverse
Effect on East, no underground storage tanks and no amount of any substance
that has been designated by any Governmental Entity or by applicable
federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without
limitation, PCBs, asbestos, petroleum, urea-formaldehyde and all substances
listed as hazardous substances pursuant to the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, or defined
as a hazardous waste pursuant to the United States Resource Conservation
and Recovery Act of 1976, as amended, and the regulations promulgated
pursuant to said laws, (a "Hazardous Material"), but excluding office and
janitorial supplies, are present, as a result of the deliberate actions of
East or any of its subsidiaries, or, to East's knowledge, as a result of
any actions of any third party or otherwise, in, on or under any property,
including the land and the improvements, ground water and surface water
thereof, that East or any of its subsidiaries has at any time owned,
operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not have a Material
Adverse Effect on East, neither East nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on or before the Closing Date, nor has East or any of its
subsidiaries disposed of, transported, sold, or manufactured any product
containing a Hazardous Material (collectively "Hazardous Materials
Activities") in violation of any rule, regulation, treaty or statute
promulgated by any Governmental Entity in effect prior to or as of the date
hereof to prohibit, regulate or control Hazardous Materials or any
Hazardous Material Activity.
(c) Permits. East and its subsidiaries currently hold all environmental
approvals, permits, licenses, clearances and consents (the "East
Environmental Permits") necessary for the conduct of East's and its
subsidiaries' Hazardous Material Activities and other businesses of East
and its subsidiaries as such activities and businesses are currently being
conducted, except where the failure to so hold would not have a Material
Adverse Effect on East.
(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to East's knowledge, threatened concerning any East Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of East or any of
its subsidiaries. East is not aware of any fact or circumstance which could
involve East or any of its subsidiaries in any environmental litigation or
impose upon East or any of its subsidiaries any environmental liability
that would have a Material Adverse Effect on East.
2.15 Labor Matters. To East's knowledge, there are no activities or
proceedings of any labor union to organize any employees of East or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of East or any
of its subsidiaries. East and its subsidiaries are and have been in compliance
with all applicable laws regarding employment practices, terms and conditions
of employment, and wages and hours (including, without limitation, ERISA (as
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defined below), WARN or any similar state or local law), except for any
noncompliance that would not have a Material Adverse Effect on East.
2.16 Agreements, Contracts and Commitments. Except as set forth in the East
Schedules, neither East nor any of its subsidiaries is a party to or is bound
by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director level employee, not terminable by East or any of
its subsidiaries on thirty days notice without liability, except to the
extent general principles of wrongful termination law may limit East's or
any of its subsidiaries' ability to terminate employees at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(e) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
East or any of its subsidiaries and any of its officers or directors;
(f) any agreement, contract or commitment containing any covenant
limiting the freedom of East or any of its subsidiaries to engage in any
line of business or compete with any person;
(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $150,000 and not
cancelable without penalty;
(h) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(j) any joint marketing or development agreement (excluding agreements
with resellers, value added resellers or independent software vendors
entered into in the ordinary course of business that do not permit such
resellers or vendors to modify East's or any of its subsidiaries' software
products);
(k) any distribution agreement (identifying any that contain exclusivity
provisions); or
(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involve payment by East or any of its
subsidiaries under any such agreement, contract or commitment of $150,000
or more in the aggregate and is not cancelable without penalty within
thirty (30) days.
Neither East nor any of its subsidiaries, nor to East's knowledge any other
party to an East Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which East is a party or by which it is bound of
the type described in clauses (a) through (l) above (any such agreement,
contract or commitment, an "East Contract") in such a manner as would permit
any other party to cancel or terminate any such East Contract, or would permit
any other party to seek damages, which would have a Material Adverse Effect on
East.
2.17 Pooling of Interests. To the knowledge of East, based on consultation
with its independent accountants, neither East nor any of its directors,
officers or stockholders has taken any action which would interfere with West's
ability to account for the Merger as a pooling of interests.
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2.18 Change of Control Payments. The East Schedules set forth each plan or
agreement pursuant to which all material amounts may become payable (whether
currently or in the future) to current or former officers and directors of East
as a result of or in connection with the Merger.
2.19 Statements; Proxy Statement/Prospectus. The information supplied by East
for inclusion in the Registration Statement (as defined in Section 2.4(b))
shall not at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by East for inclusion in the proxy
statement/prospectus to be sent to the stockholders of East and stockholders of
West in connection with the meeting of East's stockholders to consider the
approval of this Agreement (the "East Stockholders' Meeting") and in connection
with the meeting of West's stockholders to consider the approval of the
issuance of shares of West Common Stock pursuant to the terms of the Merger
(the "West Stockholders' Meeting") (such proxy statement/prospectus as amended
or supplemented is referred to herein as the "Proxy Statement") shall not, on
the date the Proxy Statement is first mailed to East's stockholders and West's
stockholders, at the time of the East Stockholders' Meeting or the West
Stockholders' Meeting and at the Effective Time, contain any untrue statement
of a material fact or omit to state any material fact required to be stated
therein or necessary in order to make the statements therein, in light of the
circumstances under which they are made, not false or misleading; or omit to
state any material fact necessary to correct any statement in any earlier
communication with respect to the solicitation of proxies for the East
Stockholders' Meeting or the West Stockholders' Meeting which has become false
or misleading. The Proxy Statement will comply as to form in all material
respects with the provisions of the Exchange Act and the rules and regulations
thereunder. If at any time prior to the Effective Time, any event relating to
East or any of its affiliates, officers or directors should be discovered by
East which should be set forth in an amendment to the Registration Statement or
a supplement to the Proxy Statement, East shall promptly inform West.
Notwithstanding the foregoing, East makes no representation or warranty with
respect to any information supplied by West or Merger Sub which is contained in
any of the foregoing documents.
2.20 Board Approval. The Board of Directors of East has, as of the date of
this Agreement, determined (i) that the Merger is fair to, and in the best
interests of East and its stockholders, and (ii) to recommend that the
stockholders of East approve this Agreement.
2.21 Fairness Opinion. East has received a written opinion from Wessels,
Arnold & Henderson, dated as of the date hereof, to the effect that as of the
date hereof, the Exchange Ratio is fair to East's stockholders from a financial
point of view and has delivered to West a copy of such opinion.
2.22 Minute Books. The minute books of East made available to counsel for
West are the only minute books of East and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of
incorporation of East.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF WEST AND MERGER SUB
West and Merger Sub represent and warrant to East, subject to the exceptions
specifically disclosed in the disclosure letter supplied by West to East (the
"West Schedules"), as follows:
3.1 Organization of West. West and each of its material subsidiaries is a
corporation duly organized, validly existing and in good standing under the
laws of the jurisdiction of its incorporation, has the corporate power to own,
lease and operate its property and to carry on its business as now being
conducted and as proposed to be conducted, and is duly qualified to do business
and in good standing as a foreign corporation in each jurisdiction in which the
failure to be so qualified would have a Material Adverse Effect (as defined
below) on West. West has delivered to East a true and complete list of all of
West's subsidiaries, together with the jurisdiction of incorporation of each
subsidiary and West's equity interest therein. West has delivered or made
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available a true and correct copy of the Certificate of Incorporation and
Bylaws of West and similar governing instruments of its material subsidiaries,
each as amended to date, to counsel for East. When used in connection with
West, the term "Material Adverse Effect" means, for purposes of this Agreement,
any change, event or effect that is materially adverse to the business, assets
(including intangible assets), financial condition or results of operations of
West and its subsidiaries taken as a whole.
3.2 West Capital Structure. The authorized capital stock of West consists of
80,000,000 shares of Common Stock, par value $0.0001 per share, of which there
were 17,640,640 shares issued and outstanding as of June 1, 1996 and 2,000,000
shares of Preferred Stock, par value $0.0001 per share, of which no shares are
issued or outstanding. The authorized capital stock of Merger Sub consists of
1,000 shares of Common Stock, per value $0.01 per share, all of which, as of
the date hereof, are issued and outstanding and are held by West. All
outstanding shares of the Common Stock of West are duly authorized, validly
issued, fully paid and non-assessable and are not subject to preemptive rights
created by statute, the Certificate of Incorporation or Bylaws of West or any
agreement or document to which West is a party or by which it is bound. As of
June 1, 1996, West had reserved an aggregate of 5,161,802 shares of Common
Stock, net of exercises, for issuance to employees, consultants and non-
employee directors pursuant to West's 1995 Stock Option Plan, its 1992 Stock
Option/Stock Issuance Plan and the Performix 1991 Incentive Stock Option Plan
(collectively, the "West Stock Option Plans"), under which options are
outstanding for 3,400,329 shares. All shares of the Common Stock of West
subject to issuance as aforesaid, upon issuance on the terms and conditions
specified in the instruments pursuant to which they are issuable, would be duly
authorized, validly issued, fully paid and nonassessable. The West Schedules
list each outstanding option to acquire shares of the Common Stock West at June
1, 1996, the name of the holder of such option, the number of shares subject to
such option, the exercise price of such option, the number of shares as to
which such option will have vested at such date and whether the exercisability
of such option will be accelerated in any way by the transactions contemplated
by this Agreement or for any other reason, and indicate the extent of
acceleration, if any. As of June 1, 1996, there were 270 participants in West's
Employee Stock Purchase Plan (the "West Employee Stock Purchase Plan").
3.3 Obligations With Respect to Capital Stock. Except as set forth in Section
3.2, there are no equity securities of any class of West, or any securities
exchangeable or convertible into or exercisable for such equity securities,
issued, reserved for issuance or outstanding. Except for securities West owns,
directly or indirectly through one or more subsidiaries, there are no equity
securities of any class of any subsidiary of West, or any security exchangeable
or convertible into or exercisable for such equity securities, issued, reserved
for issuance or outstanding. Except as set forth in Section 3.2, there are no
options, warrants, equity securities, calls, rights (including preemptive
rights), commitments or agreements of any character to which West or any of its
subsidiaries is a party or by which it is bound obligating West or any of its
subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock of West or any of its
subsidiaries or obligating West or any of its subsidiaries to grant, extend,
accelerate the vesting of or enter into any such option, warrant, equity
security, call, right, commitment or agreement. There are no registration
rights and, to the knowledge of West there are no voting trusts, proxies or
other agreements or understandings with respect to any equity security of any
class of West or with respect to any equity security of any class of any of its
subsidiaries.
3.4 Authority.
(a) Each of West and Merger Sub has all requisite corporate power and
authority to enter into this Agreement and to consummate the transactions
contemplated hereby. West has all requisite corporate power and authority
to enter into the West Stock Option Agreement and to consummate the
transactions contemplated thereby. The execution and delivery of this
Agreement and the West Stock Option Agreement and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by
all necessary corporate action on the part of West and, in the case of this
Agreement, Merger Sub, subject only to the approval of the Merger by West's
stockholders as contemplated in Section 5.2 and the filing and recordation
of the Articles of Merger pursuant to Massachusetts Law. This Agreement has
been duly executed and delivered by each of West and Merger Sub and,
assuming the due authorization, execution
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and delivery of this Agreement by East, this Agreement constitutes the
valid and binding obligations of each of West and Merger Sub, enforceable
in accordance with its terms, except as enforceability may be limited by
bankruptcy and other similar laws and general principles of equity. The
West Stock Option Agreement has been duly executed and delivered by West
and, assuming the due authorization, execution and delivery of the West
Stock Option Agreement by East, the West Stock Option Agreement constitutes
the valid and binding obligation of West, enforceable in accordance with
its terms, except as enforceability may be limited by bankruptcy and other
similar laws and general principles of equity. The execution and delivery
of this Agreement by each of West and Merger Sub and the execution and
delivery of the West Stock Option Agreement by West do not, and the
performance of this Agreement by each of West and Merger Sub will not, and
the performance of the West Stock Option Agreement by West will not, (i)
conflict with or violate the Certificate of Incorporation or Bylaws of West
or the Articles of Organization or Bylaws of Merger Sub or the equivalent
organizational documents of any of its other subsidiaries, (ii) subject to
obtaining the approval of the Merger by West's stockholders as contemplated
in Section 5.2 and compliance with the requirements set forth in Section
3.4(b) below, conflict with or violate any law, rule, regulation, order,
judgment or decree applicable to West or any of its subsidiaries (including
Merger Sub) or by which its or any of their respective properties is bound
or affected, or (iii) result in any breach of or constitute a default (or
an event that with notice or lapse of time or both would become a default)
under, or impair West's rights or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of West or any of its
subsidiaries (including Merger Sub) pursuant to, any note, bond, mortgage,
indenture, contract, agreement, lease, license, permit, franchise or other
instrument or obligation to which West or any of its subsidiaries
(including Merger Sub) is a party or by which West or any of its
subsidiaries (including Merger Sub) or its or any of their respective
properties are bound or affected, except, with respect to clauses (ii) and
(iii), for any such conflicts, violations, defaults or other occurrences
that would not have a Material Adverse Effect on West. The West Schedules
list all material consents, waivers and approvals under any of West's or
any of its subsidiaries' agreements, contracts, licenses or leases required
to be obtained in connection with the consummation of the transactions
contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to West or Merger Sub in connection with the execution and delivery
of this Agreement or the West Stock Option Agreement or the consummation of
the transactions contemplated hereby or thereby, except for (i) the filing
of the Registration Statement with the SEC in accordance with the
Securities Act, (ii) the filing of the Articles of Merger with the
Secretary of State of the Commonwealth of Massachusetts, (iii) the filing
of the Proxy Statement with the SEC in accordance with the Exchange Act,
(iv) the filing of a Current Report on Form 8-K with the SEC, (v) the
listing of the West Common Stock on the Nasdaq Stock Market, (vi) such
consents, approvals, orders, authorizations, registrations, declarations
and filings as may be required under applicable federal and state
securities laws and the laws of any foreign country and (vii) such other
consents, authorizations, filings, approvals and registrations which, if
not obtained or made, would not have a Material Adverse Effect on East or
West or have a material adverse effect on the ability of the parties to
consummate the Merger.
3.5 Section 203 of the Delaware General Corporation Law Not Applicable. The
Board of Directors of West has taken all actions so that the restrictions
contained in Section 203 of the Delaware General Corporation Law applicable to
a "business combination" (as defined in Section 203) will not apply to the
execution, delivery or performance of this Agreement or the Stock Option
Agreements or to the consummation of the Merger or the other transactions
contemplated by this Agreement or the Stock Option Agreements.
3.6 SEC Filings; West Financial Statements.
(a) West has filed all forms, reports and documents required to be filed
with the SEC since August 1, 1995, and has made available to East such
forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that West may file
subsequent to the date hereof) are referred to herein as the "West SEC
Reports." As of their respective dates, the West SEC
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Reports (i) were prepared in accordance with the requirements of the
Securities Act or the Exchange Act, as the case may be, and the rules and
regulations of the SEC thereunder applicable to such West SEC Reports, and
(ii) did not at the time they were filed (or if amended or superseded by a
filing prior to the date of this Agreement, then on the date of such
filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make
the statements therein, in the light of the circumstances under which they
were made, not misleading. None of West's subsidiaries is required to file
any forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in West SEC Reports (the "West
Financials"), including any West SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (y)
was prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods involved
(except as may be indicated in the notes thereto or, in the case of
unaudited interim financial statements, as may be permitted by the SEC on
Form 10-Q under the Exchange Act) and (z) fairly presented the consolidated
financial position of West and its subsidiaries as at the respective dates
thereof and the consolidated results of its operations and cash flows for
the periods indicated, except that the unaudited interim financial
statements were or are subject to normal and recurring year-end adjustments
which were not, or are not expected to be, material in amount. The balance
sheet of West contained in West SEC Reports as of March 31, 1996 is
hereinafter referred to as the "West Balance Sheet." Except as disclosed in
the West Financials, neither West nor any of its subsidiaries has any
liabilities (absolute, accrued, contingent or otherwise) of a nature
required to be disclosed on a balance sheet or in the related notes to the
consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of West and its subsidiaries taken as a
whole, except liabilities (i) provided for in the West Balance Sheet, or
(ii) incurred since the date of the West Balance Sheet in the ordinary
course of business consistent with past practices.
(c) West has heretofore furnished to East a complete and correct copy of
any amendments or modifications, which have not yet been filed with the SEC
but which are required to be filed, to agreements, documents or other
instruments which previously had been filed by West with the SEC pursuant
to the Securities Act or the Exchange Act.
3.7 Absence of Certain Changes or Events. Since the date of the West Balance
Sheet through the date of this Agreement, there has not been: (i) any Material
Adverse Effect on West, (ii) any material change by West in its accounting
methods, principles or practices, except as required by concurrent changes in
GAAP, or (iii) any revaluation by West of any of its assets having a Material
Adverse Effect on West, including, without limitation, writing down the value
of capitalized software or inventory or writing off notes or accounts
receivable other than in the ordinary course of business.
3.8 Taxes. West and each of its subsidiaries has filed all tax returns
required to be filed by any of them and has paid (or West has paid on its
behalf), or has set up an adequate reserve for the payment of, all material
taxes required to be paid as shown on such returns and the most recent
financial statements contained in the West SEC Reports reflect an adequate
reserve for all material taxes payable by West and its subsidiaries accrued
through the date of such financial statements. Except as reasonably would not
be expected to have a Material Adverse Effect on West, no deficiencies for any
taxes have been proposed, asserted or assessed against West or any of its
subsidiaries.
3.9 Intellectual Property.
(a) West and its subsidiaries own, or have the right to use, sell or
license all intellectual property necessary or required for the conduct of
their respective businesses as presently conducted (such intellectual
property and the rights thereto are collectively referred to herein as the
"West IP Rights"), except for any failure to own or have the right to use,
sell or license that would not have a Material Adverse Effect on West.
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
breach of any instrument or agreement governing any West IP Rights (the
"West IP Rights Agreements"), will not cause the forfeiture or termination
or give rise to a right of forfeiture or termination of any West IP Rights
or impair the right of West and its subsidiaries to use, sell or license
any West IP Rights or portion thereof, except for the occurrence of any
such breach, forfeiture, termination or impairment that would not
individually or in the aggregate, result in a Material Adverse Effect on
West.
(c) (i) neither the manufacture, marketing, license, sale or intended use
of any product or technology currently licensed or sold or under
development by West or any of its subsidiaries violates any license or
agreement between West or any of its subsidiaries and any third party or
infringes any intellectual property right of any other party; and (ii)
there is no pending or, to the knowledge of West, threatened claim or
litigation contesting the validity, ownership or right to use, sell,
license or dispose of any West IP Rights, nor has West received any written
notice asserting that any West IP Rights or the proposed use, sale, license
or disposition thereof conflicts or will conflict with the rights of any
other party, except, with respect to clauses (i) and (ii), for any
violations, infringements, claims or litigation that would not have a
Material Adverse Effect on West.
(d) West has taken reasonable and practicable steps designed to safeguard
and maintain the secrecy and confidentiality of, and its proprietary rights
in, all West IP Rights.
3.10 Compliance; Permits; Restrictions.
(a) Neither West nor any of its subsidiaries is in conflict with, or in
default or violation of, (i) any law, rule, regulation, order, judgment or
decree applicable to West or any of its subsidiaries or by which its or any
of their respective properties is bound or affected, or (ii) any note,
bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise or other instrument or obligation to which West or any of its
subsidiaries is a party or by which West or any of its subsidiaries or its
or any of their respective properties is bound or affected, except for any
conflicts, defaults or violations which would not have a Material Adverse
Effect on West. To the knowledge of West, no investigation or review by any
governmental or regulatory body or authority is pending or threatened
against West or its subsidiaries, nor has any governmental or regulatory
body or authority indicated an intention to conduct the same, other than,
in each such case, those the outcome of which would not have a Material
Adverse Effect on West.
(b) West and its subsidiaries hold all permits, licenses, variances,
exemptions, orders and approvals from governmental authorities which are
material to the operation of the business of West and its subsidiaries
taken as a whole (collectively, the "West Permits"). West and its
subsidiaries are in compliance with the terms of West Permits, except where
the failure to so comply would not have a Material Adverse Effect on West.
3.11 Litigation. As of the date of this Agreement, there is no action, suit,
proceeding, claim, arbitration or investigation pending, or as to which West or
any of its subsidiaries has received any notice of assertion nor, to West's
knowledge, is there a threatened action, suit, proceeding, claim, arbitration
or investigation against West or any of its subsidiaries which would have a
Material Adverse Effect on West, or which in any manner challenges or seeks to
prevent, enjoin, alter or delay any of the transactions contemplated by this
Agreement.
3.12 Brokers' and Finders' Fees. Except for (i) fees payable to DMG
Technology Group pursuant to an engagement letter dated [ , 1996] a copy of
which has been provided to East and (ii) fees payable to Morgan Stanley & Co.
Incorporated pursuant to an engagement letter dated May 29, 1996, a copy of
which has also been provided to East, West has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
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3.13 Employee Benefit Plans.
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee
benefit plan" as defined in Section 3(3) of ERISA) maintained or
contributed to by West or any trade or business which is under common
control with West within the meaning of Section 414 of the Code (the "West
Employee Plans"), West has made available to East a true and complete copy
of, to the extent applicable, (i) such West Employee Plan, (ii) the most
recent annual report (Form 5500), (iii) each trust agreement related to
such West Employee Plan, (iv) the most recent summary plan description for
each West Employee Plan for which such a description is required, (v) the
most recent actuarial report relating to any West Employee Plan subject to
Title IV of ERISA and (vi) the most recent IRS determination letter issued
with respect to any West Employee Plan.
(b) Each West Employee Plan which is intended to be qualified under
Section 401(a) of the Code has received a favorable determination from the
IRS covering the provisions of the Tax Reform Act of 1986 stating that such
West Employee Plan is so qualified and nothing has occurred since the date
of such letter that could reasonably be expected to affect the qualified
status of such plan. Each West Employee Plan has been operated in all
material respects in accordance with its terms and the requirements of
applicable law. Neither West nor any ERISA Affiliate of West has incurred
or is reasonably expected to incur any material liability under Title IV of
ERISA in connection with any West Employee Plan.
3.14 Absence of Liens and Encumbrances; Condition of Equipment. West and each
of its subsidiaries has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its material
tangible properties and assets, real, personal and mixed, used in its business,
free and clear of any liens or encumbrances except as reflected in the West
Financials and except for liens for taxes not yet due and payable and such
imperfections of title and encumbrances, if any, which would not have a
Material Adverse Effect on West.
3.15 Environmental Matters.
(a) Hazardous Material. Except as would not have a Material Adverse
Effect on West, no underground storage tanks and no Hazardous Materials
(but excluding office and janitorial supplies) are present as a result of
the deliberate actions of West or any of its subsidiaries, or, to West's
knowledge, as a result of any actions of any third party or otherwise, in,
on or under any property, including the land and the improvements, ground
water and surface water thereof, that West or any of its subsidiaries has
at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as would not have a Material
Adverse Effect on West, neither West nor any of its subsidiaries has
transported, stored, used, manufactured, disposed of, released or exposed
its employees or others to Hazardous Materials in violation of any law in
effect on or before the Closing Date, nor has West or any of its
subsidiaries engaged in any Hazardous Materials Activities in violation of
any rule, regulation, treaty or statute promulgated by any Governmental
Entity in effect prior to or as of the date hereof to prohibit, regulate or
control Hazardous Materials or any Hazardous Material Activity.
(c) Permits. West and its subsidiaries currently holds all environmental
approvals, permits, licenses, clearances and consents (the "West
Environmental Permits") necessary for the conduct of West's and its
subsidiaries' Hazardous Material Activities and other businesses of West
and its subsidiaries as such activities and businesses are currently being
conducted, except where the failure to so hold would not have a Material
Adverse Effect on West.
(d) Environmental Liabilities. No material action, proceeding, revocation
proceeding, amendment procedure, writ, injunction or claim is pending, or
to West's knowledge, threatened concerning any West Environmental Permit,
Hazardous Material or any Hazardous Materials Activity of West or any of
its subsidiaries. West is not aware of any fact or circumstance which could
involve West or any of its subsidiaries in any environmental litigation or
impose upon West or any of its subsidiaries any environmental liability
that would have a Material Adverse Effect on West.
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3.16 Labor Matters. To West's knowledge, there are no activities or
proceedings of any labor union to organize any employees of West or any of its
subsidiaries and there are no strikes, or material slowdowns, work stoppages or
lockouts, or threats thereof by or with respect to any employees of West or any
of its subsidiaries. West and its subsidiaries are and have been in compliance
with all applicable laws regarding employment practices, terms and conditions
of employment, and wages and hours (including, without limitation, ERISA, WARN
or any similar state or local law), except for any noncompliance that would not
have a Material Adverse Effect on West.
3.17 Agreements, Contracts and Commitments. Except as set forth in the West
Schedules, neither West nor any of its subsidiaries is a party to or is bound
by:
(a) any collective bargaining agreements;
(b) any bonus, deferred compensation, incentive compensation, pension,
profit-sharing or retirement plans, or any other employee benefit plans or
arrangements;
(c) any employment or consulting agreement, contract or commitment with
any officer or director level employee, not terminable by West or any of
its subsidiaries on thirty days notice without liability, except to the
extent general principles of wrongful termination law may limit West's or
any of its subsidiaries' ability to terminate employees at will;
(d) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of
the benefits of which will be increased, or the vesting of benefits of
which will be accelerated, by the occurrence of any of the transactions
contemplated by this Agreement or the value of any of the benefits of which
will be calculated on the basis of any of the transactions contemplated by
this Agreement;
(e) any agreement of indemnification or guaranty not entered into in the
ordinary course of business other than indemnification agreements between
West or any of its subsidiaries and any of its officers or directors;
(f) any agreement, contract or commitment containing any covenant
limiting the freedom of West or any of its subsidiaries to engage in any
line of business or compete with any person;
(g) any agreement, contract or commitment relating to capital
expenditures and involving future obligations in excess of $150,000 and not
cancelable without penalty;
(h) any agreement, contract or commitment currently in force relating to
the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise;
(i) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of
money or extension of credit;
(j) any joint marketing or development agreement (excluding agreements
with resellers, value added resellers or independent software vendors
entered into in the ordinary course of business that do not permit such
resellers or vendors to modify West's or any of its subsidiaries' software
products);
(k) any distribution agreement (identifying any that contain exclusivity
provisions); or
(l) any other agreement, contract or commitment (excluding real and
personal property leases) which involve payment by West or any of its
subsidiaries under any such agreement, contract or commitment of $150,000
or more in the aggregate and is not cancelable without penalty within
thirty (30) days.
Neither West nor any of its subsidiaries, nor to West's knowledge any other
party to a West Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which West is a party or by which it is bound of
the type described in clauses (a) through (l) above (any such agreement,
contract or commitment, a "West Contract") in such a manner as would permit any
other party to
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cancel or terminate any such West Contract, or would permit any other party to
seek damages, which would have a Material Adverse Effect on West.
3.18 Pooling of Interests. To the knowledge of West, based on consultation
with its independent accountants, neither West nor any of its directors,
officers or stockholders has taken any action which would interfere with West's
ability to account for the Merger as a pooling of interests.
3.19 Change of Control Payments. The West Schedules set forth each plan or
agreement pursuant to which all material amounts may become payable (whether
currently or in the future) to current or former officers and directors of West
as a result of or in connection with the Merger.
3.20 Statements; Proxy Statement/Prospectus. The information supplied by West
for inclusion in the Registration Statement (as defined in Section 2.4(b))
shall not at the time the Registration Statement is filed with the SEC and at
the time it becomes effective under the Securities Act, contain any untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by West for inclusion in the Proxy
Statement to be sent to the stockholders of West and stockholders of East in
connection with the West Stockholders' Meeting and in connection with the East
Stockholders' Meeting shall not, on the date the Proxy Statement is first
mailed to West's stockholders and East's stockholders, at the time of the East
Stockholders' Meeting or the West Stockholders' Meeting and at the Effective
Time, contain any untrue statement of a material fact or omit to state any
material fact required to be stated therein or necessary in order to make the
statements therein, in light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to
correct any statement in any earlier communication with respect to the
solicitation of proxies for the West Stockholders' Meeting or the East
Stockholders' Meeting which has become false or misleading. The Proxy Statement
will comply as to form in all material respects with the provisions of the
Exchange Act and the rules and regulations thereunder. If at any time prior to
the Effective Time, any event relating to West or any of its affiliates,
officers or directors should be discovered by West which should be set forth in
an amendment to the Registration Statement or a supplement to the Proxy
Statement, West shall promptly inform East. Notwithstanding the foregoing, West
makes no representation or warranty with respect to any information supplied by
East which is contained in any of the foregoing documents.
3.21 Board Approval. The Board of Directors of West has, as of the date of
this Agreement, determined to recommend that the stockholders of West approve
the issuance of the West Common Stock in the Merger.
3.22 Fairness Opinion. West has received a written opinion from each of DMG
Technology Group and Morgan Stanley & Co. Incorporated, each dated as of the
date hereof, to the effect that as of the date hereof, the Merger is fair to
West's stockholders from a financial point of view and has delivered to East a
copy of such opinions.
3.23 Minute Books. The minute books of West made available to counsel for
East are the only minute books of West and contain a reasonably accurate
summary, in all material respects, of all meetings of directors (or committees
thereof) and stockholders or actions by written consent since the time of
incorporation of West.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this Agreement
and continuing until the earlier of the termination of this Agreement pursuant
to its terms or the Effective Time, East (which for the purposes of this
Article 4 shall include East and each of its subsidiaries) and West (which for
the purposes of this Article 4 shall include West and each of its subsidiaries)
agree, except (i) in the case of East as provided in Article 4 of the East
Schedules and in the case of West as provided in Article 4 of the West
Schedules, or (ii) to the extent that the other party shall otherwise consent
in writing, to carry on its business diligently and in
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accordance with good commercial practice and to carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted, to pay its debts and taxes when due subject to good faith
disputes over such debts or taxes, to pay or perform other material obligations
when due, and use its commercially reasonable efforts consistent with past
practices and policies to preserve intact its present business organization,
keep available the services of its present officers and employees and preserve
its relationships with customers, suppliers, distributors, licensors,
licensees, and others with which it has business dealings. In furtherance of
the foregoing and subject to applicable law, East and West agree to confer, as
promptly as practicable, prior to taking any material actions or making any
material management decisions with respect to the conduct of business. In
addition, except in the case of East as provided in Article 4 of the East
Schedules and in the case of West as provided in Article 4 of the West
Schedules, without the prior written consent of the other, neither East nor
West shall do any of the following, and neither East nor West shall permit its
subsidiaries to do any of the following:
(a) Waive any stock repurchase rights, accelerate, amend or change the
period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize
cash payments in exchange for any options granted under any of such plans;
(b) Enter into any material partnership arrangements, joint development
agreements or strategic alliances, agreements to create standards or
agreements with "Standards" bodies;
(c) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the
date hereof and as previously disclosed in writing to the other, or adopt
any new severance plan;
(d) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the East IP Rights or
the West IP Rights, as the case may be, or enter into grants to future
patent rights, other than in the ordinary course of business;
(e) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or
split, combine or reclassify any capital stock or issue or authorize the
issuance of any other securities in respect of, in lieu of or in
substitution for any capital stock;
(f) Repurchase or otherwise acquire, directly or indirectly, any shares
of capital stock except pursuant to rights of repurchase of any such shares
under any employee, consultant or director stock plan;
(g) Issue, deliver, sell, authorize or propose the issuance, delivery or
sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire and shares of capital stock or any securities convertible into
shares of capital stock, or enter into other agreements or commitments of
any character obligating it to issue any such shares or convertible
securities, other than (i) the issuance of shares of East Capital Stock or
West Common Stock, as the case may be, pursuant to the exercise of stock
options therefor outstanding as of the date of this Agreement, (ii) options
to purchase shares of East Capital Stock or West Common Stock, as the case
may be, to be granted at fair market value in the ordinary course of
business, consistent with past practice and in accordance with existing
stock option plans, (iii) shares of East Capital Stock or West Common
Stock, as the case may be, issuable upon the exercise of the options
referred to in clause (ii), and (iv) shares of East Capital Stock or West
Common Stock, as the case may be, issuable to participants the West
Employee Stock Purchase Plan or the East Employee Stock Purchase Plan
consistent with the terms thereof;
(h) Cause, permit or propose any amendments to any charter document or
Bylaw (or similar governing instruments of any subsidiaries);
(i) Except as set forth on the East Schedules or the West Schedules, as
the case may be, acquire or agree to acquire by merging or consolidating
with, or by purchasing any equity interest in or a material portion of the
assets of, or by any other manner, any business or any corporation,
partnership interest, association or other business organization or
division thereof, or otherwise acquire or agree to acquire any assets which
are material, individually or in the aggregate, to the business of East or
West, as the case may
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be, or enter into any joint ventures, strategic partnerships or alliances,
other than in the ordinary course of business consistent with past
practice;
(j) Sell, lease, license, encumber or otherwise dispose of any properties
or assets which are material, individually or in the aggregate, to the
business of East or West, as the case may be, except in the ordinary course
of business consistent with past practice;
(k) Incur any indebtedness for borrowed money (other than ordinary course
trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any
debt securities or warrants or rights to acquire debt securities of East or
West, as the case may be, or guarantee any debt securities of others;
(l) Adopt or amend any employee benefit or stock purchase or option plan,
or enter into any employment contract, pay any special bonus or special
remuneration to any director or employee, or increase the salaries or wage
rates of its officers or employees other than in the ordinary course of
business, consistent with past practice;
(m) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other
than the payment, discharge or satisfaction in the ordinary course of
business;
(n) Make any grant of exclusive rights to any third party; or
(o) Agree in writing or otherwise to take any of the actions described in
Article 4 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings. As
promptly as practicable after the execution of this Agreement, East and West
will prepare, and file with the SEC, the Proxy Statement and West will prepare
and file with the SEC the Registration Statement in which the Proxy Statement
will be included as a prospectus. Each of East and West will respond to any
comments of the SEC, will use its best efforts to have the Registration
Statement declared effective under the Securities Act as promptly as
practicable after such filing and will cause the Proxy Statement to be mailed
to its stockholders at the earliest practicable time. As promptly as
practicable after the date of this Agreement, East and West will prepare and
file any other filings required under the Exchange Act, the Securities Act or
any other Federal, foreign or Blue Sky laws relating to the Merger and the
transactions contemplated by this Agreement (the "Other Filings"). Each party
will notify the other party promptly upon the receipt of any comments from the
SEC or its staff and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any Other Filing or for additional
information and will supply the other party with copies of all correspondence
between such party or any of its representatives, on the one hand, and the SEC,
or its staff or any other government officials, on the other hand, with respect
to the Registration Statement, the Proxy Statement, the Merger or any Other
Filing. The Proxy Statement, the Registration Statement and the Other Filings
will comply in all material respects with all applicable requirements of law
and the rules and regulations promulgated thereunder. Whenever any event occurs
which is required to be set forth in an amendment or supplement to the Proxy
Statement, the Registration Statement or any Other Filing, East or West, as the
case may be, will promptly inform the other party of such occurrence and
cooperate in filing with the SEC or its staff or any other government
officials, and/or mailing to stockholders of East and West, such amendment or
supplement. The Proxy Statement will also include the recommendations of (i)
the Board of Directors of East in favor of approval of this Agreement (except
that the Board of Directors of East may withdraw, modify or refrain from making
such recommendation to the extent that the Board determines that the Board's
fiduciary duties under applicable law require it to do so), and (ii) the Board
of Directors of West in favor of the issuance of shares of West Common Stock in
the Merger, the change of West's name and an increase in the number of shares
available for employee stock option grants (except that the Board of Directors
of West may withdraw, modify or
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refrain from making such recommendations to the extent that the Board
determines that the Board's fiduciary duties under applicable law require it to
do so).
5.2 Meetings of Stockholders. Promptly after the date hereof, East will take
all action necessary in accordance with Massachusetts Law and its Articles of
Organization and Bylaws to convene the East Stockholders' Meeting to be held as
promptly as practicable, and in any event within 45 days after the declaration
of effectiveness of the Registration Statement, for the purpose of voting upon
this Agreement. East will consult with West and use its commercially reasonable
efforts to hold the East Stockholders' Meeting on the same day as the West
Stockholders' Meeting. Promptly after the date hereof, West will take all
action necessary in accordance with the Delaware General Corporation Law and
its Certificate of Incorporation and Bylaws to convene the West Stockholders'
Meeting to be held as promptly as practicable, and in any event within 45 days
after the declaration of effectiveness of the Registration Statement, for the
purpose of voting upon the issuance of shares of West Common Stock by virtue of
the Merger. West will consult with East and will use its commercially
reasonable efforts to hold the West Stockholders' Meeting on the same day as
the East Stockholders' Meeting. West and East will each use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
approval of this Agreement and the approval of the issuance of shares of West
Common Stock pursuant to the terms of the Merger, as the case may be, and will
take all other action necessary or advisable to secure the vote or consent of
their respective stockholders required by the rules of the National Association
of Securities Dealers, Inc., Massachusetts Law or the Delaware General
Corporation Law, as the case may be, to obtain such approvals, except to the
extent that the Board of Directors of such party determines that doing so would
cause the Board of Directors of such party to breach its fiduciary duties under
applicable law.
5.3 Access to Information; Confidentiality.
(a) Each party will afford the other party and its accountants, counsel
and other representatives reasonable access during normal business hours to
the properties, books, records and personnel of the other party during the
period prior to the Effective Time to obtain all information concerning the
business, including the status of product development efforts, properties,
results of operations and personnel of such party, as the other party may
reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 will affect or be deemed to
modify any representation or warranty contained herein or the conditions to
the obligations of the parties to consummate the Merger.
(b) The parties acknowledge that East and West have previously executed a
Confidentiality Agreement, dated May 24, 1996 (the "Confidentiality
Agreement"), which Confidentiality Agreement will continue in full force
and effect in accordance with its terms, except as is necessary to comply
with the terms of this Agreement.
5.4 No Solicitation.
(a) Restrictions on West.
(i) From and after the date of this Agreement until the earlier of
the Effective Time or termination of this Agreement pursuant to its
terms, West and its subsidiaries shall not, and will instruct their
respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, (i)
solicit or knowingly encourage submission of, any proposals or offers
by any person, entity or group (other than East and its affiliates,
agents and representatives), or (ii) participate in any discussions or
negotiations with, or disclose any non-public information concerning
West or any of its subsidiaries to, or afford any access to the
properties, books or records of West or any of its subsidiaries to, or
otherwise assist or facilitate, or enter into any agreement or
understanding with, any person, entity or group (other than East and
its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to West. For the purposes of this
Agreement, an "Acquisition Proposal" with respect to an entity means
any proposal or offer relating to (i) any merger, consolidation, sale
of substantial assets or similar transactions involving the entity or
any subsidiaries of the entity (other than sales of assets or inventory
in the ordinary course of business or
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permitted under the terms of this Agreement), (ii) sale of 10% or more
of the outstanding shares of capital stock of the entity (including
without limitation by way of a tender offer or an exchange offer),
(iii) the acquisition by any person of beneficial ownership or a right
to acquire beneficial ownership of, or the formation of any "group" (as
defined under Section 13(d) of the Exchange Act and the rules and
regulations thereunder) which beneficially owns, or has the right to
acquire beneficial ownership of, 10% or more of the then outstanding
shares of capital stock of the entity (except for acquisitions for
passive investment purposes only in circumstances where the person or
group qualifies for and files a Schedule 13G with respect thereto); or
(iv) any public announcement of a proposal, plan or intention to do any
of the foregoing or any agreement to engage in any of the foregoing.
West will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with
respect to any of the foregoing. West will (i) notify East as promptly
as practicable if any inquiry or proposal is made or any information or
access is requested in writing in connection with an Acquisition
Proposal or potential Acquisition Proposal and (ii) as promptly as
practicable notify East of the significant terms and conditions of any
such Acquisition Proposal. In addition, subject to the other provisions
of this Section 5.4(a), from and after the date of this Agreement until
the earlier of the Effective Time and termination of this Agreement
pursuant to its terms, West and its subsidiaries will not, and will
instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement,
recommendation or solicitation in support of any Acquisition Proposal
made by any person, entity or group (other than East); provided,
however, that nothing herein shall prohibit West's Board of Directors
from taking and disclosing to West's stockholders a position with
respect to a tender offer pursuant to Rules 14d-9 and 14e-2 promulgated
under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (a)(i) above, prior
to the approval of the issuance of the West Common Stock by the
stockholders of West at the West Stockholders' Meeting, West may, to
the extent the Board of Directors of West determines, in good faith,
after consultation with outside legal counsel, that the Board's
fiduciary duties under applicable law require it to do so, participate
in discussions or negotiations with, and, subject to the requirements
of paragraph (a)(iii), below, furnish information to any person, entity
or group after such person, entity or group has delivered to West in
writing, an unsolicited bona fide Acquisition Proposal which the Board
of Directors of West in its good faith reasonable judgment determines,
after consultation with its independent financial advisors, would
result in a transaction more favorable to the stockholders of West from
a financial point of view than the Merger and for which financing, to
the extent required, is then committed or which, in the good faith
reasonable judgment of the Board of Directors of West (based upon the
advice of independent financial advisors), is reasonably capable of
being financed by such person, entity or group and which is likely to
be consummated (a "West Superior Proposal"). In addition,
notwithstanding the provisions of paragraph (a)(i) above, in connection
with a possible Acquisition Proposal, West may refer any third party to
this Section 5.4(a) or make a copy of this Section 5.4(a) available to
a third party. In the event West receives a West Superior Proposal,
nothing contained in this Agreement (but subject to the terms hereof)
will prevent the Board of Directors of West from approving such West
Superior Proposal or recommending such West Superior Proposal to West's
stockholders, if the Board determines that such action is required by
its fiduciary duties under applicable law; in such case, the Board of
Directors of West may withdraw, modify or refrain from making its
recommendation concerning the approval of the issuance of shares of
West Common Stock by virtue of the Merger; provided, however, that West
shall not accept or recommend to its stockholders, or enter into any
agreement concerning, a West Superior Proposal for a period of not less
than 48 hours after East's receipt of a copy of such West Superior
Proposal (or a description of the significant terms and conditions
thereof, if not in writing).
(iii) Notwithstanding anything to the contrary herein, West will not
provide any non-public information to a third party unless: (x) West
provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential
information at least as restrictive as such terms in the
Confidentiality Agreement; and (y) such non-public information is the
same information previously delivered to East.
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(b) Restrictions on East.
(i) From and after the date of this Agreement until the earlier of
the Effective Time or termination of this Agreement pursuant to its
terms, East and its subsidiaries will not, and will instruct their
respective directors, officers, employees, representatives, investment
bankers, agents and affiliates not to, directly or indirectly, (i)
solicit or knowingly encourage submission of, any proposals or offers
by any person, entity or group (other than West and its affiliates,
agents and representatives), or (ii) participate in any discussions or
negotiations with, or disclose any non-public information concerning
East or any of its subsidiaries to, or afford any access to the
properties, books or records of East or any of its subsidiaries to, or
otherwise assist or facilitate, or enter into any agreement or
understanding with, any person, entity or group (other than West and
its affiliates, agents and representatives), in connection with any
Acquisition Proposal with respect to East. East will immediately cease
any and all existing activities, discussions or negotiations with any
parties conducted heretofore with respect to any of the foregoing. East
will (i) notify West as promptly as practicable if any inquiry or
proposal is made or any information or access is requested in writing
in connection with an Acquisition Proposal or potential Acquisition
Proposal and (ii) as promptly as practicable notify West of the
significant terms and conditions of any such Acquisition Proposal. In
addition, subject to the other provisions of this Section 5.4(b), from
and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, East and
its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers,
agents and affiliates not to, directly or indirectly, make or authorize
any public statement, recommendation or solicitation in support of any
Acquisition Proposal made by any person, entity or group (other than
West); provided, however, that nothing herein shall prohibit East's
Board of Directors from taking and disclosing to East's stockholders a
position with respect to a tender offer pursuant to Rules 14d-9 and
14e-2 promulgated under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (b)(i) above, prior
to the approval of this Agreement by the stockholders of East at the
East Stockholders' Meeting, East may, to the extent the Board of
Directors of East determines, in good faith, after consultation with
outside legal counsel, that the Board's fiduciary duties under
applicable law require it to do so, participate in discussions or
negotiations with, and, subject to the requirements of paragraph
(b)(iii), below, furnish information to any person, entity or group
after such person, entity or group has delivered to East in writing, an
unsolicited bona fide Acquisition Proposal which the Board of Directors
of East in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable to the stockholders of East from a financial
point of view than the Merger and for which financing, to the extent
required, is then committed or which, in the good faith reasonable
judgment of the Board of Directors of East (based upon the advice of
independent financial advisors), is reasonably capable of being
financed by such person, entity or group and which is likely to be
consummated (an "East Superior Proposal"). In addition, notwithstanding
the provisions of paragraph (b)(i) above, in connection with a possible
Acquisition Proposal, East may refer any third party to this Section
5.4(b) or make a copy of this Section 5.4(b) available to a third
party. In the event East receives an East Superior Proposal, nothing
contained in this Agreement (but subject to the terms hereof) will
prevent the Board of Directors of East from approving such East
Superior Proposal or recommending such East Superior Proposal to West's
stockholders, if the Board determines that such action is required by
its fiduciary duties under applicable law; in such case, the Board of
Directors of East may withdraw, modify or refrain from making its
recommendation concerning the approval of this Agreement; provided,
however, that East shall not accept or recommend to its stockholders,
or enter into any agreement concerning, an East Superior Proposal for a
period of not less than 48 hours after West's receipt of a copy of such
East Superior Proposal (or a description of the significant terms and
conditions thereof, if not in writing).
(iii) Notwithstanding anything to the contrary in paragraph (b), East
will not provide any non-public information to a third party unless:
(x) East provides such non-public information pursuant to a
nondisclosure agreement with terms regarding the protection of
confidential information at least as
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restrictive as such terms in the Confidentiality Agreement; and (y)
such non- public information is the same information previously
delivered to West.
5.5 Public Disclosure. West and East will consult with each other before
issuing any press release or otherwise making any public statement with respect
to the Merger, this Agreement or an Alternative Proposal and will not issue any
such press release or make any such public statement prior to such
consultation, except as may be required by law or any listing agreement with a
national securities exchange or the Nasdaq National Market.
5.6 Legal Requirements. Each of West, Merger Sub and East will take all
reasonable actions necessary or desirable to comply promptly with all legal
requirements which may be imposed on them with respect to the consummation of
the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals of or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. West will use its commercially
reasonable efforts to take such steps as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable to the
issuance of West Common Stock pursuant hereto. East will use its commercially
reasonable efforts to assist West as may be necessary to comply with the
securities and blue sky laws of all jurisdictions which are applicable in
connection with the issuance of West Common Stock pursuant hereto.
5.7 Third Party Consents. As soon as practicable following the date hereof,
West and East will each use its commercially reasonable efforts to obtain all
material consents, waivers and approvals under any of its or its subsidiaries'
agreements, contracts, licenses or leases required to be obtained in connection
with the consummation of the transactions contemplated hereby.
5.8 FIRPTA. At or prior to the Closing, East, if requested by West, shall
deliver to the IRS a notice that the East Capital Stock is not a "U.S. Real
Property Interest" as defined and in accordance with the requirements of
Treasury Regulation Section 1.897-2(h)(2).
5.9 Notification of Certain Matters. West and Merger Sub will give prompt
notice to East, and East will give prompt notice to West, of the occurrence, or
failure to occur, of any event, which occurrence or failure to occur would be
reasonably likely to cause (a) any representation or warranty contained in this
Agreement to be untrue or inaccurate in any material respect at any time from
the date of this Agreement to the Effective Time, or (b) any material failure
of West and Merger Sub or East, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Notwithstanding the above, the delivery of any notice pursuant to
this section will not limit or otherwise affect the remedies available
hereunder to the party receiving such notice.
5.10 Best Efforts and Further Assurances. Subject to the respective rights
and obligations of West and East under this Agreement, each of the parties to
this Agreement will use its best efforts to effectuate the Merger and the other
transactions contemplated hereby and to fulfill and cause to be fulfilled the
conditions to closing under this Agreement. Each party hereto, at the
reasonable request of another party hereto, will execute and deliver such other
instruments and do and perform such other acts and things as may be necessary
or desirable for effecting completely the consummation of the transactions
contemplated hereby.
5.11 Stock Options; Employee Stock Purchase Plan.
(a) At the Effective Time, each outstanding option to purchase shares of
East Capital Stock (each an "East Stock Option") under the East Stock
Option Plans, whether or not exercisable, will be assumed by West. Each
East Stock Option so assumed by West under this Agreement will continue to
have, and be subject to, the same terms and conditions set forth in the
applicable East Stock Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i)
each East
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Stock Option will be exercisable (or will become exercisable in accordance
with its terms) for that number of whole shares of West Common Stock equal
to the product of the number of shares of East Capital Stock that were
issuable upon exercise of such East Stock Option immediately prior to the
Effective Time multiplied by the Exchange Ratio, rounded down to the
nearest whole number of shares of West Common Stock, and (ii) the per share
exercise price for the shares of West Common Stock issuable upon exercise
of such assumed East Stock Option will be equal to the quotient determined
by dividing the exercise price per share of East Capital Stock at which
such East Stock Option was exercisable immediately prior to the Effective
Time by the Exchange Ratio, rounded up to the nearest whole cent. After the
Effective Time, West will issue to each holder of an outstanding East Stock
Option a notice describing the foregoing assumption of such East Stock
Option by West.
(b) It is the intention of the parties that East Stock Options assumed by
West qualify following the Effective Time as incentive stock options as
defined in Section 422 of the Code to the extent East Stock Options
qualified as incentive stock options immediately prior to the Effective
Time; provided, however, that notwithstanding anything contained in Section
1.6(c) or Section 5.11 hereof, or any other provision of this Agreement,
the exercise price, the number of shares purchasable and the terms and
conditions applicable to any adjustments to the East Employee Stock
Purchase Plan and any employee stock purchase plan maintained by West shall
be determined so as to comply with Sections 423 and 424 of the Code and the
regulations promulgated thereunder (specifically the provisions of Code
Section 424(a) and 424(h)(3)(A) and Treasury Regulation Section 1.425-1)
such that West's assumption of options granted under the East Employee
Stock Purchase Plan by reason of the Merger not constitute a
"modification."
(c) West will reserve sufficient shares of West Common Stock for issuance
under Section 5.11(a) and under Section 1.6(c) hereof.
5.12 Form S-8. West agrees to file a registration statement on Form S-8 for
the shares of West Common Stock issuable with respect to assumed East Stock
Options no later than two (2) business days after the Closing Date.
5.13 Indemnification and Insurance.
(a) From and after the Effective Time, the Surviving Corporation will
fulfill and honor in all respects the obligations of East pursuant to any
indemnification agreements between East and its directors and officers
existing prior to the date hereof. The Articles of Organization and By-
laws of the Surviving Corporation will contain the provisions with respect
to indemnification and elimination of liability for monetary damages set
forth in the Articles of Organization and By-laws of East, which provisions
will not be amended, repealed or otherwise modified for a period of six
years from the Effective Time in any manner that would adversely affect the
rights thereunder of individuals who, at the Effective Time, were
directors, officers, employees or agents of East, unless such modification
is required by law.
(b) After the Effective Time the Surviving Corporation will, to the
fullest extent permitted under applicable law or under the Surviving
Corporation's Articles of Organization or By- laws, indemnify and hold
harmless, each present and former director or officer of East or any of its
subsidiaries (collectively, the "Indemnified Parties") against any costs or
expenses (including attorneys' fees), judgments, fines, losses, claims,
damages, liabilities and amounts paid in settlement in connection with any
claim, action, suit, proceeding or investigation, whether civil, criminal,
administrative or investigative, to the extent arising out of or pertaining
to any action or omission in his or her capacity as a director or officer
of East arising out of or pertaining to the transactions contemplated by
this Agreement for a period of six years after the date hereof. In the
event of any such claim, action, suit, proceeding or investigation (whether
arising before or after the Effective Time), (i) any counsel retained by
the Indemnified Parties for any period after the Effective Time will be
reasonably satisfactory to the Surviving Corporation and West, (ii) after
the Effective Time, the Surviving Corporation will pay the reasonable fees
and expenses of such counsel, promptly after statements therefor are
received and (iii) the Surviving Corporation will cooperate in the defense
of any such matter; provided, however, that the Surviving Corporation will
not be liable for any settlement effected without its written consent
(which consent will not be unreasonably withheld); and provided, further,
that,
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in the event that any claim or claims for indemnification are asserted or
made within such six-year period, all rights to indemnification in respect
of any such claim or claims will continue until the disposition of any and
all such claims. The Indemnified Parties as a group may retain only one law
firm (in addition to local counsel) to represent them with respect to any
single action unless there is, under applicable standards of professional
conduct, a conflict on any significant issue between the positions of any
two or more Indemnified Parties.
(c) For a period of six years after the Effective Time, West will cause
the Surviving Corporation to use its commercially reasonable efforts to
maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by East's
directors' and officers' liability insurance policy on terms comparable to
those applicable to the then current directors and officers of West;
provided, however, that in no event will West or the Surviving Corporation
be required to expend in excess of 200% of the annual premium currently
paid by East for such coverage or such coverage as is available for such
200% of the annual premium.
(d) This Section 5.13 will survive any termination of this Agreement and
the consummation of the Merger at the Effective Time, is intended to
benefit East, the Surviving Corporation and the Indemnified Parties, and
will be binding on all successors and assigns of the Surviving Corporation.
5.14 Tax-Free Reorganization. West and East will each use its commercially
reasonable efforts to cause the Merger to be treated as a reorganization within
the meaning of Section 368 of the Code. West and East will each make available
to the other party and their respective legal counsel copies of all returns
requested by the other party.
5.15 NMS Listing. West agrees to authorize for listing on the Nasdaq National
Market the shares of West Common Stock issuable, and those required to be
reserved for issuance, in connection with the Merger, upon official notice of
issuance.
5.16 West Affiliate Agreement. Set forth on the West Schedules is a list of
those persons who may be deemed to be, in West's reasonable judgment,
affiliates of West within the meaning of Rule 145 promulgated under the
Securities Act (a "West Affiliate"). West will provide East with such
information and documents as East reasonably requests for purposes of reviewing
such list. West will use its best efforts to deliver or cause to be delivered
to East prior to the Closing Date from each West Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit E,
each of which will be in full force and effect as of the Effective Time.
5.17 East Affiliate Agreement. Set forth on the East Schedules is a list of
those persons who may be deemed to be, in East's reasonable judgment,
affiliates of East within the meaning of Rule 145 promulgated under the
Securities Act (an "East Affiliate"). East will provide West with such
information and documents as West reasonably requests for purposes of reviewing
such list. East will use its best efforts to deliver or cause to be delivered
to West prior to the Closing Date from each East Affiliate an executed
affiliate agreement in substantially the form attached hereto as Exhibit F (the
"East Affiliate Agreement"), each of which will be in full force and effect as
of the Effective Time. West will be entitled to place appropriate legends on
the certificates evidencing any West Common Stock to be received by an East
Affiliate pursuant to the terms of this Agreement, and to issue appropriate
stop transfer instructions to the transfer agent for the West Common Stock,
consistent with the terms of the East Affiliates Agreement.
5.18 Board of Directors of West. The Board of Directors of West will take all
actions necessary to cause the Board of Directors of West, immediately after
the Effective Time, to consist of six persons, three of whom shall have served
on the Board of Directors of West immediately prior to the Effective Time (one
of whom shall be Reed Hastings and two of whom shall be non-employee
directors), and three of whom shall have served on the Board of Directors of
East immediately prior to the Effective Time (one of whom shall be Paul Levine
and two of whom shall be non-employee directors). If, prior to the Effective
Time, any of the East or West designees shall decline or be unable to serve as
an East or West director, East (if such person was designated by East) or
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West (if such person was designated by West) shall designate another person to
serve in such person's stead, which person shall be reasonably acceptable to
the other party.
5.19 Committees of the Board of Directors of West. The Board of Directors of
West will take all actions necessary to cause the Audit Committee of the Board
of Directors of West, immediately after the Effective Time, to consist of three
members, two of whom shall have served on the Board of Directors of West
immediately prior to the Effective Time and one who shall have served on the
Board of Directors of East immediately prior to the Effective Time. In
addition, the Board of Directors of West will take all actions necessary to
cause the Compensation Committee of the Board of Directors of West, immediately
after the Effective Time, to consist of three members, two of whom shall have
served on the Board of Directors of East immediately prior to the Effective
Time and one who shall have served on the Board of Directors of West
immediately prior to the Effective Time.
5.20 Headquarters of East. Following the Effective Time, East will relocate
its headquarters from Lexington, Massachusetts to Sunnyvale, California.
5.21 Officers of West. At the Effective Time, Reed Hastings will become the
Chief Executive Officer and President of West, Chuck Bay will become the Chief
Financial Officer of West and Paul Levine will become the Chairman of the Board
of West. All other management positions will essentially remain in place except
for certain reassignments as will be mutually determined.
5.22 Change of Name. Subject to the last sentence of Section 5.1 hereof, at
the West Stockholders' Meeting West shall propose and recommend that its
Certificate of Incorporation be amended at the Effective Time to change its
name to "Pure Atria Corporation."
5.23 Option Plan. Subject to the last sentence of Section 5.1 hereof, at the
West Stockholders' Meeting West shall propose and recommend to increase the
number of shares available for employee stock option grants by a number of
shares equal to five percent (5%) of the total shares of West Common Stock to
be outstanding following the Merger.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder Approval. This Agreement shall have been approved and
adopted, and the Merger shall have been duly approved, by the requisite
vote under applicable law by the stockholders of East, and the issuance of
shares of West Common Stock by virtue of the Merger shall have been duly
approved by the requisite vote under the rules of the National Association
of Securities Dealers, Inc. by the stockholders of West.
(b) Registration Statement Effective. The SEC shall have declared the
Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have
been issued and no proceeding for that purpose, and no similar proceeding
in respect of the Proxy Statement, shall have been initiated or threatened
in writing by the SEC.
(c) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the Merger
illegal or otherwise prohibiting consummation of the Merger.
(d) Tax Opinions. West and East shall each have received substantially
identical written opinions from their counsel, Wilson, Sonsini, Goodrich &
Rosati, Professional Corporation, and Testa, Hurwitz &
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Thibeault, LLP, respectively, in form and substance reasonably satisfactory
to them, to the effect that the Merger will constitute a reorganization
within the meaning of Section 368(a) of the Code. The parties to this
Agreement agree to make reasonable representations as requested by such
counsel for the purpose of rendering such opinions.
(e) Nasdaq Listing. The shares of West Common Stock issuable to
stockholders of East pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall
have been authorized for listing on the Nasdaq National Market upon
official notice of issuance.
(f) Opinion of Accountants. Each of West and East shall have received
letters from each of KPMG Peat Marwick LLP and Ernst & Young LLP, each
dated within two (2) business days prior to the Effective Time, regarding
those firms' concurrence with West's managements' and East's managements'
conclusions as to the appropriateness of pooling of interest accounting for
the Merger under Accounting Principles Board Opinion No. 16, if the Merger
is consummated in accordance with this Agreement.
6.2 Additional Conditions to Obligations of East. The obligations of East to
consummate and effect the Merger shall be subject to the satisfaction at or
prior to the Effective Time of each of the following conditions, any of which
may be waived, in writing, exclusively by East:
(a) Representations and Warranties. The representations and warranties of
West and Merger Sub contained in this Agreement shall be true and correct
on and as of the Effective Time, except for changes contemplated by this
Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct
as of such particular date), with the same force and effect as if made on
and as of the Effective Time, except, in all such cases where the failure
to be so true and correct, would not have a Material Adverse Effect on
West; and East shall have received a certificate to such effect signed on
behalf of West by the President and the Chief Financial Officer of West;
(b) Agreements and Covenants. West and Merger Sub shall have performed or
complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or
prior to the Effective Time, and East shall have received a certificate to
such effect signed on behalf of West by the President and the Chief
Financial Officer of West;
(c) Material Adverse Effect. No Material Adverse Effect with respect to
West shall have occurred since the date of this Agreement; and
(d) Legal Opinion. East shall have received a legal opinion from Wilson
Sonsini Goodrich & Rosati, counsel to West, in a form reasonably acceptable
to East.
6.3 Additional Conditions to the Obligations of West and Merger Sub. The
obligations of West and Merger Sub to consummate and effect the Merger shall be
subject to the satisfaction at or prior to the Effective Time of each of the
following conditions, any of which may be waived, in writing, exclusively by
West:
(a) Representations and Warranties. The representations and warranties of
East contained in this Agreement shall be true and correct on and as of the
Effective Time, except for changes contemplated by this Agreement and
except for those representations and warranties which address matters only
as of a particular date (which shall remain true and correct as of such
particular date), with the same force and effect as if made on and as of
the Effective Time, except, in all such cases where the failure to be so
true and correct, would not have a Material Adverse Effect on East; and
West and Merger Sub shall have received a certificate to such effect signed
on behalf of East by the President and the Chief Financial Officer of East;
(b) Agreements and Covenants. East shall have performed or complied in
all material respects with all agreements and covenants required by this
Agreement to be performed or complied with by it on or prior to the
Effective Time, and the West shall have received a certificate to such
effect signed on behalf of East by the President and the Chief Financial
Officer of East;
(c) Material Adverse Effect. No Material Adverse Effect with respect to
East shall have occurred since the date of this Agreement; and
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(d) Legal Opinion. West shall have received a legal opinion from Testa,
Hurwitz & Thibeault, LLP, counsel to East, in a form reasonably acceptable
to West.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to the
Effective Time of the Merger, whether before or after approval of the Merger by
the stockholders of West and East:
(a) by mutual written consent duly authorized by the Boards of Directors
of West and East;
(b) by either East or West if the Merger shall not have been consummated
by December 31, 1996; provided, however, that the right to terminate this
Agreement under this Section 7.1(b) shall not be available to any party
whose action or failure to act has been a principal cause of or resulted in
the failure of the Merger to occur on or before such date and such action
or failure to act constitutes a breach of this Agreement;
(c) by either East or West if a court of competent jurisdiction or
governmental, regulatory or administrative agency or commission shall have
issued an order, decree or ruling or taken any other action (an "Order"),
in any case having the effect of permanently restraining, enjoining or
otherwise prohibiting the Merger, which order, decree or ruling is final
and nonappealable;
(d) by either East or West if the required approvals of the stockholders
of East or West contemplated by this Agreement shall not have been obtained
by reason of the failure to obtain the required vote upon a vote taken at a
meeting of stockholders duly convened therefor or at any adjournment
thereof (provided that the right to terminate this Agreement under this
Section 7.1(d) shall not be available to any party where the failure to
obtain stockholder approval of such party shall have been caused by the
action or failure to act of such party in breach of this Agreement);
(e) by either East or West, if East shall have accepted an East Superior
Proposal or if the East Board of Directors recommends an East Superior
Proposal to the stockholders of East;
(f) by West, if the Board of Directors of East shall have withheld,
withdrawn or modified in a manner adverse to West its recommendation in
favor of approving the issuance of the shares of West Common Stock by
virtue of the Merger;
(g) by either East or West, if West shall have accepted a West Superior
Proposal or if the West Board of Directors recommends a West Superior
Proposal to the stockholders of West;
(h) by East, if the Board of Directors of West shall have withheld,
withdrawn or modified in a manner adverse to East its recommendation in
favor of the Merger;
(i) by East, upon a breach of any representation, warranty, covenant or
agreement on the part of West set forth in this Agreement, or if any
representation or warranty of West shall have become untrue, in either case
such that the conditions set forth in Section 6.2(a) or Section 6.2(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided that if such
inaccuracy in West's representations and warranties or breach by West is
curable by West through the exercise of its commercially reasonable efforts
within five (5) days of the time such representation or warranty shall have
become untrue or such breach, then East may not terminate this Agreement
under this Section 7.1(i) during such five-day period provided West
continues to exercise such commercially reasonable efforts;
(j) by West, upon a breach of any representation, warranty, covenant or
agreement on the part of East set forth in this Agreement, or if any
representation or warranty of East shall have become untrue, in either case
such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
inaccuracy in the Company's representations and warranties or breach by
East is curable by
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East through the exercise of its commercially reasonable efforts within
five (5) days of the time such representation or warranty shall have become
untrue or such breach, then West may not terminate this Agreement under
this Section 7.1(j) during such five-day period provided East continues to
exercise such commercially reasonable efforts;
(k) by East, if there shall have occurred any Material Adverse Effect
with respect to West since the date of this Agreement;
(l) by West, if there shall have occurred any Material Adverse Effect
with respect to East since the date of this Agreement; or
(m) by either East or West if the earnings per share reported by the
other party for the fiscal quarter ending June 30, 1996 are below the
average of earnings per share estimates published by securities analysts as
of the date of this Agreement, if such shortfall is material in the opinion
of the terminating party determined in its sole good faith judgment;
provided, that the right to terminate the Agreement under this Section
7.1(m) shall be null and void if not exercised within 5 days following such
report of earnings.
7.2 Notice of Termination; Effect of Termination.
(a) Subject to Sections 7.2(b) and (c), any termination of this Agreement
under Section 7.1 above will be effective immediately upon the delivery of
written notice of the terminating party to the other parties hereto. In the
event of the termination of this Agreement as provided in Section 7.1, this
Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of
which shall survive the termination of this Agreement, and (ii) nothing
herein shall relieve any party from liability for any willful breach of
this Agreement. No termination of this Agreement shall affect the
obligations of the parties contained in the Confidentiality Agreement, all
of which obligations shall survive termination of this Agreement in
accordance with their terms.
(b) Any termination of this Agreement by East pursuant to Sections 7.1(d)
or 7.1(e) hereof shall be of no force or effect unless prior to such
termination East shall have paid to West any amounts payable pursuant to
Section 7.3(b).
(c) Any termination of this Agreement by West pursuant to Sections 7.1(d)
or 7.1(g) hereof shall be of no force or effect unless prior to such
termination West shall have paid to East any amounts payable pursuant to
Section 7.3(c).
7.3 Fees and Expenses.
(a) Except as set forth in this Section 7.3, all fees and expenses
incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses,
whether or not the Merger is consummated; provided, however, that West and
East shall share equally all fees and expenses, other than attorneys' and
accountants fees and expenses, incurred in relation to the printing and
filing of the Proxy Statement (including any preliminary materials related
thereto) and the Registration Statement (including financial statements and
exhibits) and any amendments or supplements thereto.
(b) East shall immediately make payment to West (by wire transfer or
cashiers check) of (x) $25,000,000 (i) in the event East shall have
accepted an East Superior Proposal or if the East Board of Directors
recommends an East Superior Proposal to the stockholders of East, or (ii)
in the event the vote of the stockholders of East contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of stockholders duly
convened therefor or at any adjournment thereof (an "East Negative Vote")
if prior to such East Negative Vote there shall have occurred an
Acquisition Proposal with respect to East which shall have been publicly
disclosed and not withdrawn; or (y) $15,000,000 in the event of an East
Negative Vote if (i) prior to such East Negative Vote the Board of
Directors of East shall have withheld, withdrawn or modified in a manner
adverse to West its recommendation in favor of the Merger and (ii) East
shall not be required to make payment of the $25,000,000 required by clause
(x) above; or (z) $5,000,000 in the event of an East Negative Vote if East
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shall not be required to make payment of the $25,000,000 required by clause
(x) above and if East shall not be required to make payment of the
$15,000,000 required by clause (y) above.
(c) West shall immediately make payment to East (by wire transfer or
cashiers check) of (x) $25,000,000 (i) in the event West shall have
accepted an West Superior Proposal or if the West Board of Directors
recommends an West Superior Proposal to the stockholders of West, or (ii)
in the event the vote of the stockholders of West contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain
the required vote upon a vote taken at a meeting of stockholders duly
convened therefor or at any adjournment thereof (an "West Negative Vote")
if prior to such West Negative Vote there shall have occurred an
Acquisition Proposal with respect to West which shall have been publicly
disclosed and not withdrawn; or (y) $15,000,000 in the event of an West
Negative Vote if (i) prior to such West Negative Vote the Board of
Directors of West shall have withheld, withdrawn or modified in a manner
adverse to East its recommendation in favor of the Merger and (ii) West
shall not be required to make payment of the $25,000,000 required by clause
(x) above; or (z) $5,000,000 in the event of an West Negative Vote if West
shall not be required to make payment of the $25,000,000 required by clause
(x) above and if West shall not be required to make payment of the
$15,000,000 required by clause (y) above.
(d) Payment of the fees described in Section 7.3(b) and (c) above shall
not be in lieu of damages incurred in the event of breach of this
Agreement.
7.4 Amendment. Subject to applicable law, this Agreement may be amended by
the parties hereto at any time by execution of an instrument in writing signed
on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations and
warranties of East, West and Merger Sub contained in this Agreement shall
terminate at the Effective Time, and only the covenants that by their terms
survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at
the following addresses or telecopy numbers (or at such other address or
telecopy numbers for a party as shall be specified by like notice):
(a)if to West or Merger Sub, to:
Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, California 94087
Attention: President
Telephone No.: (408) 720-1600
Telecopy No.: (408) 720-9200
with a copy at the same address to the attention of the General
Counsel, and
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with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(b)if to East, to:
Atria Software, Inc.
20 Maguire Road
Lexington, Massachusetts 02173
Attention: President
Telephone No.: (617) 676-2400
Telecopy No.: (617) 676-2410
with a copy at the same address to the attention of the General
Counsel, and
with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower, 125 High Street
Boston, Massachusetts 02110
Attention: Mark J. Macenka, Esq.
Telephone No.: (617) 248-7000
Telecopy No.: (617) 248-7100
8.3 Interpretation; Knowledge.
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise
indicated. The words "include," "includes" and "including" when used herein
shall be deemed in each case to be followed by the words "without
limitation." The table of contents and headings contained in this Agreement
are for reference purposes only and shall not affect in any way the meaning
or interpretation of this Agreement. When reference is made herein to "the
business of" an entity, such reference shall be deemed to include the
business of all direct and indirect subsidiaries of such entity. Reference
to the subsidiaries of an entity shall be deemed to include all direct and
indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "knowledge" means, with
respect to any matter in question, that the executive officers of East or
West, as the case may be, have actual knowledge of such matter.
8.4 Counterparts. This Agreement may be executed in one or more counterparts,
all of which shall be considered one and the same agreement and shall become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other party, it being understood that all parties need not
sign the same counterpart.
8.5 Entire Agreement. This Agreement and the documents and instruments and
other agreements among the parties hereto as contemplated by or referred to
herein, including East Schedules and the West Schedules (a) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings, both written and oral,
among the parties with respect to the subject matter hereof, it being
understood that the Confidentiality Agreement shall continue in full force and
effect until the Closing and shall survive any termination of this Agreement;
and (b) are not intended to confer upon any other person any rights or remedies
hereunder, except as set forth herein.
8.6 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
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Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches
of this Agreement and to enforce specifically the terms and provisions hereof
in any court of the United States or any state having jurisdiction, this being
in addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Delaware, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction
of any state or federal court within the State of Delaware, in connection with
any matter based upon or arising out of this Agreement or the matters
contemplated herein, agrees that process may be served upon them in any manner
authorized by the laws of the State of Delaware for such persons and waives and
covenants not to assert or plead any objection which they might otherwise have
to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule
of construction providing that ambiguities in an agreement or other document
will be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
rights, interests, or obligations hereunder without the prior written approval
of the of the parties.
In Witness Whereof, West, Merger Sub, and East have caused this Agreement to
be signed by themselves or their duly authorized respective officers, all as of
the date first written above.
Pure Software Inc.
By: _________________________________
Reed Hastings, President and
Chief Executive Officer
Atria Software Inc..
By: _________________________________
Paul H. Levine, President and
Chief Executive Officer
CST Acquisition Corporation
By: _________________________________
Reed Hastings, Chief Executive
Officer
**** REORGANIZATION AGREEMENT ****
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[OPTION FROM WEST TO EAST]
STOCK OPTION AGREEMENT
This Stock Option Agreement dated as of June 6, 1996 (the "Agreement") is
entered into by and between Pure Software Inc., a Delaware corporation
("West"), and Atria Software, Inc., a Massachusetts corporation ("East").
RECITALS
Whereas, concurrently with the execution and delivery of this Agreement,
West, East and CST Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of West ("Sub"), are entering into an Agreement and
Plan of Reorganization (the "Merger Agreement"), which provides that, among
other things, upon the terms and subject to the conditions thereof, Sub will
be merged with and into East (the "Merger") with East continuing as the
surviving corporation and as a wholly owned subsidiary of West; and
Whereas, as a condition to East's willingness to enter into the Merger
Agreement, East has requested that West agree, and West has so agreed, to
grant to East an option to acquire shares of West's Common Stock upon the
terms and subject to the conditions set forth herein.
AGREEMENT
Now, Therefore, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. Grant of Option
West hereby grants to East an irrevocable option (the "Option") to acquire
up to 2,646,096 shares (the "Option Shares") of the Common Stock, par value
$.0001 per share, of West ("West Shares") in the manner set forth below (i) by
exchanging therefor shares of the Common Stock, par value $.01 per share, of
East ("East Shares") at a rate of 0.64741 East Share for each Option Share
(the "Exercise Ratio") and/or, at East's election, (ii) by paying cash at a
price determined in accordance with Section 4 below. Capitalized terms used in
this Agreement but not defined herein shall have the meanings ascribed thereto
in the Merger Agreement.
2. Exercise of Option
The Option may only be exercised by East, in whole or in part, at any time
or from time to time, upon the occurrence of (i) the commencement of a tender
or exchange offer for 25% or more of any class of West's capital stock, or
(ii) any of the events specified in Section 7.3(c)(x) of the Merger Agreement
(any of the events specified in clauses (i) or (ii) of this sentence being
referred to herein as an "Exercise Event"). In the event East wishes to
exercise the Option, East shall deliver to West a written notice (an "Exercise
Notice") specifying the total number of Option Shares it wishes to acquire and
the form of consideration to be paid. Each closing of a purchase of Option
Shares (a "Closing") shall occur on a date and at a time designated by East in
an Exercise Notice delivered at least five business days prior to the date of
such Closing, which Closing shall be held at the offices of counsel to West.
The Option shall terminate upon the earlier of (i) at the Effective Time, (ii)
180 days following the termination of the Merger Agreement pursuant to Article
VII thereof, if an Exercise Event shall have occurred on or prior to the date
of such termination, and (iii) the date on which the Merger Agreement is
terminated pursuant to Article VII thereof if an Exercise Event shall not have
occurred on or prior to such date; provided, however, with respect to the
preceding clause (ii) of this sentence, that if the Option cannot be exercised
by reason of any applicable government order or because the waiting period
related to the issuance of the Option Shares under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR
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<PAGE>
Act"), if applicable, shall not have expired or been terminated, then the
Option shall not terminate until the tenth business day after such impediment
to exercise shall have been removed or shall have become final and not subject
to appeal. Notwithstanding the foregoing, the Option may not be exercised if
East is in breach in any material respect of any of its covenants or agreements
contained in the Merger Agreement.
3. Conditions to Closing
The obligation of West to issue Option Shares to East hereunder is subject to
the conditions that (a) any waiting period under the HSR Act applicable to the
issuance of the Option Shares hereunder shall have expired or been terminated;
(b) all consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any Federal, state or local administrative agency
or commission or other Federal state or local governmental authority or
instrumentality, if any, required in connection with the issuance of the Option
Shares hereunder shall have been obtained or made, as the case may be; and (c)
no preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect.
4. Closing
At any Closing, (a) West shall deliver to East a single certificate in
definitive form representing the number of West Shares designated by East in
its Exercise Notice, such certificate to be registered in the name of East and
to bear the legend set forth in Section 10 hereof, and (b) East shall pay to
West the aggregate purchase price for the West Shares so designated and being
purchased by delivery of (i) a single certificate in definitive form
representing the number of East Shares being issued by East in consideration
therefor (based on the Exercise Ratio), such certificate to be registered in
the name of West and to bear the legend set forth in Section 10 hereof, and/or,
at East's election, (ii) a certified check or bank check, as the case may be.
If East has elected to deliver cash in payment for any West Shares, the price
to be paid by East in cash to West at any Closing in respect of such West
Shares shall be $40.625 per share (the "Exercise Price").
5. Representations and Warranties of West
West represents and warrants to East that (a) West is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and has the corporate power and authority to enter into this Agreement
and to carry out its obligations hereunder; (b) the execution and delivery of
this Agreement by West and consummation by West of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of West and no other corporate proceedings on the part of West are
necessary to authorize this Agreement or any of the transactions contemplated
hereby; (c) this Agreement has been duly executed and delivered by West and
constitutes a legal, valid and binding obligation of West and, assuming this
Agreement constitutes a legal, valid and binding obligation of East, is
enforceable against West in accordance with its terms, except as enforceability
may be limited by bankruptcy and other laws affecting the rights and remedies
of creditors generally and general principles of equity; (d) except for any
filings as may be required under the HSR Act, West has taken all necessary
corporate and other action to authorize and reserve for issuance and to permit
it to issue upon exercise of the Option, and at all times from the date hereof
until the termination of the Option will have reserved for issuance, a
sufficient number of unissued West Shares for East to exercise the Option in
full and will take all necessary corporate or other action to authorize and
reserve for issuance all additional West Shares or other securities which may
be issuable pursuant to Section 9(a) upon exercise of the Option, all of which,
upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable; (e) upon
delivery of the West Shares and any other securities to East upon exercise of
the Option, East will acquire such West Shares or other securities free and
clear of all material claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, excluding those imposed by East;
(f) the execution and delivery of this Agreement by West do not, and the
performance of this Agreement by West will not, (i) violate the Certificate of
Incorporation or By-Laws of West, (ii) conflict with or violate any order
applicable to West or any of its subsidiaries or by which they or any of their
property is bound or affected or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination,
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<PAGE>
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of West or any of its
subsidiaries pursuant to, any contract or agreement to which West or any of its
subsidiaries is a party or by which West or any of its subsidiaries or any of
their property is bound or affected, except, in the case of clauses (ii) and
(iii) above, for violations, conflicts, breaches, defaults, rights of
termination, amendment, acceleration or cancellation, liens or encumbrances
which would not, individually or in the aggregate, have a Material Adverse
Effect on West; (g) the execution and delivery of this Agreement by West does
not, and the performance of this Agreement by West will not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any Governmental Entity except pursuant to the HSR Act, if applicable; and
(h) any East Shares acquired pursuant to this Agreement will not be acquired by
West with a view to the public distribution thereof and West will not sell or
otherwise dispose of such shares in violation of applicable law or this
Agreement.
6. Representations and Warranties of East
East represents and warrants to West that (a) East is a corporation duly
incorporated, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder; (b) the
execution and delivery of this Agreement by East and the consummation by East
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of East and no other corporate
proceedings on the part of East are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by East and constitutes a legal, valid and binding
obligation of East and, assuming this Agreement constitutes a legal, valid and
binding obligation of West, is enforceable against East in accordance with its
term, except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general principles
of equity; (d) except for any filings that may be required under the HSR Act,
East has taken (or will in a timely manner take) all necessary corporate and
other action to authorize and reserve for issuance and to permit it to issue
upon exercise of the Option and will take all necessary corporate or other
action to authorize and reserve for issuance all additional East Shares or
other securities which may be issuable pursuant to Section 9(b) upon exercise
of the Option, all of which, upon their issuance and delivery in accordance
with the terms of this Agreement, will be validly issued, fully paid and
nonassessable; (e) upon delivery of West Shares to East in consideration of any
acquisition of East Shares pursuant hereto, East will acquire such West Shares
free and clear of all material claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever, excluding those imposed by
West; (f) the execution and delivery of this Agreement by East do not, and the
performance of this Agreement by East will not, (i) violate the Articles of
Organization or By-Laws of East, (ii) conflict with or violate any order
applicable to East or any of its subsidiaries or by which they or any of their
property is bound or affected or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the property or assets of East or any of its subsidiaries
pursuant to, any contract or agreement to which East or any of its subsidiaries
is a party or by which East or any of its subsidiaries or any of their property
is bound or affected, except, in the case of clauses (ii) and (iii) above, for
violations, conflicts, breaches, defaults, rights of termination, amendment,
acceleration or cancellation, liens or encumbrances which would not,
individually or in the aggregate, have a Material Adverse Effect on East; (g)
the execution and delivery of this Agreement by East does not, and the
performance of this Agreement by East will not, require any consent, approval,
authorization or permit of, or filing with or notification to, any Governmental
Entity except pursuant to the HSR Act, if applicable; and (h) any West Shares
acquired upon exercise of the Option will not be acquired by East with a view
to the public distribution thereof and East will not sell or otherwise dispose
of such shares in violation of applicable law or this Agreement.
7. Certain Rights
(a) East Put. At the request of East at any time during the period during
which the Option is exercisable pursuant to Section 2 (the "Purchase Period"),
West (or any successor entity thereof) shall purchase from East the Option, to
the extent not previously exercised, at the price set forth in subparagraph (i)
below (as limited by
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subparagraph (iii) below), and the Option Shares, if any, acquired by East
pursuant thereto, at the price set forth in subparagraph (ii) below (as limited
by subparagraph (iii) below):
(i) The difference between the "Market Price" for West Shares as of the
date East gives notice of its intent to exercise its rights under this
Section 7(a) (defined as the highest closing sale price of West Shares on
the Nasdaq National Market during the five (5) trading days ending on the
trading day immediately preceding such date) and the Exercise Price,
multiplied by the number of West Shares purchasable pursuant to the Option,
but only if the Market Price is greater than the Exercise Price.
(ii) The Exercise Price paid by East for West Shares acquired pursuant to
the Option plus the difference between the Market Price and such Exercise
Price (but only if the Market Price is greater than the Exercise Price)
multiplied by the number of West Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to this
Section 7 West shall not be required to pay East in excess of an aggregate
of (x) $40,000,000 plus (y) the Exercise Price paid by East for West Shares
acquired pursuant to the Option minus (z) any amounts paid to East by West
pursuant to Section 7.3(c) of the Merger Agreement.
(b) Redelivery of East Shares. If East has acquired West Shares pursuant to
exercise of the Option by the issuance and delivery of East Shares, then West
shall in fulfillment of its obligation pursuant to the first clause of Section
7(a)(ii) with respect to the Exercise Price paid in the form of East Shares
only, redeliver all of the applicable certificate(s) for such East Shares to
East free and clear of all claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, other than those imposed by East.
(c) Payment and Redelivery of Option or Shares. In the event East exercises
its rights under Sections 7(a) and (b), West shall, within ten business days
after East delivers notice pursuant to Section 7(a), pay the required amount to
East in immediately available funds (and East Shares, if applicable) and East
shall surrender to West the Option and the certificates evidencing the West
Shares purchased by East pursuant thereto, and East shall represent and warrant
that such shares are then free and clear of all claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever.
(d) Restrictions on Transfer. Until the expiration of the Purchase Period,
West shall not sell, transfer or otherwise dispose of any East Shares acquired
by it pursuant to this Agreement.
8. Registration Rights
(a) Following the termination of the Merger Agreement, each party hereto (a
"Holder") may by written notice (a "Registration Notice") to the other party
(the "Registrant") request the Registrant to register under the Securities Act
all or any part of the shares acquired by such Holder pursuant to this
Agreement (the "Registrable Securities") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment underwritten
public offering in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person or group from purchasing
through such offering shares representing more than 1% of the outstanding
shares of Common Stock of the Registrant on a fully diluted basis; provided,
however, that any such Registration Notice must relate to a number of shares
equal to at least 2% of the outstanding shares of Common Stock of the
Registrant on a fully diluted basis and that any rights to require registration
hereunder shall terminate with respect to any shares that may be sold pursuant
to Rule 144(k) under the Securities Act.
(b) The Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the Registrable
Securities; provided, however, that (i) neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder and (ii)
the Registrant will not be required to file any such registration statement
during any period of time (not to exceed 40 days after a Registration Notice in
the case of clause (A) below or 90 days after a Registration Notice in the case
of clauses (B) and (C) below) when (A) the Registrant is in possession of
material non-public information which it reasonably believes would be
detrimental to be disclosed at such time and, in the written opinion of counsel
to such Registrant, such
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information would have to be disclosed if a registration statement were filed
at that time; (B) such Registrant is required under the Securities Act to
include audited financial statements for any period in such registration
statement and such financial statements are not yet available for inclusion in
such registration statement; or (C) such Registrant determines, in its
reasonable judgment, that such registration would interfere with any financing,
acquisition or other material transaction involving the Registrant. If
consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 180 days after the filing with the
SEC of the initial registration statement therefor, the provisions of this
Section 8 shall again be applicable to any proposed registration, it being
understood that neither party shall be entitled to more than an aggregate of
two effective registration statements hereunder. The Registrant shall use all
reasonable efforts to cause any Registrable Securities registered pursuant to
this Section 8 to be qualified for sale under the securities or blue sky laws
of such jurisdictions as the Holder may reasonably request and shall continue
such registration or qualification in effect in such jurisdictions; provided,
however, that the Registrant shall not be required to qualify to do business
in, or consent to general service of process in, any jurisdiction by reason of
this provision.
(c) The registration rights set forth in this Section 8 are subject to the
condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to such Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required
to be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant shall provide to
the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings and as such underwriters may reasonably
require. In connection with any registration, the parties agree (i) to
indemnify each other and the underwriters in the customary manner and (ii) to
enter into an underwriting agreement in form and substance customary for
transactions of this type with the underwriters participating in such offering.
9. Adjustment Upon Changes in Capitalization
(a) In the event of any change in the West Shares by reason of stock
dividends, split-ups, mergers (other than the Merger), recapitalizations,
combinations, exchanges of shares and the like, the type and number of shares
or securities subject to the Option, the Exercise Ratio and the Exercise Price
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that East shall receive, upon exercise
of the Option, the number and class of shares or other securities or property
that East would have received in respect of the West Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable.
(b) In the event of any change in the East Shares by reason of stock
dividends, split-ups, mergers (other than the Merger), recapitalizations,
combinations, exchanges of shares and the like, the type and number of shares
or securities which East can deliver to West pursuant to Section 4 hereof in
full payment for any West Shares to be purchased and the Exchange Ratio shall
be adjusted appropriately.
10. Restrictive Legends
Each certificate representing Option Shares issued to East hereunder, and
each certificate representing East Shares delivered to West at a Closing, shall
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE 6,
1995, A COPY OF WHICH MAY BE OBTAINED FROM [NAME OF COMPANY]
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11. Listing and HSR Filing
West, upon the request of East, shall promptly file an application to list
the West Shares to be acquired upon exercise of the Option for quotation on the
Nasdaq National Market and shall use its best efforts to obtain approval of
such listing as soon as practicable. East, upon the request of West, shall
promptly file an application to list the East Shares issued and delivered to
West pursuant to Section 4 for quotation on the Nasdaq National Market and
shall use its best efforts to obtain approval of such listing as soon as
practicable. Promptly after the date hereof, each of the parties hereto shall
promptly file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice all required premerger notification and
report forms and other documents and exhibits required to be filed under the
HSR Act, if any, to permit the acquisition of the West Shares subject to the
Option at the earliest possible date.
12. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing contained
in this Agreement, express or implied, is intended to confer upon any person
other than the parties hereto and their respective successors and permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any shares sold by a party in compliance with the provisions of
Section 8 shall, upon consummation of such sale, be free of the restrictions
imposed with respect to such shares by this Agreement and any transferee of
such shares shall not be entitled to the rights of such party. Certificates
representing shares sold in a registered public offering pursuant to Section 8
shall not be required to bear the legend set forth in Section 10.
13. Specific Performance
The parties recognize and agree that if for any reason any of the provisions
of this Agreement are not performed in accordance with their specific terms or
are otherwise breached, immediate and irreparable harm or injury would be
caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that in addition to other remedies the other party shall be
entitled to an injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action shall be brought
in equity to enforce the provisions of the Agreement, neither party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
14. Entire Agreement
This Agreement and the Merger Agreement (including the appendices thereto)
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
15. Further Assurances
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
constitute the transactions contemplated hereby.
16. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith and shall execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law,
the intent of the parties hereto with respect to such provision.
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17. Notices
All notices and other communications hereunder shall be in writing and shall
be deemed given if delivered personally or by commercial delivery service, or
sent via telecopy (receipt confirmed) to the parties at the following addresses
or telecopy numbers (or at such other address or telecopy numbers for a party
as shall be specified by like notice):
(1) if to West, to:
Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, CA 94087
Attention: President
Telephone No.: (408) 720-1600
Telecopy No.: (408) 720-9200
with a copy at the same address to the attention of the General
Counsel, and with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(2) if to East, to:
Atria Software, Inc.
20 Maguire Road
Lexington, MA 02173
Attention: President
Telephone No.: (617) 676-2400
Telecopy No.: (617) 676-2445
with a copy at the same address to the attention of the General
Counsel, and with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower, 125 High Street
Boston, Massachusetts 02110
Attention: Mark J. Macenka, Esq.
Telephone No.: (617) 248-7000
Telecopy No.: (617) 248-7100
18. Governing Law
This Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
entirely within such State.
19. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
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20. Expenses
Except as otherwise expressly provided herein or in the Merger Agreement, all
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
21. Amendments; Waiver
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
22. Assignment
Neither of the parties hereto may sell, transfer, assign or otherwise dispose
of any of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that East may assign its rights and obligations hereunder to Sub.
[Remainder of Page Intentionally Blank]
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In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
Atria Software, Inc.
By:__________________________________
Name:
Title:
Pure Software Inc.
By:__________________________________
Name:
Title:
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<PAGE>
[OPTION FROM EAST TO WEST]
STOCK OPTION AGREEMENT
This Stock Option Agreement dated as of June 6, 1996 (the "Agreement") is
entered into by and between Pure Software Inc., a Delaware corporation
("West"), and Atria Software, Inc., a Massachusetts corporation ("East").
RECITALS
Whereas, concurrently with the execution and delivery of this Agreement,
West, East and CST Acquisition Corporation, a Massachusetts corporation and a
wholly owned subsidiary of West ("Sub"), are entering into an Agreement and
Plan of Reorganization (the "Merger Agreement"), which provides that, among
other things, upon the terms and subject to the conditions thereof, Sub will be
merged with and into East (the "Merger") with East continuing as the surviving
corporation and as a wholly owned subsidiary of West; and
Whereas, as a condition to West's and Sub's willingness to enter into the
Merger Agreement, West has requested that East agree, and East has so agreed,
to grant to West an option to acquire shares of East's Common Stock upon the
terms and subject to the conditions set forth herein;
AGREEMENT
Now, Therefore, in consideration of the foregoing and of the mutual covenants
and agreements set forth herein and in the Merger Agreement and for other good
and valuable consideration, the receipt and adequacy of which are hereby
acknowledged, the parties hereto agree as follows:
1. Grant of Option
East hereby grants to West an irrevocable option (the "Option") to acquire up
to 2,149,038 shares (the "Option Shares") of the Common Stock, par value $.01
per share, of East ("East Shares") in the manner set forth below (i) by
exchanging therefor shares of the Common Stock, par value $.0001 per share, of
West ("West Shares") at a rate of 1.544615 West Share for each Option Share
(the "Exercise Ratio") and/or, at West's election, (ii) by paying cash at a
price determined in accordance with Section 4 below. Capitalized terms used in
this Agreement but not defined herein shall have the meanings ascribed thereto
in the Merger Agreement.
2. Exercise of Option
The Option may only be exercised by West, in whole or in part, at any time or
from time to time, upon the occurrence of (i) the commencement of a tender or
exchange offer for 25% or more of any class of East's capital stock, or (ii)
any of the events specified in Section 7.3(b)(x) of the Merger Agreement (any
of the events specified in clauses (i) or (ii) of this sentence being referred
to herein as an "Exercise Event"). In the event West wishes to exercise the
Option, West shall deliver to East a written notice (an "Exercise Notice")
specifying the total number of Option Shares it wishes to acquire and the form
of consideration to be paid. Each closing of a purchase of Option Shares (a
"Closing") shall occur on a date and at a time designated by West in an
Exercise Notice delivered at least five business days prior to the date of such
Closing, which Closing shall be held at the offices of counsel to East. The
Option shall terminate upon the earlier of (i) at the Effective Time, (ii) 180
days following the termination of the Merger Agreement pursuant to Article VII
thereof, if an Exercise Event shall have occurred on or prior to the date of
such termination, and (iii) the date on which the Merger Agreement is
terminated pursuant to Article VII thereof if an Exercise Event shall not have
occurred on or prior to such date; provided, however, with respect to the
preceding clause (ii) of this sentence, that if the Option cannot be exercised
by reason of any applicable government order or because the waiting period
related to the issuance of the Option Shares under the Hart-Scott-Rodino
Antitrust Improvements Act of 1976, as amended (the "HSR Act"), if
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<PAGE>
applicable, shall not have expired or been terminated, then the Option shall
not terminate until the tenth business day after such impediment to exercise
shall have been removed or shall have become final and not subject to appeal.
Notwithstanding the foregoing, the Option may not be exercised if West is in
breach in any material respect of any of its covenants or agreements contained
in the Merger Agreement.
3. Conditions to Closing
The obligation of East to issue Option Shares to West hereunder is subject to
the conditions that (a) any waiting period under the HSR Act applicable to the
issuance of the Option Shares hereunder shall have expired or been terminated;
(b) all consents, approvals, orders or authorizations of, or registrations,
declarations or filings with, any Federal, state or local administrative agency
or commission or other Federal state or local governmental authority or
instrumentality, if any, required in connection with the issuance of the Option
Shares hereunder shall have been obtained or made, as the case may be; and (c)
no preliminary or permanent injunction or other order by any court of competent
jurisdiction prohibiting or otherwise restraining such issuance shall be in
effect.
4. Closing
At any Closing, (a) East shall deliver to West a single certificate in
definitive form representing the number of East Shares designated by West in
its Exercise Notice, such certificate to be registered in the name of West and
to bear the legend set forth in Section 10 hereof, and (b) West shall pay to
East the aggregate purchase price for the East Shares so designated and being
purchased by delivery of (i) a single certificate in definitive form
representing the number of West Shares being issued by West in consideration
therefor (based on the Exercise Ratio), such certificate to be registered in
the name of East and to bear the legend set forth in Section 10 hereof, and/or,
at West's election, (ii) a certified check or bank check, as the case may be.
If West has elected to deliver cash in payment for any East Shares, the price
to be paid by West in cash to East at any Closing in respect of such East
Shares shall be $62.75 per share (the "Exercise Price").
5. Representations and Warranties of East
East represents and warrants to West that (a) East is a corporation duly
organized, validly existing and in good standing under the laws of the
Commonwealth of Massachusetts and has the corporate power and authority to
enter into this Agreement and to carry out its obligations hereunder; (b) the
execution and delivery of this Agreement by East and consummation by East of
the transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of East and no other corporate proceedings on the
part of East are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (c) this Agreement has been duly executed and
delivered by East and constitutes a legal, valid and binding obligation of East
and, assuming this Agreement constitutes a legal, valid and binding obligation
of West, is enforceable against East in accordance with its terms, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of equity; (d)
except for any filings as may be required under the HSR Act, East has taken all
necessary corporate and other action to authorize and reserve for issuance and
to permit it to issue upon exercise of the Option, and at all times from the
date hereof until the termination of the Option will have reserved for
issuance, a sufficient number of unissued East Shares for West to exercise the
Option in full and will take all necessary corporate or other action to
authorize and reserve for issuance all additional East Shares or other
securities which may be issuable pursuant to Section 9(a) upon exercise of the
Option, all of which, upon their issuance and delivery in accordance with the
terms of this Agreement, will be validly issued, fully paid and nonassessable;
(e) upon delivery of the East Shares and any other securities to West upon
exercise of the Option, West will acquire such East Shares or other securities
free and clear of all material claims, liens, charges, encumbrances and
security interests of any kind or nature whatsoever, excluding those imposed by
West; (f) the execution and delivery of this Agreement by East do not, and the
performance of this Agreement by East will not, (i) violate the Articles of
Organization or By-Laws of East, (ii) conflict with or violate any order
applicable to East or any of its subsidiaries or by which they or any of their
property is bound or affected or (iii) result in any breach of or constitute a
default (or an event which with notice or lapse of time or both would become a
default) under, or give rise to any right of termination,
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<PAGE>
amendment, acceleration or cancellation of, or result in the creation of a lien
or encumbrance on any of the property or assets of East or any of its
subsidiaries pursuant to, any contract or agreement to which East or any of its
subsidiaries is a party or by which East or any of its subsidiaries or any of
their property is bound or affected, except, in the case of clauses (ii) and
(iii) above, for violations, conflicts, breaches, defaults, rights of
termination, amendment, acceleration or cancellation, liens or encumbrances
which would not, individually or in the aggregate, have a Material Adverse
Effect on East; (g) the execution and delivery of this Agreement by East does
not, and the performance of this Agreement by East will not, require any
consent, approval, authorization or permit of, or filing with, or notification
to, any Governmental Entity except pursuant to the HSR Act, if applicable; and
(h) any West Shares acquired pursuant to this Agreement will not be acquired by
East with a view to the public distribution thereof and East will not sell or
otherwise dispose of such shares in violation of applicable law or this
Agreement.
6. Representations and Warranties of West
West represents and warrants to East that (a) West is a corporation duly
incorporated, validly existing and in good standing under the laws of the State
of Delaware and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by West and the consummation by West of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of West and no other corporate proceedings on the
part of West are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (c) this Agreement has been duly executed and
delivered by West and constitutes a legal, valid and binding obligation of West
and, assuming this Agreement constitutes a legal, valid and binding obligation
of East, is enforceable against West in accordance with its term, except as
enforceability may be limited by bankruptcy and other laws affecting the rights
and remedies of creditors generally and general principles of equity; (d)
except for any filings that may be required under the HSR Act, West has taken
(or will in a timely manner take) all necessary corporate and other action to
authorize and reserve for issuance and to permit it to issue upon exercise of
the Option and will take all necessary corporate or other action to authorize
and reserve for issuance all additional West Shares or other securities which
may be issuable pursuant to Section 9(b) upon exercise of the Option, all of
which, upon their issuance and delivery in accordance with the terms of this
Agreement, will be validly issued, fully paid and nonassessable; (e) upon
delivery of West Shares to East in consideration of any acquisition of East
Shares pursuant hereto, East will acquire such West Shares free and clear of
all material claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever, excluding those imposed by East; (f) the execution
and delivery of this Agreement by West do not, and the performance of this
Agreement by West will not, (i) violate the Certificate of Incorporation or By-
Laws of West, (ii) conflict with or violate any order applicable to West or any
of its subsidiaries or by which they or any of their property is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the property
or assets of West or any of its subsidiaries pursuant to, any contract or
agreement to which West or any of its subsidiaries is a party or by which West
or any of its subsidiaries or any of their property is bound or affected,
except, in the case of clauses (ii) and (iii) above, for violations, conflicts,
breaches, defaults, rights of termination, amendment, acceleration or
cancellation, liens or encumbrances which would not, individually or in the
aggregate, have a Material Adverse Effect on West; (g) the execution and
delivery of this Agreement by West does not, and the performance of this
Agreement by West will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity except
pursuant to the HSR Act, if applicable; and (h) any East Shares acquired upon
exercise of the Option will not be acquired by West with a view to the public
distribution thereof and West will not sell or otherwise dispose of such shares
in violation of applicable law or this Agreement.
7. Certain Rights
(a) West Put. At the request of West at any time during the period during
which the Option is exercisable pursuant to Section 2 (the "Purchase Period"),
East (or any successor entity thereof) shall purchase from West the Option, to
the extent not previously exercised, at the price set forth in subparagraph (i)
below (as limited by
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subparagraph (iii) below), and the Option Shares, if any, acquired by West
pursuant thereto, at the price set forth in subparagraph (ii) below (as limited
by subparagraph (iii) below):
(i) The difference between the "Market Price" for East Shares as of the
date West gives notice of its intent to exercise its rights under this
Section 7(a) (defined as the highest closing sale price of East Shares on
the Nasdaq National Market during the five (5) trading days ending on the
trading day immediately preceding such date) and the Exercise Price,
multiplied by the number of East Shares purchasable pursuant to the Option,
but only if the Market Price is greater than the Exercise Price.
(ii) The Exercise Price paid by West for East Shares acquired pursuant to
the Option plus the difference between the Market Price and such Exercise
Price (but only if the Market Price is greater than the Exercise Price)
multiplied by the number of East Shares so purchased.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to this
Section 7 East shall not be required to pay West in excess of an aggregate
of (x) $40,000,000 plus (y) the Exercise Price paid by West for East Shares
acquired pursuant to the Option minus (z) any amounts paid to West by East
pursuant to Section 7.3(b) of the Merger Agreement.
(b) Redelivery of West Shares. If West has acquired East Shares pursuant to
exercise of the Option by the issuance and delivery of West Shares, then East
shall in fulfillment of its obligation pursuant to the first clause of Section
7(a)(ii) with respect to the Exercise Price paid in the form of West Shares
only, redeliver all of the applicable certificate(s) for such West Shares to
West free and clear of all claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, other than those imposed by West.
(c) Payment and Redelivery of Option or Shares. In the event West exercises
its rights under Sections 7(a) and (b), East shall, within ten business days
after West delivers notice pursuant to Section 7(a), pay the required amount to
West in immediately available funds (and West Shares, if applicable) and West
shall surrender to East the Option and the certificates evidencing the East
Shares purchased by West pursuant thereto, and West shall represent and warrant
that such shares are then free and clear of all claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever.
(d) Restrictions on Transfer. Until the expiration of the Purchase Period,
East shall not sell, transfer or otherwise dispose of any West Shares acquired
by it pursuant to this Agreement.
8. Registration Rights
(a) Following the termination of the Merger Agreement, each party hereto (a
"Holder") may by written notice (a "Registration Notice") to the other party
(the "Registrant") request the Registrant to register under the Securities Act
all or any part of the shares acquired by such Holder pursuant to this
Agreement (the "Registrable Securities") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment underwritten
public offering in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person or group from purchasing
through such offering shares representing more than 1% of the outstanding
shares of Common Stock of the Registrant on a fully diluted basis; provided,
however, that any such Registration Notice must relate to a number of shares
equal to at least 2% of the outstanding shares of Common Stock of the
Registrant on a fully diluted basis and that any rights to require registration
hereunder shall terminate with respect to any shares that may be sold pursuant
to Rule 144(k) under the Securities Act.
(b) The Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the Registrable
Securities; provided, however, that (i) neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder and (ii)
the Registrant will not be required to file any such registration statement
during any period of time (not to exceed 40 days after a Registration Notice in
the case of clause (A) below or 90 days after a Registration Notice in the case
of clauses (B) and (C) below) when (A) the Registrant is in possession of
material non-public information which it reasonably believes would be
detrimental to be disclosed at such time and, in the written opinion of counsel
to such Registrant, such information would have to be disclosed if a
registration statement were filed at that time; (B) such Registrant is
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required under the Securities Act to include audited financial statements for
any period in such registration statement and such financial statements are not
yet available for inclusion in such registration statement; or (C) such
Registrant determines, in its reasonable judgment, that such registration would
interfere with any financing, acquisition or other material transaction
involving the Registrant. If consummation of the sale of any Registrable
Securities pursuant to a registration hereunder does not occur within 180 days
after the filing with the SEC of the initial registration statement therefor,
the provisions of this Section 8 shall again be applicable to any proposed
registration, it being understood that neither party shall be entitled to more
than an aggregate of two effective registration statements hereunder. The
Registrant shall use all reasonable efforts to cause any Registrable Securities
registered pursuant to this Section 8 to be qualified for sale under the
securities or blue sky laws of such jurisdictions as the Holder may reasonably
request and shall continue such registration or qualification in effect in such
jurisdictions; provided, however, that the Registrant shall not be required to
qualify to do business in, or consent to general service of process in, any
jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 8 are subject to the
condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to such Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required
to be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 shall be effected at the
Registrant's expense, except for underwriting discounts and commissions and the
fees and expenses of counsel to the Holder, and the Registrant shall provide to
the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection
with underwritten public offerings and as such underwriters may reasonably
require. In connection with any registration, the parties agree (i) to
indemnify each other and the underwriters in the customary manner and (ii) to
enter into an underwriting agreement in form and substance customary for
transactions of this type with the underwriters participating in such offering.
9. Adjustment Upon Changes in Capitalization
(a) In the event of any change in the East Shares by reason of stock
dividends, split-ups, mergers (other than the Merger), recapitalizations,
combinations, exchanges of shares and the like, the type and number of shares
or securities subject to the Option, the Exercise Ratio and the Exercise Price
shall be adjusted appropriately, and proper provision shall be made in the
agreements governing such transaction so that West shall receive, upon exercise
of the Option, the number and class of shares or other securities or property
that West would have received in respect of the East Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable.
(b) In the event of any change in the West Shares by reason of stock
dividends, split-ups, mergers (other than the Merger), recapitalizations,
combinations, exchanges of shares and the like, the type and number of shares
or securities which West can deliver to East pursuant to Section 4 hereof in
full payment for any East Shares to be purchased and the Exchange Ratio shall
be adjusted appropriately.
10. Restrictive Legends
Each certificate representing Option Shares issued to West hereunder, and
each certificate representing West Shares delivered to East at a Closing, shall
include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF JUNE 6,
1995, A COPY OF WHICH MAY BE OBTAINED FROM [NAME OF COMPANY].
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11. Listing and HSR Filing
East, upon the request of West, shall promptly file an application to list
the East Shares to be acquired upon exercise of the Option for quotation on the
Nasdaq National Market and shall use its best efforts to obtain approval of
such listing as soon as practicable. West, upon the request of East, shall
promptly file an application to list the West Shares issued and delivered to
East pursuant to Section 4 for quotation on the Nasdaq National Market and
shall use its best efforts to obtain approval of such listing as soon as
practicable. Promptly after the date hereof, each of the parties hereto shall
promptly file with the Federal Trade Commission and the Antitrust Division of
the United States Department of Justice all required premerger notification and
report forms and other documents and exhibits required to be filed under the
HSR Act, if any, to permit the acquisition of the East Shares subject to the
Option at the earliest possible date.
12. Binding Effect
This Agreement shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns. Nothing contained
in this Agreement, express or implied, is intended to confer upon any person
other than the parties hereto and their respective successors and permitted
assigns any rights or remedies of any nature whatsoever by reason of this
Agreement. Any shares sold by a party in compliance with the provisions of
Section 8 shall, upon consummation of such sale, be free of the restrictions
imposed with respect to such shares by this Agreement and any transferee of
such shares shall not be entitled to the rights of such party. Certificates
representing shares sold in a registered public offering pursuant to Section 8
shall not be required to bear the legend set forth in Section 10.
13. Specific Performance
The parties recognize and agree that if for any reason any of the provisions
of this Agreement are not performed in accordance with their specific terms or
are otherwise breached, immediate and irreparable harm or injury would be
caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that in addition to other remedies the other party shall be
entitled to an injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action shall be brought
in equity to enforce the provisions of the Agreement, neither party will
allege, and each party hereby waives the defense, that there is an adequate
remedy at law.
14. Entire Agreement
This Agreement and the Merger Agreement (including the appendices thereto)
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter
hereof.
15. Further Assurances
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
constitute the transactions contemplated hereby.
16. Validity
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith and shall execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law,
the intent of the parties hereto with respect to such provision.
B-15
<PAGE>
17. Notices
All notices and other communications hereunder shall be in writing and shall
be deemed given if delivered personally or by commercial delivery service, or
sent via telecopy (receipt confirmed) to the parties at the following addresses
or telecopy numbers (or at such other address or telecopy numbers for a party
as shall be specified by like notice):
(1) if to West, to:
Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, CA 94087
Attention: President
Telephone No.: (408) 720-1600
Telecopy No.: (408) 720-9200
with a copy at the same address to the attention of the General
Counsel, and with a copy to:
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Larry W. Sonsini, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
(2) if to East, to:
Atria Software, Inc.
20 Maguire Road
Lexington, MA 02173
Attention: President
Telephone No.: (617) 676-2400
Telecopy No.: (617) 676-2445
with a copy at the same address to the attention of the General
Counsel, and with a copy to:
Testa, Hurwitz & Thibeault, LLP
High Street Tower, 125 High Street
Boston, Massachusetts 02110
Attention: Mark J. Macenka, Esq.
Telephone No.: (617) 248-7000
Telecopy No.: (617) 248-7100
18. Governing Law
This Agreement shall be governed by and construed in accordance with the laws
of the State of Delaware applicable to agreements made and to be performed
entirely within such State.
19. Counterparts
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
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<PAGE>
20. Expenses
Except as otherwise expressly provided herein or in the Merger Agreement, all
costs and expenses incurred in connection with the transactions contemplated by
this Agreement shall be paid by the party incurring such expenses.
21. Amendments; Waiver
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
22. Assignment
Neither of the parties hereto may sell, transfer, assign or otherwise dispose
of any of its rights or obligations under this Agreement or the Option created
hereunder to any other person, without the express written consent of the other
party, except that West may assign its rights and obligations hereunder to Sub.
[Remainder of Page Intentionally Blank]
B-17
<PAGE>
In Witness Whereof, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first
above written.
Pure Software Inc.
By:__________________________________
Name:
Title:
Atria Software, Inc.
By:__________________________________
Name:
Title:
B-18
<PAGE>
ANNEX C
85 RIGHTS OF MINORITY STOCKHOLDER, ETC. A stockholder in any corporation
organized under the laws of Massachusetts which shall have duly voted to
consolidate or merge with another corporation or corporations under the
provisions of sections seventy-eight or seventy-nine who objects to such
consolidation or merger may demand payment for his stock from the resulting or
surviving corporation and an appraisal in accordance with the provisions of
sections eighty-six to ninety-eight, inclusive, and such stockholder and the
resulting or surviving corporation shall have the rights and duties and follow
the procedures set forth in those sections. This section shall not apply to
the holders of any shares of stock of a constituent corporation surviving a
merger if, as permitted by subsection (c) of section seventy-eight, the merger
did not require for its approval a vote of the stockholders of the surviving
corporation.
86 APPLICABILITY OF SECTIONS 87 TO 98; PREREQUISITES OF OBJECTING
STOCKHOLDER'S RIGHT TO DEMAND PAYMENT FOR SHARES AND APPRAISAL THEREFORE. If a
corporation proposes to take a corporate action as to which any section of
this chapter provides that a stockholder who objects to such action shall have
the right to demand payment for his shares and an appraisal thereof, sections
eighty-seven to ninety-eight, inclusive, shall apply except as otherwise
specifically provided in any section of this chapter. Except as provided in
sections eighty-two and eighty-three, no stockholder shall have such right
unless (1) he files with the corporation before the taking of the vote of the
stockholders on such corporate action, written objection to the proposed
action stating that he intends to demand payment for his shares if the action
is taken and (2) his shares are not voted in favor of the proposed action.
87 NOTICE OF CERTAIN STOCKHOLDERS' MEETING TO CONTAIN STATEMENT OF RIGHTS OF
OBJECTING STOCKHOLDERS'; EFFECT OF GIVING NOTICE; FORM. The notice of the
meeting of stockholders at which the approval of such proposed action is to be
considered shall contain a statement of the rights of objecting stockholders.
The giving of such notice shall not be deemed to create any rights in any
stockholder receiving the same to demand payment for his stock, and the
directors may authorize the inclusion in any such notice of a statement of
opinion by the management as to the existence or non-existence of the right of
the stockholders to demand payment for their stock on account of the proposed
corporate action. The notice may be in such form as the directors or officers
calling the meeting deem advisable, but the following form of notice shall be
sufficient to comply with this section:
"If the action proposed is approved by the stockholders at the meeting and
effected by the corporation, any stockholder (1) who files with the
corporation before the taking of the vote on the approval of such action,
written objection to the proposed action stating that he intends to demand
payment for his shares if the action is taken and (2) whose shares are not
voted in favor of such action has or may have the right to demand in
writing from the corporation (or, in the case of a consolidation or merger,
the name of the resulting or surviving corporation shall be inserted),
within twenty days after the date of mailing to him of notice in writing
that the corporate action has become effective, payment for his shares and
an appraisal of the value thereof. Such corporation and any such
stockholder shall in such cases have the rights and duties and shall follow
the procedure set forth in sections 88 to 98, inclusive, of chapter 156B of
the General Laws of Massachusetts."
88 CORPORATION TAKING ACTION, ETC., TO NOTIFY CERTAIN OBJECTING STOCKHOLDERS
THAT CERTAIN APPROVED ACTION HAS BECOME EFFECTIVE, ETC. The corporation taking
such action, or in the case of a merger or consolidation the surviving or
resulting corporation, shall, within ten days after the date on which such
corporate action became effective, notify each stockholder who filed a written
objection meeting the requirements of section eighty-six and whose shares were
not voted in favor of the approval of such action, that the action approved at
the meeting of the corporation of which he is a stockholder has become
effective. The giving of such notice shall not be deemed to create any rights
in any stockholder receiving the same to demand payment for his stock. The
notice shall be sent by registered or certified mail, addressed to the
stockholder at his last known address as it appears in the records of the
corporation.
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<PAGE>
89 CORPORATION TO PAY TO CERTAIN OBJECTING STOCKHOLDERS FAIR VALUE OF THEIR
SHARES ON DEMAND, ETC. If within twenty days after the date of mailing of a
notice under subsection (e) of section eighty-two, subsection (f) of section
eighty-three, or section eighty-eight, any stockholder to whom the corporation
was required to give such notice shall demand in writing from the corporation
taking such action, or in the case of a consolidation or merger from the
resulting or surviving corporation, payment for his stock, the corporation upon
which such demand is made shall pay to him the fair value of his stock within
thirty days after the expiration of the period during which such demand may be
made.
90 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE OF VALUE THEREOF, ETC. If during the period of thirty days
provided for in section eighty-nine the corporation upon which such demand is
made and any such objecting stockholder fail to agree as to the value of such
stock, such corporation or any such stockholder may within four months after
the expiration of such thirty-day period demand a determination of the value of
the stock of all such objecting stockholders by a bill in equity filed in the
superior court in the county where the corporation in which such objecting
stockholder held stock had or has its principal office in the commonwealth.
91 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF ETC.; PARTIES TO BILL ETC.; SERVICE OF BILL
ON CORPORATION; NOTICE TO STOCKHOLDER PARTIES ETC. If the bill is filed by the
corporation, it shall name as parties respondent all stockholders who have
demanded payment for their shares with whom the corporation has not reached an
agreement as to the value thereof. If the bill is filed by a stockholder, he
shall bring the bill in his own behalf and in behalf of all other stockholders
who have demanded payment for their shares and with whom the corporation has
not reached agreement as to the value thereof and service of the bill shall be
made upon the corporation by subpoena with a copy of the bill annexed. The
corporation shall file with its answer a duly verified list of all such other
stockholders, and such stockholders shall thereupon be deemed to have been
added as parties to the bill. The corporation shall give notice in such form
and returnable on such date as the court shall order to each stockholder party
to the bill by registered or certified mail, addressed to the last known
address of such stockholder as shown in the records of the corporation, and the
court may order such additional notice by publication or otherwise as it deems
advisable. Each stockholder who makes demand as provided in section eighty-nine
shall be deemed to have consented to the provisions of this section relating to
notice, and the giving of notice by the corporation to any such stockholder in
compliance with the order of the court shall be a sufficient service of process
on him. Failure to give notice to any stockholder making demand shall not
invalidate the proceedings as to other stockholders to whom notice was properly
given, and the court may at any time before the entry of a final decree make
supplementary orders of notice.
92 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; ENTRY OF DECREE DETERMINING VALUE OF
STOCK; DATE ON WHICH VALUE IS TO BE DETERMINED. After hearing the court shall
enter a decree determining the fair value of the stock of those stockholders
who have become entitled to the valuation of and payment for their shares, and
shall order the corporation to make payment of such value, together with
interest, if any, as hereinafter provided, to the stockholders entitled thereto
upon the transfer by them to the corporation of the certificates representing
such stock if certificated, or if uncertificated, upon receipt of an
instruction transferring such stock to the corporation. For this purpose, the
value of the shares shall be determined as of the day preceding the date of the
vote approving the proposed corporate action and shall be exclusive of any
element of value arising from the expectation or accomplishment of the proposed
corporate action.
93 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; COURT MAY REFER BILL, ETC. TO SPECIAL
MASTER TO HEAR PARTIES, ETC. The court in its discretion may refer the bill or
any question arising thereunder to a special master to hear the parties, make
findings and report the same to the court, all in accordance with the usual
practice in suits in equity in the superior court.
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<PAGE>
94 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; STOCKHOLDER PARTIES MAY BE REQUIRED TO
SUBMIT THEIR STOCK CERTIFICATES FOR NOTATION THEREON OF PENDENCY OF BILL,
ETC. On motion the court may order stockholder parties to the bill to submit
their certificates of stock to the corporation for notation thereon of the
pendency of the bill and may order the corporation to note such pendency in its
records with respect to any uncertificated shares held by such stockholder
parties, and may on motion dismiss the bill as to any stockholder who fails to
comply with such order.
95 BILL IN EQUITY TO DETERMINE VALUE OF STOCK OF OBJECTING STOCKHOLDERS ON
FAILURE TO AGREE ON VALUE THEREOF, ETC.; TAXATION OF COSTS, ETC.; INTEREST ON
AWARD, ETC. The costs of the bill, including the reasonable compensation and
expenses of any master appointed by the court, but exclusive of fees of counsel
or of experts retained by any party, shall be determined by the court and taxed
upon the parties to the bill, or any of them, in such manner as appears to be
equitable, except that all costs of giving notice to stockholders as provided
in this chapter shall be paid by the corporation. Interest shall be paid upon
any award from the date of the vote approving the proposed corporate action,
and the court may on application of any interested party determine the amount
of interest to be paid in the case of any stockholder.
96 STOCKHOLDER DEMANDING PAYMENT FOR STOCK NOT ENTITLED TO NOTICE OF
STOCKHOLDERS' MEETINGS OR TO VOTE STOCK OR TO RECEIVE DIVIDENDS, ETC.;
EXCEPTIONS. Any stockholder who has demanded payment for his stock as provided
in this chapter shall not thereafter be entitled to notice of any meeting of
stockholders or to vote such stock for any purpose and shall not be entitled to
the payment of dividends or other distribution on the stock (except dividends
or other distributions payable to stockholders of record at a date which is
prior to the date of the vote approving the proposed corporate action) unless:
(1) A bill shall not be filed within the time provided in section ninety;
(2) A bill, if filed, shall be dismissed as to such stockholder; or
(3) Such stockholder shall with the written approval of the corporation,
or in the case of a consolidation or merger, the resulting or surviving
corporation, deliver to it a written withdrawal of his objections to and an
acceptance of such corporate action.
Notwithstanding the provisions of clauses (1) to (3), inclusive, said
stockholder shall have only the rights of a stockholder who did not so demand
payment for his stock as provided in this chapter.
97 CERTAIN SHARES PAID FOR BY CORPORATION TO HAVE STATUS OF TREASURY STOCK,
ETC. The shares of the corporation paid for by the corporation pursuant to the
provisions of this chapter hall have the status of treasury stock, or in the
case of a consolidation or merger the shares or the securities of the resulting
or surviving corporation into which the shares of such objecting stockholder
would have been converted had he not objected to such consolidation or merger
shall have the status of treasury stock of securities.
98 ENFORCEMENT BY STOCKHOLDER OF RIGHT TO RECEIVE PAYMENT FOR HIS SHARES TO
BE EXCLUSIVE REMEDY; EXCEPTION. The enforcement by a stockholder of his right
to receive payment for his shares in the manner provided in this chapter shall
be an exclusive remedy except that this chapter shall not exclude the right of
such stockholder to bring or maintain an appropriate proceeding to obtain
relief on the ground that such corporate action will be or is illegal or
fraudulent as to him.
C-3
<PAGE>
ANNEX D
June 6, 1996
Board of Directors
Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, CA 94087
Members of the Board:
We understand that Pure Software Inc. ("Pure"), Atria Software, Inc.
("Atria") and CST Acquisition Corporation ("Merger Sub"), a wholly-owned
subsidiary of Pure, have entered into an Agreement and Plan of Reorganization,
dated as of June 6, 1996 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Merger Sub with and into Atria.
Pursuant to the Merger, Atria will become a wholly-owned subsidiary of Pure
and each issued and outstanding share of common stock, par value $0.01 per
share, of Atria (the "Atria Common Stock"), other than shares held in treasury
or held by Pure or any subsidiary of Pure or Atria or as to which dissenters
rights have been perfected, shall be converted into the right to receive
1.544615 (the "Exchange Ratio") shares of common stock, par value $0.0001 per
share, of Pure (the "Pure Common Stock"). The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Pure.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Pure and Atria, respectively;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning Pure prepared by the management of Pure;
(iii) analyzed certain financial forecasts relating to Pure prepared by
the management of Pure;
(iv) discussed the past and current operations and financial condition
and the prospects of Pure with senior executives of Pure;
(v) analyzed certain internal financial statements and other financial
and operating data concerning Atria prepared by the management of Atria;
(vi) analyzed certain financial forecasts relating to Atria prepared by
the management of Atria;
(vii) discussed the past and current operations and financial condition
and the prospects of Atria with senior executives of Atria;
(viii) analyzed the pro forma impact of the Merger on the earnings per
share, consolidated capitalization and other financial ratios of Pure and
Atria, respectively;
(ix) reviewed the reported prices and trading activity for the Pure
Common Stock and the Atria Common Stock;
(x) compared the financial performance of Pure and Atria and the prices
and trading activity of the Pure Common Stock and the Atria Common Stock
with that of certain other comparable publicly-traded companies and their
securities;
(xi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(xii) reviewed and discussed with the senior managements of Pure and
Atria (a) the strategic rationale for the Merger and their estimates of the
benefits expected to be derived from the Merger and (b) certain
alternatives to the Merger;
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<PAGE>
(xiii) participated in discussions and negotiations among representatives
of Pure and Atria and their financial and legal advisors;
(xiv) reviewed the Merger Agreement and certain related agreements; and
(xv) considered such other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the financial forecasts, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Pure
and Atria, respectively. We have relied upon the assessment by the management
of Pure of their ability to retain key employees of both Pure and Atria. We
have also relied upon, without independent verification, the assessment by the
management of each of Pure and Atria of the strategic and other benefits
expected to result from the Merger. We have also relied upon, without
independent verification, the assessment by Pure's management of Atria's
technology and products, the timing and risks associated with the integration
of Pure with Atria, and the validity of, and risks associated with, Atria's
future products and technology. We have not made any independent valuation or
appraisal of the assets, liabilities or technology of Pure or Atria,
respectively, nor have we been furnished with any such appraisals. We have
assumed that the Merger will be accounted for as a "pooling-of-interests"
business combination in accordance with U.S. Generally Accepted Accounting
Principles and will be consummated in accordance with the terms set forth in
the Merger Agreement. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of Pure in
connection with this transaction and will receive a fee for our services.
It is understood that this letter is for the information of the Board of
Directors of Pure, except that this opinion may be included in its entirety in
any filing made by Pure with the Securities and Exchange Commission with
respect to the transactions contemplated by the Merger Agreement. In addition,
we express no recommendation or opinion as to how the holders of Pure Common
Stock should vote at the shareholders meeting held in connection with the
Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Pure.
Very truly yours,
Deutsche Morgan Grenfell/ C. J.
Lawrence Inc.
/s/ George F. Boutros
By: ---------------------------------
George F. Boutros, Managing
Director
/s/ Ethan M. Topper
By: ---------------------------------
Ethan M. Topper, Managing
Director
D-2
<PAGE>
ANNEX E
June 6, 1996
Board of Directors
Pure Software Inc.
1309 South Mary Avenue
Sunnyvale, California 94087
Members of the Board:
We understand that Pure Software Inc. ("Pure"), Atria Software, Inc.
("Atria") and CST Acquisition Corporation ("Merger Sub"), a wholly-owned
subsidiary of Pure, have entered into an Agreement and Plan of Reorganization,
dated as of June 6, 1996 (the "Merger Agreement"), which provides, among other
things, for the merger (the "Merger") of Merger Sub with and into Atria.
Pursuant to the Merger, Atria will become a wholly-owned subsidiary of Pure
and each issued and outstanding share of common stock, par value $0.01 per
share, of Atria (the "Atria Common Stock"), other than shares held in treasury
or held by Pure or any subsidiary of Pure or Atria or as to which dissenters'
rights have been perfected, shall be converted into the right to receive
1.544615 (the "Exchange Ratio") shares of common stock, par value $0.0001 per
share, of Pure (the "Pure Common Stock"). The terms and conditions of the
Merger are more fully set forth in the Merger Agreement.
You have asked for our opinion as to whether the Exchange Ratio pursuant to
the Merger Agreement is fair from a financial point of view to Pure.
For purposes of the opinion set forth herein, we have:
(i) analyzed certain publicly available financial statements and other
information of Pure and Atria, respectively;
(ii) analyzed certain internal financial statements and other financial
and operating data concerning Pure prepared by the management of Pure;
(iii) analyzed certain operating plans relating to Pure prepared by the
management of Pure;
(iv) discussed the past and current operations and financial condition
and the prospects of Pure with senior executives of Pure;
(v) analyzed certain internal financial statements and other financial
and operating data concerning Atria prepared by the management of Atria;
(vi) analyzed certain operating plans relating to Atria prepared by the
management of Atria;
(vii) discussed the past and current operations and financial condition
and the prospects of Atria with senior executives of Atria;
(viii) analyzed the pro forma impact of the Merger on the earnings per
share, consolidated capitalization and other financial ratios of Pure and
Atria, respectively;
(ix) reviewed the reported prices and trading activity for the Pure
Common Stock and the Atria Common Stock;
(x) compared the financial performance of Pure and Atria and the prices
and trading activity of the Pure Common Stock and the Atria Common Stock
with that of certain other comparable publicly-traded companies and their
securities;
(xi) reviewed the financial terms, to the extent publicly available, of
certain comparable merger and acquisition transactions;
(xii) reviewed and discussed with the senior management of Pure and Atria
(a) the strategic rationale for the Merger and their estimates of the
benefits expected to be derived from the Merger and (b) certain
alternatives to the Merger;
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<PAGE>
(xiii) participated in discussions and negotiations among representatives
of Pure and Atria and their financial and legal advisors;
(xiv) reviewed the Merger Agreement and certain related agreements; and
(xv) considered such other factors as we have deemed appropriate.
We have assumed and relied upon, without independent verification, the
accuracy and completeness of the information reviewed by us for the purposes
of this opinion. With respect to the operating plans, we have assumed that
they have been reasonably prepared on bases reflecting the best currently
available estimates and judgments of the future financial performance of Pure
and Atria, respectively. We have relied upon the assessment by the management
of Pure of their ability to retain key employees of both Pure and Atria. We
have also relied upon, without independent verification, the assessment by the
managements of Pure and Atria of the strategic and other benefits expected to
result from the Merger. We have also relied upon, without independent
verification, the assessment by Pure's management of Atria's technology and
products, the timing and risks associated with the integration of Atria with
Pure, and the validity of, and risks associated with, Atria's existing and
future products and technology. We have not made any independent valuation or
appraisal of the assets, liabilities or technology of Pure or Atria,
respectively, nor have we been furnished with any such appraisals. We have
assumed that the Merger will be accounted for as a "pooling-of-interests"
business combination in accordance with U.S. Generally Accepted Accounting
Principles and will be consummated in accordance with the terms set forth in
the Merger Agreement. Our opinion is necessarily based on economic, market and
other conditions as in effect on, and the information made available to us as
of, the date hereof.
We have acted as financial advisor to the Board of Directors of Pure in
connection with this transaction and will receive a fee for our services. In
the past, Morgan Stanley & Co. Incorporated and its affiliates have provided
financial advisory and financing services for Pure and have received fees for
the rendering of these services.
It is understood that this letter is for the information of the Board of
Directors of Pure, except that this opinion may be included in its entirety in
any filing made by Pure with the Securities and Exchange Commission with
respect to the transactions contemplated by the Merger Agreement. In addition,
we express no recommendation or opinion as to how the holders of Pure Common
Stock should vote at the shareholders' meeting held in connection with the
Merger.
Based upon and subject to the foregoing, we are of the opinion on the date
hereof that the Exchange Ratio pursuant to the Merger Agreement is fair from a
financial point of view to Pure.
Very truly yours,
Morgan Stanley & Co. Incorporated
By: _________________________________
Charles R. Cory
Managing Director
E-2
<PAGE>
ANNEX F
June 6, 1996
The Board of Directors
Atria Software, Inc.
20 Maguire Road
Lexington, MA 02173
Attention: Mr. Paul H. Levine, President and Chief Executive Officer
Mr. Elliot M. Katzman, Vice President Finance and Administration &
Chief Financial Officer
Gentlemen:
You have requested our opinion as to the fairness, from a financial point of
view, to the stockholders of Atria Software, Inc. (the "Company"), of the
consideration to be received by the stockholders pursuant to the terms of the
proposed Agreement and Plan of Reorganization (the "Agreement") dated June 6,
1996 by and among Pure Software Inc. ("Pure") CST Acquisition Corporation and
the Company. Capitalized terms used herein shall have the meaning used in the
Agreement unless otherwise defined herein.
Pursuant to the Agreement, each outstanding share of common stock of the
Company is proposed to be converted into and represent the right to receive
such number of shares of Pure's common stock as is equal to the Exchange
Ratio. The Exchange Ratio is 1.544615.
Wessels, Arnold & Henderson, L.L.C. ("Wessels, Arnold & Henderson"), as part
of its investment banking services, is regularly engaged in the valuation of
businesses and their securities in connection with mergers and acquisitions,
corporate restructurings, negotiated underwritings, secondary distributions of
listed and unlisted securities, private placements and valuations for
corporate and other purposes. We have acted as financial advisor to the Board
of Directors of Atria Software, Inc. in connection with the Merger and will
receive fees for our services, including the rendering of this opinion. In the
ordinary course of business, Wessels, Arnold & Henderson acts as a market
maker and broker in the publicly traded securities of the Company and Pure and
receives customary compensation in connection therewith, and also provides
research coverage for the Company and Pure. In the ordinary course of
business, Wessels, Arnold & Henderson actively trades in the publicly traded
securities of the Company and Pure for its own account and for the accounts of
its customers and, accordingly, may at any time hold a long or short position
in such securities.
In connection with our review of the Merger, and in arriving at our opinion,
we have: (i) reviewed and analyzed the financial terms of the Agreement, (ii)
reviewed and analyzed certain publicly available financial statements and
other information of the Company and Pure; (iii) reviewed and analyzed certain
internal financial statements and other financial and operating data
concerning the Company prepared by the management of the Company; (iv)
reviewed and analyzed certain internal financial statements and other
financial and operating data concerning Pure prepared by the management of
Pure; (v) reviewed and analyzed the operating plan prepared by the management
of the Company; (vi) reviewed and analyzed the operating plan prepared by the
management of Pure; (vii) conducted discussions with members of the senior
management of the Company with respect to the business and prospects of the
Company; (viii) conducted discussions with members of the senior management of
Pure with respect to the business and prospects of Pure; (ix) analyzed the pro
forma impact of the Merger on Pure's results of operations; (x) reviewed the
reported prices and trading activity for the Company's Common Stock and Pure's
Common Stock; (xi) compared the financial performance of the Company and Pure
and the prices of the Company's Common Stock and Pure's Common Stock with that
of certain other comparable publicly-traded companies and their securities;
(xii) reviewed the financial terms, to the extent publicly available, of
certain comparable merger transactions; and (xiii) participated in discussions
and negotiations among representatives of the Company and Pure and their
respective financial and legal advisors. In addition, we have conducted such
other analyses and examinations and considered such other financial, economic
and market criteria as we have deemed necessary in arriving at our opinion.
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<PAGE>
In rendering our opinion, we have assumed and relied upon the accuracy and
completeness of the financial, legal, tax, operating and other information
provided to us by the Company and Pure, and have not independently verified
such information. Further, our opinion is based on the assumption that the
Merger will be accounted for as a pooling-of-interests. We have not performed
an independent evaluation or appraisal of any of the respective assets or
liabilities of the Company or Pure and we have not been furnished with any
such valuations or appraisals. With respect to the financial forecasts, we
have assumed that they have been reasonably prepared on the bases reflecting
the best currently available estimates and judgments of the management of the
Company and Pure, as the case may be, as to the respective future financial
performance of the Company and Pure.
It is understood that this letter is for the information of the Board of
Directors of the Company, and this letter shall not be published and no public
references to Wessels, Arnold & Henderson, L.L.C. shall be made without our
prior written consent, which consent shall not be unreasonably withheld;
provided, however, that this letter may be included in its entirety in the
proxy statement submitted to the stockholders of the Company for the purpose
of approving the Merger. Further, our opinion speaks only as of the date
hereof and is based on the conditions as they exist and information which we
have been supplied as of the date hereof.
Based on our experience as investment bankers and subject to the foregoing,
including the various assumptions and limitations set forth herein, it is our
opinion that as of the date hereof, the consideration to be received by the
holders of the Company's Common Stock pursuant to the Agreement is fair from a
financial point of view to the holders of the Company's Common Stock.
Very truly yours,
Wessels, Arnold & Henderson, L.L.C.
By: _________________________________
Michael P. Ogborne Investment
Banking
F-2
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ATRIA SOFTWARE, INC.
THIS PROXY IS SOLICITED ON BEHALF OF THE BOARD OF DIRECTORS
SPECIAL MEETING OF STOCKHOLDERS
AUGUST 23, 1996
The undersigned stockholder(s) of Atria Software, Inc. ("Atria"), a
Massachusetts corporation, hereby acknowledges receipt of the Notice of Special
Meeting of Stockholders and the Prospectus/Joint Proxy Statement, each dated
July 26, 1996, and hereby appoints Paul H. Levine, Elliot M. Katzman and W.
Geoffrey Stein, and each of them, proxies and attorneys-in-fact, with full
power to each of substitution, on behalf and in the name of the undersigned, to
represent the undersigned at the Special Meeting of Stockholders of Atria to be
held on August 23, 1996 at 12 noon, local time, at the offices of Testa,
Hurwitz & Thibeault, LLP, located at High Street Tower, 125 High Street,
Boston, Massachusetts 02110, and at any adjournments thereof, and to vote all
shares of Common Stock of Atria which the undersigned is entitled to vote on
the matters set forth below.
THE SHARES REPRESENTED BY THIS PROXY WILL BE VOTED AS DIRECTED OR, IF NO
DIRECTION IS INDICATED, WILL BE VOTED FOR APPROVAL AND ADOPTION OF THE
AGREEMENT AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY COME
BEFORE THE SPECIAL MEETING.
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- --PLEASE VOTE AND SIGN ON OTHER SIDE AND RETURN PROMPTLY IN ENCLOSED ENVELOPE.-
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Please sign this Proxy exactly as your name appears on the books
of Atria. Joint owners should each sign personally. Trustees and
other fiduciaries should indicate the capacity in which they
sign, and where more than one name appears, a majority must sign.
If a corporation, this signature should be that of an authorized
officer who should state his or her title.
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<S> <C>
HAS YOUR ADDRESS CHANGED? DO YOU HAVE ANY COMMENTS?
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<S> <C> <C>
[X] PLEASE MARK VOTE 1. To approve and adopt the FOR AGAINST ABSTAIN
AS IN THIS EXAMPLE Agreement and Plan of
Reorganization dated as of June [_] [_] [_]
6, 1996 (the "Agreement"), among
Pure Software Inc. ("Pure"),
Atria and CST Acquisition
Corporation, a wholly-owned
subsidiary of Pure ("Merger
Sub") pursuant to which, among
other matters, (i) Merger Sub
will be merged with and into
Atria and (ii) each share of
Common Stock, $.01 par value per
share, of Atria will be
converted into the right to
receive, and become exchangeable
for, 1.544615 shares of Common
Stock $.0001 par value per
share, of Pure.
2. To transact such other matters as may properly come
before the Special Meeting or any postponements or
adjournments of the Special Meeting.
RECORD DATE SHARES:
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Please be sure to sign and date this Proxy. Date Mark box at right if comments or address change [_]
- ------------------------------------------------------------ have been noted on the reverse side of this card.
- ----------Shareholder sign here--------Co-owner sign here----
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