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SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities
Exchange Act of 1934 (Amendment No. )
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[X] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[_] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to Section 240.14a-11(c) or Section 240.14a-12
Pure Atria Corporation
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(Name of Registrant as Specified In Its Charter)
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(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
(1) Title of each class of securities to which transaction applies:
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(2) Aggregate number of securities to which transaction applies:
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(3) Per unit price or other underlying value of transaction computed
pursuant to Exchange Act Rule 0-11 (Set forth the amount on which
the filing fee is calculated and state how it was determined):
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(4) Proposed maximum aggregate value of transaction:
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(5) Total fee paid:
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[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange
Act Rule 0-11(a)(2) and identify the filing for which the offsetting fee
was paid previously. Identify the previous filing by registration statement
number, or the Form or Schedule and the date of its filing.
(1) Amount Previously Paid:
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(2) Form, Schedule or Registration Statement No.:
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(3) Filing Party:
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(4) Date Filed:
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Notes:
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PRELIMINARY
PURE SOFTWARE INC PURE ATRIA CORPORATION
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NOTICE OF ANNUAL MEETING OF STOCKHOLDERS
TO BE HELD ON MAY 9, 1997
TO THE STOCKHOLDERS:
NOTICE IS HEREBY GIVEN that the Annual Meeting of Stockholders of Pure
Atria Corporation, a Delaware corporation (the "Company"), will be held on May
9, 1997, at 10:00 a.m., local time, at the offices of Wilson Sonsini Goodrich &
Rosati, 650 Page Mill Road, Palo Alto, California, for the following purposes:
1. To elect directors to serve for the ensuing year and until their
successors are elected, with the following slate of nominees: Aki
Fujimura, Reed Hastings, Thomas A. Jermoluk, Paul Levine, David A.
Litwack, Larry Sonsini, and Louis J. Volpe.
2. To approve an amendment to the Company's Restated Certificate of
Incorporation to change the corporate name of the Company to "Pure
Atria Software, Inc."
3. To approve an amendment to the Company's Restated Certificate of
Incorporation to increase the Company's authorized number of shares of
Common Stock to 200,000,000.
4. To approve and ratify the Company's amended and restated Employee
Stock Purchase Plan, as described herein.
5. To ratify the appointment of KPMG Peat Marwick LLP as independent
auditors for the Company for the fiscal year ending December 31, 1997.
6. To transact such other business as may properly come before the
meeting or any adjournment thereof.
The foregoing items of business are more fully described in the Proxy
Statement accompanying this Notice.
Only stockholders of record at the close of business on March 14, 1997
are entitled to notice of and to vote at the Annual Meeting.
All stockholders are cordially invited to attend the Annual Meeting in
person. However, to ensure your representation at the Annual Meeting, you are
urged to sign and return the enclosed proxy as promptly as possible in the
postage-prepaid envelope enclosed for that purpose. Any stockholder attending
the Annual Meeting may vote in person even if he or she has returned a proxy.
THE BOARD OF DIRECTORS
Sunnyvale, California
March 28, 1997
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WHETHER OR NOT YOU PLAN TO ATTEND THE MEETING, YOU ARE REQUESTED TO COMPLETE AND
PROMPTLY RETURN THE ENCLOSED PROXY IN THE ENVELOPE PROVIDED.
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PURE ATRIA CORPORATION
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PROXY STATEMENT
FOR ANNUAL MEETING OF STOCKHOLDERS
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The enclosed Proxy is solicited on behalf of the Board of Directors of
Pure Atria Corporation ("Pure Atria" or the "Company") for use at the Annual
Meeting of Stockholders to be held on Friday, May 9, 1997 at 10:00 a.m., local
time, and at any adjournment thereof, for the purposes set forth herein and in
the accompanying Notice of Annual Meeting of Stockholders.
The Annual Meeting will be held at the offices of Wilson Sonsini
Goodrich and Rosati, 650 Page Mill Road, Palo Alto, California. The Company's
principal executive offices are currently located at 1309 South Mary Avenue,
Sunnyvale, California 94087. The telephone number at that location is (408)
720-1600. The Company plans to move its principal executive offices by May
1997, to 18880 Homestead Road, Cupertino, California 95014, for which the
telephone number is (408) 863-9900.
These proxy solicitation materials were mailed on or about March 28,
1997, together with the Company's 1996 Annual Report to Stockholders, to all
stockholders entitled to vote at the meeting.
INFORMATION CONCERNING VOTING AND PROXY SOLICITATION
REVOCABILITY OF PROXIES
Any proxy given pursuant to this solicitation may be revoked by the
person giving it at any time before its use by delivering to the Secretary of
the Company a written notice of revocation or a duly executed proxy bearing a
later date or by attending the meeting and voting in person.
VOTING AND SOLICITATION
Each stockholder is entitled to one vote for each share of Common
Stock with respect to all matters presented at the Annual Meeting. Stockholders
do not have the right to cumulate their votes in the election of directors.
Any cost of soliciting proxies will be borne by the Company. In
addition, the Company 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 of the Company's directors, officers, and regular employees, without
additional compensation, personally or by telephone, telegram, letter, or
facsimile.
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RECORD DATE
Only stockholders of record at the close of business on March 14, 1997
(the "Record Date") are entitled to notice of and to vote at the Annual Meeting.
As of the Record Date, _______________shares of the Pure Atria Corporation
Common Stock, $.0001 par value (the "PASW Common Stock"), were issued and
outstanding. For information regarding security ownership by management and by
the beneficial owners of more than 5% of the PASW Common Stock, see "Beneficial
Security Ownership of Management and Certain Beneficial Owners." The closing
sales price of the PASW Common Stock on the Nasdaq National Market on the Record
Date was $____ per share.
QUORUM; ABSTENTIONS; BROKER NON-VOTES
The Company intends to include abstentions and broker non-votes as
present or represented for purposes of establishing a quorum for the transaction
of business, to include abstentions as shares entitled to vote and to exclude
broker non-votes from the calculation of shares entitled to vote with respect to
any proposal for which authorization to vote was withheld.
DEADLINE FOR RECEIPT OF STOCKHOLDER PROPOSALS
Proposals of stockholders of the Company which are intended to be
presented by such stockholders at the Company's 1998 Annual Meeting of
Stockholders must be received by the Company no later than November 28, 1997 in
order to be considered for inclusion in the proxy statement and form of proxy
relating to that meeting.
ANNUAL REPORT ON FORM 10-K
A copy of the Company's Annual Report on Form 10-K for fiscal year
1996 filed with the Securities and Exchange Commission may be obtained without
charge by sending a written request to Toni Sottak, Corporate Communications
Manager, Pure Atria Corporation, 1309 South Mary Avenue, Sunnyvale, California
94087.
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PROPOSAL ONE
ELECTION OF DIRECTORS
NOMINEES
A board of seven directors is to be elected at the Annual Meeting.
Unless otherwise instructed, the proxy holders will vote the proxies received by
them for the Company's seven nominees named below, all of whom are presently
directors of the Company. In the event that any nominee of the Company is
unable or declines to serve as a director at the time of the Annual Meeting, the
proxies will be voted for any nominee who shall be designated by the present
Board of Directors to fill the vacancy. It is not expected that any nominee
will be unable or will decline to serve as a director. The term of office of
each person elected as a director will continue until the next Annual Meeting of
Stockholders or until a successor has been elected and qualified.
The name of and certain information regarding each nominee is set
forth below. There are no family relationships among directors or executive
officers of the Company.
NAME AGE(1) PRINCIPAL OCCUPATION
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Paul Levine 42 Chairman of the Board of Directors of the Company
Reed Hastings 36 President and Chief Executive Officer of the
Company
Louis J. Volpe 47 Sr. Vice President of Sales & Marketing for GeoTel
Communications Corp.
David A. Litwack 49 President of Sybase Powersoft Division, Sr. Vice
President of Sybase
Thomas A. Jermoluk 40 President, Chief Executive Officer, Chairman of
the Board of Directors of @Home Networks
Larry W. Sonsini 56 Member, Wilson Sonsini Goodrich & Rosati
Aki Fujimura 39 Director of the Company
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(1) As of March 1, 1997.
MR. LEVINE has been Chairman of the Board of Directors of The Company
since August 1996. From February 1990 through August 1996, Mr. Levine was
President, Chief Executive Officer and a director of Atria Software, Inc., which
he co-founded.
MR. HASTINGS has been, since October 1991, President, Chief Executive
Officer and a director of the Company, which he founded. 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. LITWACK has been a director of the Company since August 1996, and
was a director of Atria Software, Inc. from March 1994 through August 1996.
Since July 1995, Mr. Litwack has been Senior Vice President of Sybase, Inc., a
database software 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.
MR. VOLPE has been a director of the Company since August 1996, and
was a director of Atria Software, Inc., from March 1993 through August 1996.
Since May 1996, Mr. Volpe has been Senior Vice President of Sales and Marketing
of GeoTel Communications Corporation. From February 1995 to April 1996, Mr.
Volpe was Vice President of Marketing of GeoTel Communications Corporation.
From May 1993 to January 1995, Mr. Volpe was the Senior Vice President of
Marketing and Operations of Parametric Technology Corporation. Mr. Volpe is also
a director of Softdesk, Inc.
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MR. JERMOLUK has been a director of the Company since February 1996.
Since August 1996, Mr. Jermoluk has been Chairman of the Board, President and
Chief Executive Officer of @Home Networks. From 1994 to August 1996, Mr.
Jermoluk was President and Chief Operating Officer of Silicon Graphics, Inc.
("SGI"). 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. From October 1993 to August 1996 he was a director of SGI. He is
currently a director of Forte Software, Inc.
MR. SONSINI has been a director of the Company 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 of Silicon
Valley Group Inc.
MR. FUJIMURA has served as a director of the Company since October
1996 and was also a director the Company from April 1993 to August 1996. From
December 1995 through August 1996, he served as Vice President, Systems Business
Unit and Customer Satisfaction Group of the Company. From April 1993 until
December 1995, he was Vice President, Engineering of Pure Software, Inc. From
1988 until April 1993, Mr. Fujimura held various positions at Cadence Design
Systems, Inc., an electronic design automation company, most recently as Vice
President, Framework Group. Mr. Fujimura is also a director of Bristol
Technology, Inc.
VOTE REQUIRED
The seven nominees receiving the highest number of affirmative votes
of the shares present or represented and entitled to be voted for them shall be
elected as directors. Votes withheld from any director are counted for purposes
of determining the presence or absence of a quorum for the transaction of
business, but they have no legal effect under Delaware law.
BOARD MEETINGS AND COMMITTEES
The Board of Directors of the Company (the "Board") held a total of
eight meetings during the fiscal year ended December 31, 1996. During Mr.
Jermoluk's term as a director a total of seven meetings of the Board of
Directors were held, of which he attended five meetings. No other director,
during the time he or she was a member of the Board of Directors, attended fewer
than 75% of the aggregate of all meetings of the Board of Directors, or its
committees on which he or she served, which occurred during 1996. The Board has
an Audit Committee and a Compensation Committee. It does not have a nominating
committee or a committee performing the functions of a nominating committee.
The Audit Committee, which currently consists of Mr. Volpe, Mr.
Jermoluk and Mr. Sonsini, is responsible for (i) recommending engagement of the
Company's independent auditors, (ii) approving the services performed by such
auditors, (iii) consulting with such auditors and reviewing with them the
results of their examination, (iv) reviewing and approving any material
accounting policy changes affecting the Company's operating results, (v)
reviewing the Company's control procedures and personnel, and (vi) reviewing and
evaluating the Company's accounting principles and its system of internal
accounting controls. The Audit Committee held two meetings during 1996.
The Compensation Committee, which currently consists of Mr. Jermoluk,
Mr. Volpe and Mr. Litwack, is responsible for (i) reviewing and approving the
compensation and benefits for the Company's officers and other employees, (ii)
administering the Company's stock purchase and stock option plans, and (iii)
determining which eligible individuals (excluding nonemployee directors) receive
grants thereunder and the size of such grants. The Compensation Committee held
two meetings during 1996.
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COMPENSATION OF DIRECTORS
Directors do not receive additional monetary compensation for their
services as directors of the Company.
Nonemployee directors participate in the Company's 1995 Stock Option
Plan (the "1995 Plan"). The 1995 Plan was adopted by the Board of Directors in
May 1995 and approved by the stockholders in July 1995. The 1995 Plan provides
for an automatic grant of a nonstatutory stock option to purchase 15,000 shares
of Common Stock to a nonemployee director (an "Initial Option"). For directors
holding their positions as of the date on which the Underwriting Agreement was
signed in connection with the Company's initial public offering, the Initial
Option was granted on such date, and for directors who become such after such
date, the Initial Option is granted on the date of the first meeting on which
such individual participates as a director. An Initial Option has a term of ten
years, is immediately exercisable subject to a repurchase option in favor of the
Company, and vests (i.e., is released from the Company's repurchase option)
annually in equal fractions over four years, provided the Board member continues
to serve as such on each anniversary of the Initial Option's date of grant. In
addition, at each annual stockholders meeting, beginning in 1996, each
nonemployee director will automatically be granted at that meeting, whether or
not he or she is standing for re-election at that particular meeting, a stock
option to purchase 5,000 shares of Common Stock (a "Subsequent Option"),
provided such individual has served on the Board for at least six months prior
to such meeting. Each Subsequent Option has a term of ten years, is immediately
exercisable subject to a repurchase option in favor of the Company, and vests
(i.e., is released from the Company's repurchase option) in full on the first
anniversary of its date of grant, provided the Board member continues to serve
as such on such anniversary date. The exercise price of each option granted to
directors under the 1995 Plan equals 100% of the fair market value of the Common
Stock, based on the closing sales price of the Common Stock as reported on the
Nasdaq National Market on the date of grant.
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PROPOSAL TWO
APPROVAL OF AMENDMENT AND RESTATEMENT OF
CERTIFICATE OF INCORPORATION TO CHANGE CORPORATE NAME
PURPOSE AND EFFECT OF THE AMENDMENT
The Company's Restated Certificate of Incorporation as currently in
effect (the "Certificate") provides that the name of the Company is "Pure Atria
Corporation". In order to make the Company's name more similar to the names of
its predecessor corporations, "Pure Software, Inc." and "Atria Software Inc.",
respectively, the Board of Directors of the Company has authorized that the
Certificate be amended to change the Company's name to "Pure Atria Software,
Inc.", subject to stockholder approval. Under the proposed amendment, Article I
of the Certificate would be amended and restated to read as follows:
"The name of the corporation is Pure Atria Software, Inc."
VOTE REQUIRED
The Company stockholders are being asked to approve such amendment.
The affirmative vote of the holders of a majority of the shares of the Company
Common Stock issued and outstanding as of the Record Date will be required to
approve the amendment to the Certificate. The effect of an abstention is the
same as that of a vote against the proposal.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION TO CHANGE THE
COMPANY'S NAME.
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PROPOSAL THREE
APPROVAL OF AMENDMENT AND RESTATEMENT OF
CERTIFICATE OF INCORPORATION TO INCREASE AUTHORIZED SHARES
GENERAL
The Company's Certificate provides that the Company is authorized to
issue two classes of stock, consisting of 80,000,000 shares designated as Common
Stock, $.0001 par value per share, and 2,000,000 shares designated as Preferred
Stock, $.0001 par value per share.
The Board of Directors of the Company has authorized amendment and
restatement of the Certificate, subject to stockholder approval, to increase the
authorized number of shares of Common Stock by 120,000,000 shares, bringing the
total authorized Common Stock to 200,000,000 shares. Under the proposed
amendment and restatement, Article IV, Section A of the Certificate would be
amended and restated to read as follows:
"A. Classes of Stock. The total number of shares of stock which the
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Corporation shall have authority to issue is two hundred and two million
(202,000,000) which shall be divided into two (2) classes as follows: two
hundred million (200,000,000) shares of Common Stock, par value $.0001 per
share ("Common Stock"), and two million (2,000,000) shares of Preferred
Stock, par value $.0001 per share."
The stockholders are being asked to approve such amendment. The
proposed amendment would give the Board the authority to issue additional shares
of Common Stock without requiring future stockholder approval of such issuances,
except as may otherwise be required by applicable law.
Of the 80,000,000 currently authorized shares of Common Stock,
__________ shares of Common Stock were issued and outstanding as of March 14,
1997 (the Record Date for the 1997 Annual Meeting). In addition, as of such
date, approximately __________ shares were reserved for issuance upon exercise
of outstanding options; approximately _______ shares were reserved for future
grant under the Company's 1995 Stock Option Plan; and approximately ________
shares were reserved for issuance under the Employee Stock Purchase Plan.
Accordingly, as of March 14, 1997, the Company had __________ shares of
authorized but unissued and unreserved Common Stock available for issuance.
PURPOSE AND EFFECT OF THE AMENDMENT
The principal purpose of the proposed amendment to the Certificate is
to authorize additional shares of Common Stock which will be available in the
event the Board of Directors determines that it is necessary or appropriate to
permit future stock dividends or stock splits, to raise additional capital
through the sale of securities, to acquire another company or its business or
assets, to establish strategic relationships with corporate partners, or to
provide equity incentives to employees, officers or directors. The availability
of additional shares of Common Stock is particularly important in the event that
the Board of Directors needs to undertake any of the foregoing actions on an
expedited basis and thus to avoid the time (and expense) of seeking stockholder
approval in correction with the contemplated issuance of Common Stock. The
Board of Directors has no present agreement, arrangement or intention to issue
any of the shares for which approval is sought. If the amendment is approved by
the stockholders, the Board of Directors does not intend to solicit further
stockholder approval prior to the issuance of any additional shares of Common
Stock, except as may be required by applicable law.
The increase in authorized Common Stock will not have any immediate
effect on the rights of existing stockholders. However, the Board will have the
authority to issue authorized Common Stock without requiring future stockholder
approval of such issuances, except as may be required by applicable law. To the
extent that additional authorized shares are issued in the future, they may
decrease the existing stockholders' percentage equity ownership and, depending
on the price at which they are issued, could be dilutive to the existing
stockholders. The holders of Common
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Stock have no preemptive rights.
The additional Common Stock to be authorized by adoption of the
Amendment would have rights identical to the currently outstanding Common Stock
of the Company. Adoption of the proposed Amendment and issuance of the Common
Stock would not affect the rights of the holders of currently outstanding Common
Stock of the Company, except for effects incidental to increasing the number of
shares of the PASW Common Stock outstanding. If the Amendment is adopted, it
will become effective upon filing of a Certificate of Amendment of the Company's
Certificate of Incorporation with the Secretary of State of the State of
Delaware.
POTENTIAL ANTI-TAKEOVER EFFECT
The increase in the authorized number of shares of Common Stock and
the subsequent issuance of such shares could have the effect of delaying or
preventing a change in control of the Company without further action by the
stockholders. Shares of authorized and unissued Common Stock could (within the
limits imposed by applicable law) be issued in one or more transactions which
would make a change in control of the company more difficult, and therefore less
likely. Any such issuance of additional stock could have the effect of diluting
the earnings per share and book value per share of outstanding shares of Common
Stock and such additional shares could be used to dilute the stock ownership or
voting rights of a person seeking to obtain control of the Company.
The Board of Directors is not currently aware of any attempt to take
over or acquire the Company. While it may be deemed to have potential anti-
takeover effects, the proposed amendment to increase the authorized Common Stock
is not prompted by any specific effort or takeover threat currently perceived by
management.
VOTE REQUIRED
The affirmative votes of the holders of a majority of the shares of
Common Stock issued and outstanding on the Record Date will be required to
approve the amendment and restatement of the Certificate of Incorporation. The
effect of an abstention is the same as that of a vote against the proposal. If
the amendment is not approved, the Company's authorized capital stock will not
change.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF THE CERTIFICATE OF INCORPORATION TO INCREASE THE
AUTHORIZED NUMBER OF SHARES OF COMMON STOCK.
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PROPOSAL FOUR
APPROVAL OF AMENDMENT AND RESTATEMENT
THE COMPANY'S EMPLOYEE STOCK PURCHASE PLAN
GENERAL
The Company's Employee Stock Purchase Plan (the "PASW ESPP") was
initially adopted by the Board on May 16, 1995 and initially approved by the
stockholders on July 17, 1995. The PASW ESPP permits eligible employees to
purchase PASW Common Stock through payroll deductions at a price equal to 85% of
the fair market value of the PASW Common Stock at the beginning or at the end of
each offering period, whichever is lower. A total of 300,000 shares of PASW
Common Stock were initially reserved for issuance under the PASW ESPP.
PURPOSE AND EFFECT OF THE AMENDMENT
On March 4, 1997, the Board approved an amended and restated form of
the PASW ESPP, subject to approval by stockholders. The amended and restated
form of the PASW ESPP is described in more detail below, and authorizes
additional shares of PASW Common Stock to be reserved for issuance pursuant to
the plan. The need for additional shares at this time is partly due to the
significant increase in the number of participating employees, resulting from
the merger with Atria Software, Inc., ("Atria") in August of 1996. As part of
the merger, the Atria Employee Stock Purchase Plan (which had originally
reserved shares of Atria Software, Inc. equivalent to 540,615 shares of PASW
Common Stock) was terminated at the end of 1996, and the former Atria employees
are now eligible to participate in the PASW ESPP (which had originally reserved
300,000 shares of PASW Common Stock). The amended and restated form of the PASW
ESPP reserves for issuance 850,000 shares of PASW Common Stock and authorizes
the Plan Administrator to increase the number of shares reserved for issuance by
repurchasing PASW Common Stock on the open market, up to a maximum of 300,000
such repurchased shares during each of the years 1997, 1998 and 1999. This
increased reserve of shares is expected to be sufficient for the plan to operate
without additional reserved shares for at least three years.
VOTE REQUIRED
The affirmative votes of the holders of a majority of the shares of
Common Stock present or represented and entitled to vote at the Annual Meeting
will be required to adopt the amended and restated PASW ESPP. If the amendment
is not approved, the PASW will remain unchanged.
RECOMMENDATION
THE BOARD OF DIRECTORS RECOMMENDS THAT THE STOCKHOLDERS VOTE "FOR" THE
AMENDMENT AND RESTATEMENT OF THE PASW ESPP.
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SUMMARY OF RESTATED ESPP
General. The purpose of the Purchase Plan is to provide employees
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with an opportunity to purchase Common Stock of the Company through payroll
deductions.
Administration. The Purchase Plan may be administered by the Board of
--------------
Directors or a committee appointed by the Board. All questions of interpretation
or application of the Purchase Plan are determined by the Board or its appointed
committee, and its decisions are final, conclusive and binding upon all
participants.
Eligibility. Each employee of the Company (including officers), whose
-----------
customary employment with the Company is at least twenty (20) hours per week and
more than five (5) months in any calendar year, is eligible to participate in an
Offering Period (as defined below); provided, however, that no employee shall be
granted an option under the Purchase Plan (i) to the extent that, immediately
after the grant, such employee would own 5% of either the voting power or value
of the stock of the Company, or (ii) to the extent that his or her rights to
purchase stock under all employee stock purchase plans of the Company accrues at
a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of stock
(determined at the fair market value of the shares at the time such option is
granted) for each calendar year. Eligible employees become participants in the
Purchase Plan by notifying the Company of their intent to participate in the
Plan, authorizing payroll deductions prior to the beginning of any of the
sequential six month periods ("Purchase Periods") that make up an Offering
Period and filing with the Company a subscription agreement promptly thereafter.
The first day of the Purchase Period for which the employee first participates
in the Offering Period is that employee's "Entry Date" in the Offering Period.
Participation in an Offering. The Purchase Plan is implemented by
----------------------------
offering periods lasting for two (2) years (an "Offering Period"), with a new
Offering Period commencing at the end of every previous Offering Period. Common
Stock may be purchased under the Purchase Plan at the end of every Purchase
Period, unless the participant withdraws or terminates employment earlier. To
the extent the fair market value of the Common Stock on any exercise date in an
Offering Period is lower than the fair market value of the Common Stock on the
first day of the Offering Period, then such Offering Period will automatically
terminate on that exercise date, and all participants in such Offering Period
will be automatically withdrawn from such Offering Period immediately after the
exercise of their options on such exercise date and automatically re-enrolled in
the immediately following Offering Period as of the first day thereof. The
Board may change the duration of the Purchase Periods or the length or date of
commencement of an Offering Period. To participate in the Purchase Plan, each
eligible employee must authorize payroll deductions pursuant to the Purchase
Plan. Such payroll deductions may not exceed 15% of a participant's
compensation. Once an employee becomes a participant in the Purchase Plan, the
employee will automatically participate in each successive Offering Period until
such time as the employee withdraws from the Purchase Plan or the employee's
employment with the Company terminates. At the beginning of each Offering
Period, each participant is automatically granted options to purchase shares of
the Company's Common Stock. The option expires at the end of the Purchase Period
or upon termination of employment, whichever is earlier, but is exercised at the
end of each Purchase Period to the extent of the payroll deductions accumulated
during such Purchase Period. The number of shares subject to the option may not
exceed 600 shares of the Company's Common per Purchase Period.
Purchase Price, Shares Purchased. Shares of Common Stock may be
--------------------------------
purchased under the Purchase Plan at a price not less than 85% of the lesser of
the fair market value of the Common Stock on (i) the employee's Entry Date into
the Offering Period or (ii) the last day of Purchase Period. The "fair market
value" of the Common Stock on any relevant date will be the closing price per
share as reported on The Nasdaq National Market (or the mean of the closing
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bid and asked prices, if no sales were reported) as quoted on such exchange or
reported in The Wall Street Journal. The number of shares of Common Stock a
participant purchases in each Purchase Period is determined by dividing the
total amount of payroll deductions withheld from the participant's compensation
during that Purchase Period by the purchase price.
Termination of Employment. Termination of a participant's employment
-------------------------
for any reason, including disability or death, or the failure of the participant
to remain in the continuous scheduled employ of the Company for at least 20
hours per week, cancels any portion his or her option beyond the deductions
already made, and further participation in the Purchase Plan ceases immediately.
In such event, the payroll deductions credited to the participant's account will
(at the participant's election during the last ninety (90) days of the
current Purchase Period) either be held for purchase of shares at the end of the
current Purchase Period, or be returned to him or her or, in the case of death,
to the person or persons entitled thereto as provided in the Purchase Plan.
Adjustment Upon Change in Capitalization, Change in Control. In the
-----------------------------------------------------------
event that the stock of the Company is changed by reason of any stock split,
reverse stock split, stock dividend, combination, reclassification or other
change in the capital structure of the Company effected without the receipt of
consideration, appropriate proportional adjustments shall be made in the number
and class of shares of stock subject to the Purchase Plan, the number and class
of shares of stock subject to options outstanding under the Purchase Plan, and
the exercise price of any such outstanding options. Any such adjustment shall
be made by the Board, whose determination shall be conclusive. Notwithstanding
the above, in connection with any merger or acquisition of assets involving the
Company, any Offering Periods or Purchase Periods then in progress may be
shortened to a new exercise date and the Board shall notify each participant
that his or her option shall be exercised automatically on the new exercise
date, unless prior to such date the participant has withdrawn from the Offering
Period.
Amendment and Termination of the Plan. The Board of Directors may at
-------------------------------------
any time terminate or amend the Purchase Plan. An Offering Period may be
terminated by the Board of Directors at the end of any Purchase Period if the
Board determines that termination of the Purchase Plan is in the best interests
of the Company and its shareholders. No amendment shall be effective unless it
is approved by the holders of a majority of the votes cast at a duly held
shareholders' meeting, if such amendment would require shareholder approval in
order to comply with Section 423 of the Code. The Purchase Plan will terminate
in 2005.
Withdrawal. Generally, a participant may withdraw from an Offering
----------
Period at any time without affecting his or her eligibility to participate in
future Offering Periods. However, once a participant withdraws from a
particular offering, that participant may not participate again in the same
offering.
Federal Tax Information for Purchase Plan. The Purchase Plan, and the
-----------------------------------------
right of participants to make purchases thereunder, is intended to qualify under
the provisions of Sections 421 and 423 of the Code. Under these provisions, no
income will be taxable to a participant until the shares purchased under the
Purchase Plan are sold or otherwise disposed of. Upon sale or other disposition
of the shares, the participant will generally be subject to tax and the amount
of the tax will depend upon the holding period. If the shares are sold or
otherwise disposed of more than two (2) years from the first day of the Offering
Period or more than one (1) year from the date of transfer of the stock to the
participant, then the participant will recognize ordinary income measured as the
lesser of (i) the excess of the fair market value of the shares at the time of
such sale or disposition over the purchase price, or (ii) an amount equal to 15%
of the fair market value of the shares as of the first day of the Offering
Period. Any additional gain will be treated as long-term
11
<PAGE>
capital gain. If the shares are sold or otherwise disposed of before the
expiration of this holding period, the participant will recognize ordinary
income generally measured as the excess of the fair market value of the shares
on the date the shares are purchased over the purchase price. Any additional
gain or loss on such sale or disposition will be long-term or short-term capital
gain or loss, depending on the holding period. The Company is not entitled to a
deduction for amounts taxed as ordinary income or capital gain to a participant
except to the extent of ordinary income is recognized by participants upon a
sale or disposition of shares prior to the expiration of the holding period(s)
described above.
THE FOREGOING IS ONLY A SUMMARY OF THE EFFECT OF FEDERAL INCOME
TAXATION UPON THE PARTICIPANT AND THE COMPANY WITH RESPECT TO THE SHARES
PURCHASED UNDER THE PURCHASE PLAN. REFERENCE SHOULD BE MADE TO THE APPLICABLE
PROVISIONS OF THE CODE. IN ADDITION, THE SUMMARY DOES NOT DISCUSS THE TAX
CONSEQUENCES OF A PARTICIPANT'S DEATH OR THE INCOME TAX LAWS OF ANY STATE OR
FOREIGN COUNTRY IN WHICH THE PARTICIPANT MAY RESIDE.
12
<PAGE>
PROPOSAL FIVE
RATIFICATION OF APPOINTMENT OF INDEPENDENT AUDITORS
The Board of Directors has selected KPMG Peat Marwick LLP ("KPMG"),
independent auditors, to audit the financial statements of the Company for the
fiscal year ending December 31, 1997. KPMG has audited the Company's financial
statements since January 1995. A representative of KPMG is expected to be
present at the meeting, will have the opportunity to make a statement, and is
expected to be available to respond to appropriate questions.
VOTE REQUIRED
The Board of Directors has conditioned its appointment of the
Company's independent auditors upon the receipt of the affirmative vote of a
majority of the shares represented, in person or by proxy, and voting at the
Annual Meeting, which shares voting affirmatively also constitute at least a
majority of the required quorum. In the event that the stockholders do not
approve the selection of KPMG, the appointment of the independent auditors will
be reconsidered by the Board of Directors.
13
<PAGE>
BENEFICIAL SECURITY OWNERSHIP OF MANAGEMENT
AND CERTAIN BENEFICIAL OWNERS
The following table sets forth the beneficial ownership of Common
Stock of the Company as of March 14, 1997 for the following: (i) each person or
entity who is known by the Company to own beneficially more than 5% of the
outstanding shares of the PASW Common Stock ("Principal Stockholders"); (ii)
each of the Company's directors; (iii) each of the officers named in the Summary
Compensation Table ("Named Officers"); and (iv) all directors and executive
officers of the Company as a group.
SHARES PERCENTAGE
BENEFICIALLY BENEFICIALLY
NAME OWNED(1) OWNED
---- ------------ ------------
Amerindo Investment Advisors Inc.(2)(3).......
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Reed Hastings(4)..............................
c/o Pure Atria Corporation
1309 South Mary Avenue
Sunnyvale, CA 94087
Pilgrim Baxter & Associates (2)...............
c/o Pure Atria Corporation
1309 South Mary Avenue
Sunnyvale, CA 94087
Warburg, Pincus Counsellors, Inc.(2)..........
466 Lexington Avenue
New York, NY 10017
Paul H. Levine(5).............................
Louis J. Volpe(6).............................
David A. Litwack(7)...........................
Thomas A. Jermoluk(8).........................
Larry W. Sonsini(9)...........................
Aki Fujimura(10)..............................
Chuck Bay(11).................................
W. Geoffrey Stein(12).........................
All directors and executive officers as
a group: (9 persons)(13).....................
- -------------
* Represents less than 1% of the outstanding shares of the Company.
(1) The number and percentage of shares beneficially owned is determined under
rules of the Commission, 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 March 14, 1997 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 Commission pursuant
to Sections 13(d) or 13(g) of the Securities Exchange Act of 1934, as
amended.
14
<PAGE>
(3) 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, the Amerindo Advisors
(U.K.) Limited Retirement Benefits Scheme, Alberto W. Vilar, Gary A.
Tanaka, James P.F. Stableford and Renata Le Port; however, these
stockholders expressly disclaim that they are, in fact the beneficial owner
of all but 7,723 shares of such securities.
(4) Mr. Hastings is also President, Chief Executive Officer and a director of
the Company.
(5) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(6) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(7) Represents shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(8) Represents shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(9) Represents shares of PASW Common Stock subject to options exercisable
within sixty days March 14, 1997. Mr. Sonsini is a member of Wilson
Sonsini Goodrich and Rosati, Professional Corporation, counsel to the
Company.
(10) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(11) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(12) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997.
(13) Includes _______shares of PASW Common Stock subject to options exercisable
within sixty days of March 14, 1997 held by executive officers and
directors of the Company.
15
<PAGE>
COMPLIANCE WITH SECTION 16(a) OF THE EXCHANGE ACT
Section 16(a) of the Exchange Act ("Section 16(a)") requires the Company's
officers and directors, and persons who own more than ten percent of a
registered class of the Company's equity securities, to file reports of
ownership on Form 3 and changes in ownership on Form 4 or Form 5 with the
Securities and Exchange Commission (the "SEC") and the National Association of
Securities Dealers, Inc. Such officers, directors and ten-percent stockholders
are also required by SEC rules to furnish the Company with copies of all such
forms that they file.
Based solely on its review of the copies of such forms received by the
Company, or written representations from certain reporting persons that no Forms
5 were required for such persons, the Company believes that during fiscal 1996
all Section 16(a) filing requirements applicable to its officers, directors and
ten-percent stockholders were complied with, except that Mr. Fujimura reported a
total of __ transactions late in a total of __ Forms 4.
16
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The Company's Compensation Committee was formed in May 1995 and is
currently composed of Mr. Jermoluk, Mr. Volpe and Mr. Litwack. No interlocking
relationship exists between any member of the Company'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 the Company or its subsidiaries.
EXECUTIVE OFFICER COMPENSATION
SUMMARY COMPENSATION TABLE
The following table sets forth certain information concerning total
compensation of the Chief Executive Officer of the Company and each of the five
most highly compensated executive officers of the Company during the last year
(the "Pure Atria Named Officers"), for services rendered to the Company in all
capacities during the last three fiscal years ended December 31, 1996:
<TABLE>
<CAPTION>
LONG TERM
COMPENSATION
AWARDS
SECURITIES
UNDERLYING ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
<S> <C> <C> <C> <C> <C>
Reed Hastings........................... 1996 160,000 71,288 -- --
President, Chief Executive 1995 145,208 23,000 -- --
Officer and Director 1994 125,000 42,500 -- --
Paul H. Levine(1)....................... 1996 160,000 120,000 55,606(2) 510(3)
Chairman of the Board of Directors 1995(4) 160,000 120,000 30,892(2) 510
1994(4) 150,000 49,500 -- 332
Chuck Bay............................... 1996 140,000 112,475 60,000 --
Vice President, Finance, 1995 122,167 27,094 180,000 --
Chief Financial Officer 1994 -- -- -- --
and Secretary
W. Geoffrey Stein(5).................... 1996 124,667 20,000 54,833(2) 75,304(6)
Vice President and General Counsel 1995 -- -- -- --
1994 -- -- -- --
David E. Anderson(7).................... 1996 118,731 93,985 55,000 100,750(8)
Former Vice President, North 1995 83,425 53,103 200,000 --
American Sales and Corporate 1994 -- -- -- --
Marketing
Aki Fujimura(9)......................... 1996 139,632 60,125 100,000 260,944(8)
Director and former Vice 1995 140,000 31,000 -- --
President, Systems 1994 130,000 41,000 -- --
Business Unit and Customer
Satisfaction Group
</TABLE>
- --------------
(1) Mr. Levine was President and Chief Executive Officer of Atria until the
combination of Atria Software, Inc. and Pure Software, Inc., in a merger
transaction effective August 26, 1996, (the "Pure Atria Combination"), when
he became Chairman of the Board of the Company.
17
<PAGE>
(2) Represents the number of shares of PASW Common Stock underlying an option
that was originally granted by Atria for Atria capital stock. Such option
was assumed by the Company in connection with the Pure Atria Combination and
was adjusted to reflect the exchange ratio for the Pure Atria Combination.
(3) Consists of premiums for term life insurance.
(4) The compensation information for this year represents compensation earned by
Mr. Levine for services rendered to Atria in such year.
(5) Mr. Stein was General Counsel of Atria until the Pure Atria Combination,
when he became Vice President and General Counsel of the Company.
(6) Consists of $75,000 in reimbursement for relocation expenses and $304 in
premiums for term life insurance.
(7) Mr. Anderson resigned as an executive officer of the Company effective
August 1996.
(8) Represents payments under agreements relating to employment. See "--
Employment Contracts."
(9) Mr. Fujimura resigned as an executive officer of the Company effective
August 1996. He is currently a Director of the Company.
18
<PAGE>
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth, as to the Pure Atria Named Officers,
information concerning stock options granted during the year ended December 31,
1996.
<TABLE>
<CAPTION>
POTENTIAL
REALIZABLE VALUE
AT ASSUMED ANNUAL
RATES OF STOCK
PRICE
INDIVIDUAL GRANTS APPRECIATION FOR
OPTION TERM(2)
NUMBER OF PERCENT OF
SECURITIES TOTAL OPTIONS
UNDERLYING GRANTED TO
OPTIONS EMPLOYEES IN EXERCISE EXPIRATION
NAME GRANTED FISCAL YEAR PRICE DATE(1) 5% 10%
- ----------------------------- ---------------- --------------- -------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Reed Hastings................ -- -- -- -- -- --
Paul H. Levine............... 55,606(3) 1.2% $ 21.69 01/30/06 $ 758,506 $1,922,203
Chuck Bay.................... 60,000(4) 1.3 23.625 11/21/06 891,458 2,259,130
W. Geoffrey Stein............ 3,861(3) .1 21.69 01/30/06 52,667 133,468
50,972(4) 1.1 21.69 07/25/06 695,295 1,762,014
David E. Anderson............ 55,000(4) 1.1 27.75 01/26/06 959,850 2,432,449
Aki Fujimura................. 100,000(4) 2.1 27.75 01/26/06 1,745,183 4,422,635
</TABLE>
- ---------------
(1) 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 the Company.
(2) Under rules promulgated by the Commission, the amounts in these two columns
represent the hypothetical gain that would exist for the options in this
table based on assumed stock price appreciation from the date of grant until
the end of such options' ten-year term at assumed annual rates of 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 PASW Common Stock were to
increase at such rates from the price at 1996 year end ($24.75 per share)
over the next 10 years, the resulting stock price at 5% and 10% appreciation
would be $40 and $64, respectively. The 5% and 10% assumed annual rates of
appreciation do not represent the Company's estimate or projection of future
stock price growth.
(3) These options are nonstatutory, were granted under the Atria 1994 Stock Plan
and have exercise prices equal to the fair market value on the date of
grant. All such options have ten-year terms and vest in a series of equal
quarterly installments over the next five years of employment. In
connection with the Pure Atria Combination , vesting was accelerated by two
and one-half years.
(4) These options are either nonstatutory or incentive stock options, were
granted under the Pure Atria 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 the
Company's repurchase option which 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, except for
the options of Mr. Fujimura and Mr. Anderson, whose option vesting periods
were accelerated in connection with their respective resignations as
executive officers of the Company. See "Employment Contracts."
19
<PAGE>
OPTION EXERCISES AND HOLDINGS
The following table sets forth, as to the Pure Atria Named Officers,
certain information concerning stock options exercised during fiscal 1996 and
the number of shares subject to both exercisable and unexercisable stock options
as of December 31, 1996. 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 PASW Common Stock as of
December 31, 1996.
<TABLE>
<CAPTION>
NAME SHARES VALUE NUMBER OF SECURITIES VALUE OF UNEXERCISED
ACQUIRED ON REALIZED UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS AT
EXERCISE OPTIONS AT FISCAL YEAR-END FISCAL YEAR END (1)
EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
<S> <C> <C> <C> <C> <C> <C>
Reed Hastings -- -- -- -- -- --
Paul H. Levine -- -- 139,632 24,096 $2,374,116 $130,547
Chuck Bay 60,000 $1,631,938 120,750 58,750 2,779,781 66,094
W. Geoffrey Stein 2,000 15,850 33,621 56,282 115,523 176,764
David E. Anderson 30,000 876,642 119,062 -- 2,066,250 --
Aki Fujimura 175,000 5,314,637 412,183 52,417 8,994,682 --
</TABLE>
- --------------
(1) Market value of underlying securities based on the closing price of PASW
Common Stock on December 31, 1996 on Nasdaq of $24.75 minus the exercise
price.
EMPLOYMENT CONTRACTS
In August 1996, the Company entered into agreements with Mr. Fujimura
and Mr. Anderson. Mr. Fujimura's agreement provided for a payment and for the
acceleration of the vesting of his options in connection with the transition of
his role from that of an executive officer to that of an independent Director
of, and his agreement to refrain from competing in certain respects with, the
Company. Mr. Anderson's agreement provided for certain payments, the
acceleration of the vesting of his options, and the forgiveness of a loan with
an outstanding principal amount of $100,750 in connection with his agreement to
refrain from competing with, and certain consulting services to be provided by
him to, the Company. See "Summary Compensation Table."
PURE ATRIA CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
In October 1995, Pure Atria retained Wilson Sonsini Goodrich & Rosati
as its outside legal counsel. Larry W. Sonsini, who has been a member of Wilson
Sonsini Goodrich & Rosati since 1970, became a director of Pure Atria in
February 1996.
REPORT OF THE COMPENSATION COMMITTEE OF THE BOARD OF DIRECTORS
INTRODUCTION
The Compensation Committee of the Board of Directors (the "Committee")
generally determines base salary levels for executive officers of the Company at
or about the start of the fiscal year and determines actual bonuses after the
end of the fiscal year based upon Company and individual performance. The
Company's executive pay programs are designed to provide a strong and direct
link between Company performance and executive pay. The Committee's executive
compensation policies are designed to provide competitive levels of compensation
and assist the Company in attracting and retaining the most qualified executives
in the industry. Target levels of the executive officers' overall
20
<PAGE>
compensation are intended to be consistent with compensation of other
executives in the Company's industry.
COMPENSATION PHILOSOPHY
The goals of the compensation program are to align compensation with
business objectives and performance against those objectives. In order to
achieve these goals, the Company has historically positioned its executive base
salary levels (other than the base salary of Reed Hastings, the Chief Executive
Officer, which has typically been lower) at approximately the 50th percentile of
survey data, which includes both the Company's direct competitors and the
companies with whom the Company competes for executive talent. Pay is
sufficiently variable that above-average performance for the Company or the
individual results in above-average total compensation for the Company's
executive officers, and below-average performance results in below-average total
compensation. The focus is on corporate performance and individual
contributions toward that performance.
COMPENSATION PROGRAM
The Company uses a total compensation program, which consists of both cash
and equity based compensation, and has three components. The three components
combined are intended to attract, retain, motivate and reward executives who
contribute to the long-term success of the Company. The three components are:
1. Base Salary. Base salary is primarily used as an attraction and
-----------
retention device. Base salary increases are made based on long-term
contributions to the Company, as determined by the Committee, with the input of
senior management at the end of each year. Salary surveys of leading national
compensation consultants are analyzed and individual salaries are set based on
the experience and contribution levels of the individuals. In general, base
salary increases are made based on median increases in the software industry for
same-sized companies with similar performance profiles.
2. Variable Compensation. Executive officers and other employees are
---------------------
eligible to receive variable compensation based on the Company's performance and
the achievement of preidentified objectives of the individual and/or the team to
which the executive officer or other employee belongs ("Team Achievement Goals"
or "TAGs"). The Company's performance is measured by the Company Performance
Index, which is calculated each quarter based on the growth of the Company's
quarterly operating income and the level of satisfaction of the Company's
customers, as indicated by customer response to a Customer Satisfaction Survey
circulated by the Company on a quarterly basis. Inadequate Company performance
as measured by the Company Performance Index will mean no compensation for
employees under this portion of the variable compensation program. Team
Achievement Goals are six-month goals established around every January and July.
They are reviewed by management and generally available to other employees as
well. A dollar value of compensation to be awarded to an employee on completion
of the applicable Team Achievement Goals ("Target TAG") is set for each
employee. At the end of the applicable six month period, management will
determine TAG compensation based on completion of the Team Achievement Goals.
TAG compensation may range from 0% to 130% of each individual's Target TAG.
3. Long-Term Incentives. Long-term incentives are provided through
--------------------
grants of stock options. The Committee is responsible for determining, subject
to the terms of the 1995 Stock Option Plan, the individuals to whom grants
should be made, the timing of grants, the exercise or purchase price per share
and the number of shares subject to each option. Stock options are granted
under the 1995 Stock Option Plan and are primarily used to motivate executives
to maximize stockholder value. The option program also utilizes vesting periods
to encourage key employees to continue in the employ of the Company. Although
the Option Plan permits the grant of certain options at below fair market value,
to date, all options have been granted at fair market value on the date of the
grant.
An additional important purpose of the stock option awards is to motivate
executives to make the types of long-term changes in the financial performance
of the business and will maximize long-term total return to stockholders.
21
<PAGE>
OTHER
In addition to the compensation paid to executive officers as described
above, executive officers, like other employees, receive benefits under the
Company's health care and life insurance programs. Finally, they are eligible
to participate in the Company's Employee Stock Purchase Plan, which permits the
purchase of stock at a discount through payroll deductions.
PERFORMANCE MEASUREMENTS AND INDUSTRY COMPARISONS
The Company believes that the key to its executive compensation program is
setting aggressive business goals, integrating the executive compensation
program with annual and strategic planning measurement processes, and
establishing an industry comparison to test Company results against industry
performance levels.
COMPANY PERFORMANCE AND CEO COMPARISON
As indicated above, the Company's executive compensation program is based
upon business performance, with a high percentage of variable compensation.
Specifically, the Chief Executive Officer's target base pay level has been set
at approximately the 30th percentile for software companies, using data
specifically for software companies of similar size. In the past, Mr. Hastings'
total compensation has tracked the overall financial performance of the Company.
COMPENSATION COMMITTEE
OF THE BOARD OF DIRECTORS
Thomas A. Jermoluk
Louis J. Volpe
David A. Litwack
22
<PAGE>
COMPANY STOCK PRICE PERFORMANCE GRAPH
The following graph compares the Company's cumulative total stockholder
return with those of the Nasdaq Stock Market - U.S. Index and the H&Q Technology
Index. The graph assumes that $100 was invested on August 1, 1995 (the
effective date of the Company's initial public offering) in (i) the PASW Common
Stock, (ii) the Nasdaq Stock Market - U.S. Index and the H&Q Technology Index,
including reinvestment of dividends. Note that historic stock price performance
is not necessarily indicative of future stock price performance.
<TABLE>
<CAPTION>
8/1/95 9/30/95 10/30/95
------ ------- --------
<S> <C> <C> <C>
Pure Atria $100 255.35714 262.5
H & Q Technology $100 105.72425 107.18833
Nasdaq National Market-U.S. $100 105.29002 104.53531
11/30/95 12/31/95
-------- --------
Pure Atria 233.92857 230.35714
H & Q Technology 105.85384 100.05731
Nasdaq National Market-U.S. 106.87007 106.15774
1/31/96 02/31/96 3/30/96
------- -------- -------
Pure Atria 183.92857 237.5 246.42857
H & Q Technology 101.52389 106.59398 101.92511
Nasdaq National Market-U.S. 106.9296 110.99171 111.1259
4/30/96 5/30/96 06/31/96
------- ------- --------
Pure Atria 283.92857 285.71428 242.85714
H & Q Technology 115.99526 117.72724 109.11594
Nasdaq National Market-U.S. 120.12591 125.46059 119.56493
7/31/96 8/31/96 09/31/96
------- ------- --------
Pure Atria 178.57142 219.64285 269.64285
H & Q Technology 97.88299 103.7954 115.75727
Nasdaq National Market-U.S. 109.2927 115.17389 123.7915
10/31/96 11/31/96 12/31/96
-------- -------- --------
Pure Atria 194.64285 199.10714 176.78571
H & Q Technology 114.08759 127.52601 124.06329
Nasdaq National Market-U.S. 123.24666 130.42043 130.26102
</TABLE>
23
<PAGE>
OTHER MATTERS
The Company knows of no other matters to be submitted to the meeting. If
any other matters properly come before the meeting, it is the intention of the
persons named in the enclosed proxy card to vote the shares they represent as
the Company may recommend.
It is important that your shares be represented at the meeting, regardless
of the number of shares which you hold. You are, therefore, urged to execute
and return, at your earliest convenience, the accompanying proxy card in the
envelope which has been enclosed.
THE BOARD OF DIRECTORS
Sunnyvale, California
March 28, 1997
24
<PAGE>
PURE ATRIA CORPORATION
Proxy for 1997 Annual Meeting of Stockholders
This Proxy is Solicited on Behalf of the Board of Directors
The undersigned stockholder of PURE ATRIA CORPORATION, a Delaware
corporation, hereby acknowledges receipt of this Notice of the Annual Meeting of
Stockholders and Proxy Statement, each dated March 28, 1997, and hereby appoints
Reed Hastings and Chuck Bay, and each of them, proxies and attorneys-in-fact,
with full power to each of substitution, on behalf of and in the name of the
undersigned, to represent the undersigned at the 1997 Annual Meeting of
Stockholders of PURE ATRIA CORPORATION to be held on Friday, May 9, 1997, at
10:00 a.m., local time, at the offices of Wilson Sonsini Goodrich & Rosati, 650
Page Mill Road, Palo Alto, California, and at any adjournment or adjournments
thereof, and to vote all shares of Common Stock which the undersigned would be
entitled to vote, if then and there personally present, on the matters set forth
below.
A majority of such attorneys or substitutes as shall be present and shall
act at said meeting or any adjournment or adjournments thereof (or if only one
shall represent and act, then that one) shall have and may exercise all of the
powers of said attorneys-in-fact hereunder.
1. ELECTION OF DIRECTORS:
Nominees: Aki Fujimura, Reed Hastings, Thomas A. Jermoluk,
Paul Levine, David A. Litwack, Larry Sonsini,
and Louis J. Volpe.
[_] FOR [_] WITHHELD
------------------------------------------------------------
For all nominees except as noted above
2. PROPOSAL TO APPROVE AN AMENDMENT TO THE RESTATED CERTIFICATE OF
INCORPORATION OF THE COMPANY TO CHANGE THE CORPORATE NAME OF THE
COMPANY TO "PURE ATRIA SOFTWARE, INC."
[_] FOR [_] AGAINST [_] ABSTAIN
In their discretion, the proxies are authorized to vote upon such
other matter or matters which may properly come before the meeting
or any adjournment or adjournments thereof.
(Continued and to be signed on the reverse side)
<PAGE>
3. PROPOSAL TO APPROVE AN AMENDMENT TO THE COMPANY'S CERTIFICATE OF
INCORPORATION TO INCREASE THE COMPANY'S AUTHORIZED NUMBER OF SHARES
OF COMMON STOCK TO 200,000,000.
[_] FOR [_] AGAINST [_] ABSTAIN
4. PROPOSAL TO APPROVE AND RATIFY THE COMPANY'S AMENDED AND RESTATED
EMPLOYEE STOCK PURCHASE PLAN, AS DESCRIBED HEREIN.
[_] FOR [_] AGAINST [_] ABSTAIN
5. PROPOSAL TO RATIFY THE APPOINTMENT OF KPMG PEAT MARWICK LLP AS
INDEPENDENT AUDITORS FOR THE COMPANY FOR THE FISCAL YEAR ENDING
DECEMBER 31, 1997.
[_] FOR [_] AGAINST [_] ABSTAIN
THIS PROXY WILL BE VOTED AS DIRECTED, OR IF NO CONTRARY DIRECTION IS INDICATED,
WILL BE VOTED IN THE ELECTION OF DIRECTORS, FOR THE AMENDMENT TO THE RESTATED
CERTIFICATE OF INCORPORATION OF THE COMPANY TO CHANGE THE CORPORATE NAME OF THE
COMPANY, FOR THE AMENDMENT TO THE COMPANY'S CERTIFICATE OF INCORPORATION TO
INCREASE THE COMPANY'S AUTHORIZED NUMBER OF SHARES OF COMMON STOCK TO
200,000,000 FOR THE RATIFICATION OF KPMG PEAT MARWICK LLP AS THE INDEPENDENT
AUDITORS OF THE COMPANY, AND AS SAID PROXIES DEEM ADVISABLE ON SUCH OTHER
MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
[_] MARK HERE FOR ADDRESS CHANGE AND NOTE BELOW
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Signature: Date:
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Signature: Date:
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(This proxy should be marked, dated and signed by the stockholder(s) exactly as
his or her name appears hereon, and returned promptly in the enclosed envelope.
Persons signing in a fiduciary capacity should so indicate. If shares are held
by joint tenants or as community property, both should sign.)
