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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:
[_] Preliminary Proxy Statement [_] Confidential, for Use of the
Commission Only (as permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to 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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Notes:
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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
April 8, 1997
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 April 8, 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.
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, 42,803,204 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 $17.375 per share.
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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 December 9, 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
---- ------ --------------------
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. From September 1989 to May
1993, Mr. Volpe was the 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
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, 42,803,204
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 7,630,000 shares were reserved for issuance upon exercise of
outstanding options; approximately 2,130,000 shares were reserved for future
grant under the Company's 1995 Stock Option Plan; and approximately 90,000
shares were reserved for issuance under the Employee Stock Purchase Plan.
Accordingly, as of March 14, 1997, the Company had approximately 27,360,000
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 Stock have no
preemptive rights.
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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
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 ESPP 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 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 Stock 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
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.
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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 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.
11
<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.
12
<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)........ 4,629,435 10.6%
One Embarcadero Center, Suite 2300
San Francisco, CA 94111
Reed Hastings(4)............................... 4,080,000 9.4
c/o Pure Atria Corporation
1309 South Mary Avenue
Sunnyvale, CA 94087
Pilgrim Baxter & Associates (2)................ 3,865,257 8.9
1255 Drummers Lane
Suite 300
Wayne, PA 19087
Warburg, Pincus Counsellors, Inc.(2)........... 3,401,730 7.8
466 Lexington Avenue
New York, NY 10017
Price T. Rowe Associates Inc.(2)............... 2,184,244 5.0
100 East Pratt St.
Baltimore, MD 21202
Paul H. Levine(5).............................. 386,903 *
Louis J. Volpe(6).............................. 66,080 *
David A. Litwack(7)............................ 7,751 *
Thomas A. Jermoluk(8).......................... 15,000 *
Larry W. Sonsini(9)............................ 15,000 *
Aki Fujimura(10)............................... 451,383 1.0
Chuck Bay(11).................................. 135,750 *
W. Geoffrey Stein(12).......................... 40,588 *
All directors and executive officers as a
group: (9 persons)(13)........................ 5,198,455 11.9
- --------
* 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.
13
<PAGE>
(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.
(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 148,242 shares of PASW Common Stock subject to options
exercisable within sixty days of March 14, 1997.
(6) Includes 43,894 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 347,183 shares of PASW Common Stock subject to options
exercisable within sixty days of March 14, 1997.
(11) Includes 105,750 shares of PASW Common Stock subject to options
exercisable within sixty days of March 14, 1997.
(12) Includes 40,109 shares of PASW Common Stock subject to options
exercisable within sixty days of March 14, 1997.
(13) Includes 722,929 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.
14
<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 11 transactions late in a total of 6 Forms 4.
15
<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
NAME AND PRINCIPAL UNDERLYING ALL OTHER
POSITION YEAR SALARY BONUS OPTIONS COMPENSATION(1)
------------------ ---- ------- ------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Reed Hastings.......... 1996 160,000 71,288 -- 188(3)
President, Chief
Executive Officer 1995 145,208 23,000 -- 208(3)
and Director 1994 125,000 42,500 -- 32(3)
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(3)
1994(4) 150,000 49,500 -- 332(3)
Chuck Bay.............. 1996 140,000 112,475 60,000 68(3)
Vice President,
Finance, Chief 1995 122,167 27,094 180,000 69(3)
Financial Officer and
Secretary 1994 -- -- -- --
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 55,000 100,818(8)
Former Vice President,
North American 1995 83,425 53,103 200,000 70(3)
Sales and Corporate
Marketing 1994 -- -- -- --
Aki Fujimura(9)........ 1996 139,632 60,125 100,000 261,111(8)
Director and former
Vice President,
Systems 1995 140,000 31,000 -- 221(3)
Business Unit and 1994 130,000 41,000 -- 202(3)
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.
(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.
16
<PAGE>
(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) Includes $167 and $68 of premiums for term life insurance for Mr. Fujimura
and Mr. Anderson, respectively, and 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.
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>
INDIVIDUAL GRANTS POTENTIAL REALIZABLE VALUE
------------------------- AT ASSUMED ANNUAL RATES
NUMBER OF PERCENT OF TOTAL OF STOCK PRICE APPRECIATION
SECURITIES OPTIONS GRANTED FOR OPTION TERM(2)
UNDERLYING TO EMPLOYEES IN EXERCISE EXPIRATION ----------------------------
NAME OPTIONS GRANTED FISCAL YEAR PRICE DATE 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(5) 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(5) 1.1 27.75 01/26/06 959,850 2,432,449
Aki Fujimura............ 100,000(5) 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 Atria 1994 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 and vest in a series of equal monthly installments over
the next 48 months of employment.
(5) 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."
17
<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>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SHARES OPTIONS AT FISCAL YEAR- IN-THE-MONEY OPTIONS AT
ACQUIRED END FISCAL YEAR END (1)
ON VALUE ------------------------- -------------------------
NAME EXERCISE REALIZED 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." In December 1996,
the Company entered into an agreement with Mr. Levine that provided for a
payment 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. Payment under
this agreement was made in 1997.
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 compensation are intended to be consistent with compensation of other
executives in the Company's industry.
18
<PAGE>
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 mean
of survey data, which includes 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.
19
<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
20
<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.
[PERFORMANCE CHART APPEARS HERE]
<TABLE>
<CAPTION>
08/01/95 08/31/95 09/30/95 10/31/95 11/30/95 12/31/95
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pure Atria .............. 100.00 163.24 210.29 216.18 192.65 189.71
H&Q Technology .......... 100.00 103.29 105.72 107.19 105.85 100.06
Nasdaq National Market--
U.S. ................... 100.00 102.93 105.29 104.54 106.87 106.16
<CAPTION>
01/31/96 02/29/96 03/31/96 04/30/96 05/31/96 06/30/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pure Atria .............. 151.47 195.59 202.94 233.82 235.29 200.00
H&Q Technology .......... 101.52 106.59 101.93 116.0 117.73 109.12
Nasdaq National Market--
U.S. ................... 106.93 110.99 111.13 120.13 125.46 119.56
<CAPTION>
07/31/96 08/31/96 09/30/96 10/31/96 11/30/96 12/31/96
-------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Pure Atria .............. 147.06 180.88 222.06 160.29 163.97 145.59
H&Q Technology .......... 97.88 103.80 115.76 114.09 127.53 124.06
Nasdaq National Market--
U.S. ................... 109.03 115.17 123.79 123.25 130.42 130.26
</TABLE>
21
<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
April 8, 1997
22
<PAGE>
PURE ATRIA CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the Employee Stock Purchase Plan
of Pure Atria Corporation.
1. Purpose. The purpose of the Plan is to provide Employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the
intention of the Company to have the Plan qualify as an "Employee Stock Purchase
Plan" under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company.
-----
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the Common Stock of the Company.
------------
(d) "Company" shall mean Pure Atria Corporation and any Designated
-------
Subsidiary of the Company.
(e) "Compensation" shall mean (i) the regular base salary paid to an
------------
Employee by the Company during such individual's period of participation in the
Plan, plus (ii) any pre-tax contributions made by the Employee to any Code
Section 401(k) salary deferral plan or Code Section 125 cafeteria benefit
program now or hereafter established by the Company, plus (iii) all of the
following amounts to the extent paid in cash: overtime payments, bonuses,
commissions, profit-sharing distributions and other incentive type payments.
However, Compensation shall not include any contributions made on the Employee's
behalf by the Company to any deferred compensation plan or welfare benefit
program now or hereafter established.
(f) "Designated Subsidiary" shall mean any Subsidiary which has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
Company for tax purposes whose customary employment with the Company is at
least twenty (20) hours per week and more than five (5) months in any calendar
year. For purposes of the Plan, the employment relationship shall be treated
as continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the
<PAGE>
individual's right to reemployment is not guaranteed either by statute or
by contract, the employment relationship shall be deemed to have terminated on
the 91st day of such leave.
(h) "Enrollment Date" shall mean the first day of each Offering
---------------
Period.
(i) "Entry Date" shall mean the date an Employee first joins an
----------
Offering Period under the Plan.
(j) "Exercise Date" shall mean the last day of each Purchase Period.
-------------
(k) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(1) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system
for the last market trading day on the date of such determination, as reported
in The Wall Street Journal or such other source as the Administrator deems
reliable;
(2) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock on
the date of such determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(3) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or,
(4) For purposes of the Enrollment Date of the first
Offering Period under the Plan, the Fair Market Value shall be the initial price
to the public as set forth in the final prospectus included within the
registration statement in Form S-1 filed with the Securities and Exchange
Commission for the initial public offering of the Company's Common Stock (the
"Registration Statement").
(l) "Offering Periods" shall mean the periods during
----------------
which an option granted pursuant to the Plan may be exercised, having an
Enrollment Date immediately following the last Exercise Date of any preceding
Offering Period and a duration of twenty-four (24) months, except as may be
otherwise established by the Board, and except that the first Offering Period
under the Plan shall commence with the time that the underwriting agreement for
the initial public offering of the Common Stock is executed and finally priced,
and shall end on the last business day of June, 1997. The duration and timing
of Offering Periods may be changed pursuant to Section 4 of this Plan.
(m) "Plan" shall mean this Employee Stock Purchase Plan.
----
-2-
<PAGE>
(n) "Purchase Price" shall mean an amount equal to 85% of
--------------
the Fair Market Value of a share of Common Stock on the Employee's Entry Date
into the Offering Period or on the Exercise Date, whichever is lower.
(o) "Purchase Period" shall mean the period commencing
---------------
after one Exercise Date and ending six months later (unless designated by the
Board to have a different term), except that the first Purchase Period of the
first Offering Period under the Plan shall commence on the Enrollment Date and
shall end on the last business day of December, 1995.
(p) "Reserves" shall mean the number of shares of Common
--------
Stock covered by each option under the Plan which have not yet been exercised
and the number of shares of Common Stock which have been authorized for
issuance under the Plan but not yet placed under option.
(q) "Semi-Annual Entry Date" shall mean the first day of
----------------------
each Purchase Period.
(r) "Subsidiary" shall mean a corporation, domestic or
----------
foreign, of which not less than 50% of the voting shares are held by the
Company or a Subsidiary, whether or not such corporation now exists or is
hereafter organized or acquired by the Company or a Subsidiary.
(s) "Trading Day" shall mean a day on which national stock
-----------
exchanges and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a
given Semi-Annual Entry Date shall be eligible to participate in the Plan. An
Employee may participate in only one Offering Period at a time.
(b) Any provisions of the Plan to the contrary
notwithstanding, no Employee shall be granted an option under the Plan (i) to
the extent that, immediately after the grant, such Employee (or any other
person whose stock would be attributed to such Employee pursuant to Section
424(d) of the Code) would own capital stock of the Company and/or hold
outstanding options to purchase such stock possessing five percent (5%) or
more of the total combined voting power or value of all classes of the capital
stock of the Company or of any Subsidiary, or (ii) to the extent that his or
her rights to purchase stock under all employee stock purchase plans of the
Company and its subsidiaries accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined by the Fair Market Value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive
----------------
Offering Periods, which may overlap, with a new Offering Period commencing on
such Enrollment Date as the Board shall determine, and continuing thereafter
for its duration, unless terminated in accordance with Section 20 hereof. The
Board shall have the power to change the duration of Offering Periods
(including the commencement dates thereof) with respect to future offerings
without shareholder
-3-
<PAGE>
approval if such change is announced at least five (5) days prior to the
scheduled beginning of the first Offering Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office by
the applicable Semi-Annual Entry Date; except that if the Employee has by the
applicable Semi-Annual Entry Date notified the Company of the Employee's
intent to participate in the respective Offering Period and at that time given
the Company all other required information, the subscription agreement may be
filed up to ten (10) business days following such Semi-Annual Entry Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Employee's Entry Date and shall end on the last payroll
in the Offering Period to which such authorization is applicable, unless
sooner terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay
day during the Offering Period in an amount not exceeding fifteen percent
(15%) of the Compensation which he or she receives on each pay day during the
Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole
percentages only. A participant may not make any additional payments into such
account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or
filing with the Company a new subscription agreement authorizing a change in
payroll deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate
shall be effective with the first full payroll period following five (5)
business days after the Company's receipt of the new subscription agreement
unless the Company elects to process a given change in participation more
quickly. A participant's subscription agreement shall remain in effect for
successive Offering Periods unless terminated as provided in Section 10
hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first
Purchase
-4-
<PAGE>
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any
time, the Company may, but shall not be obligated to, withhold from the
participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale
or early disposition of Common Stock by the Employee. The Company shall have
the right to enter into agreements with tax authorities regarding option
valuation, reporting, withholding requirements and related matters (which in
some jurisdictions may be treated as binding upon the Employee).
7. Grant of Option. On the Entry Date of each eligible Employee
---------------
participating in an Offering Period, such Employee shall be granted an option
to purchase on each succeeding Exercise Date during such Offering Period (at
the applicable Purchase Price) up to a number of shares of the Company's
Common Stock determined by dividing such Employee's payroll deductions
accumulated prior to such Exercise Date and retained in the participant's
account as of the Exercise Date by the applicable Purchase Price; provided
that in no event shall an Employee be permitted to purchase during each
Purchase Period more than 600 shares of the Company's Common Stock (subject to
any adjustment pursuant to Section 19), and provided further that such
purchase shall be subject to the limitations set forth in Sections 3(b) and 13
hereof. Exercise of the option shall occur as provided in Section 8 hereof,
unless the participant has withdrawn pursuant to Section 10 hereof. The option
shall expire on the last day of the Offering Period.
8. Exercise of Option. Unless a participant withdraws from the Plan as
------------------
provided in Section 10 hereof, his or her option for the purchase of shares
shall be exercised automatically on the Exercise Date, and the maximum number
of full shares subject to option shall be purchased for such participant at
the applicable Purchase Price with the accumulated payroll deductions in his
or her account. No fractional shares shall be purchased; any payroll
deductions accumulated in a participant's account which are not sufficient to
purchase a full share shall be retained in the participant's account for the
subsequent Purchase Period or Offering Period, subject to earlier withdrawal
by the participant as provided in Section 10 hereof. Any other monies left
over in a participant's account after the Exercise Date shall be returned to
the participant. During a participant's lifetime, a participant's option to
purchase shares hereunder is exercisable only by him or her.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option. Alternatively, the participant
may request the issuance of such certificate in "street name" for immediate
deposit in a Company-designated-brokerage account.
-5-
<PAGE>
10. Withdrawal.
----------
(a) A participant may, at any time on or before the fifth (5th)
business day preceding the next Exercise Date, terminate an outstanding
purchase right under the Plan by giving written notice to the Company in the
form of Exhibit B to this Plan. No further payroll deductions shall be
collected from the participant with respect to the terminated purchase right,
and all payroll deductions collected for the Purchase Period in which such
termination occurs shall, at the participant's election, be immediately
refunded or held for the purchase of shares on the Exercise Date immediately
following such termination. If no such election is made at the time such
purchase right is terminated, then the payroll deductions collected with
respect to the terminated right shall be refunded as soon as possible. If a
participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the
participant delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan
which may hereafter be adopted by the Company or in succeeding Offering
Periods which commence after the termination of the Offering Period from which
the participant withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan pursuant to
Section 10 hereof, and such individual (or, in the case of his or her death,
to the person or persons entitled thereto under Section 15 hereof) shall have
the following election with respect to the payroll deductions made to date in
the Purchase Period in which such cessation of eligible Employee status
occurs:
1) to withdraw all of those deductions, or
2) provided that such cessation of eligible Employee status occurs no
more than ninety (90) days prior to the next Exercise Date, to have such funds
held for the purchase of shares on the next Exercise Date.
If no such election is made within the thirty (30) day period
following such cessation of eligible Employee status or (if earlier) prior to
the next Exercise Date, then the collected payroll deductions shall be
refunded as soon as possible. In no event, however, may any payroll deductions
be made on the participant's behalf following their cessation of eligible
Employee status.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
-6-
<PAGE>
13. Stock.
-----
(a) The maximum number of shares of the Company's Common Stock which
shall be made available for sale under the Plan shall initially be eight
hundred thousand (800,000) shares, subject to increase by the number of
additional shares purchased by the Company on the open market, up to a maximum
of three hundred thousand (300,000) such additional shares during each of the
years 1997, 1998 and 1999, and subject to adjustment upon changes in
capitalization of the Company as provided in Section 19 hereof. If, on a given
Exercise Date, the number of shares with respect to which options are to be
exercised exceeds the number of shares then available under the Plan, the
Company shall make a pro rata allocation of the shares remaining available for
purchase in as uniform a manner as shall be practicable and as it shall
determine to be equitable.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant
and his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision
and determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account
under the Plan in the event of such participant's death subsequent to an
Exercise Date on which the option is exercised but prior to delivery to such
participant of such shares and cash. In addition, a participant may file a
written designation of a beneficiary who is to receive any cash from the
participant's account under the Plan in the event of such participant's death
prior to exercise of the option. If a participant is married and the
designated beneficiary is not the spouse, spousal consent shall be required
for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and
in the absence of a beneficiary validly designated under the Plan who is
living at the time of such participant's death, the Company shall deliver such
shares and/or cash to the executor or administrator of the estate of the
participant, or if no such executor or administrator has been appointed (to
the knowledge of the Company), the Company, in its discretion, may deliver
such shares and/or cash to the spouse or to any one or more dependents or
relatives of the participant, or if no spouse, dependent or relative is known
to the Company, then to such other person as the Company may designate.
-7-
<PAGE>
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option
or to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees
at least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the
remaining cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- ---------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), as well
as the price per share and the number of shares of Common Stock covered by
each option under the Plan which has not yet been exercised shall be
proportionately adjusted for any increase or decrease in the number of issued
shares of Common Stock resulting from a stock split, reverse stock split,
stock dividend, combination or reclassification of the Common Stock, or any
other increase or decrease in the number of shares of Common Stock effected
without receipt of consideration by the Company; provided, however, that
conversion of any convertible securities of the Company shall not be deemed to
have been "effected without receipt of consideration". Such adjustment shall
be made by the Board, whose determination in that respect shall be final,
binding and conclusive. Except as expressly provided herein, no issuance by
the Company of shares of stock of any class, or securities convertible into
shares of stock of any class, shall affect, and no adjustment by reason
thereof shall be made with respect to, the number or price of shares of Common
Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Periods shall
terminate immediately prior to the consummation of such proposed action,
unless otherwise provided by the Board.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, any Purchase Periods then in progress shall
be shortened by setting a new Exercise Date (the "New Exercise Date") and any
Offering Periods then in progress shall end on the New Exercise Date. The New
Exercise Date shall be before the date of the Company's proposed sale or
merger. The Board shall notify each participant in writing, at least ten (10)
business days prior to the New Exercise
-8-
<PAGE>
Date, that the Exercise Date for the participant's option has been changed to
the New Exercise Date and that the participant's option shall be exercised
automatically on the New Exercise Date, unless prior to such date the
participant has withdrawn from the Offering Period as provided in Section 10
hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof,
no such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise
Date if the Board determines that the termination of the Plan is in the best
interests of the Company and its shareholders. Except as provided in Section
19 hereof, no amendment may make any change in any option theretofore granted
which adversely affects the rights of any participant. To the extent necessary
to comply with Section 423 of the Code (or any successor rule or provision or
any other applicable law, regulation or stock exchange rule), the Company
shall obtain shareholder approval in such a manner and to such a degree as
required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods,
limit the frequency and/or number of changes in the amount withheld during an
Offering Period, establish the exchange ratio applicable to amounts withheld
in a currency other than U.S. dollars, permit payroll withholding in excess of
the amount designated by a participant in order to adjust for delays or
mistakes in the Company's processing of properly completed withholding
elections, establish reasonable waiting and adjustment periods and/or
accounting and crediting procedures to ensure that amounts applied toward the
purchase of Common Stock for each participant properly correspond with amounts
withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its
sole discretion advisable which are consistent with the Plan.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or
by the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the
requirements of any stock exchange upon which the shares may then be listed,
and shall be further subject to the approval of counsel for the Company with
respect to such compliance.
As a condition to the exercise of an option, the Company may require the
person exercising such option to represent and warrant at the time of any such
exercise that the shares are
-9-
<PAGE>
being purchased only for investment and without any present intention to sell
or distribute such shares if, in the opinion of counsel for the Company, such
a representation is required by any of the aforementioned applicable
provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten
(10) years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if 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
Enrollment Date of such Offering Period, then all participants in such
Offering Period shall be automatically withdrawn from such Offering Period
immediately after the exercise of their option on such Exercise Date and
automatically re-enrolled in the immediately following Offering Period as of
the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
[NAME OF COMPANY]
[1996] EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Entry Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ______________________________ hereby elects to participate in the Pure
Atria Corporation Employee Stock Purchase Plan (the "Employee Stock
Purchase Plan") and subscribes to purchase shares of the Company's Common
Stock in accordance with this Subscription Agreement and the Employee Stock
Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 1 to 15%) during the Offering
Period in accordance with the Employee Stock Purchase Plan. (Please note
that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of
[_] (Employee or Employee and Spouse only): ______________________________
___________________________________ .
[_] Issued in street name and delivered to my designated brokerage account.
<PAGE>
6. A. For Employees Subject to U.S. Taxation: I understand that if I dispose
--------------------------------------
of any shares received by me pursuant to the Plan within 2 years after my
Entry Date or one year after the Exercise Date, I will be treated for
federal income tax purposes as having received ordinary income at the time
of such disposition in an amount equal to the excess of the fair market
value of the shares at the time such shares were purchased by me over the
price which I paid for the shares. I hereby agree to notify the Company in
---------------------------------------
writing within 30 days after the date of any disposition of my shares and I
---------------------------------------------------------------------------
will make adequate provision for Federal, state or other tax withholding
------------------------------------------------------------------------
obligations, if any, which arise upon the disposition of the Common Stock.
--------------------------------------------------------------------------
The Company may, but will not be obligated to, withhold from my
compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
B. For Employees Subject to Taxation in Other Jurisdictions: I understand
that the option or shares received may be subject to taxation in the
country of my employment and that the Company may be required to report
and/or withhold tax related to such receipt. I also understand that the
Company may enter into binding agreements with certain foreign tax
authorities which may affect the taxability of such options or shares, the
reporting requirements and/or the withholding requirements.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please print)__________________________________________________________
(First) (Middle) (Last)
______________________________________ ______________________________________
Relationship
______________________________________
(Address)
-2-
<PAGE>
Employee's Social Security Number: ______________________________________
Employee's Address: _____________________________________
_____________________________________
_____________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:____________________________ _____________________________________
Signature of Employee
_____________________________________
Spouse's Signature
(If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
PURE ATRIA CORPORATION
EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Pure Atria
Corporation Employee Stock Purchase Plan (the "Plan") which began on
____________, 19____ (the "Enrollment Date") hereby notifies the Company that
he or she hereby withdraws from the Offering Period. He or she hereby directs
the Company to pay to the undersigned as promptly as practicable all the
payroll deductions credited to his or her account with respect to such
Offering Period, unless the employee elects to have such funds held for the
purchase of shares on the next Exercise Date, by indicating below:
[_] I am withdrawing no more than ninety (90) days prior to the next
scheduled Exercise Date, and I elect to have all my payroll deductions made
with respect to the current Offering Period held for the purchase of shares on
the next Exercise Date, pursuant to the terms of the Plan.
The undersigned understands and agrees that except for the purchase which
may be elected above, his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new
Subscription Agreement.
Name and Address of Participant:
________________________________
________________________________
________________________________
Signature:
________________________________
Date:___________________________
<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 April 8, 1997, and hereby
appoints Geoff Stein 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 be present 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
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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
(Continued and to be signed on the reverse side.)
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.
[_] 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 FOR PROPOSALS 1, 2, 3, 4, AND 5 AND AS SAID PROXIES
DEEM ADVISABLE ON SUCH OTHER MATTERS AS MAY PROPERLY COME BEFORE THE MEETING.
Signature: _______________
Date: ____________________
Signature: _______________
Date: ____________________
(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.)
