EXHIBIT 5
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[Option from Acquiror to Target]
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT dated as of April 7, 1997 (the "AGREEMENT") is
entered into by and between Pure Atria Corporation, a Delaware corporation
("TARGET"), and Rational Software Corporation, a Delaware corporation
("ACQUIROR"). Capitalized terms used in this Agreement but not defined herein
shall have the meanings ascribed thereto in the Merger Agreement (as defined
below).
RECITALS
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WHEREAS, concurrently with the execution and delivery of this Agreement,
Acquiror, Target and Wings Merger Corporation, a Delaware corporation and a
wholly owned subsidiary of Acquiror ("MERGER SUB"), are entering into an
Agreement and Plan of Reorganization (the "MERGER AGREEMENT"), which provides
that, among other things, upon the terms and subject to the conditions thereof,
Acquiror and Target will enter into a business combination transaction (the
"MERGER"); and
WHEREAS, as a condition to Target's willingness to enter into the Merger
Agreement, Target has requested that Acquiror agree, and Acquiror has so agreed,
to grant to Target an option to acquire shares of Acquiror's Common Stock, $0.01
par value, upon the terms and subject to the conditions set forth herein;
AGREEMENT
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NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION
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Acquiror hereby grants to Target an irrevocable option (the "OPTION") to
acquire up to a number of shares of the Common Stock, $0.01 par value, of
Acquiror ("ACQUIROR SHARES") equal to 19.9% of the issued and outstanding shares
as of the first date, if any, upon which an Exercise Event (as defined in
Section 2(a) below) shall occur (the "OPTION SHARES"), in the manner set forth
below (i) by paying cash at a price of $23.375 per share (the "EXERCISE PRICE")
and/or, at Target's election, (ii) by exchanging therefor shares of the Common
Stock, par value $0.0001 per share, of Target ("TARGET SHARES") at a rate (the
"EXERCISE RATIO"), for each Option Share, of a number of Target Shares equal to
the Exercise Price divided by the closing sale price of Target Shares on the
Nasdaq
National Market for the trading day immediately preceding the date of the
Closing (as defined below) of the particular Option exercise.
2. EXERCISE OF OPTION; MAXIMUM PROCEEDS
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(a) For all purposes of this Agreement, an "EXERCISE EVENT" shall have
occurred (i) immediately prior to the earlier of (x) the consummation of, or (y)
the record date, if any, for a meeting of Acquiror's stockholders with regard
to, an Acquisition Proposal with respect to Acquiror with any party other than
Target (or an affiliate of Target) if the Board of Directors of Acquiror shall
have withheld, withdrawn or modified in a manner adverse to Target its
recommendation in favor of adoption and approval of the Merger Agreement and
approval of the Merger (and at that time there shall not have occurred a
Material Adverse Effect on Target) after receipt of and in connection with an
Acquisition Proposal with respect to Acquiror, (ii) immediately prior to the
consummation of a tender or exchange offer for 25% or more of any class of
Acquiror's capital stock, or (iii) immediately prior to the time at which all of
the events specified in Section 7.3(c)(ii)(x), Section 7.3(c)(ii)(y) and either
Section 7.3(c)(ii)(z)(i) or Section 7.3(c)(ii)(z)(ii) of the Merger Agreement
shall have occurred.
(b) Target may deliver to Acquiror a written notice (an "EXERCISE
NOTICE") specifying that it wishes to exercise and close a purchase of Option
Shares upon the occurrence of an Exercise Event and specifying the total number
of Option Shares it wishes to acquire and the form of consideration to be paid
(i) at any time following such time as the Board of Directors of Acquiror shall
have withheld, withdrawn or modified in a manner adverse to Target its
recommendation in favor of adoption and approval of the Merger Agreement and
approval of the Merger (and at that time there shall not have occurred a
Material Adverse Effect on Target) after receipt of and in connection with an
Acquisition Proposal with respect to Acquiror, (ii) upon the commencement of a
tender or exchange offer for 25% or more of any class of Acquiror's capital
stock (and/or during any time which such a tender or exchange offer remains open
or has been consummated) or (iii) at any time following the occurrence of each
of the events specified in Section 7.3(c)(ii)(x) and 7.3(c)(ii)(y) of the Merger
Agreement (the events specified in clauses (i), (ii) or (iii) of this sentence
being referred to herein as a "CONDITIONAL EXERCISE EVENTS"). At any time after
delivery of an Exercise Notice, unless such Exercise Notice is withdrawn by
Target, the closing of a purchase of Option Shares (a "CLOSING") specified in
such Exercise Notice shall take place at the principal offices of Acquiror upon
the occurrence of an Exercise Event or at such later date prior to the
termination of the Option as may be designated by Target in writing. In the
event that no Exercise Event shall occur prior to termination of the Option,
such Exercise Notice shall be void and of no further force and effect.
(c) The Option shall terminate upon the earliest of (i) the Effective
Time, (ii) 12 months following the termination of the Merger Agreement pursuant
to Article VII thereof if a Conditional Exercise Event shall have occurred on or
prior to the date of such termination, and (iii) the date on which the Merger
Agreement is terminated if no Conditional Exercise Event shall have occurred on
or prior to such date of termination; provided, however, that if the Option is
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exercisable but cannot be exercised by reason of any applicable government order
or because the waiting period related to the issuance of the Option Shares under
the HSR Act shall not have expired or been terminated, then the Option shall not
terminate until the tenth business day after such impediment to exercise shall
have been removed or shall have become final and not subject to appeal.
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Notwithstanding the foregoing, the Option may not be exercised if (i) Target
shall have breached in any material respect any of its covenants or agreements
contained in the Merger Agreement or (ii) the representations and warranties of
Target contained in the Merger Agreement shall not have been true and correct in
all material respects on and as of the date when made.
(d) If Target receives in the aggregate pursuant to Section 7.3(c) of
the Merger Agreement together with proceeds in connection with any sales or
other dispositions of Option Shares and any dividends received by Target
declared on Option Shares, more than the sum of (x) $21,000,000 plus (y) the
Exercise Price multiplied by the number of Acquiror Shares purchased by Target
pursuant to the Option, then all proceeds to Target in excess of such sum shall
be remitted by Target to Acquiror.
3. CONDITIONS TO CLOSING
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The obligation of Acquiror to issue Option Shares to Target hereunder is
subject to the conditions that (a) any waiting period under the HSR Act
applicable to the issuance of the Option Shares hereunder shall have expired or
been terminated; (b) all material consents, approvals, orders or authorizations
of, or registrations, declarations or filings with, any Federal, state or local
administrative agency or commission or other Federal state or local governmental
authority or instrumentality, if any, required in connection with the issuance
of the Option Shares hereunder shall have been obtained or made, as the case may
be; and (c) no preliminary or permanent injunction or other order by any court
of competent jurisdiction prohibiting or otherwise restraining such issuance
shall be in effect. It is understood and agreed that at any time during which
Target shall be entitled to deliver to Acquiror an Exercise Notice, the parties
will use their respective best efforts to satisfy all conditions to Closing, so
that a Closing may take place as promptly as practicable, and in any event, upon
the occurrence of an Exercise Event.
4. CLOSING
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At any Closing, (a) Acquiror shall deliver to Target a single certificate
in definitive form representing the number of Acquiror Shares designated by
Target in its Exercise Notice, such certificate to be registered in the name of
Target and to bear the legend set forth in Section 10 hereof, against delivery
of (b) payment by Target to Acquiror of the aggregate purchase price for the
Acquiror Shares so designated and being purchased by delivery of (i) a certified
check or bank check and/or, at Target's election, (ii) a single certificate in
definitive form representing the number of Target Shares being issued by Target
in consideration therefor (based on the Exercise Ratio), such certificate to be
registered in the name of Acquiror and to bear the legend set forth in Section
10 hereof.
5. REPRESENTATIONS AND WARRANTIES OF ACQUIROR
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Acquiror represents and warrants to Target that (a) Acquiror is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder; (b) the
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execution and delivery of this Agreement by Acquiror and consummation by
Acquiror of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of Acquiror and no other corporate
proceedings on the part of Acquiror are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by Acquiror and constitutes a legal, valid and binding
obligation of Acquiror and, assuming this Agreement constitutes a legal, valid
and binding obligation of Target, is enforceable against Acquiror in accordance
with its terms, except as enforceability may be limited by bankruptcy and other
laws affecting the rights and remedies of creditors generally and general
principles of equity; (d) except for any filings required under the HSR Act,
Acquiror has taken all necessary corporate and other action to authorize and
reserve for issuance and to permit it to issue upon exercise of the Option, and
at all times from the date hereof until the termination of the Option will have
reserved for issuance, a sufficient number of unissued Acquiror Shares for
Target to exercise the Option in full and will take all necessary corporate or
other action to authorize and reserve for issuance all additional Acquiror
Shares or other securities which may be issuable pursuant to Section 9(a) upon
exercise of the Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable; (e) upon delivery of the Acquiror Shares and any other
securities to Target upon exercise of the Option, Target will acquire such
Acquiror Shares or other securities free and clear of all material claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever, excluding those imposed by Target; (f) the execution and delivery of
this Agreement by Acquiror do not, and the performance of this Agreement by
Acquiror will not, (i) violate the Certificate of Incorporation or Bylaws of
Acquiror, (ii) conflict with or violate any order applicable to Acquiror or any
of its subsidiaries or by which they or any of their property is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any property or assets
of Acquiror or any of its subsidiaries pursuant to, any contract or agreement to
which Acquiror or any of its subsidiaries is a party or by which Acquiror or any
of its subsidiaries or any of their property is bound or affected, except, in
the case of clauses (ii) and (iii) above, for violations, conflicts, breaches,
defaults, rights of termination, amendment, acceleration or cancellation, liens
or encumbrances which would not, individually or in the aggregate, have a
Material Adverse Effect on Acquiror; (g) the execution and delivery of this
Agreement by Acquiror does not, and the performance of this Agreement by
Acquiror will not, require any consent, approval, authorization or permit of, or
filing with, or notification to, any Governmental Entity except pursuant to the
HSR Act; and (h) any Target Shares acquired pursuant to this Agreement will not
be acquired by Acquiror with a view to the public distribution thereof and
Acquiror will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
6. REPRESENTATIONS AND WARRANTIES OF TARGET
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Target represents and warrants to Acquiror that (a) Target is a corporation
duly incorporated, validly existing and in good standing under the laws of the
State of Delaware and has the corporate power and authority to enter into this
Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by Target and the consummation by Target of the
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transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of Target and no other corporate proceedings on the
part of Target are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (c) this Agreement has been duly executed and
delivered by Target and constitutes a legal, valid and binding obligation of
Target and, assuming this Agreement constitutes a legal, valid and binding
obligation of Acquiror, is enforceable against Target in accordance with its
terms, except as enforceability may be limited by bankruptcy and other laws
affecting the rights and remedies of creditors generally and general principles
of equity; (d) except for any filings required under the HSR Act, Target has
taken (or will in a timely manner take) all necessary corporate and other action
in connection with any exercise of the Option; (e) upon delivery of Target
Shares to Acquiror in consideration of any acquisition of Acquiror Shares
pursuant hereto, Acquiror will acquire such Target Shares free and clear of all
material claims, liens, charges, encumbrances and security interests of any kind
or nature whatsoever, excluding those imposed by Acquiror; (f) the execution and
delivery of this Agreement by Target do not, and the performance of this
Agreement by Target will not, (i) violate the Certificate of Incorporation or
Bylaws of Target, (ii) conflict with or violate any order applicable to Target
or any of its subsidiaries or by which they or any of their property is bound or
affected or (iii) result in any breach of or constitute a default (or an event
which with notice or lapse of time or both would become a default) under, or
give rise to any right of termination, amendment, acceleration or cancellation
of, or result in the creation of a lien or encumbrance on any of the property or
assets of Target or any of its subsidiaries pursuant to, any contract or
agreement to which Target or any of its subsidiaries is a party or by which
Target or any of its subsidiaries or any of their property is bound or affected,
except, in the case of clauses (ii) and (iii) above, for violations, conflicts,
breaches, defaults, rights of termination, amendment, acceleration or
cancellation, liens or encumbrances which would not, individually or in the
aggregate, have a Material Adverse Effect on Target; (g) the execution and
delivery of this Agreement by Target does not, and the performance of this
Agreement by Target will not, require any consent, approval, authorization or
permit of, or filing with or notification to, any Governmental Entity except
pursuant to the HSR Act; and (h) any Acquiror Shares acquired upon exercise of
the Option will not be acquired by Target with a view to the public distribution
thereof and Target will not sell or otherwise dispose of such shares in
violation of applicable law or this Agreement.
7. CERTAIN RIGHTS
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(a) TARGET PUT. Target may deliver to Acquiror a written notice (a
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"PUT NOTICE") at any time during which Target may deliver an Exercise Notice
specifying that it wishes to sell the Option, to the extent not previously
exercised, at the price set forth in subparagraph (i) below (as limited by
subparagraph (iii) below), and the Option Shares, if any, acquired by Target
pursuant thereto, at the price set forth in subparagraph (ii) below (as limited
by subparagraph (iii) below) (the "PUT"). At any time after delivery of a Put
Notice, unless such Put Notice is withdrawn by Target, the closing of the Put
(the "PUT CLOSING") shall take place at the principal offices of Acquiror upon
the occurrence of an Exercise Event or at such later date prior to the
termination of the Option as may be designated by Target in writing. In the
event that no Exercise Event shall occur prior to termination of the Option,
such Put Notice shall be void and of no further force and effect.:
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(i) The difference between the "MARKET/TENDER OFFER PRICE" for
Acquiror Shares as of the date Target gives notice of its intent to exercise its
rights under this Section 7(a) (defined as the higher of (A) the highest price
per share offered as of such date pursuant to any Acquisition Proposal which was
made prior to such date and not terminated or withdrawn as of such date and (B)
the highest closing sale price of Acquiror Shares on the Nasdaq National Market
during the twenty (20) trading days ending on the trading day immediately
preceding such date) and the Exercise Price, multiplied by the number of
Acquiror Shares purchasable pursuant to the Option, but only if the
Market/Tender Offer Price is greater than the Exercise Price. For purposes of
determining the highest price offered pursuant to any Acquisition Proposal which
involves consideration other than cash, the value of such consideration shall be
equal to the higher of (x) if securities of the same class of the proponent as
such consideration are traded on any national securities exchange or by any
registered securities association, a value based on the closing sale price or
asked price for such securities on their principal trading market on such date
and (y) the value ascribed to such consideration by the proponent of such
Acquisition Proposal, or if no such value is ascribed, a value determined in
good faith by the Board of Directors of Acquiror.
(ii) The Exercise Price paid by Target for Acquiror Shares acquired
pursuant to the Option plus the difference between the Market/Tender Offer Price
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and such Exercise Price (but only if the Market/Tender Offer Price is greater
than the Exercise Price) multiplied by the number of Acquiror Shares so
purchased. If Target issued Target Shares in connection with any exercise of
the Option, the Exercise Price in connection with such exercise shall be
calculated as set forth in the last sentence of Section 1 as if Target had
exercised its right to pay cash instead of issuing Target Shares.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant to
this Section 7 Acquiror shall not be required to pay Target in excess of an
aggregate of (x) $21,000,000 plus (y) the Exercise Price paid by Target for
----
Acquiror Shares acquired pursuant to the Option minus (z) any amounts paid to
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Target by Acquiror pursuant to Section 7.3(c) of the Merger Agreement.
(b) REDELIVERY OF TARGET SHARES. If Target has acquired Acquiror
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Shares pursuant to exercise of the Option by the issuance and delivery of Target
Shares, then Acquiror shall, if so requested by Target, in fulfillment of its
obligation pursuant to the first clause of Section 7(a)(ii) with respect to the
Exercise Price paid in the form of Target Shares only, redeliver the
certificate(s) for such Target Shares to Target, free and clear of all claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever, other than those imposed by Target.
(c) PAYMENT AND REDELIVERY OF OPTION OR SHARES. At the Put Closing,
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Acquiror shall pay the required amount to Target in immediately available funds
(and Target Shares, if applicable) and Target shall surrender to Acquiror the
Option and the certificates evidencing the Acquiror Shares purchased by Target
pursuant thereto, and Target shall represent and warrant that such shares are
then free and clear of all claims, liens, charges, encumbrances and security
interests of any kind or nature whatsoever, other than those imposed by
Acquiror.
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(d) ACQUIROR CALL. If Target has acquired Option Shares pursuant to
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exercise of the Option (the date of any Closing relating to any such exercise
herein referred to as an "EXERCISE DATE") and no Acquisition Proposal with
respect to Acquiror has been consummated at any time after the date of this
Agreement and prior to the date one year following such Exercise Date (nor has
Acquiror entered into a definitive agreement or letter of intent with respect to
such an Acquisition Proposal which agreement or letter of intent remains in
effect at the end of such year), then, at any time after the date one year
following such Exercise Date and prior to the date eighteen months following
such Exercise Date, Acquiror may require Target, upon delivery to Target of
written notice, to sell to Acquiror any Acquiror Shares held by Target as of the
day that is ten business days after the date of such notice, up to a number of
shares equal to the number of Option Shares acquired by Target pursuant to
exercise of the Option in connection with such Exercise Date. The per share
purchase price for such sale (the "ACQUIROR CALL PRICE") shall be equal to the
Exercise Price, plus an amount equal to seven percent (7.0%) of the Exercise
Price per annum, compounded annually, since the applicable Exercise Date, less
any dividends paid on the Acquiror Shares to be purchased by Acquiror pursuant
to this Section 7(d). The closing of any sale of Acquiror Shares pursuant to
this Section 7(d) shall take place at the principal offices of Acquiror at a
time and on a date designated by Acquiror in the aforementioned notice to
Target, which date shall be no more than 20 and no less than 12 business days
from the date of such notice. The Acquiror Call Price shall be paid in
immediately available funds, provided that, in the event Target has acquired
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Option Shares pursuant to exercise of the Option by issuance and delivery of
Target Shares, at the option of Acquiror, the Acquiror Call Price for part or
all of any purchase of Acquiror Shares pursuant to this Section 7(d), up to a
number of such shares equal to the number of Option Shares acquired by Target by
issuance and delivery of Target Shares, shall be paid by delivery of a number of
Target Shares equal to the Acquiror Call Price divided by the closing sale price
of Target Shares on the Nasdaq National Market for the trading day immediately
preceding the date of the Exercise Date on which the Option Shares to be
purchased by Acquiror pursuant to this Section 7(d) were originally issued to
Target.
(e) RESTRICTIONS ON TRANSFER. Until the termination of the Option,
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Acquiror shall not sell, transfer or otherwise dispose of any Target Shares
acquired by it pursuant to this Agreement.
8. REGISTRATION RIGHTS
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(a) Following the termination of the Merger Agreement, each party
hereto (a "HOLDER") may by written notice (a "REGISTRATION NOTICE") to the other
party (the "REGISTRANT") request the Registrant to register under the Securities
Act all or any part of the shares acquired by such Holder pursuant to this
Agreement (the "REGISTRABLE SECURITIES") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment underwritten
public offering in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person or group from purchasing
through such offering shares representing more than 1% of the outstanding shares
of Common Stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"); provided, however, that any such Registration Notice must relate to
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a number of shares equal to at least 2% of the outstanding shares of Common
Stock of the Registrant on a fully diluted basis and that any rights to require
registration hereunder shall terminate with respect to any shares that may be
sold pursuant
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to Rule 144(k) under the Securities Act. The Registration Notice shall include a
certificate executed by the Holder and its proposed managing underwriter, which
underwriter shall be an investment banking firm of nationally recognized
standing (the "MANAGER"), stating that (i) the Holder and the Manager have a
good faith intention to commence a Permitted Offering and (ii) the Manager in
good faith believes that, based on the then prevailing market conditions, it
will be able to sell the Registrable Securities at a per share price equal to at
least 80% of the per share average of the closing sale prices of the
Registrant's Common Stock on the Nasdaq National Market for the twenty trading
days immediately preceding the date of the Registration Notice. The Registrant
shall thereupon have the option exercisable by written notice delivered to the
Holder within ten business days after the receipt of the Registration Notice,
irrevocably to agree to purchase all or any part of the Registrable Securities
for cash at a price (the "OPTION PRICE" equal to the product of (i) the number
of Registrable Securities so purchased and (ii) the per share average of the
closing sale prices of the Registrant's Common Stock on the Nasdaq National
Market for the twenty trading days immediately preceding the date of the
Registration Notice. Any such purchase of Registrable Securities by the
Registrant hereunder shall take place at a closing to be held at the principal
executive offices of the Registrant or its counsel at any reasonable date and
time designated by the Registrant in such notice within 10 business days after
delivery of such notice. The payment for the shares to be purchased shall be
made by delivery at the time of such closing of the Option Price in immediately
available funds.
(b) If the Registrant does not elect to exercise its option to
purchase pursuant to Section 8(a) with respect to all Registrable Securities,
the Registrant shall use all reasonable efforts to effect, as promptly as
practicable, the registration under the Securities Act of the unpurchased
Registrable Securities requested to be registered in the Registration Notice;
provided, however, that (i) neither party shall be entitled to more than an
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aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any period of time (not to exceed 40 days after a Registration Notice in the
case of clause (A) below or 90 days after a Registration Notice in the case of
clauses (B) and (C) below) when (A) the Registrant is in possession of material
non-public information which it reasonably believes would be detrimental to be
disclosed at such time and, in the written opinion of counsel to such
Registrant, such information would have to be disclosed if a registration
statement were filed at that time; (B) such Registrant is required under the
Securities Act to include audited financial statements for any period in such
registration statement and such financial statements are not yet available for
inclusion in such registration statement; or (C) such Registrant determines, in
its reasonable judgment, that such registration would interfere with any
financing, acquisition or other material transaction involving the Registrant.
If consummation of the sale of any Registrable Securities pursuant to a
registration hereunder does not occur within 180 days after the filing with the
SEC of the initial registration statement therefor, the provisions of this
Section 8 shall again be applicable to any proposed registration, it being
understood that neither party shall be entitled to more than an aggregate of two
effective registration statements hereunder. The Registrant shall use all
reasonable efforts to cause any Registrable Securities registered pursuant to
this Section 8 to be qualified for sale under the securities or blue sky laws of
such jurisdictions as the Holder may reasonably request and shall continue such
registration or qualification in effect in such jurisdictions; provided,
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however, that the
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Registrant shall not be required to qualify to do business in, or consent to
general service of process in, any jurisdiction by reason of this provision.
(c) The registration rights set forth in this Section 8 are subject to
the condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to such Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required to
be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the Holder and the Registrant agree to
enter into an underwriting agreement reasonably acceptable to each such party,
in form and substance customary for transactions of this type with the
underwriters participating in such offering.
(e) Indemnification
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(i) The Registrant will indemnify the Holder, each of its directors
and officers and each person who controls the Holder within the meaning of
Section 15 of the Securities Act, and each underwriter of the Registrant's
securities, with respect to any registration, qualification or compliance which
has been effected pursuant to this Agreement, against all expenses, claims,
losses, damages or liabilities (or actions in respect thereof), including any of
the foregoing incurred in settlement of any litigation, commenced or threatened,
arising out of or based on any untrue statement (or alleged untrue statement) of
a material fact contained in any registration statement, prospectus, offering
circular or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein, in light of the circumstances in
which they were made, not misleading, or any violation by the Registrant of any
rule or regulation promulgated under the Securities Act applicable to the
Registrant in connection with any such registration, qualification or
compliance, and the Registrant will reimburse the Holder and, each of its
directors and officers and each person who controls the Holder within the
meaning of Section 15 of the Securities Act, and each underwriter for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Registrant will not be liable in any such case to the extent
that any such claim, loss, damage, liability or expense arises out of or is
based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Registrant by such Holder or director or officer or controlling
person or underwriter seeking indemnification.
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(ii) The Holder will indemnify the Registrant, each of its directors
and officers and each underwriter of the Registrant's securities covered by such
registration statement and each person who controls the Registrant within the
meaning of Section 15 of the Securities Act, against all claims, losses, damages
and liabilities (or actions in respect thereof), including any of the foregoing
incurred in settlement of any litigation, commenced or threatened, arising out
of or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or any violation by the Holder of any rule or regulation
promulgated under the Securities Act applicable to the Holder in connection with
any such registration, qualification or compliance, and will reimburse the
Registrant, such directors, officers or control persons or underwriters for any
legal or any other expenses reasonably incurred in connection with
investigating, preparing or defending any such claim, loss, damage, liability or
action, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Registrant by the Holder for use therein, provided that in no event shall
any indemnity under this Section 8(e) exceed the gross proceeds of the offering
received by the Holder.
(iii) Each party entitled to indemnification under this Section 8(e)
(the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; provided, however, that the Indemnifying Party shall pay such
-------- -------
expense if representation of the Indemnified Party by counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding, and provided further that the failure of any
-------- -------
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 8(e) unless the failure
to give such notice is materially prejudicial to an Indemnifying Party's ability
to defend such action. No Indemnifying Party, in the defense of any such claim
or litigation shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation. No Indemnifying Party shall be required to indemnify any Indemnified
Party with respect to any settlement entered into without such Indemnifying
Party's prior consent (which shall not be unreasonably withheld).
9. ADJUSTMENT UPON CHANGES IN CAPITALIZATION; RIGHTS PLANS
-------------------------------------------------------
(a) In the event of any change in the Acquiror Shares by reason of stock
dividends, stock splits, reverse stock splits, mergers (other than the Merger),
recapitalizations, combinations,
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exchanges of shares and the like, the type and number of shares or securities
subject to the Option, the Exercise Ratio and the Exercise Price shall be
adjusted appropriately, and proper provision shall be made in the agreements
governing such transaction so that Target shall receive, upon exercise of the
Option, the number and class of shares or other securities or property that
Target would have received in respect of the Acquiror Shares if the Option had
been exercised immediately prior to such event or the record date therefor, as
applicable.
(b) At any time during which the Option is exercisable, and at any
time after the Option is exercised (in whole or in part, if at all), neither
Acquiror nor Target shall adopt a stockholders rights plan (a so-called "poison
pill") that contains provisions for the distribution of rights thereunder as a
result of the other party being the beneficial owner of shares of the first
party by virtue of the Option being exercisable or having been exercised (or as
a result of such other party beneficially owning shares issuable in respect of
any Option Shares). It is understood, however, that following termination (if
any) of the Merger Agreement, a party may adopt a stockholders rights plan, that
contains provisions for the distribution of rights thereunder as a result of the
other party being the beneficial owner of shares of the first party in addition
to those that may be beneficially owned by virtue of the Option being
exercisable or having been exercised (or as a result of such other party
beneficially owning shares issuable in respect of any Option Shares).
10. RESTRICTIVE LEGENDS
-------------------
Each certificate representing Option Shares issued to Target hereunder, and
each certificate representing Target Shares delivered to Acquiror at a Closing,
shall include a legend in substantially the following form:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY BE REOFFERED OR SOLD
ONLY IF SO REGISTERED OR IF AN EXEMPTION FROM SUCH REGISTRATION IS
AVAILABLE. SUCH SECURITIES ARE ALSO SUBJECT TO ADDITIONAL RESTRICTIONS ON
TRANSFER AS SET FORTH IN THE STOCK OPTION AGREEMENT DATED AS OF APRIL 7,
1997, A COPY OF WHICH MAY BE OBTAINED FROM THE ISSUER.
11. LISTING AND HSR FILING
----------------------
Acquiror, upon the request of Target, shall promptly file an application to
list the Acquiror Shares to be acquired upon exercise of the Option for
quotation on the Nasdaq National Market and shall use its best efforts to obtain
approval of such listing as soon as practicable. Target, upon the request of
Acquiror, shall promptly file an application to list the Target Shares issued
and delivered to Acquiror pursuant to Section 1 for quotation on the Nasdaq
National Market and shall use its best efforts to obtain approval of such
listing as soon as practicable. Promptly after the date hereof, each of the
parties hereto shall promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and
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other documents and exhibits required to be filed under the HSR Act to permit
the acquisition of the Acquiror Shares subject to the Option at the earliest
possible date.
12. BINDING EFFECT
--------------
This Agreement shall be binding upon and inure to the benefit of the
parties hereto and their respective successors and permitted assigns. Nothing
contained in this Agreement, express or implied, is intended to confer upon any
person other than the parties hereto and their respective successors and
permitted assigns any rights or remedies of any nature whatsoever by reason of
this Agreement. Any shares sold by a party in compliance with the provisions of
Section 8 shall, upon consummation of such sale, be free of the restrictions
imposed with respect to such shares by this Agreement and any transferee of such
shares shall not be entitled to the rights of such party. Certificates
representing shares sold in a registered public offering pursuant to Section 8
shall not be required to bear the legend set forth in Section 10.
13. SPECIFIC PERFORMANCE
--------------------
The parties recognize and agree that if for any reason any of the
provisions of this Agreement are not performed in accordance with their specific
terms or are otherwise breached, immediate and irreparable harm or injury would
be caused for which money damages would not be an adequate remedy. Accordingly,
each party agrees that in addition to other remedies the other party shall be
entitled to an injunction restraining any violation or threatened violation of
the provisions of this Agreement. In the event that any action shall be brought
in equity to enforce the provisions of the Agreement, neither party will allege,
and each party hereby waives the defense, that there is an adequate remedy at
law.
14. ENTIRE AGREEMENT
----------------
This Agreement and the Merger Agreement (including the appendices thereto)
constitute the entire agreement between the parties with respect to the subject
matter hereof and supersede all other prior agreements and understandings, both
written and oral, between the parties with respect to the subject matter hereof.
15. FURTHER ASSURANCES
------------------
Each party will execute and deliver all such further documents and
instruments and take all such further action as may be necessary in order to
consummate the transactions contemplated hereby.
16. VALIDITY
--------
The invalidity or unenforceability of any provision of this Agreement shall
not affect the validity or enforceability of the other provisions of this
Agreement, which shall remain in full force and effect. In the event any
Governmental Entity of competent jurisdiction holds any provision of this
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Agreement to be null, void or unenforceable, the parties hereto shall negotiate
in good faith and shall execute and deliver an amendment to this Agreement in
order, as nearly as possible, to effectuate, to the extent permitted by law, the
intent of the parties hereto with respect to such provision.
17. NOTICES
-------
All notices and other communications hereunder shall be in writing and
shall be deemed given if delivered personally or by commercial delivery service,
or sent via telecopy (receipt confirmed) to the parties at the following
addresses or telecopy numbers (or at such other address or telecopy numbers for
a party as shall be specified by like notice):
(a) if to Target, to:
Pure Atria Corporation
0000 Xxxxx Xxxx Xxxxxx
Xxxxxxxxx, Xxxxxxxxxx 00000
Attn: President and Chief Executive Officer
with a copy to:
Fenwick & Xxxx
Xxx Xxxx Xxxx Xxxxxx, Xxxxx 000
Xxxx Xxxx, Xxxxxxxxxx 00000
Attn: Xxxxxx X. XxXxxxxx, Esq.
(b) if to Acquiror to:
Rational Software Corporation
0000 Xxx Xxxxx Xxxxxxxxxx
Xxxxx Xxxxx, Xxxxxxxxxx 00000
Attn: President and Chief Executive Officer
with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxx X. Xxxxxx, Esq.
18. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of Delaware applicable to agreements made and to be performed
entirely within such State.
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19. COUNTERPARTS
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
20. EXPENSES
--------
Except as otherwise expressly provided herein or in the Merger Agreement,
all costs and expenses incurred in connection with the transactions contemplated
by this Agreement shall be paid by the party incurring such expenses.
21. AMENDMENTS; WAIVER
------------------
This Agreement may be amended by the parties hereto and the terms and
conditions hereof may be waived only by an instrument in writing signed on
behalf of each of the parties hereto, or, in the case of a waiver, by an
instrument signed on behalf of the party waiving compliance.
22. ASSIGNMENT
----------
Neither of the parties hereto may sell, transfer, assign or otherwise
dispose of any of its rights or obligations under this Agreement or the Option
created hereunder to any other person, without the express written consent of
the other party, except that the rights and obligations hereunder shall inure to
the benefit of and be binding upon any successor of a party hereto.
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective duly authorized officers as of the date first
above written.
PURE ATRIA CORPORATION
By: /s/
------------------------------------------
Name: Xxxx Xxxxxxxx
Title: President, Chief Executive Officer
Chairman of the Board of Directors
Acquiror
By: /s/
-----------------------------------------
Name: Xxxx X. Xxxx
Title: Chief Executive Officer
***STOCK OPTION AGREEMENT***
(Acquiror option to Target)
