<PAGE>
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OMB Number: 3235-0145
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Expires: October 31, 1997
Estimated average burden
hours per response 14.90
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
SCHEDULE 13D
UNDER THE SECURITIES EXCHANGE ACT OF 1934
(AMENDMENT NO. ___________)*
FRACTAL DESIGN CORP.
- --------------------------------------------------------------------------------
(Name of Issuer)
COMMON STOCK, $0.001 PAR VALUE PER SHARE
- --------------------------------------------------------------------------------
(Title of Class of Securities)
351681
- --------------------------------------------------------------------------------
(CUSIP Number)
MARK ZIMMER, FRACTAL DESIGN CORP.,
5550 SCOTTS VALLEY DRIVE, SCOTTS VALLEY, CA 95066
- --------------------------------------------------------------------------------
(Name, Address and Telephone Number of Person Authorized
to Receive Notices and Communications)
February 11, 1997
- --------------------------------------------------------------------------------
(Date of Event which Requires Filing of this Statement)
If the filing person has previously filed a statement on Schedule 13G to report
the acquisition which is the subject of this Schedule 13D, and is filing this
schedule because of Rule 13d-1(b)(3) or (4), check the following box [_].
Check the following box if a fee is being paid with the statement [_]. (A fee
is not required only if the reporting person: (1) has a previous statement on
file reporting beneficial ownership of more than five percent of the class of
securities described in Item 1; and (2) has filed no amendment subsequent
thereto reporting beneficial ownership of five percent or less of such class.)
(See Rule 13d-7.)
NOTE: Six copies of this statement, including all exhibits, should be filed
with the Commission. See Rule 13d-1(a) for other parties to whom copies are to
be sent.
* The remainder of this cover page shall be filled out for a reporting person's
initial filing on this form with respect to the subject class of securities, and
for any subsequent amendment containing information which would alter
disclosures provided in a prior cover page.
The information required on the remainder of this cover page shall not be deemed
to be "filed" for the purpose of Section 18 of the Securities Exchange Act of
1934 ("Act") or otherwise subject to the liabilities of that section of the Act
but shall be subject to all other provisions of the Act (however, see the
Notes).
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 2 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
METATOOLS, INC.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
STATE OF DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7 In the event the stock option becomes exercisable and
is exercised in full, MetaTools will have sole voting
power with respect to that number of shares equal to
19.9% of the then outstanding shares of Common Stock
of Fractal Design Corp. ("Fractal"), which, based upon
the 11,979,647 shares of Fractal outstanding as of
NUMBER OF February 19, 1997, currently equals 2,383,950 shares
of Common Stock of Fractal.
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
3,948,184
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9
REPORTING In the event the stock option becomes exercisable and
is exercised in full, MetaTools will have sole
PERSON dispositive power with respect to that number of
shares equal to 19.9% of the then outstanding shares
WITH of Common Stock of Fractal, which, based upon the
11,979,647 shares of Fractal outstanding as of
February 19, 1997, currently equals 2,383,950 shares
of Common Stock of Fractal.
-----------------------------------------------------------
SHARED DISPOSITIVE POWER
10
0
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
In the event the stock option becomes exercisable and is exercised in
full, MetaTools will beneficially own that number of shares equal to
19.9% of the then outstanding shares of Common Stock of Fractal, which,
based upon the 11,979,647 shares of Fractal outstanding as of February
19, 1997, currently equals 2,383,950 shares of Common Stock of Fractal,
plus the 3,948,184 shares over which MetaTools shares voting power
pursuant to the proxies.
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [X]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
52.86%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
CO
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 3 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
MARK ZIMMER
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
563,750
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 563,750 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
563,750
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
4.69%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 4 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
THOMAS HEDGES
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
767,658
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 767,658 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
767,658
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
6.39%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 5 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LESLIE WRIGHT
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
00
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
108,577
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 108,577 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
108,577
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.90%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 6 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
BRADEN RIPPETOE
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
15,312
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 15,312 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
15,312
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.13%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 7 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JOSEPH CONSUL
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
42,358
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 42,358 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
42,358
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.35%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 8 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
STEVE GUTTMAN
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
86,562
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 86,562 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
86,562
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.35%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 9 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
JOHN DERRY
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
16,906
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 16,906 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
16,906
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.14%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 10 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
PIERRE BERKALOFF
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
FRANCE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
80,385
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 80,385 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
80,385
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.67%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 11 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
KAREN BRIA
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
17,120
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 17,120 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
17,120
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.14%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 12 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
MICHAEL POPOLO
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
20,655
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 20,655 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
20,655
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.17%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 13 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ARTHUR J. COLLMEYER
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
51,875
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 51,875 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
51,875
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.43%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 14 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
STEPHEN MANOUSOS
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
368,885
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 368,885 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
368,885
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
3.07%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 15 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
CRAIG JOHNSON
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
30,500
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 21,500 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
9,000
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
30,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.25%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 16 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
LEE JAY LORENZEN
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
1,038,618
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 1,038,618 (Subject to the restrictions set forth in
REPORTING that certain Affiliate Agreement dated February 11,
1997 filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
1,038,618
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
8.64%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 17 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
ANTHONY SUN
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
20,898
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 20,898 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
20,898
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.17%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 18 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
THOMAS I. UNTERBERG
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
UNITED STATES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
88,125
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 88,125 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
88,125
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.73%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
IN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 19 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
UNTERBERG HARRIS, L.L.C.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
STATE OF NEW YORK
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
105,000
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 105,000 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
105,000
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.88%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 20 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
UNTERBERG HARRIS INTERACTIVE MEDIA, L.P., C.V.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
NETHERLANDS ANTILLES
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
262,500
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 262,500 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
262,500
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
2.19%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 21 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
UNTERBERG HARRIS INTERACTIVE MEDIA, L.P.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
STATE OF DELAWARE
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
209,501
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 209,501 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
209,501
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13 1.75%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 22 OF 54 PAGES
- ----------------------- ----------------------
- ------------------------------------------------------------------------------
NAME OF REPORTING PERSON
1 S.S. OR I.R.S. IDENTIFICATION NO. OF ABOVE PERSON
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, C.V.
- ------------------------------------------------------------------------------
CHECK THE APPROPRIATE BOX IF A MEMBER OF A GROUP*
2 (a) [X]
(b) [_]
- ------------------------------------------------------------------------------
SEC USE ONLY
3
- ------------------------------------------------------------------------------
SOURCE OF FUNDS*
4
00
- ------------------------------------------------------------------------------
CHECK BOX IF DISCLOSURE OF LEGAL PROCEEDINGS IS REQUIRED PURSUANT TO
ITEMS 2(d) OR 2(E)
5 [_]
- ------------------------------------------------------------------------------
CITIZENSHIP OR PLACE OF ORGANIZATION
6
Netherlands Antilles
- ------------------------------------------------------------------------------
SOLE VOTING POWER
7
NUMBER OF -0-
SHARES -----------------------------------------------------------
SHARED VOTING POWER
BENEFICIALLY 8
52,999
OWNED BY
-----------------------------------------------------------
EACH SOLE DISPOSITIVE POWER
9 52,999 (Subject to the restrictions set forth in that
REPORTING certain Affiliate Agreement dated February 11, 1997
filed as Exhibit 7 to this Schedule 13D)
PERSON -----------------------------------------------------------
SHARED DISPOSITIVE POWER
WITH 10
-0-
- ------------------------------------------------------------------------------
AGGREGATE AMOUNT BENEFICIALLY OWNED BY EACH REPORTING PERSON
11
52,999
- ------------------------------------------------------------------------------
CHECK BOX IF THE AGGREGATE AMOUNT IN ROW (11) EXCLUDES CERTAIN SHARES*
12 [_]
- ------------------------------------------------------------------------------
PERCENT OF CLASS REPRESENTED BY AMOUNT IN ROW (11)
13
0.44%
- ------------------------------------------------------------------------------
TYPE OF REPORTING PERSON*
14
PN
- ------------------------------------------------------------------------------
*SEE INSTRUCTIONS BEFORE FILLING OUT!
INCLUDE BOTH SIDES OF THE COVER PAGE, RESPONSES TO ITEMS 1-7
(INCLUDING EXHIBITS) OF THE SCHEDULE, AND THE SIGNATURE ATTESTATION.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 23 OF 54 PAGES
- ----------------------- ----------------------
Neither the filing of this Schedule 13D nor any of its contents shall be
deemed to constitute an admission by MetaTools, Inc., ("MetaTools"), Mark
---------
Zimmer, Thomas Hedges, Leslie Wright, Braden Rippetoe, Joseph Consul, Steve
Guttman, John Derry, Pierre Berkaloff, Karen Bria, Michael Popolo, Arthur J.
Collmeyer, Stephen Manousos, Craig Johnson, Lee Jay Lorenzen, Anthony Sun,
Thomas I. Unterberg, Unterberg Harris, L.L.C., Unterberg Harris Interactive
Media, L.P., C.V., Unterberg Harris Private Equity Partners, L.P., or Unterberg
Harris Private Equity Partners, C.V. (collectively, the "Individuals") that it
------------
or he is the beneficial owner of any of the Common Stock referred to herein for
purposes of Section 13(d) of the Securities Exchange Act of 1934, as amended
(the "Act"), or for any other purpose, and such beneficial
---
ownership is expressly disclaimed. Any information contained herein as to any
Individual has been provided by such Individual, and any information contained
herein as to MetaTools, Inc. has been provided by MetaTools, Inc.
ITEM 1. SECURITY AND ISSUER.
This statement on Schedule 13D relates to the common stock, par value
$0.001 per share ("Issuer Common Stock"), of Fractal Design Corporation, a
-------------------
California corporation ("Issuer"). The principal executive offices of Issuer
------
are located at 5550 Scotts Valley Dr., Scotts Valley, California 95066.
ITEM 2. IDENTITY AND BACKGROUND.
The names of the people filing this statement are MetaTools, Inc., a
Delaware corporation, Mark Zimmer, Thomas Hedges, Leslie Wright, Braden
Rippetoe, Joseph Consul, Steve Guttman, John Derry, Pierre Berkaloff, Karen
Bria, Michael Popolo, Arthur J. Collmeyer, Stephen Manousos, Craig Johnson, Lee
Jay Lorenzen, Anthony Sun, Thomas I. Unterberg, Unterberg Harris, L.L.C.,
Unterberg Harris Interactive Media, L.P., C.V., Unterberg Harris Private Equity
Partners, L.P., and Unterberg Harris Private Equity Partners, C.V. The address
of the principal office and principal business of MetaTools is 6303 Carpinteria
Avenue, Carpinteria, California 93013. MetaTools designs, develops, publishes,
markets and supports software tools for the creation, editing and manipulation
of computer graphic images, digital art and Internet/online content for Windows,
Macintosh and other operating systems. Set forth in Schedule A is a list of each
of MetaTools' directors and executive officers, as of the date hereof, along
with the present principal occupation or employment of such directors and
executive officers, their respective citizenship and the name, principal
business and address of any corporation or other organization other than
MetaTools in which such employment is conducted. Set forth in Schedule B is a
list of each of the Individuals, their business address, principal occupation or
employment and the name, principal business and address of any corporation or
other organization in which such employment is conducted and their citizenship.
During the past five years neither MetaTools nor any of the Individuals
nor, to MetaTools' knowledge, any person named in Schedule A to this statement,
has been convicted in a criminal proceeding (excluding traffic violations or
similar misdemeanors). Also during the past five years neither MetaTools nor
any of the Individuals nor, to MetaTools' knowledge, any person named in
Schedule A to this statement, was a party to a civil proceeding of a judicial or
administrative body of competent jurisdiction as a result of which such person
was or is subject to a judgment, decree or final order enjoining future
violations of, or prohibiting or mandating activity subject to, federal or state
securities laws or finding any violation with respect to such laws.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 24 OF 54 PAGES
- ----------------------- ----------------------
ITEM 3. SOURCE AND AMOUNT OF FUNDS OR OTHER CONSIDERATION.
Pursuant to an Agreement and Plan of Reorganization dated February 11, 1997
(the "Merger Agreement") among MetaTools, Rook Acquisition Corp., a Delaware
----------------
corporation and a wholly-owned subsidiary of MetaTools ("Merger Sub") and
----------
Issuer, and subject to the conditions set forth therein (including approval by
stockholders of Issuer and MetaTools), Merger Sub will be merged with and into
Issuer (the "Merger"), with each share of Issuer Common Stock being converted
------
into the right to receive 0.749 shares of MetaTools common stock, $0.001 par
value per share ("MetaTools Common Stock"). The foregoing summary of the Merger
----------------------
is qualified in its entirety by reference to the copy of the Merger Agreement
included as Exhibit 1 to this Schedule 13D and incorporated herein in its
entirety by reference. The Individuals are not parties to the Merger Agreement.
This statement on Schedule 13D also relates to a voting agreement as
described in Item 4 below.
ITEM 4. PURPOSE OF TRANSACTION.
As described in Item 3 above, this statement relates to the Merger of
Merger Sub, a wholly-owned subsidiary of MetaTools, with and into Issuer in a
statutory merger pursuant to the Delaware General Corporation Law ("Delaware
--------
Law"). At the effective time of the Merger (the "Effective Time"), the separate
--------------
existence of Merger Sub will cease and Issuer will continue as the surviving
corporation and as a wholly-owned subsidiary of MetaTools ("Surviving
---------
Corporation"). The initial directors of the Surviving Corporation shall be the
- -----------
directors of Merger Sub immediately prior to the Effective Time, and the initial
officers of the Surviving Corporation shall be the officers of Merger Sub
immediately prior to the Effective Time. The Certificate of Incorporation of
Merger Sub as in effect immediately prior to the Merger shall be the Certificate
of Incorporation Certificate of Incorporation of the Surviving Corporation until
thereafter amended as provided by the Delaware Law and such Certificate of
Incorporation; provided, however, at the Effective Time the Certificate of
-------- -------
Incorporation of the Surviving Corporation shall be amended so that the name of
the Surviving Corporation shall be Fractal Corp. The Bylaws of Merger
Sub as in effect immediately prior to the Merger shall be the Bylaws of the
Surviving Corporation until thereafter amended.
In connection with the Merger, holders of outstanding Issuer Common Stock
will receive, in exchange for each share of Issuer Common Stock held by them,
0.749 shares of MetaTools Common Stock. In addition, MetaTools will assume all
options outstanding under the Issuer's 1993 Stock Option Plan, 1995 Stock Plan,
1995 Directors' Stock Option Plan and 1992 Assumed Ray Dream, Inc. Stock Option
Plan. If the Merger is consummated, the Issuer Common Stock will be
deregistered under the Act and delisted from The Nasdaq National Market.
The Merger Agreement contains customary representations and warranties on
the part of MetaTools and Issuer, and the consummation of the Merger is subject
to customary closing conditions, including, without limitation, approval by the
stockholders of MetaTools and Issuer and no occurrence of an event with a
material adverse effect with respect to a party. The Merger Agreement also
contains covenants regarding the activities of the parties pending consummation
of the Merger. Generally, each of the parties must conduct its business in the
ordinary course consistent with past practice.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 25 OF 54 PAGES
- ----------------------- ----------------------
The foregoing summary of the Merger is qualified in its entirety by
reference to the copy of the Merger Agreement included as Exhibit 1 to this
Schedule 13D and incorporated herein in its entirety by reference. The
Individuals are not parties to the Merger Agreement.
As an inducement to MetaTools to enter into the Merger Agreement, the
Individuals (collectively, "Voting Agreement Stockholders") have each entered
-----------------------------
into a Voting Agreement dated as of February 11, 1997 (the "Voting Agreement")
----------------
with MetaTools. Pursuant to the Voting Agreement, the Voting Agreement
Stockholders have agreed to vote the shares of Issuer Common Stock owned by them
in favor of approval and adoption of the Merger Agreement and the Merger and any
matter that could reasonably be expected to facilitate the Merger. The Voting
Agreement Stockholders have also executed and delivered to MetaTools an
irrevocable proxy granting MetaTools the authority to vote the shares of Issuer
Common Stock owned by the Voting Agreement Stockholders in the manner described
in the previous sentence. The Voting Agreement terminates upon the earlier to
occur of the Effective Time or the termination of the Merger Agreement. Each
Voting Agreement Stockholder and the number of outstanding shares of Issuer
Common Stock held of record by each Voting Agreement Stockholder is set forth in
Schedule B hereto which is hereby incorporated by this reference. MetaTools did
not pay any additional consideration to any Voting Agreement Stockholder in
connection with the execution and delivery of the Voting Agreement. The
foregoing summary of the Voting Agreement is qualified in its entirety by
reference to a copy of the form of Voting Agreement included as Exhibit 2 to
this Schedule 13D and incorporated herein in its entirety by reference.
As an inducement to Issuer to enter into the Merger Agreement, certain
stockholders of MetaTools have each entered into a Voting Agreement dated as of
February 11, 1997 with Issuer, the substance of which is substantially similar
to the substance of the Voting Agreement. A copy of this agreement is included
as Exhibit 3 to this Schedule 13D and incorporated herein in its entirety by
reference.
Also as an inducement to MetaTools to enter into the Merger Agreement,
MetaTools and Issuer entered into a Stock Option Agreement dated February 11,
1997 ("Stock Option Agreement") pursuant to which Issuer granted MetaTools the
----------------------
right (the "Option"), under certain conditions, to purchase up to a number of
------
shares of Issuer Common Stock equal to 19.9% of the issued and outstanding
Issuer Common Stock. The Individuals are not parties to the Stock Option
Agreement.
As an inducement to Issuer to enter into the Merger Agreement, Issuer and
MetaTools entered into a Stock Option Agreement dated February 11, 1997 pursuant
to which MetaTools granted Issuer the right under certain conditions to purchase
up to a number of shares of MetaTools Common Stock equal to 19.9% of the issued
and outstanding MetaTools Common Stock. The substance of this agreement is
substantially similar to the substance of the Stock Option Agreement, and a copy
of this agreement is included as Exhibit 5 to this Schedule 13D and incorporated
herein in its entirety by reference. The Individuals are not parties to this
agreement.
Also in connection with the Merger Agreement, certain stockholders of
MetaTools (each an "Affiliate") have each entered into an affiliate agreement
---------
with MetaTools (collectively, the "Affiliate Agreements") pursuant to which each
--------------------
Affiliate has agreed to not sell, exchange, transfer, pledge, dispose or
otherwise reduce such Affiliate's interest in or risk relative to any shares of
MetaTools Common Stock or other equity securities of MetaTools owned by such
Affiliate during the period commencing February 11,
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 26 OF 54 PAGES
- ----------------------- ----------------------
1997 and ending at such time as financial results covering at least 30 days of
combined operations of MetaTools and Issuer have been publicly announced by
MetaTools, so as to prevent interference with MetaTools accounting for the
Merger as a pooling of interests. The foregoing summary of the Affiliate
Agreements is qualified in its entirety by reference to the copy of a form of
the Affiliate Agreement included as Exhibit 6 to this Schedule 13D and
incorporated herein in its entirety by reference.
Also in connection with the Merger Agreement, the Voting Agreement
Stockholders have each entered into an affiliate agreement with MetaTools. The
substance of these agreements is substantially similar to the substance
Affiliate Agreements, except that each Voting Agreement Stockholder has also
agreed that any sale, transfer or other disposition of Issuer Common Stock by
such Voting Agreement Stockholder will be made in accordance with Rule 145
promulgated by the Securities and Exchange Commission (the "Commission") under
----------
the Securities Act of 1933, as amended, and has made certain representations
pertaining to continuity of interest with respect to the shares held by such
Voting Agreement Stockholder. A copy of a form of this agreement is included as
Exhibit 7 to this Schedule 13D and incorporated herein in its entirety by
reference.
ITEM 5. INTEREST IN SECURITIES OF ISSUER.
As a result of and subject to the Voting Agreement, MetaTools has shared
power with the Individuals to vote an aggregate of 3,948,184 shares of Issuer
Common Stock for the limited purposes described in Item 4 above, and such shares
constitute approximately 32.96% of the issued and outstanding shares of Issuer
Common Stock as of February 11, 1997. To the extent that MetaTools, as permitted
by the Voting Agreement, requests proxies to vote all of the shares of Issuer
Common Stock subject to the Voting Agreement and such proxies are granted
pursuant to the Voting Agreement, MetaTools will have sole power to vote such
shares. If pursuant to the Stock Option Agreement the Option becomes
exercisable, MetaTools would have the right to acquire up to the number of
shares of Issuer Common Stock constituting 19.9% of the Issuer Common Stock then
issued and outstanding. If acquired, MetaTools would have sole voting and
dispositive power over such shares, which shares would number 2,383,950 based
upon the number of shares of Issuer Common Stock issued and outstanding as of
February 11, 1997. The Individuals are not parties to the Option Agreement and
do not have any rights to acquire Issuer Common Stock thereunder. As a result of
the Voting Agreement and if the Option is exercised, MetaTools may be deemed to
beneficially own an aggregate of 6,332,134 shares of Issuer Common Stock based
upon the number of shares of Issuer Common Stock issued and outstanding as of
February 11, 1997, or 52.86% of the issued and outstanding shares of Issuer
Common Stock as of February 11, 1997.
To MetaTools' knowledge, except for John J. Wilczak who owns 5,000 shares
of Issuer Common Stock, no shares of Issuer Common Stock are beneficially
owned by any of the persons named in Schedule A. In addition, MetaTools has
not effected any transaction in Issuer Common Stock during the past 60 days
and to MetaTools' knowledge, none of the persons named in Schedule A has
effected any transaction in Issuer Common Stock during the past 60 days.
Set forth on Schedule C opposite each Individual's name is (i) that number
of shares of Issuer Common Stock beneficially owned by such Individual as of the
date hereof
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 27 OF 54 PAGES
- ----------------------- ----------------------
and (ii) the percentage of issued and outstanding Issuer Common Stock that such
shares represent (based on the number of shares of Issuer Common Stock
outstanding as of February 11, 1997). As a result of and subject to the Voting
Agreement, each of the Individuals shares voting power with MetaTools to vote
that number of shares of Issuer Common Stock as is set forth on Schedule C
opposite such Individual's name for the limited purposes described in Item 4
above. Each Individual represents on behalf of itself that it has not effected
any transaction in Issuer Common Stock during the past 60 days.
ITEM 6. CONTRACTS, ARRANGEMENTS, UNDERSTANDINGS OR RELATIONSHIPS WITH RESPECT
TO SECURITIES OF ISSUER.
Other than as described herein, to MetaTools' knowledge, there are no
contracts, arrangements, understandings or relationships (legal or otherwise)
among the persons named in Item 2 and between such persons and any person with
respect to any securities of Issuer, including but not limited to transfer or
voting of any of the securities, finder's fees, joint ventures, loan or option
arrangements, puts or calls, guarantees or profits, division or profits or loss,
or the giving or withholding or proxies.
ITEM 7. MATERIALS TO BE FILED AS EXHIBITS.
The following documents are filed as exhibits:
1. Agreement and Plan of Reorganization dated February 11, 1997 by and
among MetaTools, Inc., a Delaware corporation, Rook Acquisition Corp.,
a Delaware corporation and wholly-owned subsidiary of MetaTools, Inc.,
and Fractal Design Corp., a California corporation.
2. Voting Agreement dated February 11, 1997 by and among MetaTools, Inc.,
a Delaware corporation, Fractal Design Corp. and certain shareholders
of Fractal Design Corp., a California corporation.
3. Voting Agreement dated February 11, 1997 by and among Fractal Design
Corp., a California corporation, and certain stockholders of MetaTools,
Inc., a Delaware corporation.
4. Stock Option Agreement dated February 11, 1997 by and between Fractal
Design Corp., a California corporation and MetaTools, Inc., a Delaware
corporation.
5. Stock Option Agreement dated February 11, 1997 by and between
MetaTools, Inc., a Delaware corporation, and Fractal Design Corp., a
California corporation.
6. MetaTools, Inc. Affiliate Agreement dated February 11, 1997 by and
among MetaTools, Inc., a Delaware corporation, Fractal Design Corp., a
California corporation and certain stockholders of MetaTools, Inc., a
Delaware corporation.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 28 OF 54 PAGES
- ----------------------- ----------------------
7. Fractal Design Corp. Affiliate Agreement dated June 6, 1996 by and
among MetaTools, Inc., a Delaware corporation, and certain shareholders
of Fractal Design Corp., a California corporation.
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 29 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, I
certify that the information set forth in this statement is true, complete and
correct.
Dated: February 20, 1997
METATOOLS, INC.
By: /s/ Terance A. Kinninger
-------------------------
Title: Vice President and Chief Financial Officer
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 30 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Mark Zimmer
--------------------------
Mark Zimmer
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 31 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Thomas Hedges
--------------------------
Thomas Hedges
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 32 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Leslie Wright
-------------------------
Leslie Wright
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 33 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Braden Rippetoe
-------------------------
Braden Rippetoe
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 34 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Joseph Consul
-----------------------
Joseph Consul
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 35 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Steve Guttman
-----------------------
Steve Guttman
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 36 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ John Derry
--------------------
John Derry
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 37 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Pierre Berkaloff
--------------------------
Pierre Berkaloff
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 38 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Karen Bria
--------------------
Karen Bria
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 39 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Michael Popolo
------------------------
Michael Popolo
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 40 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Arthur J. Collmeyer
-----------------------------
Arthur J. Collmeyer
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 41 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Stephen Manousos
--------------------
Stephen Manousos
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 42 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Craig Johnson
----------------------
Craig Johnson
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 43 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Lee Jay Lorenzen
--------------------
Lee Jay Lorenzen
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 44 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Anthony Sun
--------------------
Anthony Sun
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 45 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
/s/ Thomas I. Unterberg
----------------------------
Thomas I. Unterberg
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 46 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
UNTERBERG HARRIS, L.L.C.
By: /s/ Thomas I. Unterberg
------------------------
Title: Member
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 47 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
UNTERBERG HARRIS INTERACTIVE MEDIA, L.P., C.V.
By: /s/ Thomas I. Unterberg
------------------------
Title: General Partner
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 48 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, L.P.
By: /s/ Thomas I. Unterberg
------------------------
Title: General Partner
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 49 OF 54 PAGES
- ----------------------- ----------------------
SIGNATURE
After reasonable inquiry and to the best of my knowledge and belief, the
undersigned certifies that the information set forth in this statement is true,
complete and correct.
Dated: February 20, 1997
UNTERBERG HARRIS PRIVATE EQUITY PARTNERS, C.V.
By: /s/ Thomas I. Unterberg
------------------------
Title: General Partner
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 50 OF 54 PAGES
- ----------------------- ----------------------
SCHEDULE A
DIRECTORS AND EXECUTIVE OFFICERS OF
METATOOLS, INC.
<TABLE>
<CAPTION>
Present Principal
Occupation Including
Name and Title Name of Employer Citizenship
- --------------------------- --------------------------------------------------------- -----------
<S> <C> <C>
John J. Wilczak Chairman of the Board of Directors, President U.S.
and Chief Executive Officer of MetaTools, and
Member of Compensation Committee
Kai Krause Senior Science and Design Officer and Director of U.S.
MetaTools
Terance A. Kinninger Vice President and Chief Financial Officer of MetaTools U.S.
James Mervis Vice President, Strategic Development and U.S.
Business Affairs of MetaTools
Fred Brown Senior Vice President, Sales and Marketing of MetaTools U.S.
Jeffrey D. Saper Secretary, Wilson Sonsini Goodrich & Rosati, P.C. U.S.
650 Page Mill Road, Palo Alto, CA 94304
Alexander Migdal Vice President - Senior Scientist of MetaTools, U.S.
Real Time Geometry Corp., 40 Washington Rd.,
Princeton Junction, NJ 08550
Sallie Olmsted Vice President, Corporate Communications U.S.
of MetaTools
Samuel H. Jones, Jr. Director of MetaTools, S&J Transportation, U.S.
U.S. Route 40, P.O. Box 169, Woodstown, NJ 08098-0169
Bert Kolde Director of MetaTools, U.S.
Paul Allen Group, 110 110th Ave. N.E.,
Suite 550, Bellevue, WA 98004
William H. Lane, III Director of MetaTools and Member of Audit U.S.
Committee, Canyon Vista, Inc., 10695 Magdalena,
Los Altos Hills, CA 94024
Howard L. Morgan Director of MetaTools and Member of Audit, U.S.
Compensation, and Option Committee, The ARCA Group,
Inc., 764 Mt. Moro Road, Villanova, PA 19085-2007
William J. Schroeder Director of MetaTools and Member of U.S.
Compensation and Option Committee, Diamond
Multimedia Systems, 2880 Junction Avenue, San Jose,
CA, 94134
</TABLE>
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 51 OF 54 PAGES
- ----------------------- ----------------------
<TABLE>
<CAPTION>
Present Principal
Occupation Including
Name and Title Name of Employer Citizenship
- --------------------------- --------------------------------------------------------- -----------
<S> <C> <C>
Robert E. Rice Vice President - Business Development of MetaTools, U.S.
Real Time Geometry Corp., 51 John F. Kennedy Parkway,
Suite 303 Short Hills, NJ 07078
</TABLE>
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 52 OF 54 PAGES
- ----------------------- ----------------------
SCHEDULE B
<TABLE>
<CAPTION>
NAME AND ADDRESS OF CORPORATION
PRINCIPAL OCCUPATION OR OR OTHER ORGANIZATION IN WHICH
INDIVIDUAL EMPLOYMENT WHICH EMPLOYED CITIZENSHIP
- ------------------- --------------------------- ------------------------------ ------------
<S> <C> <C> <C>
Mark Zimmer President and Chief Fractal Design Corp. U.S.
Executive Officer 5550 Scotts Valley
Scotts Valley, CA 95066
Thomas Hedges Vice President, Research Fractal Design Corp. U.S.
and Development 5550 Scotts Valley
Scotts Valley, CA 95066
Leslie E. Wright Chief Operating Officer, Fractal Design Corp. U.S.
Vice President, Finance and 5550 Scotts Valley
Administration and Chief Scotts Valley, CA 95066
Financial Officer
Stephen E. Manousos President and Chief Post Digital Software Incorporated U.S.
Executive Officer 1119 Pacific Avenue, Suite 300
Santa Cruz, CA 95060
Steve J. Guttman Vice President, Marketing Fractal Design Corp. U.S.
5550 Scotts Valley
Scotts Valley, CA 95066
Thomas J. Unterberg Managing Director Unterberg Harris U.S.
65 East 55th Street, 18th Floor
Park Avenue Tower
New York, NY 10022
Unterberg Harris, Unterberg Harris New York
L.L.C. 65 East 55th Street, 18th Floor
Park Avenue Tower
New York, NY 10022
Unterberg Harris Unterberg Harris Netherlands
Interactive Media, 65 East 55th Street, 18th Floor Antilles
L.P., C.V. Park Avenue Tower
New York, NY 10022
Unterberg Harris Unterberg Harris Delaware
Private Equity 65 East 55th Street, 18th Floor
Partners, L.P. Park Avenue Tower
New York, NY 10022
Unterberg Harris Unterberg Harris Netherlands
Private Equity 65 East 55th Street, 18th Floor Antilles
Partners, C.V. Park Avenue Tower
New York, NY1 10022
Arthur J. Collmeyer President and CEO Hi/fn Inc. U.S.
12636 High Bluff Drive, Suite 400
San Diego, CA 92130
</TABLE>
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 53 OF 54 PAGES
- ----------------------- ----------------------
<TABLE>
<CAPTION>
NAME AND ADDRESS OF CORPORATION
PRINCIPAL OCCUPATION OR OR OTHER ORGANIZATION IN WHICH
INDIVIDUAL EMPLOYMENT WHICH EMPLOYED CITIZENSHIP
- ------------------- --------------------------- ------------------------------ ------------
<S> <C> <C> <C>
Craig Johnson Director Venture Law Group U.S.
2800 Sand Hill Rd.
Menlo Park, CA 94025
Lee Jay Lorenzen President Altura Software, Inc. U.S.
510 Lighthouse Avenue, Suite Five
Pacific Grove, CA 93950
Karen Bria Director, International Fractal Design Corp. U.S.
Sales and Marketing 5550 Scotts Valley Drive
Scotts Valley, CA 95066
Braden Rippetoe Vice President, Finance Fractal Design Corp. U.S.
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Joseph Consul Vice President, Operations Fractal Design Corp. U.S.
5550 Scotts Valley Drive
Scotts Valley, CA 95066
John Derry Vice President, Creative Design Fractal Design Corp. U.S.
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Pierre Berkaloff Vice President, Engineering Fractal Design Corp. FRANCE
5550 Scotts Valley Drive
Scotts Valley, CA 95066
Michael Popolo Vice President, North American Fractal Design Corp. U.S.
Sales 5550 Scotts Valley Drive
Scotts Valley, CA 95066
Anthony Sun General Partner Venrock Associates U.S.
775 Page Mill Road, Suite A230
Palo Alto, CA 94304
</TABLE>
<PAGE>
SCHEDULE 13D
- ----------------------- ----------------------
CUSIP No. 351681 PAGE 54 OF 54 PAGES
- ----------------------- ----------------------
SCHEDULE C
<TABLE>
<CAPTION>
NUMBER OF SHARES
OF ISSUER COMMON PERCENTAGE
STOCK OF OUTSTANDING
BENEFICIALLY OF ISSUER COMMON STOCK
INDIVIDUAL OWNED AS OF FEBRUARY 19, 1997
- ---------------------------- ----------------- -----------------------
<S> <C> <C>
Mark Zimmer 563,750 4.69%
Thomas Hedges 767,658 6.39%
Leslie E. Wright 108,577 0.90%
Stephen E. Manousos 368,885 3.07%
Steve J. Guttman 86,562 0.72%
Thomas J. Unterberg 88,125 0.73%
Unterberg Harris, L.L.C. 105,000 0.88%
Unterberg Harris Interactive 262,500 2.19%
Media, L.P., C.V.
Unterberg Harris Private 209,501 1.75%
Equity Partners, L.P.
Unterberg Harris Private 52,999 0.44%
Equity Partners, C.V.
Arthur J. Collmeyer 51,875 0.43%
Craig Johnson 30,500 0.25%
Lee Jay Lorenzen 1,038,618 8.64%
Karen Bria 17,120 0.14%
Braden Rippetoe 15,312 0.13%
Joseph Consul 42,358 0.35%
John Derry 16,906 0.14%
Pierre Berkaloff 80,385 0.67%
Michael Popolo 20,655 0.17%
Anthony Sun 20,898 0.17%
</TABLE>
<PAGE>
EXHIBIT 1
AGREEMENT AND PLAN OF REORGANIZATION
BY AND AMONG
FRACTAL DESIGN CORPORATION
ROOK ACQUISITION CORP.
AND
METATOOLS, INC.
DATED AS OF FEBRUARY 11, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE I THE MERGER............................................................... 2
1.1 The Merger............................................................... 2
1.2 Effective Time; Closing.................................................. 2
1.3 Effect of the Merger..................................................... 2
1.4 Articles of Incorporation; Bylaws........................................ 3
1.5 Directors and Officers................................................... 3
1.6 Effect on Capital Stock.................................................. 3
1.7 Dissenting Shares........................................................ 4
1.8 Surrender of Certificates................................................ 5
1.9 No Further Ownership Rights in Fractal Common Stock...................... 6
1.10 Lost, Stolen or Destroyed Certificates................................... 6
1.11 Tax and Accounting Consequences.......................................... 7
1.12 Taking of Necessary Action; Further Action............................... 7
ARTICLE II REPRESENTATIONS AND WARRANTIES OF FRACTAL............................... 7
2.1 Organization of Fractal.................................................. 7
2.2 Fractal Capital Structure................................................ 8
2.3 Obligations With Respect to Capital Stock................................ 8
2.4 Authority................................................................ 9
2.5 SEC Filings; Fractal Financial Statements................................ 10
2.6 Absence of Certain Changes or Events..................................... 11
2.7 Tax...................................................................... 11
2.8 Title to Properties; Absence of Liens and Encumbrances................... 12
2.9 Intellectual Property.................................................... 12
2.10 Compliance; Permits; Restrictions........................................ 13
2.11 Litigation............................................................... 13
2.12 Brokers' and Finders' Fees............................................... 14
2.13 Employee Benefit Plans................................................... 14
2.14 Employees; Labor Matters................................................. 14
2.15 Environmental Matters.................................................... 15
2.16 Agreements, Contracts and Commitments.................................... 15
2.17 Pooling of Interests..................................................... 16
2.18 Change of Control Payments............................................... 16
2.19 Statements; Proxy Statement/Prospectus................................... 16
2.20 Board Approval........................................................... 17
2.21 Fairness Opinion......................................................... 17
ARTICLE III REPRESENTATIONS AND WARRANTIES OF METATOOLS AND MERGER SUB............. 17
3.1 Organization of.......................................................... 18
3.2 MetaTools and Merger Sub Capital Structure............................... 18
3.3 Obligations With Respect to Capital Stock................................ 19
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
3.4 Authority................................................................ 19
3.5 Section 203 of the Delaware General Corporation Law Not Applicable....... 21
3.6 SEC Filings; MetaTools Financial Statements.............................. 21
3.7 Absence of Certain Changes or Events..................................... 22
3.8 Tax Returns and Audits................................................... 22
3.9 Title to Properties; Absence of Liens and Encumbrances................... 23
3.10 Intellectual Property.................................................... 23
3.11 Compliance; Permits; Restrictions........................................ 24
3.12 Litigation............................................................... 24
3.13 Brokers' and Finders' Fees............................................... 24
3.14 Employee Benefit Plans................................................... 25
3.16 Environmental Matters.................................................... 25
3.17 Agreements, Contracts and Commitments.................................... 26
3.18 Pooling of Interests..................................................... 27
3.19 Change of Control Payments............................................... 27
3.20 Statements; Proxy Statement/Prospectus................................... 27
3.21 Board Approval........................................................... 28
3.22 Fairness Opinion......................................................... 28
ARTICLE IV CONDUCT PRIOR TO THE EFFECTIVE TIME..................................... 28
4.1 Conduct of Business...................................................... 28
ARTICLE V ADDITIONAL AGREEMENTS.................................................... 30
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings; Board
Recommendations.......................................................... 30
5.2 Meetings of Shareholders and Stockholders................................ 31
5.3 Confidentiality; Access to Information................................... 32
5.4 No Solicitation.......................................................... 32
5.5 Public Disclosure........................................................ 35
5.6 Legal Requirements....................................................... 35
5.7 Third Party Consents..................................................... 36
5.8 Notification of Certain Matters.......................................... 36
5.9 Best Efforts and Further Assurances...................................... 36
5.10 Stock Options and Employee Benefits...................................... 36
5.11 Form S-8................................................................. 38
5.12 Indemnification and Insurance............................................ 38
5.13 NMS Listing.............................................................. 38
5.14 MetaTools Affiliate Agreement............................................ 38
5.15 Fractal Affiliate Agreement.............................................. 39
5.16 Regulatory Filings; Reasonable Efforts................................... 39
5.17 Board of Directors of the Combined Company............................... 39
5.19 Increase in Authorized Shares............................................ 39
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
ARTICLE VI CONDITIONS TO THE MERGER................................................ 40
6.1 Conditions to Obligations of Each Party to Effect the Merger............. 40
6.2 Additional Conditions to Obligations of Fractal.......................... 41
6.3 Additional Conditions to the Obligations of MetaTools and Merger Sub..... 41
ARTICLE VII TERMINATION, AMENDMENT AND WAIVER...................................... 42
7.1 Termination.............................................................. 42
7.2 Notice of Termination; Effect of Termination............................. 43
7.3 Fees and Expenses........................................................ 44
7.4 Amendment................................................................ 46
7.5 Extension; Waiver........................................................ 46
ARTICLE VIII GENERAL PROVISIONS.................................................... 46
8.1 Non-Survival of Representations and Warranties........................... 46
8.2 Notices.................................................................. 46
8.3 Interpretation; Knowledge................................................ 47
8.4 Counterparts............................................................. 47
8.5 Entire Agreement; Third Party Beneficiaries.............................. 47
8.6 Severability............................................................. 48
8.7 Other Remedies; Specific Performance..................................... 48
8.8 Governing Law............................................................ 48
8.9 Rules of Construction.................................................... 48
8.10 Assignment............................................................... 48
</TABLE>
-iii-
<PAGE>
INDEX OF EXHIBITS
-----------------
Exhibit A-1 Form of Fractal Voting Agreement
Exhibit A-2 Form of MetaTools Voting Agreement
Exhibit B-1 Form of MetaTools Stock Option Agreement
Exhibit B-2 Form of Fractal Stock Option Agreement
Exhibit C-1 Form of MetaTools Affiliate Agreement
Exhibit C-2 Form of Fractal Affiliate Agreement
Exhibit D Form of Noncompetition Agreement
<PAGE>
-ii-
<PAGE>
-iii-
<PAGE>
-iv-
<PAGE>
AGREEMENT AND PLAN OF REORGANIZATION
This AGREEMENT AND PLAN OF REORGANIZATION (the "AGREEMENT") is made and
entered into as of February 11, 1997, among MetaTools, Inc., a Delaware
corporation ("METATOOLS"), Rook Acquisition Corp., a Delaware corporation and a
wholly-owned subsidiary of MetaTools ("MERGER SUB"), and Fractal Design
Corporation, a California corporation ("FRACTAL").
RECITALS
--------
A. Upon the terms and subject to the conditions of this Agreement (as
defined in Section 1.2 below) and in accordance with the California General
Corporation Law ("CALIFORNIA LAW"), MetaTools and Fractal intend to enter into a
business combination transaction to pursue their long-term business strategies.
B. Immediately upon the effectiveness of the Merger (as defined in Section
1.1), the Board of Directors of the combined company would consist of nine (9)
members, with designees of Fractal to hold three (3) of such seats. It is also
contemplated that the senior management of the combined company would consist of
senior management from both Fractal and MetaTools.
C. The Board of Directors of Fractal (i) has determined that the Merger is
consistent with and in furtherance of the long-term business strategy of Fractal
and fair to, and in the best interests of, Fractal and its shareholders, (ii)
has approved this Agreement, the Merger and the other transactions contemplated
by this Agreement and (iii) has determined to recommend that the shareholders of
Fractal adopt and approve this Agreement and approve the Merger.
D. The Board of Directors of MetaTools (i) has determined that the Merger
is consistent with and in furtherance of the long-term business strategy of
MetaTools and fair to, and in the best interests of, MetaTools and its
stockholders, (ii) has approved this Agreement, the Merger and the other
transactions contemplated by this Agreement and (iii) has determined to
recommend that the stockholders of MetaTools vote to approve the issuance of
shares of MetaTools Common Stock (as defined below) to the shareholders of
Fractal pursuant to the terms of the Merger.
E. Concurrently with the execution of this Agreement, and as a condition
and inducement to MetaTools's willingness to enter into this Agreement, the
Chief Executive Officer of Fractal and certain other affiliates of Fractal shall
enter into Voting Agreements in substantially the form attached hereto as
Exhibit A-1 (the "FRACTAL VOTING AGREEMENTS"). Concurrently with the execution
- -----------
of this Agreement, and as a condition and inducement to Fractal's willingness to
enter into this Agreement, the Chief Executive Officer of MetaTools and certain
other affiliates of MetaTools shall enter into Voting Agreements in
substantially the form attached hereto as Exhibit A-2 (the "METATOOLS VOTING
-----------
AGREEMENTS").
F. Concurrently with the execution of this Agreement, and as a condition
and inducement to Fractal's and MetaTools' willingness to enter into this
Agreement, MetaTools shall execute and deliver a Stock Option Agreement in favor
of Fractal in substantially the form attached hereto as Exhibit B-1 (the
-----------
"METATOOLS STOCK OPTION AGREEMENT") and Fractal shall execute and deliver a
Stock Option Agreement in favor of MetaTools in substantially the form attached
hereto as Exhibit B-2 (the "FRACTAL STOCK OPTION AGREEMENT" and, together with
-----------
the MetaTools Stock Option
<PAGE>
Agreement, the "STOCK OPTION AGREEMENTS"). The Board of Directors of MetaTools
and Fractal have each approved the Stock Option Agreements.
G. The parties intend, by executing this Agreement, to adopt a plan of
reorganization within the meaning of Section 368 of the Internal Revenue Code of
1986, as amended (the "CODE").
H. It is also intended by the parties hereto that the Merger shall qualify
for accounting treatment as a pooling of interests.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the receipt and sufficiency of which are hereby acknowledged, the parties agree
as follows:
ARTICLE I
THE MERGER
1.1 The Merger. At the Effective Time (as defined in Section 1.2) and
----------
subject to and upon the terms and conditions of this Agreement and the
applicable provisions of California Law, Merger Sub shall be merged with and
into Fractal (the "MERGER"), the separate corporate existence of Merger Sub
shall cease and Fractal shall continue as the surviving corporation. Fractal as
the surviving corporation after the Merger is hereinafter sometimes referred to
as the "SURVIVING CORPORATION."
1.2 Effective Time; Closing. Subject to the provisions of this Agreement,
-----------------------
the parties hereto shall cause the Merger to be consummated by filing an
Agreement of Merger with the Secretary of State of the State of California in
accordance with the relevant provisions of California Law and by filing a
Certificate of Merger with the Secretary of State of the State of Delaware in
accordance with the relevant provisions of Delaware General Corporation Law
(collectively, the "AGREEMENT OF MERGER") (the time of such filing (or such
later time as may be agreed in writing by the parties and specified in the
Agreement of Merger) being the "EFFECTIVE TIME") as soon as practicable on or
after the Closing Date (as herein defined). Unless the context otherwise
requires, the term "AGREEMENT" as used herein refers collectively to this
Agreement and Plan of Reorganization and the Agreement of Merger. The closing
of the Merger (the "CLOSING") shall take place at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, at a time and date to be specified
by the parties, which shall be no later than the second business day after the
satisfaction or waiver of the conditions set forth in Article VI, or at such
other time, date and location as the parties hereto agree in writing (the
"CLOSING DATE").
1.3 Effect of the Merger. At the Effective Time, the effect of the Merger
--------------------
shall be as provided in this Agreement and the applicable provisions of
California Law. Without limiting the generality of the foregoing, and subject
thereto, at the Effective Time all the property, rights, privileges, powers and
franchises of Fractal and Merger Sub shall vest in the Surviving Corporation,
and all debts, liabilities and duties of Fractal and Merger Sub shall become the
debts, liabilities and duties of the Surviving Corporation.
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<PAGE>
1.4 Articles of Incorporation; Bylaws.
---------------------------------
(a) At the Effective Time, the Articles of Incorporation of Merger
Sub, as in effect immediately prior to the Effective Time, shall be the Articles
of Incorporation of the Surviving Corporation until thereafter amended as
provided by law and such Articles of Incorporation of the Surviving Corporation;
provided, however, that at the Effective Time the Articles of Incorporation of
- -------- -------
the Surviving Corporation shall be amended so that the name of the Surviving
Corporation shall be Fractal Corporation.
(b) The Bylaws of Merger Sub, as in effect immediately prior to the
Effective Time, shall be, at the Effective Time, the Bylaws of the Surviving
Corporation until thereafter amended.
1.5 Directors and Officers. The initial directors of the Surviving
----------------------
Corporation shall be the directors of Merger Sub immediately prior to the
Effective Time, until their respective successors are duly elected or appointed
and qualified. The initial officers of the Surviving Corporation shall be the
officers of Merger Sub immediately prior to the Effective Time, until their
respective successors are duly appointed.
1.6 Effect on Capital Stock. At the Effective Time, by virtue of the
-----------------------
Merger and without any action on the part of Merger Sub, Fractal or the holders
of any of the following securities:
(a) Conversion of Fractal Common Stock. Each share of Common Stock,
----------------------------------
$.001 par value, of Fractal (the "FRACTAL COMMON STOCK") issued and outstanding
immediately prior to the Effective Time, (other than any shares of Fractal
Common Stock to be canceled pursuant to Section 1.6(b) and any Dissenting Shares
(as defined in and to the extent provided in Section 1.7(a)) will be canceled
and extinguished and automatically converted (subject to Sections 1.6(e) and
(f)) into the right to receive 0.749 (the "EXCHANGE RATIO") share of Common
Stock, par value $.001 per share, of MetaTools (the "METATOOLS COMMON STOCK")
upon surrender of the certificate representing such share of Fractal Common
Stock in the manner provided in Section 1.8 (or in the case of a lost, stolen or
destroyed certificate, upon delivery of an affidavit (and bond, if required) in
the manner provided in Section 1.10).
(b) Cancellation of MetaTools-Owned Stock. Each share of Fractal
-------------------------------------
Common Stock held by Fractal or owned by Merger Sub, MetaTools or any direct or
indirect wholly owned subsidiary of Fractal or of MetaTools immediately prior to
the Effective Time shall be canceled and extinguished without any conversion
thereof.
(c) Stock Options; Employee Stock Purchase Plans. At the Effective
--------------------------------------------
Time, all options to purchase Fractal Common Stock then outstanding under
Fractal's 1993 Stock Option Plan, 1995 Stock Option Plan, 1995 Directors' Stock
Option Plan and 1992 Assumed Ray Dream, Inc. Stock Option Plan (collectively,
the "FRACTAL STOCK OPTION PLANS") shall be assumed by MetaTools in accordance
with Section 5.10 hereof.
(d) Capital Stock of Merger Sub. Each share of Common Stock, $.001,
---------------------------
of Merger Sub (the "MERGER SUB COMMON STOCK") issued and outstanding immediately
prior to the Effective
-3-
<PAGE>
Time shall be converted into one validly issued, fully paid and nonassessable
share of Common Stock, $.001, of the Surviving Corporation. Each certificate
evidencing ownership of shares of Merger Sub Common Stock shall continue to
evidence ownership of such shares of capital stock of the Surviving Corporation.
(e) Adjustments to Exchange Ratio. The Exchange Ratio shall be
-----------------------------
adjusted to reflect appropriately the effect of any stock split, reverse stock
split, stock dividend (including any dividend or distribution of securities
convertible into MetaTools Common Stock or Fractal Common Stock),
reorganization, recapitalization or other like change with respect to MetaTools
Common Stock or Fractal Common Stock occurring on or after the date hereof and
prior to the Effective Time.
(f) Fractional Shares. No fraction of a share of MetaTools Common
-----------------
Stock will be issued by virtue of the Merger, but in lieu thereof each holder of
shares of Fractal Common Stock who would otherwise be entitled to a fraction of
a share of MetaTools Common Stock (after aggregating all fractional shares of
MetaTools Common Stock to be received by such holder) shall receive from
MetaTools an amount of cash (rounded to the nearest whole cent) equal to the
product of (i) such fraction, multiplied by (ii) the average closing price of
one share of MetaTools Common Stock for the ten most recent days that MetaTools
Common Stock has traded ending on the trading day immediately prior to the
Effective Time, as reported on the Nasdaq National Market.
1.7 Dissenting Shares.
-----------------
(a) Notwithstanding any provision of this Agreement to the
contrary, the shares of any holder of Fractal Common Stock who has demanded and
perfected appraisal rights for such shares in accordance with California Law and
who, as of the Effective Time, has not effectively withdrawn or lost such
appraisal rights ("DISSENTING SHARES"), shall not be converted into or represent
a right to receive MetaTools Common Stock pursuant to Section 1.6, but the
holder thereof shall only be entitled to such rights as are granted by
California Law.
(b) Notwithstanding the foregoing, if any holder of shares of
Fractal Common Stock who demands appraisal of such shares under California Law
shall effectively withdraw or lose (through failure to perfect or otherwise) the
right to appraisal, then, as of the later of the Effective Time or the
occurrence of such event, such holder's shares shall automatically be converted
into and represent only the right to receive MetaTools Common Stock and cash in
lieu of fractional shares of MetaTools Common Stock in accordance with Section
1.6 hereof, without interest thereon, upon surrender of the certificate
representing such shares of Fractal Common Stock in the manner provided in
Section 1.8 (or in the case of a lost, stolen or destroyed certificate, upon
delivery of an affidavit (and bond, if required) in the manner provided in
Section 1.10).
(c) Fractal shall give MetaTools (i) prompt notice of any written
demands for appraisal of any shares of Fractal Common Stock, withdrawals of such
demands, and any other instruments served pursuant to California Law and
received by Fractal which relate to any such demand for appraisal and (ii) the
opportunity to participate in all negotiations and proceedings which
-4-
<PAGE>
take place prior to the Effective Time with respect to demands for appraisal
under California Law. Fractal shall not, except with the prior written consent
of MetaTools or as may be required by applicable law, voluntarily make any
payment with respect to any demands for appraisal of Fractal Common Stock or
offer to settle or settle any such demands. Any payments made in respect of
Dissenting Shares shall be made by Fractal or the Surviving Corporation as the
case may be.
1.8 Surrender of Certificates.
-------------------------
(a) Exchange Agent. MetaTools shall select a bank or trust company
--------------
with assets of not less than $500 million to act as the exchange agent (the
"EXCHANGE AGENT") in the Merger.
(b) MetaTools to Provide Common Stock. Promptly after the Effective
---------------------------------
Time, MetaTools shall make available to the Exchange Agent for exchange in
accordance with this Article I, the shares of MetaTools Common Stock issuable
pursuant to Section 1.6 in exchange for outstanding shares of Fractal Common
Stock, and cash in an amount sufficient for payment in lieu of fractional shares
pursuant to Section 1.6(f) and any dividends or distributions which holders of
shares of Fractal Common Stock may be entitled pursuant to Section 1.8(d).
(c) Exchange Procedures. Promptly after the Effective Time, MetaTools
-------------------
shall cause the Exchange Agent to mail to each holder of record (as of the
Effective Time) of a certificate or certificates (the "CERTIFICATES"), which
immediately prior to the Effective Time represented outstanding shares of
Fractal Common Stock whose shares were converted into the right to receive
shares of MetaTools Common Stock pursuant to Section 1.6, cash in lieu of any
fractional shares pursuant to Section 1.6(f) and any dividends or other
distributions pursuant to Section 1.8(d), (i) a letter of transmittal (which
shall specify that delivery shall be effected, and risk of loss and title to the
Certificates shall pass, only upon delivery of the Certificates to the Exchange
Agent and shall be in such form and have such other provisions as MetaTools may
reasonably specify) and (ii) instructions for use in effecting the surrender of
the Certificates in exchange for certificates representing shares of MetaTools
Common Stock, cash in lieu of any fractional shares pursuant to Section 1.6(f)
and any dividends or other distributions pursuant to Section 1.8(d). Upon
surrender of Certificates for cancellation to the Exchange Agent or to such
other agent or agents as may be appointed by MetaTools, together with such
letter of transmittal, duly completed and validly executed in accordance with
the instructions thereto, the holders of such Certificates shall be entitled to
receive in exchange therefor certificates representing the number of whole
shares of MetaTools Common Stock, payment in lieu of fractional shares which
such holders have the right to receive pursuant to Section 1.6(f) and any
dividends or distributions payable pursuant to Section 1.8(d), and the
Certificates so surrendered shall forthwith be canceled. Until so surrendered,
outstanding Certificates will be deemed from and after the Effective Time, for
all corporate purposes, subject to Section 1.8(d) as to the payment of
dividends, to evidence the ownership of the number of full shares of MetaTools
Common Stock into which such shares of Fractal Common Stock shall have been so
converted and the right to receive an amount in cash in lieu of the issuance of
any fractional shares in accordance with Section 1.6(f) and any dividends or
distributions payable pursuant to Section 1.8(d).
(d) Distributions With Respect to Unexchanged Shares. No dividends or
------------------------------------------------
other distributions declared or made after the date of this Agreement with
respect to MetaTools Common Stock with a record date after the Effective Time
will be paid to the holders of any unsurrendered
-5-
<PAGE>
Certificates with respect to the shares of MetaTools Common Stock represented
thereby until the holders of record of such Certificates shall surrender such
Certificates. Subject to applicable law, following surrender of any such
Certificates, the Exchange Agent shall deliver to the record holders thereof,
without interest, certificates representing whole shares of MetaTools Common
Stock issued in exchange therefor along with payment in lieu of fractional
shares pursuant to Section 1.6(f) hereof and the amount of any such dividends or
other distributions with a record date after the Effective Time payable with
respect to such whole shares of MetaTools Common Stock.
(e) Transfers of Ownership. If certificates for shares of MetaTools
----------------------
Common Stock are to be issued in a name other than that in which the
Certificates surrendered in exchange therefor are registered, it will be a
condition of the issuance thereof that the Certificates so surrendered will be
properly endorsed and otherwise in proper form for transfer and that the persons
requesting such exchange will have paid to MetaTools or any agent designated by
it any transfer or other taxes required by reason of the issuance of
certificates for shares of MetaTools Common Stock in any name other than that of
the registered holder of the Certificates surrendered, or established to the
satisfaction of MetaTools or any agent designated by it that such tax has been
paid or is not payable.
(f) No Liability. Notwithstanding anything to the contrary in this
------------
Section 1.8, neither the Exchange Agent, MetaTools, the Surviving Corporation
nor any party hereto shall be liable to a holder of shares of MetaTools Common
Stock or Fractal Common Stock for any amount properly paid to a public official
pursuant to any applicable abandoned property, escheat or similar law.
1.9 No Further Ownership Rights in Fractal Common Stock. All shares of
---------------------------------------------------
MetaTools Common Stock issued upon the surrender for exchange of shares of
Fractal Common Stock in accordance with the terms hereof (including any cash
paid in respect thereof pursuant to Section 1.6(f) and 1.8(d)) shall be deemed
to have been issued in full satisfaction of all rights pertaining to such shares
of Fractal Common Stock, and there shall be no further registration of transfers
on the records of the Surviving Corporation of shares of Fractal Common Stock
which were outstanding immediately prior to the Effective Time. If after the
Effective Time Certificates are presented to the Surviving Corporation for any
reason, they shall be canceled and exchanged as provided in this Article I.
1.10 Lost, Stolen or Destroyed Certificates. In the event any Certificates
--------------------------------------
shall have been lost, stolen or destroyed, the Exchange Agent shall issue in
exchange for such lost, stolen or destroyed Certificates, upon the making of an
affidavit of that fact by the holder thereof, such shares of MetaTools Common
Stock, cash for fractional shares, if any, as may be required pursuant to
Section 1.6(f) and any dividends or distributions payable pursuant to Section
1.8(d); provided, however, that MetaTools may, in its discretion and as a
-------- -------
condition precedent to the issuance thereof, require the owner of such lost,
stolen or destroyed Certificates to deliver a bond in such sum as it may
reasonably direct as indemnity against any claim that may be made against
MetaTools, Fractal or the Exchange Agent with respect to the Certificates
alleged to have been lost, stolen or destroyed.
-6-
<PAGE>
1.11 Tax and Accounting Consequences.
-------------------------------
(a) It is intended by the parties hereto that the Merger shall
constitute a reorganization within the meaning of Section 368 of the Code. The
parties hereto adopt this Agreement as a "plan of reorganization" within the
meaning of Sections 1.368-2(g) and 1.368-3(a) of the United States Income Tax
Regulations.
(b) It is intended by the parties hereto that the Merger shall
qualify for accounting treatment as a pooling of interests.
1.12 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Effective Time, any further action is necessary or desirable to carry out the
purposes of this Agreement and to vest the Surviving Corporation with full
right, title and possession to all assets, property, rights, privileges, powers
and franchises of Fractal and Merger Sub, the officers and directors of Fractal
and Merger Sub will take all such lawful and necessary action, so long as such
action is consistent with this Agreement.
ARTICLE II
REPRESENTATIONS AND WARRANTIES OF FRACTAL
Fractal represents and warrants to MetaTools and Merger Sub, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by Fractal to MetaTools dated as of the date hereof and certified by a duly
authorized officer of Fractal (the "FRACTAL SCHEDULES"), as follows:
2.1 Organization of Fractal.
-----------------------
(a) Fractal and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified or
licensed to do business and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified would not have a Material Adverse Effect (as defined
below) on Fractal.
(b) Fractal has delivered to MetaTools a true and complete list of
all of Fractal's subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and Fractal's equity interest therein.
(c) Fractal has delivered or made available to MetaTools a true and
correct copy of the Articles of Incorporation and Bylaws of Fractal and similar
governing instruments of each of its subsidiaries, each as amended to date, and
each such instrument is in full force and effect. Neither Fractal nor any of
its subsidiaries is in violation of any of the provisions of its Articles of
Incorporation or Bylaws or equivalent governing instruments.
-7-
<PAGE>
(d) When used in connection with Fractal, the term "MATERIAL ADVERSE
EFFECT" means, for purposes of this Agreement, any change, event or effect that
is materially adverse to the business, assets (including intangible assets),
financial condition or results of operations of Fractal and its subsidiaries
taken as a whole.
2.2 Fractal Capital Structure. The authorized capital stock of Fractal
-------------------------
consists of 50,000,000 shares of Common Stock, $.001 par value, of which there
were 11,979,647 shares issued and outstanding as of February 7, 1997 and
5,000,000 shares of Preferred Stock, $.001, of which no shares are issued or
outstanding. All outstanding shares of Fractal Common Stock are duly
authorized, validly issued, fully paid and nonassessable and are not subject to
preemptive rights created by statute, the Articles of Incorporation or Bylaws of
Fractal or any agreement or document to which Fractal is a party or by which it
is bound. As of February 7, 1997, Fractal had reserved an aggregate of
2,516,336 shares of Fractal Common Stock, net of exercises, for issuance to
employees, consultants and non-employee directors pursuant to the Fractal Stock
Option Plans. As of February 7, 1997, there were options outstanding to
purchase an aggregate of 2,017,666 shares of Common Stock, issued to employees,
consultants and non-employee directors pursuant to the Fractal Stock Option
Plans. All shares of Fractal Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. The Fractal Schedules list for each person who held in the
aggregate options to acquire 10,000 or more shares of Fractal Common Stock at on
or about February 7, 1997, the name of the holder of such option, the exercise
price of such option, the number of shares as to which such option will have
vested at such date, the vesting schedule for such option and whether the
exercisability of such option will be accelerated in any way by the transactions
contemplated by this Agreement, and indicate the extent of acceleration, if any.
Fractal has reserved 100,000 shares of Common Stock for issuance pursuant to
Fractal's 401(k) Profit Sharing Plan and Trust.
2.3 Obligations With Respect to Capital Stock. Except as set forth in
-----------------------------------------
Section 2.2, there are no equity securities, partnership interests or similar
ownership interests of any class of Fractal, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities Fractal owns, directly or indirectly through
one or more subsidiaries, there are no equity securities, partnership interests
or similar ownership interests of any class of any subsidiary of Fractal, or any
security exchangeable or convertible into or exercisable for such equity
securities, partnership interests or similar ownership interests, issued,
reserved for issuance or outstanding. Except as set forth in Section 2.2, there
are no options, warrants, equity securities, partnership interests or similar
ownership interests, calls, rights (including preemptive rights), commitments or
agreements of any character to which Fractal or any of its subsidiaries is a
party or by which it is bound obligating Fractal or any of its subsidiaries to
issue, deliver or sell, or cause to be issued, delivered or sold, or repurchase,
redeem or otherwise acquire, or cause the repurchase, redemption or acquisition,
of any shares of capital stock, partnership interests or similar ownership
interests of Fractal or any of its subsidiaries or obligating Fractal or any of
its subsidiaries to grant, extend, accelerate the vesting of or enter into any
such option, warrant, equity security, call, right, commitment or agreement.
There are no registration rights and, to the knowledge of Fractal, as of the
date of this Agreement, there are no voting trusts, proxies or other agreements
or understandings with respect to any equity security of
-8-
<PAGE>
any class of Fractal or with respect to any equity security, partnership
interest or similar ownership interest of any class of any of its subsidiaries.
2.4 Authority.
---------
(a) Fractal has all requisite corporate power and authority to enter
into this Agreement and the Fractal Stock Option Agreement and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and the
execution and delivery of the Fractal Stock Option Agreement and the
consummation of the transactions contemplated thereby, have been duly authorized
by all necessary corporate action on the part of Fractal, subject only to the
approval and adoption of this Agreement and the approval of the Merger by
Fractal's shareholders and the filing and recordation of the Agreement of Merger
pursuant to California Law. A vote of the holders of at least a majority of the
outstanding shares of the Fractal Common Stock is required for Fractal's
shareholders to approve and adopt this Agreement and approve the Merger. This
Agreement and the Fractal Stock Option Agreement have been duly executed and
delivered by Fractal and, assuming the due authorization, execution and delivery
by MetaTools and, if applicable, Merger Sub, constitute valid and binding
obligations of Fractal, enforceable in accordance with their respective terms,
except as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity. The execution and delivery of this Agreement and
the Fractal Stock Option Agreement by Fractal do not, and the performance of
this Agreement and the Fractal Stock Option Agreement by Fractal will not, (i)
conflict with or violate the Articles of Incorporation or Bylaws of Fractal or
the equivalent organizational documents of any of its subsidiaries, (ii) subject
to obtaining the approval and adoption of this Agreement and the approval of the
Merger by Fractal's shareholders as contemplated in Section 5.2 and compliance
with the requirements set forth in Section 2.4(b) below, conflict with or
violate any law, rule, regulation, order, judgment or decree applicable to
Fractal or any of its subsidiaries or by which its or any of their respective
properties is bound or affected, or (iii) result in any breach of or constitute
a default (or an event that with notice or lapse of time or both would become a
default) under, or impair Fractal's rights or alter the rights or obligations of
any third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a lien or
encumbrance on any of the properties or assets of Fractal or any of its
subsidiaries pursuant to, any material note, bond, mortgage, indenture,
contract, agreement, lease, license, permit, franchise or other instrument or
obligation to which Fractal or any of its subsidiaries is a party or by which
Fractal or any of its subsidiaries or its or any of their respective properties
are bound or affected. The Fractal Schedules list all material consents, waivers
and approvals under any of Fractal's or any of its subsidiaries' agreements,
contracts, licenses or leases required to be obtained in connection with the
consummation of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any court, administrative agency or commission or
other governmental authority or instrumentality, foreign or domestic
("GOVERNMENTAL ENTITY"), is required by or with respect to Fractal in connection
with the execution and delivery of this Agreement and the Fractal Stock Option
Agreement or the consummation of the Merger, except for (i) the filing of the
Agreement of Merger with the Secretary of State of the State of California, (ii)
the filing of the Proxy Statement (as defined in Section 2.19) with the
Securities and Exchange Commission ("SEC") in accordance with the Securities
Exchange Act of 1934, as amended (the "EXCHANGE ACT"), (iii) such consents,
approvals,
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<PAGE>
orders, authorizations, registrations, declarations and filings as may be
required under applicable federal and state securities laws and the Hart-Scott-
Rodino Antitrust Improvements Act of 1976, as amended (the "HSR ACT"), and the
securities or antitrust laws of any foreign country, and (iv) such other
consents, authorizations, filings, approvals and registrations which if not
obtained or made would not be material to Fractal or MetaTools or have a
material adverse effect on the ability of the parties to consummate the Merger.
2.5 SEC Filings; Fractal Financial Statements.
-----------------------------------------
(a) Fractal has filed all forms, reports and documents required to be
filed with the SEC since November 9, 1995 and has made available to MetaTools
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that Fractal may file
subsequent to the date hereof) are referred to herein as the "FRACTAL SEC
REPORTS." As of their respective dates, the Fractal SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act of 1933, as
amended (the "SECURITIES ACT"), or the Exchange Act, as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Fractal SEC
Reports, and (ii) did not at the time they were filed (or if amended or
superseded by a filing prior to the date of this Agreement, then on the date of
such filing) contain any untrue statement of a material fact or omit to state a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading. None of Fractal's subsidiaries is required to file any
forms, reports or other documents with the SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in Fractal SEC Reports (the "FRACTAL
FINANCIALS"), including any Fractal SEC Reports filed after the date hereof
until the Closing, (x) complied as to form in all material respects with the
published rules and regulations of the SEC with respect thereto, (y) was
prepared in accordance with generally accepted accounting principles ("GAAP")
applied on a consistent basis throughout the periods involved (except as may be
indicated in the notes thereto or, in the case of unaudited interim financial
statements, as may be permitted by the SEC on Form 10-Q under the Exchange Act)
and (z) fairly presented the consolidated financial position of Fractal and its
subsidiaries as at the respective dates thereof and the consolidated results of
Fractal's operations and cash flows for the periods indicated, except that the
unaudited interim financial statements were or are subject to normal and
recurring year-end adjustments. The balance sheet of Fractal contained in
Fractal SEC Reports as of September 30, 1996 is hereinafter referred to as the
"FRACTAL BALANCE SHEET." Except as disclosed in the Fractal Financials, since
the date of the Fractal Balance Sheet neither Fractal nor any of its
subsidiaries has any liabilities (absolute, accrued, contingent or otherwise) of
a nature required to be disclosed on a balance sheet or in the related notes to
the consolidated financial statements prepared in accordance with GAAP which
are, individually or in the aggregate, material to the business, results of
operations or financial condition of Fractal and its subsidiaries taken as a
whole, except liabilities (i) provided for in the Fractal Balance Sheet, or (ii)
incurred since the date of the Fractal Balance Sheet in the ordinary course of
business consistent with past practices and immaterial in the aggregate.
(c) Fractal has heretofore furnished to MetaTools a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required
-10-
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to be filed, to agreements, documents or other instruments which previously had
been filed by Fractal with the SEC pursuant to the Securities Act or the
Exchange Act.
2.6 Absence of Certain Changes or Events. Since the date of the Fractal
------------------------------------
Balance Sheet through the date of this Agreement, there has not been: (i) any
Material Adverse Effect on Fractal, (ii) any material change by Fractal in its
accounting methods, principles or practices, except as required by concurrent
changes in GAAP, or (iii) any material revaluation by Fractal of any of its
assets, including, without limitation, writing down the value of capitalized
inventory or writing off notes or accounts receivable other than in the ordinary
course of business.
2.7 Taxes.
-----
(a) Definition of Taxes. For the purposes of this Agreement, "TAX" or
-------------------
"TAXES" refers to any and all federal, state, local and foreign taxes,
assessments and other governmental charges, duties, impositions and liabilities
relating to taxes, including taxes based upon or measured by gross receipts,
income, profits, sales, use and occupation, and value added, ad valorem,
transfer, franchise, withholding, payroll, recapture, employment, excise and
property taxes, together with all interest, penalties and additions imposed with
respect to such amounts and any obligations under any agreements or arrangements
with any other person with respect to such amounts and including any liability
for taxes of a predecessor entity.
(b) Tax Returns and Audits.
----------------------
(i) Fractal and each of its subsidiaries have timely filed all
federal, state, local and foreign returns, estimates, information statements and
reports ("RETURNS") relating to Taxes required to be filed by Fractal and each
of its subsidiaries, except such Returns which are not material to Fractal, and
have paid all Taxes shown to be due on such Returns.
(ii) Except as is not material to Fractal, Fractal and each of
its subsidiaries as of the Effective Time will have withheld with respect to its
employees all federal and state income taxes, the Federal Insurance Contribution
Act ("FICA"), the Federal Unemployment Tax Act ("FUTA") and other Taxes required
to be withheld.
(iii) Except as is not material to Fractal, neither Fractal nor
any of its subsidiaries has been delinquent in the payment of any Tax nor is
there any Tax deficiency outstanding, proposed or assessed against Fractal or
any of its subsidiaries, nor has Fractal or any of its subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) Except as is not material to Fractal, no audit or other
examination of any Return of Fractal or any of its subsidiaries is presently in
progress, nor has Fractal or any of its subsidiaries been notified of any
request for such an audit or other examination.
(v) Except as is not material to Fractal, no adjustment
relating to any Returns filed by Fractal or any of its subsidiaries has been
proposed formally or informally by any Tax authority to Fractal or any of its
subsidiaries or any representative thereof.
-11-
<PAGE>
(vi) Except as is not material to Fractal, neither Fractal nor
any of its subsidiaries has any liability for unpaid Taxes which has not been
accrued for or reserved on the Fractal Balance Sheet, whether asserted or
unasserted, contingent or otherwise, which is material to Fractal.
(vii) There is no contract, agreement, plan or arrangement,
including but not limited to the provisions of this Agreement, covering any
employee or former employee of Fractal or any of its subsidiaries that,
individually or collectively, could give rise to the payment of any amount that
would not be deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
(viii) Neither Fractal nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by Fractal.
(ix) Neither Fractal nor any of its subsidiaries is party to or
has any obligation under any tax-sharing or allocation agreement or arrangement.
2.8 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) The Schedules list the real property owned by Fractal. The
Schedules list all real property leases to which Fractal is a party and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) that
would give rise to a claim in an amount greater than $100,000.
(b) Fractal has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any liens, pledges, charges, claims, security
interests or other encumbrances of any sort ("LIENS"), except as reflected in
Fractal Financials or in the Schedules and except for liens for taxes not yet
due and payable and such imperfections of title and encumbrances, if any, which
are not material in character, amount or extent, and which do not materially
detract from the value, or materially interfere with the present use, of the
property subject thereto or affected thereby.
2.9 Intellectual Property.
---------------------
(a) Fractal and its subsidiaries either own, or have a valid license
with respect to, all patents, copyrights, trademarks, trade secrets and other
intellectual property used in, by, or necessary to, the operation or conduct of
their respective businesses as presently conducted (such intellectual property
and the rights thereto are collectively referred to herein as the "FRACTAL IP
RIGHTS").
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(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any patent, copyright,
trademark, trade secret or other intellectual property rights licensed by, or
to, Fractal, will not cause the forfeiture or termination or give rise to a
right of forfeiture or termination of any Fractal IP Rights or materially impair
the right of Fractal, the Surviving Corporation or MetaTools in or to use, sell,
enforce license or otherwise exploit any Fractal IP Rights or portion thereof.
(c) Neither the operation of Fractal's nor any of its subsidiaries'
respective businesses nor the manufacture, marketing, license, sale or intended
use of any product, service or technology currently licensed, manufactured,
created, distributed, authored, used, sold or under development by Fractal or
any of its subsidiaries (i) violates in any material respect any license or
agreement between Fractal or any of its subsidiaries and any third party or (ii)
infringes any patents, copyright, trademark, trade secret or other intellectual
property right of any other party; and there is no pending or, to the knowledge
of Fractal, threatened claim or litigation contesting the validity, ownership or
right to use, sell, enforce, license or dispose of any Fractal IP Rights, nor
has Fractal received any written notice asserting that any Fractal IP Rights or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party.
(d) Fractal has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all Fractal IP Rights.
2.10 Compliance; Permits; Restrictions.
---------------------------------
(a) Neither Fractal nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to Fractal or any of its
subsidiaries or by which Fractal or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which Fractal or any of its subsidiaries is a
party or by which Fractal or any of its subsidiaries or its or any of their
respective properties is bound or affected. To the knowledge of Fractal, no
investigation or review by any Governmental Entity is pending or threatened
against Fractal or any of its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no material agreement,
judgment, injunction, order or decree binding upon Fractal or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of Fractal or any of
its subsidiaries, any acquisition of material property by Fractal or any of its
subsidiaries or the conduct of business by Fractal as currently conducted.
(b) Fractal and its subsidiaries hold all permits, licenses,
variances, exemptions, orders and approvals from governmental authorities that
are material to the operation of the business of Fractal (collectively, the
"FRACTAL PERMITS"). Fractal and its subsidiaries are in compliance in all
material respects with the terms of the Fractal Permits.
2.11 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, or as to which Fractal or any of its subsidiaries has
received any notice of assertion nor, to
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<PAGE>
Fractal's knowledge, is there a threatened action, suit, proceeding, claim,
arbitration or investigation against Fractal or any of its subsidiaries which
reasonably would be likely to be material to Fractal. To the knowledge of
Fractal, no Governmental Entity has at any time challenged or questioned in
writing the legal right of Fractal to manufacture, offer or sell any of its
products in the present manner or style thereof.
2.12 Brokers' and Finders' Fees. Except for fees payable to Unterberg
--------------------------
Harris pursuant to an engagement letter dated February 11, 1997, a copy of which
has been provided to MetaTools, Fractal has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
2.13 Employee Benefit Plans.
----------------------
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA) maintained or contributed to by
Fractal or any trade or business which is under common control with Fractal
within the meaning of Section 414 of the Code (the "FRACTAL EMPLOYEE PLANS"),
Fractal has made available to MetaTools a true and complete copy of, to the
extent applicable, (i) such Fractal Employee Plan, (ii) the most recent annual
report (Form 5500), (iii) each trust agreement related to such Fractal Employee
Plan, (iv) the most recent summary plan description for each Fractal Employee
Plan for which such a description is required, (v) the most recent actuarial
report relating to any Fractal Employee Plan subject to Title IV of ERISA and
(vi) the most recent IRS determination letter issued with respect to any Fractal
Employee Plan.
(b) Each Fractal Employee Plan which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination from the
IRS covering the provisions of the Tax Reform Act of 1986 stating that such
Fractal Employee Plan is so qualified and nothing has occurred since the date of
such letter that could reasonably be expected to affect the qualified status of
such plan. Each Fractal Employee Plan has been operated in all material respects
in accordance with its terms and the requirements of applicable law. Neither
Fractal nor any ERISA Affiliate of Fractal has incurred or is reasonably
expected to incur any material liability under Title IV of ERISA in connection
with any Fractal Employee Plan.
2.14 Employees; Labor Matters. To Fractal's knowledge after reasonable
------------------------
inquiry, no employee of Fractal (i) is in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by Fractal because of the nature of the business
conducted or presently proposed to be conducted by Fractal or to the use of
trade secrets or proprietary information of others and (ii) has given notice to
Fractal, nor is Fractal otherwise aware, that any employee intends to terminate
his or her employment with Fractal except for terminations of a nature and
number that are consistent with Fractal's prior experience. To Fractal's
knowledge, there are no activities or proceedings of any labor union to organize
any employees of Fractal or any of its subsidiaries and there are no strikes, or
material slowdowns, work stoppages or lockouts, or threats thereof by or with
respect to any employees of Fractal or any of its subsidiaries. Fractal and its
subsidiaries are and have been in compliance in all material respects with all
applicable laws regarding
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<PAGE>
employment practices, terms and conditions of employment, and wages and hours
(including, without limitation, ERISA, WARN or any similar state or local law).
2.15 Environmental Matters.
---------------------
(a) Hazardous Material. Except as reasonably would not be likely to
------------------
result in a material liability to Fractal, no underground storage tanks and no
amount of any substance that has been designated by any Governmental Entity or
by applicable federal, state or local law to be radioactive, toxic, hazardous or
otherwise a danger to health or the environment, including, without limitation,
PCBs, asbestos, petroleum, urea-formaldehyde and all substances listed as
hazardous substances pursuant to the Comprehensive Environmental Response,
Compensation, and Liability Act of 1980, as amended, or defined as a hazardous
waste pursuant to the United States Resource Conservation and Recovery Act of
1976, as amended, and the regulations promulgated pursuant to said laws, (a
"HAZARDOUS MATERIAL"), but excluding office and janitorial supplies, are
present, as a result of the actions of Fractal or any of its subsidiaries or any
affiliate of Fractal, or, to Fractal's knowledge, as a result of any actions of
any third party or otherwise, in, on or under any property, including the land
and the improvements, ground water and surface water thereof, that Fractal or
any of its subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would not be
------------------------------
likely to result in a material liability to Fractal, neither Fractal nor any of
its subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has Fractal or any of
its subsidiaries disposed of, transported, sold, used, released, exposed its
employees or others to or manufactured any product containing a Hazardous
Material (collectively "HAZARDOUS MATERIALS ACTIVITIES") in violation of any
rule, regulation, treaty or statute promulgated by any Governmental Entity in
effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. Fractal and its subsidiaries currently hold all
-------
environmental approvals, permits, licenses, clearances and consents (the
"FRACTAL ENVIRONMENTAL PERMITS") necessary for the conduct of Fractal's and its
subsidiaries' Hazardous Material Activities and other businesses of Fractal and
its subsidiaries as such activities and businesses are currently being
conducted.
(d) Environmental Liabilities. No material action, proceeding,
-------------------------
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to Fractal's knowledge, threatened concerning any Fractal
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
Fractal or any of its subsidiaries. Fractal is not aware of any fact or
circumstance which could involve Fractal or any of its subsidiaries in any
material environmental litigation or impose upon Fractal any material
environmental liability.
2.16 Agreements, Contracts and Commitments. Except as set forth in the
-------------------------------------
Fractal Schedules, neither Fractal nor any of its subsidiaries is a party to or
is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director level employee or member of Fractal's Board of
Directors, other than those that are
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<PAGE>
terminable by Fractal or any of its subsidiaries on no more than thirty days
notice without liability or financial obligation, except to the extent general
principles of wrongful termination law may limit Fractal's or any of its
subsidiaries' ability to terminate employees at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements between
Fractal or any of its subsidiaries and any of its officers or directors;
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of Fractal or any of its subsidiaries to engage in any line
of business or compete with any person or granting any exclusive distribution
rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise; or
(f) any material joint marketing or development agreement.
Neither Fractal nor any of its subsidiaries, nor to Fractal's knowledge any
other party to a Fractal Contract (as defined below), has breached, violated or
defaulted under, or received notice that it has breached violated or defaulted
under, any of the material terms or conditions of any of the agreements,
contracts or commitments to which Fractal or any of its subsidiaries is a party
or by which it is bound of the type described in clauses (a) through (l) above
(any such agreement, contract or commitment, a "FRACTAL CONTRACT") in such a
manner as would permit any other party to cancel or terminate any such Fractal
Contract, or would permit any other party to seek damages, which would be
reasonably likely to be material to Fractal.
2.17 Pooling of Interests. To the knowledge of Fractal, based on
--------------------
consultation with its independent accountants, neither Fractal nor any of its
directors, officers, affiliates or shareholders has taken any action which would
preclude MetaTools' ability to account for the Merger as a pooling of interests.
2.18 Change of Control Payments. The Fractal Schedules set forth each plan
--------------------------
or agreement pursuant to which any material amounts may become payable (whether
currently or in the future) to current or former officers and directors of
Fractal as a result of or in connection with the Merger.
2.19 Statements; Proxy Statement/Prospectus. The information supplied by
--------------------------------------
Fractal for inclusion in the Registration Statement (as defined in Section
3.4(b)) shall not at the time the Registration Statement is filed with the SEC
and at the time it becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be
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<PAGE>
stated therein or necessary in order to make the statements therein not
misleading. The information supplied by Fractal for inclusion in the proxy
statement/prospectus to be sent to the shareholders of Fractal and stockholders
of MetaTools in connection with the meeting of Fractal's shareholders to
consider the approval and adoption of this Agreement and the approval of the
Merger (the "FRACTAL SHAREHOLDERS' MEETING") and in connection with the meeting
of MetaTools' stockholders to consider the approval of (i) the amendment of
MetaTools' Certificate of Incorporation to increase its authorized share capital
to allow for the issuance of shares of MetaTools Common Stock by virtue of the
Merger and (ii) the issuance of shares of MetaTools Common Stock by virtue of
the Merger, (the "METATOOLS STOCKHOLDERS' MEETING") (such proxy
statement/prospectus as amended or supplemented is referred to herein as the
"PROXY STATEMENT") shall not, on the date the Proxy Statement is first mailed to
Fractal's shareholders and MetaTools' stockholders, at the time of the Fractal
Shareholders' Meeting or the MetaTools Stockholders' Meeting and at the
Effective Time, contain any untrue statement of a material fact or omit to state
any material fact required to be stated therein or necessary in order to make
the statements therein, in light of the circumstances under which they are made,
not false or misleading; or omit to state any material fact necessary to correct
any statement in any earlier communication with respect to the solicitation of
proxies for the Fractal Shareholders' Meeting or the MetaTools Stockholders'
Meeting which has become false or misleading. The Proxy Statement will comply as
to form in all material respects with the provisions of the Exchange Act and the
rules and regulations thereunder. If at any time prior to the Effective Time,
any event relating to Fractal or any of its affiliates, officers or directors
should be discovered by Fractal which should be set forth in an amendment to the
Registration Statement or a supplement to the Proxy Statement, Fractal shall
promptly inform MetaTools. Notwithstanding the foregoing, Fractal makes no
representation or warranty with respect to any information supplied by MetaTools
or Merger Sub which is contained in any of the foregoing documents.
2.20 Board Approval. The Board of Directors of Fractal has, as of the date
--------------
of this Agreement, determined (i) that the Merger is fair to, and in the best
interests of Fractal and its shareholders, and (ii) to recommend that the
shareholders of Fractal approve and adopt this Agreement and approve the Merger.
2.21 Fairness Opinion. Fractal's Board of Directors has received a written
----------------
opinion from Unterberg Harris dated as of the date hereof, to the effect that as
of the date hereof, the Exchange Ratio is fair to Fractal's shareholders from a
financial point of view and has delivered to MetaTools a copy of such opinion.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF METATOOLS AND MERGER SUB
MetaTools and Merger Sub represent and warrant to Fractal, subject to the
exceptions specifically disclosed in writing in the disclosure letter supplied
by MetaTools to Fractal dated as of the date hereof and certified by a duly
authorized officer of MetaTools (the "METATOOLS SCHEDULES"), as follows:
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<PAGE>
3.1 Organization of MetaTools.
-------------------------
(a) MetaTools and each of its subsidiaries is a corporation duly
organized, validly existing and in good standing under the laws of the
jurisdiction of its incorporation; has the corporate power and authority to own,
lease and operate its assets and property and to carry on its business as now
being conducted and as proposed to be conducted; and is duly qualified or
licensed to do business and is in good standing in each jurisdiction where the
character of the properties owned, leased or operated by it or the nature of its
activities makes such qualification or licensing necessary, except where the
failure to be so qualified would not have a Material Adverse Effect (as defined
below) on MetaTools.
(b) MetaTools has delivered to Fractal a true and complete list of
all of MetaTools' subsidiaries, indicating the jurisdiction of incorporation of
each subsidiary and MetaTools' equity interest therein.
(c) MetaTools has delivered or made available to Fractal a true and
correct copy of the Certificate of Incorporation and Bylaws of MetaTools and
similar governing instruments of each of its subsidiaries, each as amended to
date, and each such instrument is in full force and effect. Neither MetaTools
nor any of its subsidiaries is in violation of any of the provisions of its
Certificate of Incorporation or Bylaws or equivalent governing instruments.
(d) When used in connection with MetaTools, the term "MATERIAL
ADVERSE EFFECT" means, for purposes of this Agreement, any change, event or
effect that is materially adverse to the business, assets (including intangible
assets), financial condition or results of operations of MetaTools and its
subsidiaries taken as a whole.
3.2 MetaTools and Merger Sub Capital Structure. The authorized capital
------------------------------------------
stock of MetaTools consists of 30,000,000 shares of Common Stock, par value
$0.001 per share, of which there were 13,233,949 shares issued and outstanding
as of February 6,1997, and 5,000,000 shares of Preferred Stock, par value $0.001
per share, of which no shares are issued or outstanding. The authorized capital
stock of Merger Sub consists of 100 shares of Common Stock, $.001 par value, all
of which, as of the date hereof, are issued and outstanding and are held by
MetaTools. Merger Sub was formed on December 12, 1996, for the purpose of
consummating a merger and has no material assets or liabilities except as
necessary for such purpose. All outstanding shares of MetaTools Common Stock
are duly authorized, validly issued, fully paid and nonassessable and are not
subject to preemptive rights created by statute, the Certificate of
Incorporation or Bylaws of MetaTools or any agreement or document to which
MetaTools is a party or by which it is bound. As of February 6, 1997, MetaTools
had reserved an aggregate of 4,296,230, net of exercise, for issuance to
employees, consultants and non-employee directors pursuant to the MetaTools
Stock Option Plans. As of February 7, 1997, there were options outstanding to
purchase an aggregate of 901,084 shares of Common Stock, issued to employees,
consultants and non-employee directors pursuant to the MetaTools Stock Option
Plans. All shares of MetaTools Common Stock subject to issuance as aforesaid,
upon issuance on the terms and conditions specified in the instruments pursuant
to which they are issuable, would be duly authorized, validly issued, fully paid
and nonassessable. The MetaTools Schedules list for each person who held in the
aggregate options to acquire 10,000 or more shares of MetaTools Common Stock at
February 6, 1997, the name of the holder of such
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<PAGE>
option, the number of shares subject to such option, the exercise price of such
option, the number of shares as to which such option will have vested at such
date, the vesting schedule for such option and whether the exercisability of
such option will be accelerated in any way by the transactions contemplated by
this Agreement, and indicate the extent of acceleration, if any. As of February
6, 1997, an aggregate of 141,763 shares of MetaTools Common Stock have been
reserved for issuance pursuant to MetaTools' Employee Stock Purchase Plan (the
"METATOOLS EMPLOYEE STOCK PURCHASE PLAN").
3.3 Obligations With Respect to Capital Stock. Except as set forth in
-----------------------------------------
Section 3.2, there are no equity securities, partnership interests or similar
ownership interests of any class of MetaTools, or any securities exchangeable or
convertible into or exercisable for such equity securities, partnership
interests or similar ownership interests, issued, reserved for issuance or
outstanding. Except for securities MetaTools owns, directly or indirectly
through one or more subsidiaries, there are no equity securities, partnership
interests or similar ownership interests of any class of any subsidiary of
MetaTools, or any security exchangeable or convertible into or exercisable for
such equity securities, partnership interests or similar ownership interests,
issued, reserved for issuance or outstanding. Except as set forth in Section
3.2, there are no options, warrants, equity securities, partnership interests or
similar ownership interests, calls, rights (including preemptive rights),
commitments or agreements of any character to which MetaTools or any of its
subsidiaries is a party or by which it is bound obligating MetaTools or any of
its subsidiaries to issue, deliver or sell, or cause to be issued, delivered or
sold, or repurchase, redeem or otherwise acquire, or cause the repurchase,
redemption or acquisition, of any shares of capital stock, partnership interests
or similar ownership interests of MetaTools or any of its subsidiaries or
obligating MetaTools or any of its subsidiaries to grant, extend, accelerate the
vesting of or enter into any such option, warrant, equity security, call, right,
commitment or agreement. There are no registration rights and, to the knowledge
of MetaTools, as of the date of this Agreement, there are no voting trusts,
proxies or other agreements or understandings with respect to any equity
security of any class of MetaTools or with respect to any equity security,
partnership interest or similar ownership interest of any class of any of its
subsidiaries.
3.4 Authority.
---------
(a) Each of MetaTools and Merger Sub has all requisite corporate power
and authority to enter into this Agreement and to consummate the transactions
contemplated hereby and MetaTools has all requisite corporate power and
authority to enter into the MetaTools Stock Option Agreement and to consummate
the transactions contemplated thereby. The execution and delivery of this
Agreement and the consummation of the transactions contemplated hereby, and the
execution and delivery of the MetaTools Stock Option Agreement and the
transactions contemplated thereby have been duly authorized by all necessary
corporate action on the part of MetaTools and, in the case of this Agreement,
Merger Sub, subject only to the filing and recordation of the Agreement of
Merger pursuant to California Law and the approval by MetaTools' stockholders of
(i) the amendment of MetaTools' Certificate of Incorporation to increase its
authorized share capital to allow for the issuance of shares of MetaTools Common
Stock by virtue of the Merger and (ii) the issuance of shares of MetaTools
Common Stock by virtue of the Merger. A vote of the holders of at least a
majority of the outstanding shares of the MetaTools Common Stock is required for
MetaTools' stockholders to approve each of (i) the amendment of MetaTools'
Certificate of Incorporation to increase its authorized share capital to allow
for the issuance of shares of MetaTools Common Stock
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<PAGE>
by virtue of the Merger and (ii) the issuance of shares of MetaTools Common
Stock by virtue of the Merger. This Agreement has been duly executed and
delivered by each of MetaTools and Merger Sub and, assuming the due
authorization, execution and delivery by Fractal, constitutes the valid and
binding obligation of MetaTools, enforceable in accordance with its terms,
except as enforceability may be limited by bankruptcy and other similar laws and
general principles of equity. The MetaTools Stock Option Agreement has been duly
executed and delivered by MetaTools and, assuming due authorization, execution
and delivery of the MetaTools Stock Option Agreement by Fractal, the MetaTools
Stock Option Agreement constitutes the valid and binding obligation of
MetaTools, enforceable in accordance with its terms, except as enforceability
may be limited by bankruptcy and other similar laws and general principles of
equity. The execution and delivery of this Agreement by each of MetaTools and
Merger Sub and the execution and delivery of the MetaTools Stock Option
Agreement by MetaTools do not, and the performance of this Agreement by each of
MetaTools and Merger Sub will not and the performance of the MetaTools Stock
Option Agreement by MetaTools will not, (i) conflict with or violate the
Certificate of Incorporation or Bylaws of MetaTools or the Articles of
Incorporation or Bylaws of Merger Sub or the equivalent organizational documents
of any of MetaTools' other subsidiaries, (ii) subject to obtaining the approval
of MetaTools' stockholders of (y) the amendment of MetaTools' Certificate of
Incorporation to increase its authorized share capital to allow for the issuance
of shares of MetaTools Common Stock by virtue of the Merger and (z) the issuance
of shares of MetaTools Common Stock by virtue of the Merger as contemplated in
Section 5.2 and compliance with the requirements set forth in Section 3.4(b)
below, conflict with or violate any law, rule, regulation, order, judgment or
decree applicable to MetaTools or any of its subsidiaries (including Merger Sub)
or by which its or any of their respective properties is bound or affected or
(iii) result in any breach of or constitute a default (or an event that with
notice or lapse of time or both would become a default) under, or impair
MetaTools' rights or alter the rights or obligations of any third party under,
or give to others any rights of termination, amendment, acceleration or
cancellation of, or result in the creation of a lien or encumbrance on any of
the properties or assets of MetaTools or any of its subsidiaries (including
Merger Sub) pursuant to, any material note, bond, mortgage, indenture, contract,
agreement, lease, license, permit, franchise or other instrument or obligation
to which MetaTools or any of its subsidiaries (including Merger Sub) is a party
or by which MetaTools or any of its sub sidiaries or its or any of their
respective properties are bound or affected. The MetaTools Schedules list all
material consents, waivers and approvals under any of MetaTools' or any of its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
(b) No consent, approval, order or authorization of, or registration,
declaration or filing with any Governmental Entity is required by or with
respect to MetaTools or Merger Sub in connection with the execution and delivery
of this Agreement and the MetaTools Stock Option Agreement or the consummation
of the Merger, except for (i) the filing of a Form S-4 Registration Statement
(the "REGISTRATION STATEMENT") with the SEC in accordance with the Securities
Act, (ii) the filing of the Agreement of Merger with the Secretary of State of
the State of California and the Secretary of State of the State of Delaware,
(iii) the filing of the Proxy Statement with the SEC in accordance with the
Exchange Act, (iv) such consents, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws and the HSR Act and the securities or
antitrust laws of any foreign country, and (v) such other consents,
authorizations, filings, approvals and registrations which if not obtained or
made would not
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be material to MetaTools or Fractal or have a material adverse effect on the
ability of the parties to consummate the Merger.
3.5 Section 203 of the Delaware General Corporation Law Not Applicable.
------------------------------------------------------------------
The Board of Directors of MetaTools has taken all actions so that the
restrictions contained in Section 203 of the Delaware General Corporation Law
applicable to a "business combination" (as defined in such Section 203) will not
apply to the execution, delivery or performance of this Agreement or the Stock
Option Agreements or to the consummation of the Merger or the other transactions
contemplated by this Agreement or the Stock Option Agreements.
3.6 SEC Filings; MetaTools Financial Statements.
-------------------------------------------
(a) MetaTools has filed all forms, reports and documents required to
be filed with the SEC since December 12, 1995, and has made available to Fractal
such forms, reports and documents in the form filed with the SEC. All such
required forms, reports and documents (including those that MetaTools may file
subsequent to the date hereof) are referred to herein as the "METATOOLS SEC
REPORTS." As of their respective dates, the MetaTools SEC Reports (i) were
prepared in accordance with the requirements of the Securities Act or the
Exchange Act, as the case may be, and the rules and regulations of the SEC
thereunder applicable to such MetaTools SEC Reports, and (ii) did not at the
time they were filed (or if amended or superseded by a filing prior to the date
of this Agreement, then on the date of such filing) contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary in order to make the statements therein, in the light of
the circumstances under which they were made, not misleading. None of MetaTools'
subsidiaries is required to file any forms, reports or other documents with the
SEC.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in MetaTools SEC Reports (the
"METATOOLS FINANCIALS"), including any MetaTools SEC Reports filed after the
date hereof until the Closing, (x) complied as to form in all material respects
with the published rules and regulations of the SEC with respect thereto, (y)
was prepared in accordance with GAAP applied on a consistent basis throughout
the periods involved (except as may be indicated in the notes thereto or, in the
case of unaudited interim financial statements, as may be permitted by the SEC
on Form 10-Q under the Exchange Act) and (z) fairly presented the consolidated
financial position of MetaTools and its subsidiaries as at the respective dates
thereof and the consolidated results of MetaTools' operations and cash flows for
the periods indicated, except that the unaudited interim financial statements
were or are subject to normal and recurring year-end adjustments. The balance
sheet of MetaTools contained in MetaTools SEC Reports as of September 30, 1996
is hereinafter referred to as the "METATOOLS BALANCE SHEET." Except as
disclosed in the MetaTools Financials, since the date of the MetaTools Balance
Sheet neither MetaTools nor any of its subsidiaries has any liabilities
(absolute, accrued, contingent or otherwise) of a nature required to be
disclosed on a balance sheet or in the related notes to the consolidated
financial statements prepared in accordance with GAAP which are, individually or
in the aggregate, material to the business, results of operations or financial
condition of MetaTools and its subsidiaries taken as a whole, except liabilities
(i) provided for in the MetaTools Balance Sheet, or (ii) incurred since the date
of the MetaTools Balance Sheet in the ordinary course of business consistent
with past practices and immaterial in the aggregate.
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(c) MetaTools has heretofore furnished to Fractal a complete and
correct copy of any amendments or modifications, which have not yet been filed
with the SEC but which are required to be filed, to agreements, documents or
other instruments which previously had been filed by MetaTools with the SEC
pursuant to the Securities Act or the Exchange Act.
3.7 Absence of Certain Changes or Events. Since the date of the MetaTools
------------------------------------
Balance Sheet through the date of this Agreement, there has not been: (i) any
Material Adverse Effect on MetaTools, (ii) any material change by MetaTools in
its accounting methods, principles or practices, except as required by
concurrent changes in GAAP, or (iii) any material revaluation by MetaTools of
any of its assets, including, without limitation, writing down the value of
capitalized inventory or writing off notes or accounts receivable other than in
the ordinary course of business.
3.8 Tax Returns and Audits.
----------------------
(a) MetaTools and each of its subsidiaries have timely filed all
Returns relating to Taxes required to be filed by MetaTools and each of its
subsidiaries, except such Returns which are not material to MetaTools, and have
paid all Taxes shown to be due on such Returns.
(b) Except as is not material to MetaTools, MetaTools and each of its
subsidiaries as of the Effective Time will have withheld with respect to its
employees all federal and state income taxes, FICA, FUTA and other Taxes
required to be withheld.
(c) Except as is not material to MetaTools, neither MetaTools nor any
of its subsidiaries has been delinquent in the payment of any Tax nor is there
any Tax deficiency outstanding, proposed or assessed against MetaTools or any of
its subsidiaries, nor has MetaTools or any of its subsidiaries executed any
waiver of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(d) Except as is not material to MetaTools, no audit or other
examination of any Return of MetaTools or any of its subsidiaries is presently
in progress, nor has MetaTools or any of its subsidiaries been notified of any
request for such an audit or other examination.
(e) Except as is not material to MetaTools, no adjustment relating to
any Returns filed by MetaTools or any of its subsidiaries has been proposed
formally or informally by any Tax authority to MetaTools or any of its
subsidiaries or any representative thereof.
(f) Except as is not material to MetaTools, neither MetaTools nor any
of its subsidiaries has any liability for unpaid Taxes which has not been
accrued for or reserved on the MetaTools Balance Sheet, whether asserted or
unasserted, contingent or otherwise, which is material to MetaTools.
(g) There is no contract, agreement, plan or arrangement, including
but not limited to the provisions of this Agreement, covering any employee or
former employee of MetaTools or any of its subsidiaries that, individually or
collectively, could give rise to the payment of any amount that would not be
deductible pursuant to Sections 280G, 404 or 162(m) of the Code.
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<PAGE>
(h) Neither MetaTools nor any of its subsidiaries has filed any
consent agreement under Section 341(f) of the Code or agreed to have Section
341(f)(2) of the Code apply to any disposition of a subsection (f) asset (as
defined in Section 341(f)(4) of the Code) owned by MetaTools.
(i) Neither MetaTools nor any of its subsidiaries is party to or has
obligations under any tax-sharing or allocation agreement or arrangement.
3.9 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) The Schedules list the real property owned by MetaTools. The
Schedules list all real property leases to which MetaTools is a party and each
amendment thereto. All such current leases are in full force and effect, are
valid and effective in accordance with their respective terms, and there is not,
under any of such leases, any existing default or event of default (or event
which with notice or lapse of time, or both, would constitute a default) that
would give rise to a claim in an amount greater than $100,000.
(b) MetaTools has good and valid title to, or, in the case of leased
properties and assets, valid leasehold interests in, all of its tangible
properties and assets, real, personal and mixed, used or held for use in its
business, free and clear of any Liens, except as reflected in MetaTools
Financials or in the Schedules and except for liens for taxes not yet due and
payable and such imperfections of title and encumbrances, if any, which are not
material in character, amount or extent, and which do not materially detract
from the value, or materially interfere with the present use, of the property
subject thereto or affected thereby.
3.10 Intellectual Property.
---------------------
(a) MetaTools and its subsidiaries either own, or have a valid
license with respect to, all patents, copyrights, trademarks, trade secrets and
other intellectual property used in, by or necessary to the operation or conduct
of their respective businesses as presently conducted (such intellectual
property and the rights thereto are collectively referred to herein as the
"METATOOLS IP RIGHTS").
(b) The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated hereby will not constitute a
material breach of any instrument or agreement governing any patent, copyright,
trademark, trade secret or other intellectual property rights licensed by or to,
MetaTools, will not cause the forfeiture or termination or give rise to a right
of forfeiture or termination of any MetaTools IP Rights or materially impair the
right of MetaTools, the Surviving Corporation or Fractal in or to use, sell,
enforce, license or otherwise exploit any MetaTools IP Rights or portion
thereof.
(c) Neither the operation of MetaTools' nor any of its subsidiaries'
respective business nor the manufacture, marketing, license, sale or intended
use of any product, service or technology currently licensed, manufactured,
created, distributed, authored, used, sold or under development by MetaTools or
any of its subsidiaries (i) violates in any material respect any license or
agreement between MetaTools or any of its subsidiaries and any third party or
(ii) infringes any
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<PAGE>
patent, copyright, trademark, trade secret or other intellectual property right
of any other party; and there is no pending or, to the knowledge of MetaTools,
threatened claim or litigation contesting the validity, ownership or right to
use, sell, enforce, license or dispose of any MetaTools IP Rights, nor has
MetaTools received any written notice asserting that any MetaTools IP Rights or
the proposed use, sale, license or disposition thereof conflicts or will
conflict with the rights of any other party.
(d) MetaTools has taken reasonable and practicable steps designed to
safeguard and maintain the secrecy and confidentiality of, and its proprietary
rights in, all MetaTools IP Rights.
3.11 Compliance; Permits; Restrictions.
---------------------------------
(a) Neither MetaTools nor any of its subsidiaries is, in any material
respect, in conflict with, or in default or violation of (i) any law, rule,
regulation, order, judgment or decree applicable to MetaTools or any of its
subsidiaries or by which MetaTools or any of its subsidiaries or any of their
respective properties is bound or affected, or (ii) any material note, bond,
mortgage, indenture, contract, agreement, lease, license, permit, franchise or
other instrument or obligation to which MetaTools or any of its subsidiaries is
a party or by which MetaTools or any of its subsidiaries or its or any of their
respective properties is bound or affected. To the knowledge of MetaTools, no
investigation or review by any Governmental Entity is pending or threatened
against MetaTools or any of its subsidiaries, nor has any Governmental Entity
indicated an intention to conduct the same. There is no material agreement,
judgment, injunction, order or decree binding upon MetaTools or any of its
subsidiaries which has or could reasonably be expected to have the effect of
prohibiting or materially impairing any business practice of MetaTools or any of
its subsidiaries, any acquisition of material property by MetaTools or any of
its subsidiaries or the conduct of business by MetaTools as currently conducted.
(b) MetaTools and its subsidiaries hold all permits, licenses,
variances, exemp tions, orders and approvals from governmental authorities which
are material to the operation of the business of MetaTools (collectively, the
"METATOOLS PERMITS"). MetaTools and its subsidiaries are in compliance in all
material respects with the terms of the MetaTools Permits.
3.12 Litigation. There is no action, suit, proceeding, claim, arbitration
----------
or investigation pending, or as to which MetaTools or any of its subsidiaries
has received any notice of assertion nor, to MetaTools' knowledge, is there a
threatened action, suit, proceeding, claim, arbitration or investigation against
MetaTools or any of its subsidiaries which reasonably would be likely to be
material to MetaTools. To the knowledge of MetaTools, no Governmental Entity
has at any time challenged or questioned in writing the legal right of MetaTools
to manufacture, offer or sell any of its products in the present manner or style
thereof.
3.13 Brokers' and Finders' Fees. Except for fees payable to Alex. Brown &
--------------------------
Sons pursuant to an engagement letter dated February 3, 1997, a copy of which
has been provided to Fractal, MetaTools has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
-24-
<PAGE>
3.14 Employee Benefit Plans.
----------------------
(a) With respect to each material employee benefit plan, program,
arrangement and contract (including, without limitation, any "employee benefit
plan" as defined in Section 3(3) of ERISA) maintained or contributed to by
MetaTools or any trade or business which is under common control with MetaTools
within the meaning of Section 414 of the Code (the "METATOOLS EMPLOYEE PLANS"),
MetaTools has made available to Fractal a true and complete copy of, to the
extent applicable, (i) such MetaTools Employee Plan, (ii) the most recent annual
report (Form 5500), (iii) each trust agreement related to such MetaTools
Employee Plan, (iv) the most recent summary plan description for each MetaTools
Employee Plan for which such a description is required, (v) the most recent
actuarial report relating to any MetaTools Employee Plan subject to Title IV of
ERISA and (vi) the most recent IRS determination letter issued with respect to
any MetaTools Employee Plan.
(b) Each MetaTools Employee Plan which is intended to be qualified
under Section 401(a) of the Code has received a favorable determination from the
IRS covering the provisions of the Tax Reform Act of 1986 stating that such
MetaTools Employee Plan is so qualified and nothing has occurred since the date
of such letter that could reasonably be expected to affect the qualified status
of such plan. Each MetaTools Employee Plan has been operated in all material
respects in accordance with its terms and the requirements of applicable law.
Neither MetaTools nor any ERISA Affiliate of MetaTools has incurred or is
reasonably expected to incur any material liability under Title IV of ERISA in
connection with any MetaTools Employee Plan.
3.15 Employees; Labor Matters. To MetaTools' knowledge after reasonable
------------------------
inquiry, no employee of MetaTools (i) is in violation of any term of any
employment contract, patent disclosure agreement, non-competition agreement, or
any restrictive covenant to a former employer relating to the right of any such
employee to be employed by MetaTools because of the nature of the business
conducted or presently proposed to be conducted by MetaTools or to the use of
trade secrets or proprietary information of others and (ii) has given notice to
MetaTools, nor is MetaTools otherwise aware, that any employee intends to
terminate his or her employment with MetaTools except for terminations of a
nature and number that are consistent with MetaTools' prior experience. To
MetaTools' knowledge, there are no activities or proceedings of any labor union
to organize any employees of MetaTools or any of its subsidiaries and there are
no strikes, or material slowdowns, work stoppages or lockouts, or threats
thereof by or with respect to any employees of MetaTools or any of its
subsidiaries. MetaTools and its subsidiaries are and have been in compliance in
all material respects with all applicable laws regarding employment practices,
terms and conditions of employment, and wages and hours (including, without
limitation, ERISA, WARN or any similar state or local law).
3.16 Environmental Matters.
---------------------
(a) Hazardous Material. Except as reasonably would not be likely to
------------------
result in a material liability to MetaTools, no underground storage tanks and no
amount of any Hazardous Material, but excluding office and janitorial supplies,
are present, as a result of the actions of MetaTools or any of its subsidiaries
or any affiliate of MetaTools, or, to MetaTools' knowledge, as a result of any
actions of any third party or otherwise, in, on or under any property, including
the land
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<PAGE>
and the improvements, ground water and surface water thereof, that MetaTools or
any of its subsidiaries has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. Except as reasonably would not be
------------------------------
likely to result in a material liability to MetaTools, neither MetaTools nor any
of its subsidiaries has transported, stored, used, manufactured, disposed of,
released or exposed its employees or others to Hazardous Materials in violation
of any law in effect on or before the Closing Date, nor has MetaTools or any of
its subsidiaries engaged in any Hazardous Materials Activities in violation of
any rule, regulation, treaty or statute promulgated by any Governmental Entity
in effect prior to or as of the date hereof to prohibit, regulate or control
Hazardous Materials or any Hazardous Material Activity.
(c) Permits. MetaTools and its subsidiaries currently hold all
-------
environmental approvals, permits, licenses, clearances and consents (the
"METATOOLS ENVIRONMENTAL PERMITS") necessary for the conduct of MetaTools' and
its subsidiaries' Hazardous Material Activities and other businesses of
MetaTools and its subsidiaries as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No material action, proceeding,
-------------------------
revocation proceeding, amendment procedure, writ, injunction or claim is
pending, or to MetaTools' knowledge, threatened concerning any MetaTools
Environmental Permit, Hazardous Material or any Hazardous Materials Activity of
MetaTools or any of its subsidiaries. MetaTools is not aware of any fact or
circumstance which could involve MetaTools or any of its subsidiaries in any
material environmental litigation or impose upon MetaTools any material
environmental liability.
3.17 Agreements, Contracts and Commitments. Except as set forth in the
-------------------------------------
MetaTools Schedules, neither MetaTools nor any of its subsidiaries is a party to
or is bound by:
(a) any employment or consulting agreement, contract or commitment
with any officer or director level employee or member of MetaTools' Board of
Directors, other than those that are terminable by MetaTools or any of its
subsidiaries on no more than thirty days notice without liability or financial
obligation, except to the extent general principles of wrongful termination law
may limit MetaTools' or any of its subsidiaries' ability to terminate employees
at will;
(b) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation right plan or stock purchase plan, any of the
benefits of which will be increased, or the vesting of benefits of which will be
accelerated, by the occurrence of any of the transactions contemplated by this
Agreement or the value of any of the benefits of which will be calculated on the
basis of any of the transactions contemplated by this Agreement;
(c) any agreement of indemnification or guaranty not entered into in
the ordinary course of business other than indemnification agreements between
MetaTools or any of its subsidiaries and any of its officers or directors;
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<PAGE>
(d) any agreement, contract or commitment containing any covenant
limiting the freedom of MetaTools or any of its subsidiaries to engage in any
line of business or compete with any person or granting any exclusive
distribution rights;
(e) any agreement, contract or commitment currently in force relating
to the disposition or acquisition of assets not in the ordinary course of
business or any ownership interest in any corporation, partnership, joint
venture or other business enterprise; or
(f) any material joint marketing or development agreement.
Neither MetaTools nor any of its subsidiaries, nor to MetaTools' knowledge
any other party to a MetaTools Contract (as defined below), has breached,
violated or defaulted under, or received notice that it has breached violated or
defaulted under, any of the material terms or conditions of any of the
agreements, contracts or commitments to which MetaTools or any of its
subsidiaries is a party or by which it is bound of the type described in clauses
(a) through (l) above (any such agreement, contract or commitment, a "METATOOLS
CONTRACT") in such a manner as would permit any other party to cancel or
terminate any such MetaTools Contract, or would permit any other party to seek
damages, which would be reasonably likely to be material to MetaTools.
3.18 Pooling of Interests. To the knowledge of MetaTools, based on
--------------------
consultation with its independent accountants, neither MetaTools nor any of its
directors, officers, affiliates or stockholders has taken any action which would
preclude MetaTools' ability to account for the Merger as a pooling of interests.
3.19 Change of Control Payments. The MetaTools Schedules set forth each
--------------------------
plan or agreement pursuant to which any material amounts may become payable
(whether currently or in the future) to current or former officers and directors
of MetaTools as a result of or in connection with the Merger.
3.20 Statements; Proxy Statement/Prospectus. The information supplied by
--------------------------------------
MetaTools for inclusion in the Registration Statement shall not at the time the
Registration Statement is filed with the SEC and at the time it becomes
effective under the Securities Act, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein not misleading. The
information supplied by MetaTools for inclusion in the Proxy Statement shall
not, on the date the Proxy Statement is first mailed to MetaTools' stockholders
and Fractal's shareholders, at the time of the MetaTools Stockholders' Meeting
or the Fractal Shareholders' Meeting and at the Effective Time, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
light of the circumstances under which they are made, not false or misleading;
or omit to state any material fact necessary to correct any statement in any
earlier communication with respect to the solicitation of proxies for the
MetaTools Stockholders' Meeting or the Fractal Shareholders' Meeting which has
become false or misleading. The Proxy Statement will comply as to form in all
material respects with the provisions of the Exchange Act and the rules and
regulations thereunder. If at any time prior to the Effective Time, any event
relating to MetaTools or any of its affiliates, officers or directors should be
discovered by MetaTools which should be set forth in an
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<PAGE>
amendment to the Registration Statement or a supplement to the Proxy Statement,
MetaTools shall promptly inform Fractal. Notwithstanding the foregoing,
MetaTools makes no representation or warranty with respect to any information
supplied by Fractal which is contained in any of the foregoing documents.
3.21 Board Approval. The Board of Directors of MetaTools has, as of the
--------------
date of this Agreement, determined (i) that the Merger is fair to, and in the
best interests of MetaTools and its stockholders, and (ii) to recommend that the
stockholders of MetaTools approve (y) the amendment of MetaTools' Certificate of
Incorporation to increase its authorized share capital to allow for the issuance
of shares of MetaTools Common Stock by virtue of the Merger and (z) the issuance
of shares of MetaTools Common Stock by virtue of the Merger.
3.22 Fairness Opinion. MetaTools' Board of Directors has received written
----------------
opinions from Alex. Brown & Sons Incorporated, dated as of the date hereof, to
the effect is Board of Directors that as of the date hereof, the Exchange Ratio
is fair to MetaTools from a financial point of view and has delivered to Fractal
a copy of such opinions.
ARTICLE IV
CONDUCT PRIOR TO THE EFFECTIVE TIME
4.1 Conduct of Business. During the period from the date of this
-------------------
Agreement and continuing until the earlier of the termination of this Agreement
pursuant to its terms or the Effective Time, Fractal (which for the purposes of
this Article 4 shall include Fractal and each of its subsidiaries) and MetaTools
(which for the purposes of this Article 4 shall include MetaTools and each of
its subsidiaries) agree, except (i) in the case of Fractal as provided in
Article 4 of the Fractal Schedules and in the case of MetaTools as provided in
Article 4 of the MetaTools Schedules, or (ii) to the extent that the other of
them shall otherwise consent in writing, to carry on its business diligently and
in accordance with good commercial practice and to carry on its business in the
usual, regular and ordinary course, in substantially the same manner as
heretofore conducted and in compliance with all applicable laws and regulations,
to pay its debts and taxes when due subject to good faith disputes over such
debts or taxes, to pay or perform other material obligations when due, and use
its commercially reasonable efforts consistent with past practices and policies
to preserve intact its present business organization, keep available the
services of its present officers and employees and preserve its relationships
with customers, suppliers, distributors, licensors, licensees, and others with
which it has business dealings. In addition, each of Fractal and MetaTools will
promptly notify the other of any material event involving its business or
operations.
In addition, except as permitted by the terms of this Agreement or the
Stock Option Agreements, and except in the case of Fractal as provided in
Article 4 of the Fractal Schedules, and except in the case of MetaTools as
provided in Article 4 of the MetaTools Schedules, without the prior written
consent of the other, neither Fractal nor MetaTools shall do any of the
following, and neither Fractal nor MetaTools shall permit its subsidiaries to do
any of the following:
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<PAGE>
(a) Waive any stock repurchase rights, accelerate, amend or change
the period of exercisability of options or restricted stock, or reprice options
granted under any employee, consultant or director stock plans or authorize cash
payments in exchange for any options granted under any of such plans;
(b) Grant any severance or termination pay to any officer or employee
except payments in amounts consistent with policies and past practices or
pursuant to written agreements outstanding, or policies existing, on the date
hereof and as previously disclosed in writing to the other, or adopt any new
severance plan;
(c) Transfer or license to any person or entity or otherwise extend,
amend or modify in any material respect any rights to the Fractal IP Rights or
the MetaTools IP Rights, as the case may be, or enter into grants to future
patent rights, other than in the ordinary course of business;
(d) Declare or pay any dividends on or make any other distributions
(whether in cash, stock or property) in respect of any capital stock or split,
combine or reclassify any capital stock or issue or authorize the issuance of
any other securities in respect of, in lieu of or in substitution for any
capital stock.
(e) Repurchase or otherwise acquire, directly or indirectly, any
shares of capital stock except pursuant to rights of repurchase of any such
shares under any employee, consultant or director stock plan existing on the
date hereof.
(f) Issue, deliver, sell, authorize or propose the issuance, delivery
or sale of, any shares of capital stock or any securities convertible into
shares of capital stock, or subscriptions, rights, warrants or options to
acquire any shares of capital stock or any securities convertible into shares of
capital stock, or enter into other agreements or commitments of any character
obligating it to issue any such shares or convertible securities, other than (i)
the issuance of shares of Fractal Common Stock or MetaTools Common Stock, as the
case may be, pursuant to the exercise of stock options therefor outstanding as
of the date of this Agreement, (ii) options to purchase shares of Fractal Common
Stock or MetaTools Common Stock, as the case may be, to be granted at fair
market value in the ordinary course of business, consistent with past practice
and in accordance with stock option plans existing on the date hereof, (iii)
shares of Fractal Common Stock or MetaTools Common Stock, as the case may be,
issuable upon the exercise of the options referred to in clause (ii), (iv)
shares of Fractal Common Stock or MetaTools Common Stock, as the case may be,
issuable to participants in the MetaTools Employee Stock Purchase Plan
consistent with past practice and the terms thereof and (v) shares of the
Fractal Common Stock or MetaTools Common Stock, as the case may be, issuable
pursuant to the Option Agreements;
(g) Cause, permit or propose any amendments to any charter document
or Bylaw (or similar governing instruments of any subsidiaries);
(h) Acquire or agree to acquire by merging or consolidating with, or
by purchasing any equity interest in or a material portion of the assets of, or
by any other manner, any business or any corporation, partnership interest,
association or other business organization or division thereof, or otherwise
acquire or agree to acquire any assets which are material, individually or in
the aggregate,
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to the business of Fractal or MetaTools, as the case may be, or enter into any
material joint ventures, strategic partnerships or alliances;
(i) Sell, lease, license, encumber or otherwise dispose of any
properties or assets which are material, individually or in the aggregate, to
the business of Fractal or MetaTools, as the case may be, except in the ordinary
course of business consistent with past practice;
(j) Incur any indebtedness for borrowed money (other than ordinary
course trade payables or pursuant to existing credit facilities in the ordinary
course of business) or guarantee any such indebtedness or issue or sell any debt
securities or warrants or rights to acquire debt securities of Fractal or
MetaTools, as the case may be, or guarantee any debt securities of others;
(k) Adopt or amend any employee benefit or employee stock purchase or
employee option plan, or enter into any employment contract, pay any special
bonus or special remuneration to any director or employee, or increase the
salaries or wage rates of its officers or employees other than in the ordinary
course of business, consistent with past practice, or change in any material
respect any management policies or procedures; provided, however that this
Section 4.1(k) will not prohibit MetaTools from amending its 401(k) plan to
include contributions from MetaTools' the;
(l) Pay, discharge or satisfy any claim, liability or obligation
(absolute, accrued, asserted or unasserted, contingent or otherwise), other than
the payment, discharge or satisfaction in the ordinary course of business;
(m) Make any grant of exclusive rights to any third party, other than
in the ordinary course of business;
(n) Take any action that would be reasonably likely to interfere with
MetaTools' ability to account for the Merger as a pooling of interests; or
(o) Agree in writing or otherwise to take any of the actions
described in Article 4 (a) through (n) above.
ARTICLE V
ADDITIONAL AGREEMENTS
5.1 Proxy Statement/Prospectus; Registration Statement; Other Filings;
------------------------------------------------------------------
Board Recommendations.
- ---------------------
(a) As promptly as practicable after the execution of this Agreement,
Fractal and MetaTools will prepare, and file with the SEC, the Proxy Statement
and MetaTools will prepare and file with the SEC the Registration Statement in
which the Proxy Statement will be included as a prospectus. Each of Fractal and
MetaTools will respond to any comments of the SEC, will use its respective
reasonable best efforts to have the Registration Statement declared effective
under the Securities Act as promptly as practicable after such filing and will
cause the Proxy Statement to be
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mailed to its respective stockholders or shareholders, as the case may be, at
the earliest practicable time. As promptly as practicable after the date of
this Agreement, Fractal and MetaTools will prepare and file any other filings
required under the Exchange Act, the Securities Act or any other Federal,
foreign or Blue Sky laws relating to the Merger and the transactions
contemplated by this Agreement (the "OTHER FILINGS"). Each of Fractal and
MetaTools will notify the other promptly upon the receipt of any comments from
the SEC or its staff and of any request by the SEC or its staff or any other
government officials for amendments or supplements to the Registration
Statement, the Proxy Statement or any Other Filing or for additional information
and will supply the other with copies of all correspondence between such party
or any of its representatives, on the one hand, and the SEC, or its staff or any
other government officials, on the other hand, with respect to the Registration
Statement, the Proxy Statement, the Merger or any Other Filing. The Proxy
Statement, the Registration Statement and the Other Filings will comply in all
material respects with all applicable requirements of law and the rules and
regulations promulgated thereunder. Whenever any event occurs which is required
to be set forth in an amendment or supplement to the Proxy Statement, the
Registration Statement or any Other Filing, Fractal or MetaTools, as the case
may be, will promptly inform the other of such occurrence and cooperate in
filing with the SEC or its staff or any other government officials, and/or
mailing to shareholders of Fractal or stockholders of MetaTools, such amendment
or supplement.
(b) The Proxy Statement will include the recommendation of the Board
of Directors of Fractal in favor of adoption and approval of this Agreement and
approval of the Merger (except that the Board of Directors of Fractal may
withdraw, modify or refrain from making such recommendation to the extent that
the Board determines, in good faith, after consultation with outside legal
counsel, that compliance with the Board's fiduciary duties under applicable law
would require it to do so). In addition, the Proxy Statement will include the
recommendations of the Board of Directors of MetaTools in favor of (x) the
amendment of MetaTools' Certificate of Incorporation to increase its authorized
share capital to allow for the issuance of shares of MetaTools Common Stock by
virtue of the Merger and (y) the issuance of shares of MetaTools Common Stock by
virtue of the Merger.
5.2 Meetings of Shareholders and Stockholders. Promptly after the date
-----------------------------------------
hereof, Fractal will take all action necessary in accordance with California Law
and its Articles of Incorporation and Bylaws to convene the Fractal
Shareholders' Meeting to be held as promptly as practicable, and in any event
(to the extent permissible under applicable law) within 45 days after the
declaration of effectiveness of the Registration Statement, for the purpose of
voting upon this Agreement. Fractal will consult with MetaTools and use its
reasonable best efforts to hold the Fractal Shareholders' Meeting on the same
day as the MetaTools Stockholders' Meeting. Promptly after the date hereof,
MetaTools will take all action necessary in accordance with the Delaware General
Corporation Law and its Certificate of Incorporation and Bylaws to convene the
MetaTools Stockholders' Meeting to be held as promptly as practicable, and in
any event (to the extent permissible under applicable law) within 45 days after
the declaration of effectiveness of the Registration Statement, for the purpose
of (i) amending its Certificate of Incorporation to increase its authorized
share capital to allow for the issuance of shares of MetaTools Common Stock by
virtue of the Merger and (ii) voting upon the issuance of shares of MetaTools
Common Stock by virtue of the Merger. MetaTools will consult with Fractal and
will use its reasonable best efforts to hold the MetaTools Stockholders' Meeting
on the same day as the Fractal Shareholders' Meeting. For so long as the Board
of Directors of Fractal
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continues to make the recommendation set forth in Section 5.1, Fractal will use
its reasonable best efforts to solicit from its shareholders proxies in favor of
the adoption and approval of this Agreement and the approval of the Merger and
will take all other action necessary or advisable to secure the vote or consent
of its shareholders required by the rules of the National Association of
Securities Dealers, Inc. or California Law to obtain such approvals. For so long
as the Board of Directors of MetaTools continues to make the recommendations set
forth in Section 5.1, MetaTools will use its best efforts to solicit from its
stockholders proxies in favor of (i) the amendment of MetaTools' Certificate of
Incorporation to increase its authorized share capital to allow for the issuance
of shares of MetaTools Common Stock by virtue of the Merger and (ii) the
issuance of shares of MetaTools Common Stock by virtue of the Merger.
5.3 Confidentiality; Access to Information.
--------------------------------------
(a) The parties acknowledge that Fractal and MetaTools have
previously executed a Mutual Nondisclosure Agreement, dated November 26, 1996,
and a Confidentiality Agreement, dated February 9, 1997 (collectively the
"CONFIDENTIALITY AGREEMENT"), which Confidentiality Agreement will continue in
full force and effect in accordance with its terms.
(b) Access to Information. Each party will afford the other party and
its accountants, counsel, and other representatives access during normal
business hours to the properties, books, records and personnel of the other
party during the period prior to the Effective Time to obtain all information
concerning the business, including the status of product development efforts,
properties, results of operations and personnel of such party, as the other
party may reasonably request. No information or knowledge obtained in any
investigation pursuant to this Section 5.3 will affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the Merger.
5.4 No Solicitation.
---------------
(a) Restrictions on MetaTools.
-------------------------
(i) From and after the date of this Agreement until the earlier
of the Effective Time or termination of this Agreement pursuant to its terms,
MetaTools and its subsidiaries shall not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly encourage
submission of, any proposals or offers by any person, entity or group (other
than Fractal and its affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any non-public
information concerning MetaTools or any of its subsidiaries to, or afford any
access to the properties, books or records of MetaTools or any of its
subsidiaries to, or otherwise assist or facilitate, or enter into any agreement
or understanding with, any person, entity or group (other than Fractal and its
affiliates, agents and representatives), in connection with any Acquisition
Proposal with respect to MetaTools. For the purposes of this Agreement, an
"ACQUISITION PROPOSAL" with respect to an entity means any proposal or offer
relating to (i) any merger, consolidation, sale of substantial assets or similar
transactions involving the entity or any subsidiaries of the entity (other than
sales of assets or inventory in the ordinary course of business or as permitted
under the terms of this Agreement), (ii) sale of 15% or more of the outstanding
shares of capital stock of the entity (including without limitation by way of a
tender offer or an exchange offer), (iii) the acquisition by any person of
beneficial ownership or a right to acquire beneficial ownership of, or the
formation of any "group" (as defined under Section 13(d) of the Exchange Act and
the rules and regulations thereunder) which beneficially owns, or has the right
to acquire beneficial ownership of, 15% or more of the then outstanding shares
of capital stock
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of the entity (except for acquisitions for passive investment purposes only in
circumstances where the person or group qualifies for and files a Schedule 13G
with respect thereto); or (iv) any public announcement of a proposal, plan or
intention to do any of the foregoing or any agreement to engage in any of the
foregoing. MetaTools will immediately cease any and all existing activities,
discussions or negotiations with any parties conducted heretofore with respect
to any of the foregoing. MetaTools will (i) notify Fractal as promptly as
practicable if any inquiry or proposal is made or any information or access is
requested in writing in connection with an Acquisition Proposal or potential
Acquisition Proposal and (ii) as promptly as practicable notify Fractal of the
significant terms and conditions of any such Acquisition Proposal. In addition,
subject to the other provisions of this Section 5.4(a), from and after the date
of this Agreement until the earlier of the Effective Time and termination of
this Agreement pursuant to its terms, MetaTools and its subsidiaries will not,
and will instruct their respective directors, officers, employees,
representatives, investment bankers, agents and affiliates not to, directly or
indirectly, make or authorize any public statement, recommendation or
solicitation in support of any Acquisition Proposal made by any person, entity
or group (other than Fractal); provided, however, that nothing herein shall
-------- -------
prohibit MetaTools' Board of Directors from taking and disclosing to MetaTools'
stockholders a position with respect to a tender offer pursuant to Rules 14d-9
and 14e-2 promulgated under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (a)(i) above, prior
to the Effective Time, MetaTools may, to the extent the Board of Directors of
MetaTools determines, in good faith, after consultation with outside legal
counsel, that the Board's fiduciary duties under applicable law require it to do
so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph (a)(iii), below, furnish information to any person,
entity or group after such person, entity or group has delivered to MetaTools in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of MetaTools in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable than the Merger to the stockholders of MetaTools (a
"METATOOLS SUPERIOR PROPOSAL"). In addition, notwithstanding the provisions of
paragraph (a)(i) above, in connection with a possible Acquisition Proposal,
MetaTools may refer any third party to this Section 5.4(a) or make a copy of
this Section 5.4(a) available to a third party. In the event MetaTools receives
a MetaTools Superior Proposal, nothing contained in this Agreement (but subject
to the terms hereof) will prevent the Board of Directors of MetaTools from
recommending such MetaTools Superior Proposal to MetaTools' stockholders, if the
Board determines, in good faith, after consultation with outside legal counsel,
that such action is required by its fiduciary duties under applicable law; in
such case, the Board of Directors of MetaTools may withdraw, modify or refrain
from making its recommendations set forth in Section 5.1(b), and, to the extent
it does so, MetaTools may refrain from soliciting proxies and taking such other
action necessary to secure the vote of its stockholders as may be required by
Section 5.2; provided, however, that MetaTools shall not recommend to its
-------- -------
stockholders a MetaTools Superior Proposal for a period of not less than 48
hours after Fractal's receipt of a copy of such MetaTools Superior Proposal (or
a description of the significant terms and conditions thereof, if not in
writing); and provided further, that nothing contained in this Section shall
-------- -------
limit MetaTools'
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obligation to hold and convene the MetaTools Stockholders Meeting (regardless of
whether the recommendations of the Board of Directors of MetaTools shall have
been withdrawn, modified or not yet made).
(iii) Notwithstanding anything to the contrary herein, MetaTools
will not provide any non-public information to a third party unless: (x)
MetaTools provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (y)
such non-public information has been previously delivered to Fractal.
(b) Restrictions on Fractal.
-----------------------
(i) From and after the date of this Agreement until the earlier
of the Effective Time or termination of this Agreement pursuant to its terms,
Fractal and its subsidiaries will not, and will instruct their respective
directors, officers, employees, representatives, investment bankers, agents and
affiliates not to, directly or indirectly, (i) solicit or knowingly encourage
submission of, any proposals or offers by any person, entity or group (other
than MetaTools and its affiliates, agents and representatives), or (ii)
participate in any discussions or negotiations with, or disclose any non-public
information concerning Fractal or any of its subsidiaries to, or afford any
access to the properties, books or records of Fractal or any of its subsidiaries
to, or otherwise assist or facilitate, or enter into any agreement or
understanding with, any person, entity or group (other than MetaTools and its
affiliates, agents and representatives), in connection with any Acquisition
Proposal with respect to Fractal. Fractal will immediately cease any and all
existing activities, discussions or negotiations with any parties conducted
heretofore with respect to any of the foregoing. Fractal will (i) notify
MetaTools as promptly as practicable if any inquiry or proposal is made or any
information or access is requested in writing in connection with an Acquisition
Proposal or potential Acquisition Proposal and (ii) as promptly as practicable
notify MetaTools of the significant terms and conditions of any such Acquisition
Proposal. In addition, subject to the other provisions of this Section 5.4(b),
from and after the date of this Agreement until the earlier of the Effective
Time and termination of this Agreement pursuant to its terms, Fractal and its
subsidiaries will not, and will instruct their respective directors, officers,
employees, representatives, investment bankers, agents and affiliates not to,
directly or indirectly, make or authorize any public statement, recommendation
or solicitation in support of any Acquisition Proposal made by any person,
entity or group (other than MetaTools); provided, however, that nothing herein
-------- -------
shall prohibit Fractal's Board of Directors from taking and disclosing to
Fractal's shareholders a position with respect to a tender offer pursuant to
Rules 14d-9 and 14e-2 promulgated under the Exchange Act.
(ii) Notwithstanding the provisions of paragraph (b)(i) above,
prior to the Effective Time, Fractal may, to the extent the Board of Directors
of Fractal determines, in good faith, after consultation with outside legal
counsel, that the Board's fiduciary duties under applicable law require it to do
so, participate in discussions or negotiations with, and, subject to the
requirements of paragraph (b)(iii), below, furnish information to any person,
entity or group after such person, entity or group has delivered to Fractal in
writing, an unsolicited bona fide Acquisition Proposal which the Board of
Directors of Fractal in its good faith reasonable judgment determines, after
consultation with its independent financial advisors, would result in a
transaction more favorable than the Merger to the shareholders of Fractal (a
"FRACTAL SUPERIOR PROPOSAL"). In addition, notwithstanding the provisions
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of paragraph (b)(i) above, in connection with a possible Acquisition Proposal,
Fractal may refer any third party to this Section 5.4(b) or make a copy of this
Section 5.4(b) available to a third party. In the event Fractal receives a
Fractal Superior Proposal, nothing contained in this Agreement (but subject to
the terms hereof) will prevent the Board of Directors of Fractal from
recommending such Fractal Superior Proposal to its stockholders, if the Board
determines, in good faith, after consultation with outside legal counsel, that
such action is required by its fiduciary duties under applicable law; in such
case, the Board of Directors of Fractal may withdraw, modify or refrain from
making its recommendation set forth in Section 5.1(b), and, to the extent it
does so, Fractal may refrain from soliciting proxies and taking such other
action necessary to secure the vote of its shareholders as may be required by
Section 5.2; provided, however, that Fractal shall not recommend to its
-------- -------
shareholders a Fractal Superior Proposal for a period of not less than 48 hours
after MetaTools' receipt of a copy of such Fractal Superior Proposal (or a
description of the significant terms and conditions thereof, if not in writing);
and provided further, that nothing contained in this Section shall limit
-------- -------
Fractal's obligation to hold and convene the Fractal Shareholders Meeting
(regardless of whether the recommendation of the Board of Directors of Fractal
shall have been withdrawn, modified or not yet made).
(iii) Notwithstanding anything to the contrary in paragraph (b),
Fractal will not provide any non-public information to a third party unless: (x)
Fractal provides such non-public information pursuant to a nondisclosure
agreement with terms regarding the protection of confidential information at
least as restrictive as such terms in the Confidentiality Agreement; and (y)
such non-public information has been previously delivered to MetaTools.
5.5 Public Disclosure. MetaTools and Fractal will consult with each
-----------------
other, and to the extent practicable, agree, before issuing any press release or
otherwise making any public statement with respect to the Merger, this Agreement
or an Acquisition Proposal and will not issue any such press release or make any
such public statement prior to such consultation, except as may be required by
law or any listing agreement with a national securities exchange or the Nasdaq
Stock Market. The parties have agreed to the text of the joint press release
announcing the signing of this Agreement.
5.6 Legal Requirements. Each of MetaTools, Merger Sub and Fractal will
------------------
take all reasonable actions necessary or desirable to comply promptly with all
legal requirements which may be imposed on them with respect to the consummation
of the transactions contemplated by this Agreement (including furnishing all
information required in connection with approvals by or filings with any
Governmental Entity, and prompt resolution of any litigation prompted hereby)
and will promptly cooperate with and furnish information to any party hereto
necessary in connection with any such filings with or investigations by any
Governmental Entity, and any other such requirements imposed upon any of them or
their respective subsidiaries in connection with the consummation of the
transactions contemplated by this Agreement. MetaTools will use its
commercially reasonable efforts to take such steps as may be necessary to comply
with the securities and blue sky laws of all jurisdictions which are applicable
to the issuance of MetaTools Common Stock pursuant hereto. Fractal will use its
commercially reasonable efforts to assist MetaTools as may be necessary to
comply with the securities and blue sky laws of all jurisdictions which are
applicable in connection with the issuance of MetaTools Common Stock pursuant
hereto.
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5.7 Third Party Consents. As soon as practicable following the date
--------------------
hereof, MetaTools and Fractal will each use its commercially reasonable efforts
to obtain all material consents, waivers and approvals under any of its or its
subsidiaries' agreements, contracts, licenses or leases required to be obtained
in connection with the consummation of the transactions contemplated hereby.
5.8 Notification of Certain Matters. MetaTools and Merger Sub will give
-------------------------------
prompt notice to Fractal, and Fractal will give prompt notice to MetaTools, of
the occurrence, or failure to occur, of any event, which occurrence or failure
to occur would be reasonably likely to cause (a) any representation or warranty
contained in this Agreement and made by it to be untrue or inaccurate in any
material respect at any time from the date of this Agreement to the Effective
Time such that the conditions set forth in Section 6.2(a) or 6.3(a), as the case
may be, would not be satisfied as a result thereof or (b) any material failure
of MetaTools and Merger Sub or Fractal, as the case may be, or of any officer,
director, employee or agent thereof, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it under this
Agreement. Notwithstanding the above, the delivery of any notice pursuant to
this section will not limit or otherwise affect the remedies available hereunder
to the party receiving such notice.
5.9 Best Efforts and Further Assurances. Subject to the respective rights
-----------------------------------
and obligations of MetaTools and Fractal under this Agreement, each of the
parties to this Agreement will use its reasonable best efforts to effectuate the
Merger and the other transactions contemplated hereby and to fulfill and cause
to be fulfilled the conditions to closing under this Agreement; provided that
neither MetaTools nor Fractal nor any subsidiary or affiliate thereof will be
required to agree to any divestiture by itself or any of its affiliates of
shares of capital stock or of any business, assets or property, or the
imposition of any material limitation on the ability of any of them to conduct
their businesses or to own or exercise control of such assets, properties and
stock. Subject to the foregoing, each party hereto, at the reasonable request
of another party hereto, will execute and deliver such other instruments and do
and perform such other acts and things as may be necessary or desirable for
effecting completely the consummation of the transactions contemplated hereby.
5.10 Stock Options and Employee Benefits.
-----------------------------------
(a) At the Effective Time, each outstanding option to purchase shares
of Fractal Common Stock (each a "FRACTAL STOCK OPTION") under the Fractal Stock
Option Plans, whether or not exercisable, will be assumed by MetaTools. Each
Fractal Stock Option so assumed by MetaTools under this Agreement will continue
to have, and be subject to, the same terms and conditions set forth in the
applicable Fractal Stock Option Plan immediately prior to the Effective Time
(including, without limitation, any repurchase rights), except that (i) each
Fractal Stock Option will be exercisable (or will become exercisable in
accordance with its terms) for that number of whole shares of MetaTools Common
Stock equal to the product of the number of shares of Fractal Common Stock that
were issuable upon exercise of such Fractal Stock Option immediately prior to
the Effective Time multiplied by the Exchange Ratio, rounded down to the nearest
whole number of shares of MetaTools Common Stock, and (ii) the per share
exercise price for the shares of MetaTools Common Stock issuable upon exercise
of such assumed Fractal Stock Option will be equal to the quotient determined by
dividing the exercise price per share of Fractal Common Stock at which such
Fractal Stock Option was exercisable immediately prior to the Effective Time by
the Exchange Ratio, rounded up to the nearest whole cent. After the Effective
Time, MetaTools will issue to each holder of an outstanding
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Fractal Stock Option a notice describing the foregoing assumption of such
Fractal Stock Option by MetaTools.
(b) It is intended that Fractal Stock Options assumed by MetaTools
shall qualify following the Effective Time as incentive stock options as defined
in Section 422 of the Code to the extent Fractal Stock Options qualified as
incentive stock options immediately prior to the Effective Time and the
provisions of this Section 5.10 shall be applied consistent with such intent.
(c) MetaTools will reserve sufficient shares of MetaTools Common
Stock for issuance under Section 5.10(a) and under Section 1.6(c) hereof.
(d) Employees and Employee Benefits; Location of Facilities.
-------------------------------------------------------
(i) Employees and Employee Benefits. From and after the
-------------------------------
Effective Time, MetaTools shall grant all employees of Fractal and any
subsidiaries of Fractal credit for all service (to the same extent as service
with MetaTools or any subsidiary of MetaTools is taken into account with respect
to similarly situated employees of MetaTools and the subsidiaries of MetaTools)
with Fractal and any subsidiary of Fractal and their respective predecessors
prior to the Effective Time for all purposes as if such service with Fractal or
any subsidiary of Fractal was service with MetaTools or any subsidiary of
MetaTools (provided, however, that no such past service credit shall be granted
-------- -------
to the extent it would result in duplicative accrual of benefits for the same
period of service), and, with respect to any medical or dental benefit plan,
MetaTools shall waive any pre-existing condition exclusions and actively-at-work
requirements (provided, however, that no such waiver shall apply to a pre-
-------- -------
existing condition of any employee of Fractal or any subsidiary of Fractal who
was, as of the Effective Time, excluded from participation in a plan by virtue
of such pre-existing condition) and provide that any covered expenses incurred
on or before the Effective Time by an employee or an employee's covered
dependent shall be taken into account for purposes of satisfying applicable
deductible, coinsurance and maximum out-of-pocket provisions after the Effective
Time to the same extent as such expenses are taken into account for the benefit
of similarly situate employees of MetaTools and subsidiaries of MetaTools.
MetaTools shall provide or shall cause Fractal and each subsidiary of Fractal to
provide benefits to any employee of Fractal and each subsidiary of Fractal which
are not less favorable in the aggregate than the benefits provided to similarly
situated employees of MetaTools and subsidiaries of MetaTools.
(ii) Location of Facilities. It is the current intention of the
----------------------
parties that following the Closing, operations of Fractal and MetaTools shall
remain in substantially the same geographic locations as such operations are
located prior to the Closing.
(iii) Fractal 401(k). The parties will agree as to the treatment
--------------
of the Fractal 401(k) as a result of the Merger. It is understood that any
treatment of the Fractal 401(k) Plan will not preclude MetaTools' ability to
account for the Merger as a pooling of interests and will not treat any
participant in the Fractal 401(k) in a manner disproportionate to similarly
situated employees of MetaTools.
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5.11 Form S-8. MetaTools agrees to file a registration statement on Form
--------
S-8 for the shares of MetaTools Common Stock issuable with respect to assumed
Fractal Stock Options no later than the next business day after the Closing
Date.
5.12 Indemnification and Insurance.
-----------------------------
(a) From and after the Effective Time, MetaTools will fulfill and
honor and will cause the Surviving Corporation to fulfill and honor in all
respects the obligations of Fractal pursuant to any indemnification agreements
between Fractal and its directors and officers existing prior to the date
hereof. From and after the Effective Time, such obligations shall be the joint
and several obligations of MetaTools and the Surviving Corporation and, by
executing this Agreement, MetaTools hereby assumes such obligations. The
Articles of Incorporation and By-laws of the Surviving Corporation will contain
the provisions with respect to indemnification set forth in the Articles of
Incorporation and Bylaws of Fractal, which provisions will not be amended,
repealed or otherwise modified from the Effective Time in any manner that would
adversely affect the rights thereunder of individuals who, immediately prior to
the Effective Time, were directors, officers, employees or agents of Fractal,
unless such modification is required by law.
(b) For a period of six years after the Effective Time, MetaTools
will cause the Surviving Corporation to use its commercially reasonable efforts
to maintain in effect, if available, directors' and officers' liability
insurance covering those persons who are currently covered by Fractal's
directors' and officers' liability insurance policy on terms comparable to those
applicable to the then current directors and officers of MetaTools; provided,
--------
however, that in no event will MetaTools or the Surviving Corporation be
- -------
required to expend in excess of 175% of the annual premium currently paid by
Fractal for such coverage (or such coverage as is available for such 175% of the
annual premium).
(c) This Section 5.13 will survive any termination of this Agreement
and the consummation of the Merger at the Effective Time, is intended to benefit
Fractal, the Surviving Corporation and the Indemnified Parties, and will be
binding on all successors and assigns of the Surviving Corporation.
5.13 NMS Listing. MetaTools agrees to authorize for listing on the Nasdaq
-----------
National Market the shares of MetaTools Common Stock issuable, and those
required to be reserved for issuance, in connection with the Merger, upon
official notice of issuance.
5.14 MetaTools Affiliate Agreement. Set forth on the MetaTools Schedules
-----------------------------
is a list of those persons who may be deemed to be, in MetaTools' reasonable
judgment, affiliates of MetaTools within the meaning of Rule 145 promulgated
under the Securities Act (each a "METATOOLS AFFILIATE"). MetaTools will provide
Fractal with such information and documents as Fractal reasonably requests for
purposes of reviewing such list. MetaTools will use its reasonable best efforts
to deliver or cause to be delivered to Fractal, as promptly as practicable on or
following the date hereof, from each MetaTools Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit C-1, each of
-----------
which will be in full force and effect as of the Effective Time.
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5.15 Fractal Affiliate Agreement. Set forth on the Fractal Schedules is a
---------------------------
list of those persons who may be deemed to be, in Fractal's reasonable judgment,
affiliates of Fractal within the meaning of Rule 145 promulgated under the
Securities Act (each a "FRACTAL AFFILIATE"). Fractal will provide MetaTools
with such information and documents as MetaTools reasonably requests for
purposes of reviewing such list. Fractal will use its reasonable best efforts
to deliver or cause to be delivered to MetaTools, as promptly as practicable on
or following the date hereof, from each Fractal Affiliate an executed affiliate
agreement in substantially the form attached hereto as Exhibit C-2 (the "FRACTAL
-----------
AFFILIATE AGREEMENT"), each of which will be in full force and effect as of the
Effective Time. MetaTools will be entitled to place appropriate legends on the
certificates evidencing any MetaTools Common Stock to be received by a Fractal
Affiliate pursuant to the terms of this Agreement, and to issue appropriate stop
transfer instructions to the transfer agent for the MetaTools Common Stock,
consistent with the terms of the Fractal Affiliate Agreement.
5.16 Regulatory Filings; Reasonable Efforts. If required under applicable
--------------------------------------
law, as soon as may be reasonably practicable, Fractal and MetaTools each shall
file with the United States Federal Trade Commission (the "FTC") and the
Antitrust Division of the United States Department of Justice ("DOJ")
Notification and Report Forms relating to the transactions contemplated herein
as required by the HSR Act, as well as comparable pre-merger notification forms
required by the merger notification or control laws and regulations of any
applicable jurisdiction, as agreed to by the parties. Fractal and MetaTools
each shall promptly (a) supply the other with any information which may be
required in order to effectuate such filings and (b) supply any additional
information which reasonably may be required by the FTC, the DOJ or the
competition or merger control authorities of any other jurisdiction and which
the parties may reasonably deem appropriate.
5.17 Board of Directors of the Combined Company. The Board of Directors of
------------------------------------------
MetaTools will take all actions necessary to cause the Board of Directors of
MetaTools, immediately after the Effective Time, to consist of nine (9) persons,
three (3) of whom shall be Thomas Hedges, Mark Zimmer and one (1) additional
person to be named by Fractal who shall be reasonably acceptable to MetaTools.
If, prior to the Effective Time, Mr. Hedges or Mr. Zimmer shall decline or be
unable to serve as a Fractal director, Fractal shall designate another person to
serve in such person's stead, which person shall be reasonably acceptable to
MetaTools.
5.18 Committees of Board of Directors of MetaTools. The Board of Directors
---------------------------------------------
of MetaTools will take all actions necessary to cause the Audit Committee and
the Compensation Committee of the Board of Directors of MetaTools to each
consist only of independent directors. In addition, the Board of Directors of
MetaTools will take all actions necessary to cause the Nominating Committee of
the Board of Directors of MetaTools to consist of two (2) independent directors
and the Chief Executive Officer of MetaTools.
5.19 Increase in Authorized Shares. Subject to the terms hereof, at the
-----------------------------
MetaTools Stockholders' Meeting MetaTools shall propose and recommend that its
Certificate of Incorporation be amended to increase the authorized number of
shares of Common Stock thereunder to 75,000,000 shares, provided that MetaTools
may propose and recommend an increase of such lesser number as in good faith it
determines (provided that, subject to the terms hereof, such lesser number is
not less than the number required to issue shares by virtue of the Merger and
the other transactions contemplated hereby).
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5.20 MetaTools Name Change. The Proxy Statement shall include a proposal
---------------------
to change the name of MetaTools (upon, and subject to consummation of, the
Merger) to a name that is mutually agreeable to the parties hereto.
5.21 Tax-Free Reorganization. No party shall take any action either prior
-----------------------
to or after the Effective Time that could reasonably be expected to cause the
merger to fail to qualify as a "reorganization" under Section 368(a) of the
Code.
ARTICLE VI
CONDITIONS TO THE MERGER
6.1 Conditions to Obligations of Each Party to Effect the Merger. The
------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of the
following conditions:
(a) Stockholder and Shareholder Approval. This Agreement shall have
------------------------------------
been approved and adopted, and the Merger shall have been duly approved, by the
requisite vote under applicable law, by the shareholders of Fractal; and an
increase in the authorized number of shares of MetaTools Common Stock so as to
permit the issuance of shares of MetaTools Common Stock by virtue of the Merger,
as well as such issuance, shall have been duly approved by the requisite vote
under applicable law and the rules of the National Association of Securities
Dealers, Inc. by the stockholders of MetaTools.
(b) Registration Statement Effective; Proxy Statement. The SEC shall
-------------------------------------------------
have declared the Registration Statement effective. No stop order suspending the
effectiveness of the Registration Statement or any part thereof shall have been
issued and no proceeding for that purpose, and no similar proceeding in respect
of the Proxy Statement, shall have been initiated or threatened in writing by
the SEC.
(c) No Order; HSR Act. No Governmental Entity shall have enacted,
-----------------
issued, promulgated, enforced or entered any statute, rule, regulation,
executive order, decree, injunction or other order (whether temporary,
preliminary or permanent) which is in effect and which has the effect of making
the Merger illegal or otherwise prohibiting consummation of the Merger. All
waiting periods, if any, under the HSR Act relating to the transactions
contemplated hereby will have expired or terminated early.
(d) Tax Opinions. MetaTools and Fractal shall each have received
written opinions from their respective counsel, Wilson Sonsini Goodrich &
Rosati, Professional Corporation, and Venture Law Group, Professional
Corporation, in form and substance reasonably satisfactory to them, to the
effect that the Merger will constitute a reorganization within the meaning of
Section 368(a) of the Code and such opinions shall not have been withdrawn;
provided, however, that if the counsel to either MetaTools or Fractal does not
- -------- -------
render such opinion, this condition shall nonetheless be deemed to be satisfied
with respect to such party if counsel to the other party renders such opinion to
such party. The parties to this Agreement agree to make reasonable
representations as requested by such counsel for the purpose of rendering such
opinions.
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(e) Nasdaq Listing. The shares of MetaTools Common Stock issuable to
--------------
shareholders of Fractal pursuant to this Agreement and such other shares
required to be reserved for issuance in connection with the Merger shall have
been authorized for listing on the Nasdaq National Market upon official notice
of issuance.
(f) Opinion of Accountants. Each of MetaTools and Fractal shall have
----------------------
received a letter from Coopers & Lybrand L.L.P. and Price Waterhouse LLP,
respectively, dated within two (2) business days prior to the Effective Time,
regarding that firm's concurrence with MetaTools' managements' and Fractal's
managements' conclusions as to the appropriateness of pooling of interest
accounting for the Merger under Accounting Principles Board Opinion No. 16, if
the Merger is consummated in accordance with this Agreement.
6.2 Additional Conditions to Obligations of Fractal. The obligation of
-----------------------------------------------
Fractal to consummate and effect the Merger shall be subject to the satisfaction
at or prior to the Effective Time of each of the following conditions, any of
which may be waived, in writing, exclusively by Fractal:
(a) Representations and Warranties. The representations and
------------------------------
warranties of MetaTools and Merger Sub contained in this Agreement shall have
been true and correct in all material respects as of the date of this Agreement.
In addition, the representations and warranties of MetaTools and Merger Sub
contained in this Agreement shall be true and correct in all material respects
on and as of the Effective Time except for changes contemplated by this
Agreement and except for those representations and warranties which address
matters only as of a particular date (which shall remain true and correct as of
such particular date), with the same force and effect as if made on and as of
the Effective Time, except in such cases (other than the representations in
Sections 3.2, 3.3 and 3.22) where the failure to be so true and correct would
not have a Material Adverse Effect on MetaTools. Fractal shall have received a
certificate with respect to the foregoing signed on behalf of MetaTools by the
Chief Executive Officer and the Chief Financial Officer of MetaTools;
(b) Agreements and Covenants. MetaTools and Merger Sub shall have
------------------------
performed or complied in all material respects with all agreements and covenants
required by this Agreement to be performed or complied with by them on or prior
to the Effective Time, and Fractal shall have received a certificate to such
effect signed on behalf of MetaTools by the Chief Executive Officer and the
Chief Financial Officer of MetaTools; and
(c) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to MetaTools shall have occurred since the date of this Agreement.
6.3 Additional Conditions to the Obligations of MetaTools and Merger Sub.
--------------------------------------------------------------------
The obligations of MetaTools and Merger Sub to consummate and effect the Merger
shall be subject to the satisfaction at or prior to the Effective Time of each
of the following conditions, any of which may be waived, in writing, exclusively
by MetaTools:
(a) Representations and Warranties. The representations and
------------------------------
warranties of Fractal contained in this Agreement shall have been true and
correct in all material respects as of the date of this Agreement. In addition,
the representations and warranties of Fractal contained in this Agreement shall
be true and correct in all material respects on and as of the Effective Time
except for
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changes contemplated by this Agreement and except for those representations and
warranties which address matters only as of a particular date (which shall
remain true and correct as of such particular date), with the same force and
effect as if made on and as of the Effective Time, except in such cases (other
than the representations in Sections 2.2, 2.3 and 2.21) where the failure to be
so true and correct would not have a Material Adverse Effect on Fractal.
MetaTools shall have received a certificate with respect to the foregoing signed
on behalf of Fractal by the Chief Executive Officer and the Chief Financial
Officer of Fractal;
(b) Agreements and Covenants. Fractal shall have performed or
------------------------
complied in all material respects with all agreements and covenants required by
this Agreement to be performed or complied with by it on or prior to the
Effective Time, and the MetaTools shall have received a certificate to such
effect signed on behalf of Fractal by the President and the Chief Financial
Officer of Fractal; and
(c) Material Adverse Effect. No Material Adverse Effect with respect
-----------------------
to Fractal shall have occurred since the date of this Agreement.
(d) No Dissenters. Holders of more than 4.9% of the outstanding
-------------
shares of Fractal Common Stock shall not have exercised, nor shall they have any
continued right to exercise, appraisal, dissenters' or similar rights under
applicable law with respect to their shares by virtue of the Merger.
(e) Noncompetition Agreements. Thomas Hedges and Mark Zimmer shall
-------------------------
have entered into Noncompetition Agreements substantially in the form attached
hereto as Exhibit D and such agreements shall be in full force and effect.
ARTICLE VII
TERMINATION, AMENDMENT AND WAIVER
7.1 Termination. This Agreement may be terminated at any time prior to
-----------
the Effective Time of the Merger, whether before or after approval of the Merger
by the shareholders of Fractal or the approval of the issuance of MetaTools
Common Stock in connection with the Merger by the stockholders of MetaTools:
(a) by mutual written consent duly authorized by the Boards of
Directors of MetaTools and Fractal;
(b) by either Fractal or MetaTools if the Merger shall not have been
consummated by August 31, 1997 for any reason; provided, however, that the right
-------- -------
to terminate this Agreement under this Section 7.1(b) shall not be available to
any party whose action or failure to act has been a principal cause of or
resulted in the failure of the Merger to occur on or before such date and such
action or failure to act constitutes a breach of this Agreement;
(c) by either Fractal or MetaTools if a Governmental Entity shall
have issued an order, decree or ruling or taken any other action (an "ORDER"),
in any case having the effect of
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<PAGE>
permanently restraining, enjoining or otherwise prohibiting the Merger, which
order, decree or ruling is final and nonappealable;
(d) by either Fractal or MetaTools if the required approvals of the
shareholders of Fractal or the stockholders of MetaTools contemplated by this
Agreement shall not have been obtained by reason of the failure to obtain the
required vote upon a vote taken at a meeting of shareholders or stockholders, as
the case may be, duly convened therefor or at any adjournment thereof (provided
--------
that the right to terminate this Agreement under this Section 7.1(d) shall not
be available to any party where the failure to obtain shareholder or
stockholder approval of such party shall have been caused by the action or
failure to act of such party in breach of this Agreement);
(e) by MetaTools, if the Board of Directors of Fractal recommends a
Fractal Superior Proposal to the shareholders of Fractal, or if the Board of
Directors of Fractal shall have withheld, withdrawn or modified in a manner
adverse to MetaTools its recommendation in favor of adoption and approval of
this Agreement and approval of the Merger;
(f) by Fractal, if the Board of Directors of MetaTools recommends a
MetaTools Superior Proposal to the stockholders of MetaTools, or if the Board of
Directors of MetaTools shall have withheld, withdrawn or modified in a manner
adverse to Fractal its recommendation in favor of approving the issuance of the
shares of MetaTools Common Stock by virtue of the Merger;
(g) by Fractal, upon a breach of any representation, warranty,
covenant or agreement on the part of MetaTools set forth in this Agreement, or
if any representation or warranty of MetaTools shall have become untrue, in
either case such that the conditions set forth in Section 6.2(a) or Section
6.2(b) would not be satisfied as of the time of such breach or as of the time
such representation or warranty shall have become untrue, provided that if such
--------
inaccuracy in MetaTools' representations and warranties or breach by MetaTools
is curable by MetaTools through the exercise of its commercially reasonable
efforts, then Fractal may not terminate this Agreement under this Section 7.1(i)
provided MetaTools continues to exercise such commercially reasonable efforts to
cure such breach; or
(h) by MetaTools, upon a breach of any representation, warranty,
covenant or agreement on the part of Fractal set forth in this Agreement, or if
any representation or warranty of Fractal shall have become untrue, in either
case such that the conditions set forth in Section 6.3(a) or Section 6.3(b)
would not be satisfied as of the time of such breach or as of the time such
representation or warranty shall have become untrue, provided, that if such
--------
inaccuracy in Fractal's representations and warranties or breach by Fractal is
curable by Fractal through the exercise of its commercially reasonable efforts,
then MetaTools may not terminate this Agreement under this Section 7.1(j)
provided Fractal continues to exercise such commercially reasonable efforts to
cure such breach.
7.2 Notice of Termination; Effect of Termination. Any termination of this
--------------------------------------------
Agreement under Section 7.1 above will be effective immediately upon the
delivery of written notice of the terminating party to the other parties hereto.
In the event of the termination of this Agreement as provided in Section 7.1,
this Agreement shall be of no further force or effect, except (i) as set forth
in this Section 7.2, Section 7.3 and Article 8 (miscellaneous), each of which
shall survive the termination
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<PAGE>
of this Agreement, and (ii) nothing herein shall relieve any party from
liability for any breach of this Agreement. No termination of this Agreement
shall affect the obligations of the parties contained in the Confidentiality
Agreement or the Stock Option Agreements, all of which obligations shall survive
termination of this Agreement in accordance with their terms.
7.3 Fees and Expenses.
-----------------
(a) General. Except as set forth in this Section 7.3, all fees and
-------
expenses incurred in connection with this Agreement and the transactions
contemplated hereby shall be paid by the party incurring such expenses whether
or not the Merger is consummated; provided, however, that MetaTools and Fractal
-------- -------
shall share equally all fees and expenses, other than attorneys' and accountants
fees and expenses, incurred in relation to the printing and filing of the Proxy
Statement (including any preliminary materials related thereto) and the
Registration Statement (including financial statements and exhibits) and any
amendments or supplements thereto.
(b) Fractal Payments.
----------------
(i) If (x) the Board of Directors of Fractal shall have
withheld, withdrawn or modified in a manner adverse to MetaTools its
recommendation in favor of adoption and approval of this Agreement and approval
of the Merger and at that time (A) there shall not have occurred a Material
Adverse Effect on MetaTools and (B) the condition set forth in Section 6.1(d)
hereof shall not be incapable of being satisfied (other than incapability as a
result of a failure of the parties hereto and their respective affiliates to
make reasonable representations for the purposes of the opinions described in
Section 6.1(d) hereof), or (y) the Board of Directors of Fractal recommends a
Fractal Superior Proposal to the shareholders of Fractal, Fractal shall pay to
MetaTools an amount equal to $4,000,000 within one business day following the
earlier to occur of (A) termination of this Agreement pursuant to Section 7.1(e)
hereof and (B) a Fractal Negative Vote (as defined below);
(ii) If no payment shall be required pursuant to clause
7.3(b)(i) above, and if (x) the vote of the shareholders of Fractal approving
and adopting this Agreement and approving the Merger shall not have been
obtained by reason of the failure to obtain the required vote upon a vote taken
at a meeting of shareholders duly convened therefor or at any adjournment
thereof (a "FRACTAL NEGATIVE VOTE") and (y) prior to such Fractal Negative Vote
there shall have occurred an Acquisition Proposal with respect to Fractal which
shall have been publicly disclosed and not withdrawn (a "FRACTAL COMPETING
PROPOSAL") and (z) (i) within 12 months following such Fractal Negative Vote,
Fractal shall enter into a definitive agreement with respect to an Acquisition
Proposal with the party (or any affiliate of the party) that made the Fractal
Competing Proposal or an Acquisition Proposal with such party (or any such
affiliate) with respect to Fractal shall have been consummated or (ii) within 6
months following such Fractal Negative Vote, Fractal shall enter into a
definitive agreement with respect to an Acquisition Proposal with any other
party or an Acquisition Proposal with any other party with respect to Fractal
shall have been consummated, then, provided that there shall have not occurred a
Material Adverse Effect on MetaTools prior to the Fractal Negative Vote, Fractal
shall pay to MetaTools an amount equal to $4,000,000 within one business day
following demand therefor after the occurrence of the events set forth in (x)
and (y) and either (z)(i) or (z)(ii) above; and
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<PAGE>
(iii) If no payment shall be required pursuant to clauses
7.3(b)(i) or (ii) above and if there shall be a Fractal Negative Vote then
Fractal shall pay to MetaTools an amount equal to $750,000 within one business
day following demand therefor; provided there shall not have occurred a Material
Adverse Effect on MetaTools prior to the Fractal Negative Vote.
(c) MetaTools Payments.
------------------
(i) If (x) the Board of Directors of MetaTools shall have
withheld, withdrawn or modified in a manner adverse to Fractal its
recommendation in favor of approving the issuance of the shares of MetaTools
Common Stock by virtue of the Merger and at that time (A) there shall not have
occurred a Material Adverse Effect on Fractal and (B) the condition set forth in
Section 6.1(d) hereof shall not be incapable of being satisfied (other than
incapability as a result of a failure of the parties hereto and their respective
affiliates to make reasonable representations for the purposes of the opinions
described in Section 6.1(d) hereof), or (y) the Board of Directors of MetaTools
recommends a MetaTools Superior Proposal to the stockholders of MetaTools,
MetaTools shall pay to Fractal an amount equal to $4,000,000 million within one
business day following the earlier to occur of (A) termination of this Agreement
pursuant to Section 7.1(f) hereof and (B) a MetaTools Negative Vote (as defined
below);
(ii) If no payment shall be required pursuant to clause
7.3(c)(i) above, and if (x) the vote of the stockholders of MetaTools in favor
of an increase in the authorized number of shares of MetaTools Common Stock so
as to permit the issuance of shares of MetaTools Common Stock by virtue of the
Merger, as well as such issuance, shall not have been obtained by reason of the
failure to obtain the required vote upon a vote taken at a meeting of
stockholders duly convened therefor or at any adjournment thereof (a "METATOOLS
NEGATIVE VOTE") and (y) prior to such MetaTools Negative Vote there shall have
occurred an Acquisition Proposal with respect to MetaTools which shall have been
publicly disclosed and not withdrawn (a "METATOOLS COMPETING PROPOSAL") and (z)
(i) within 12 months following such MetaTools Negative Vote MetaTools shall
enter into a definitive agreement with respect to an Acquisition Proposal with
the party (or any affiliate of the party) that made the MetaTools Competing
Proposal or an Acquisition Proposal with such party (or any such affiliate) with
respect to MetaTools shall have been consummated or (ii) within 6 months
following such MetaTools Negative Vote, MetaTools shall enter into a definitive
agreement with respect to an Acquisition Proposal with any other party or an
Acquisition Proposal with any other party with respect to MetaTools shall have
been consummated, then, provided that there shall not have occurred a Material
Adverse Effect on Fractal prior to the MetaTools Negative Vote, MetaTools shall
pay to Fractal an amount equal to $4,000,000 within one business day following
demand therefor after the occurrence of the events set forth in (x) and (y) and
either z(i) or (z)(ii) above; and
(iii) If no payment shall be required pursuant to clauses
7.3(c)(i) or (ii) above and if there shall be a MetaTools Negative Vote then
MetaTools shall pay to Fractal an amount equal to $750,000 within one business
day following demand therefor; provided there shall not have occurred a Material
Adverse Effect on Fractal prior to the MetaTools Negative Vote.
(d) Payment of the fees described in Section 7.3(b) and (c) above
shall not be in lieu of damages incurred in the event of breach of this
Agreement.
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7.4 Amendment. Subject to applicable law, this Agreement may be amended
---------
by the parties hereto at any time by execution of an instrument in writing
signed on behalf of each of the parties hereto.
7.5 Extension; Waiver. At any time prior to the Effective Time any party
-----------------
hereto may, to the extent legally allowed, (i) extend the time for the
performance of any of the obligations or other acts of the other parties hereto,
(ii) waive any inaccuracies in the representations and warranties made to such
party contained herein or in any document delivered pursuant hereto and (iii)
waive compliance with any of the agreements or conditions for the benefit of
such party contained herein. Any agreement on the part of a party hereto to any
such extension or waiver shall be valid only if set forth in an instrument in
writing signed on behalf of such party. Delay in exercising any right under
this Agreement shall not constitute a waiver of such right.
ARTICLE VIII
GENERAL PROVISIONS
8.1 Non-Survival of Representations and Warranties. The representations
----------------------------------------------
and warranties of Fractal, MetaTools and Merger Sub contained in this Agreement
shall terminate at the Effective Time, and only the covenants that by their
terms survive the Effective Time shall survive the Effective Time.
8.2 Notices. All notices and other communications hereunder shall be in
-------
writing and shall be deemed given if delivered personally or by commercial
delivery service, or sent via telecopy (receipt confirmed) to the parties at the
following addresses or telecopy numbers (or at such other address or telecopy
numbers for a party as shall be specified by like notice):
(a) if to MetaTools or Merger Sub, to:
MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, California 93013
Attention: Chief Executive Officer
Telephone No.: (805) 566-6700
Telecopy No.: (805) 566-6384
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Jeffrey D. Saper, Esq.
Marty Korman, Esq.
Telephone No.: (415) 493-9300
Telecopy No.: (415) 493-6811
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<PAGE>
(b) if to Fractal, to:
Fractal Design Corporation
335 Spreckels Drive
Aptos, California 95003
Attention: President
Telephone No.: (408) 688-5300
Telecopy No.: (408) 430-0305
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Attention: James Brock, Esq.
Telephone No.: (415) 854-4488
Telecopy No.: (415) 233-8386
8.3 Interpretation; Knowledge.
-------------------------
(a) When a reference is made in this Agreement to Exhibits, such
reference shall be to an Exhibit to this Agreement unless otherwise indicated.
The words "INCLUDE," "INCLUDES" and "INCLUDING" when used herein shall be deemed
in each case to be followed by the words "without limitation." The table of
contents and headings contained in this Agreement are for reference purposes
only and shall not affect in any way the meaning or interpretation of this
Agreement. When reference is made herein to "THE BUSINESS OF" an entity, such
reference shall be deemed to include the business of all direct and indirect
subsidiaries of such entity. Reference to the subsidiaries of an entity shall be
deemed to include all direct and indirect subsidiaries of such entity.
(b) For purposes of this Agreement, the term "KNOWLEDGE" means, with
respect to any matter in question, that any of the Chief Executive Officer,
Chief Operating Officer, Chief Financial Officer or Controller of Fractal or
MetaTools, as the case may be, have actual knowledge of such matter.
8.4 Counterparts. This Agreement may be executed in one or more
------------
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each of
the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
8.5 Entire Agreement; Third Party Beneficiaries. This Agreement and the
-------------------------------------------
documents and instruments and other agreements among the parties hereto as
contemplated by or referred to herein, including Fractal Schedules and the
MetaTools Schedules (a) constitute the entire agreement among the parties with
respect to the subject matter hereof and supersede all prior agreements and
understandings, both written and oral, among the parties with respect to the
subject matter hereof, it being understood that the Confidentiality Agreement
shall continue in full force and effect until the Closing and shall survive any
termination of this Agreement; and (b) are not intended to confer upon
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any other person any rights or remedies hereunder, except with respect to the
matters set forth in Section 5.12.
8.6 Severability. In the event that any provision of this Agreement or
------------
the application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as reasonably
to effect the intent of the parties hereto. The parties further agree to
replace such void or unenforceable provision of this Agreement with a valid and
enforceable provision that will achieve, to the extent possible, the economic,
business and other purposes of such void or unenforceable provision.
8.7 Other Remedies; Specific Performance. Except as otherwise provided
------------------------------------
herein, any and all remedies herein expressly conferred upon a party will be
deemed cumulative with and not exclusive of any other remedy conferred hereby,
or by law or equity upon such party, and the exercise by a party of any one
remedy will not preclude the exercise of any other remedy. The parties hereto
agree that irreparable damage would occur in the event that any of the
provisions of this Agreement were not performed in accordance with their
specific terms or were otherwise breached. It is accordingly agreed that the
parties shall be entitled to an injunction or injunctions to prevent breaches of
this Agreement and to enforce specifically the terms and provisions hereof in
any court of the United States or any state having jurisdiction, this being in
addition to any other remedy to which they are entitled at law or in equity.
8.8 Governing Law. This Agreement shall be governed by and construed in
-------------
accordance with the laws of the State of California, regardless of the laws that
might otherwise govern under applicable principles of conflicts of law thereof;
provided that issues involving the corporate governance of any of the parties
hereto shall be governed by their respective jurisdictions of incorporation.
Each of the parties hereto irrevocably consents to the exclusive jurisdiction of
any state or federal court within the Northern District of California, in
connection with any matter based upon or arising out of this Agreement or the
matters contemplated herein, other than issues involving the corporate
governance of any of the parties hereto, agrees that process may be served upon
them in any manner authorized by the laws of the State of California for such
persons and waives and covenants not to assert or plead any objection which they
might otherwise have to such jurisdiction and such process.
8.9 Rules of Construction. The parties hereto agree that they have been
---------------------
represented by counsel during the negotiation and execution of this Agreement
and, therefore, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
8.10 Assignment. No party may assign either this Agreement or any of its
----------
rights, interests, or obligations hereunder without the prior written approval
of the of the parties. Subject to the preceding sentence, this Agreement shall
be binding upon and shall inure to the benefit of the parties hereto and their
respective successors and permitted assigns.
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8.11 WAIVER OF JURY TRIAL. EACH OF METATOOLS, FRACTAL AND MERGER SUB
--------------------
HEREBY IRREVOCABLY WAIVES ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING
OR COUNTERCLAIM (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR
RELATING TO THIS AGREEMENT OR THE ACTIONS OF METATOOLS, FRACTAL OR MERGER SUB IN
THE NEGOTIATION, ADMINISTRATION, PERFORMANCE AND ENFORCEMENT THEREOF.
*****
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their duly authorized respective officers as of the date first
written above.
METATOOLS, INC.
By:___________________________________________
Name:
Title:
ROOK ACQUISITION CORP.
By:___________________________________________
Name:
Title:
FRACTAL DESIGN CORPORATION
By:___________________________________________
Name:
Title:
**** REORGANIZATION AGREEMENT ****
<PAGE>
EXHIBIT 2
FRACTAL DESIGN CORPORATION
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of February
11, 1997, between MetaTools, Inc., a Delaware corporation ("PARENT"), and the
undersigned shareholder ("SHAREHOLDER") of Fractal Design Corporation, a
California corporation (the "COMPANY").
RECITALS
A. Concurrently with the execution of this Agreement, Parent, the Company
and Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("MERGER SUB"), are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") which provides for the merger (the
"MERGER") of Merger Sub with and into the Company. Pursuant to the Merger,
shares of capital stock of the Company will be converted into Common Stock of
Parent on the basis described in the Merger Agreement.
B. The Shareholder is the record holder and beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), of such number of shares of the outstanding Common Stock of
the Company as is indicated on the final page of this Agreement (the "SHARES").
C. As a material inducement to enter into the Merger Agreement, Parent
desires the Shareholder to agree, and the Shareholder is willing to agree to
vote the Shares and any other such shares of capital stock of the Company so as
to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares; Additional Purchases.
----------------------------------------------
1.1 Agreement to Vote Shares. At every meeting of the shareholders
------------------------
of the Company called with respect to any of the following, and at every
adjournment thereof, and on every action or approval by written consent of the
shareholders of the Company with respect to any of the following, Shareholder
shall vote the Shares and any New Shares in favor of (x) approval of the Merger
Agreement and the Merger and (y) any matter that could reasonably be expected to
facilitate the Merger.
1.2 Additional Purchases. Shareholder agrees that any shares of
--------------------
capital stock of the Company that Shareholder purchases or with respect to which
Shareholder otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date ("NEW SHARES") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
-----------------
Shareholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable, with the total number of
shares of capital stock of the Company beneficially owned (as such term is
defined in Rule 13d-3 under the Exchange Act) by Shareholder set forth therein.
3. Representations and Warranties of the Shareholder. Shareholder (i) is
-------------------------------------------------
the beneficial owner of the Shares, which at the date hereof are free and clear
of any liens, claims, options, charges or other encumbrances; (ii) does not
beneficially own any shares of capital stock of the Company other than the
Shares (excluding shares s to which
<PAGE>
Shareholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement.
4. Additional Documents. Shareholder hereby covenants and agrees to
--------------------
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of Parent or Shareholder, as the case may be, to carry out
the intent of this Agreement.
5. Consent and Waiver. Shareholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Shareholder is a party or pursuant to any rights
Shareholder may have.
6. Termination. This Agreement shall terminate and shall have no further
-----------
force or effect as of the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement or (ii) such date and time as the Merger Agreement shall have
been terminated pursuant to Article VII thereof.
7. Miscellaneous.
-------------
7.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that Parent will be irreparably harmed and that there will be no
adequate remedy at law for a violation of any of the covenants or agreements of
Shareholder set forth herein. Therefore, it is agreed that, in addition to any
other remedies that may be available to Parent upon any such violation, Parent
shall have the right to enforce such covenants and agreements by specific
performance, injunctive relief or by any other means available to Parent at law
or in equity.
7.5 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
If to Parent: MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, California 93013
Attn: President and Chief Executive Officer
-2-
<PAGE>
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jeffrey D. Saper, Esq.
Marty Korman, Esq.
If to the Shareholder: To the address for notice set forth on the
last page hereof.
With a copy to: Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Attn: James Brock, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
7.8 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
PARENT
By:
-------------------------------------------
Title: President and Chief Executive Officer
----------------------------------------
SHAREHOLDER:
By:
--------------------------------------------
Shareholder's Address for Notice:
------------------------------------------------
------------------------------------------------
------------------------------------------------
Shares of Common Stock Beneficially Owned:
------
***FRACTAL VOTING AGREEMENT***
-4-
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned shareholder of Fractal Design Corporation, a California
corporation (the "COMPANY"), hereby irrevocably appoints the directors on the
Board of Directors of MetaTools, Inc., a Delaware corporation ("PARENT"), and
each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of the Company beneficially owned by the undersigned, which shares are listed on
the final page of this Proxy (the "SHARES"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement of Merger and Plan of Reorganization
dated as of February 11, 1997 (the "MERGER AGREEMENT"), among Parent, Rook
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), and the Company, shall be terminated in accordance with
its terms or the Merger (as defined in the Merger Agreement) is effective. Upon
the execution hereof, all prior proxies given by the undersigned with respect to
the Shares and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof are hereby revoked and no subsequent
proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of February 11, 1997 between Parent and the undersigned shareholder
(the "VOTING AGREEMENT"), and is granted in consideration of Parent entering
into the Merger Agreement. The attorneys and proxies named above will be
empowered at any time prior to termination of the Merger Agreement to exercise
all voting and other rights (including, without limitation, the power to execute
and deliver written consents with respect to the Shares) of the undersigned at
every annual, special or adjourned meeting of the Company shareholders, and in
every written consent in lieu of such a meeting, or otherwise, in favor of
approval of the Merger and the Merger Agreement and any matter that could
reasonably be expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the shareholders of
the Company and in every written consent in lieu of such meeting, in favor of
approval of the Merger and the Merger Agreement and any matter that could
reasonably be expected to facilitate the Merger. The undersigned shareholder
may vote the Shares on all other matters.
-1-
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: February 11, 1997
Signature of Shareholder: ___________________________________
Print Name of Shareholder: __________________________________
__________ Shares of Common Stock Beneficially Owned
***FRACTAL PROXY***
-2-
<PAGE>
EXHIBIT 3
METATOOLS, INC.
VOTING AGREEMENT
This Voting Agreement ("AGREEMENT") is made and entered into as of February
11, 1997, between Fractal Design Corporation, a California corporation (the
"COMPANY"), and the undersigned stockholder ("STOCKHOLDER") of MetaTools, Inc.,
a Delaware corporation ("PARENT").
RECITALS
A. Concurrently with the execution of this Agreement, the Company, Parent
and Rook Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Parent ("MERGER SUB"), are entering into an Agreement and Plan of
Reorganization (the "MERGER AGREEMENT") which provides for the merger (the
"MERGER") of Merger Sub with and into the Company. Pursuant to the Merger,
shares of capital stock of the Company will be converted into Common Stock of
Parent on the basis described in the Merger Agreement.
B. The Stockholder is the record holder and beneficial owner (as defined
in Rule 13d-3 under the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT")), of such number of shares of the outstanding Common Stock of
Parent as is indicated on the final page of this Agreement (the "SHARES").
C. As a material inducement to enter into the Merger Agreement, the
Company desires the Stockholder to agree, and the Stockholder is willing to
agree to vote the Shares and any other such shares of capital stock of Parent so
as to facilitate consummation of the Merger.
NOW, THEREFORE, intending to be legally bound, the parties agree as
follows:
1. Agreement to Vote Shares: Additional Purchases.
----------------------------------------------
1.1 Agreement to Vote Shares. At every meeting of the stockholders
------------------------
of Parent called with respect to any of the following, and at every adjournment
thereof, and on every action or approval by written consent of the stockholders
of Parent with respect to any of the following Stockholder shall vote the Shares
and any New Shares in favor of approval of (x) the amendment of Parent's
Certificate of Incorporation to increase its authorized share capital to allow
for the issuance of shares of its Common Stock by virtue of the Merger, (y) the
issuance of shares of such Common Stock by virtue of the Merger and (z) any
matter that could reasonably be expected to facilitate the Merger.
1.2 Additional Purchases. Stockholder agrees that any shares of
--------------------
capital stock of Parent that Stockholder purchases or with respect to which
Stockholder otherwise acquires beneficial ownership after the execution of this
Agreement and prior to the Expiration Date ("NEW SHARES") shall be subject to
the terms and conditions of this Agreement to the same extent as if they
constituted Shares.
2. Irrevocable Proxy. Concurrently with the execution of this Agreement,
-----------------
Stockholder agrees to deliver to Parent a proxy in the form attached hereto as
Exhibit A (the "PROXY"), which shall be irrevocable, with the total number of
shares of capital stock of Parent beneficially owned (as such term is defined in
Rule 13d-3 under the Exchange Act) by Stockholder set forth therein.
3. Representations and Warranties of the Stockholder. Stockholder (i)
-------------------------------------------------
is the beneficial owner of the Shares, which at the date hereof are free and
clear of any liens, claims, options, charges or other encumbrances; (ii) does
not beneficially own any shares of capital stock of Parent other than the Shares
(excluding shares as to which
<PAGE>
Stockholder currently disclaims beneficial ownership in accordance with
applicable law); and (iii) has full power and authority to make, enter into and
carry out the terms of this Agreement.
4. Additional Documents. Stockholder hereby covenants and agrees to
--------------------
execute and deliver any additional documents necessary or desirable, in the
reasonable opinion of the Company or Stockholder, as the case may be, to carry
out the intent of this Agreement.
5. Consent and Waiver. Stockholder hereby gives any consents or waivers
------------------
that are reasonably required for the consummation of the Merger under the terms
of any agreements to which Stockholder is a party or pursuant to any rights
Stockholder may have.
6. Termination. This Agreement shall terminate and shall have no further
-----------
force or effect as of the earlier to occur of (i) such date and time as the
Merger shall become effective in accordance with the terms and provisions of the
Merger Agreement or (ii) such date and time as the Merger Agreement shall have
been terminated pursuant to Article VII thereof.
7. Miscellaneous.
-------------
7.1 Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, then the remainder of the terms, provisions, covenants and
restrictions of this Agreement shall remain in full force and effect and shall
in no way be affected, impaired or invalidated.
7.2 Binding Effect and Assignment. This Agreement and all of the
-----------------------------
provisions hereof shall be binding upon and inure to the benefit of the parties
hereto and their respective successors and permitted assigns, but, except as
otherwise specifically provided herein, neither this Agreement nor any of the
rights, interests or obligations of the parties hereto may be assigned by either
of the parties without prior written consent of the other.
7.3 Amendments and Modification. This Agreement may not be modified,
---------------------------
amended, altered or supplemented except upon the execution and delivery of a
written agreement executed by the parties hereto.
7.4 Specific Performance; Injunctive Relief. The parties hereto
---------------------------------------
acknowledge that the Company will be irreparably harmed and that there will be
no adequate remedy at law for a violation of any of the covenants or agreements
of Stockholder set forth herein. Therefore, it is agreed that, in addition to
any other remedies that may be available to the Company upon any such violation,
the Company shall have the right to enforce such covenants and agreements by
specific performance, injunctive relief or by any other means available to the
Company at law or in equity.
7.5 Notices. All notices, requests, claims, demands and other
-------
communications hereunder shall be in writing and sufficient if delivered in
person, by cable, telegram or telex, or sent by mail (registered or certified
mail, postage prepaid, return receipt requested) or overnight courier (prepaid)
to the respective parties as follows:
If to the Company: Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, California 95066
Attn: President and Chief Executive Officer
With a copy to: Venture Law Group
2800 Sand Hill Road
-2-
<PAGE>
Menlo Park, California 94025
Attn: James Brock, Esq.
If to the Stockholder: To the address for notice set forth on the
last page hereof.
With a copy to: Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jeffrey D. Saper, Esq.
Marty Korman, Esq.
or to such other address as any party may have furnished to the other in writing
in accordance herewith, except that notices of change of address shall only be
effective upon receipt.
7.6 Governing Law. This Agreement shall be governed by, and
-------------
construed and enforced in accordance with, the internal laws of the State of
California (without regard to the principles of conflict of laws thereof).
7.7 Entire Agreement. This Agreement contains the entire
----------------
understanding of the parties in respect of the subject matter hereof, and
supersedes all prior negotiations and understandings between the parties with
respect to such subject matter.
7.8 Counterparts. This Agreement may be executed in several
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
7.9 Effect of Headings. The section headings herein are for
------------------
convenience only and shall not affect the construction or interpretation of this
Agreement.
-3-
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Voting Agreement to be
duly executed on the date and year first above written.
FRACTAL DESIGN CORPORATION
By:
-----------------------------------------
Title:
---------------------------------------
STOCKHOLDER:
By:
-----------------------------------------
Stockholder's Address for Notice:
------------------------------------------------
------------------------------------------------
------------------------------------------------
Shares of Common Stock Beneficially Owned:
----
***METATOOLS VOTING AGREEMENT***
-4-
<PAGE>
EXHIBIT A
IRREVOCABLE PROXY
The undersigned stockholder of MetaTools, Inc., a Delaware corporation
("PARENT"), hereby irrevocably appoints the directors on the Board of Directors
of Fractal Design Corporation, a California corporation (the "COMPANY"), and
each of them, as the sole and exclusive attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to the full
extent of the undersigned's rights with respect to the shares of capital stock
of Parent beneficially owned by the undersigned, which shares are listed on the
final page of this Proxy (the "SHARES"), and any and all other shares or
securities issued or issuable in respect thereof on or after the date hereof,
until such time as that certain Agreement of Merger and Plan of Reorganization
dated as of February 11, 1997 (the "MERGER AGREEMENT"), among Parent, Rook
Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary of
Parent ("MERGER SUB"), and the Company, shall be terminated in accordance with
its terms or the Merger (as defined in the Merger Agreement) is effective. Upon
the execution hereof, all prior proxies given by the undersigned with respect to
the Shares and any and all other shares or securities issued or issuable in
respect thereof on or after the date hereof are hereby revoked and no subsequent
proxies will be given.
This proxy is irrevocable, is granted pursuant to the Voting Agreement
dated as of February 11, 1997 between the Company and the undersigned
stockholder (the "VOTING AGREEMENT"), and is granted in consideration of the
Company entering into the Merger Agreement. The attorneys and proxies named
above will be empowered at any time prior to termination of the Merger Agreement
to exercise all voting and other rights (including, without limitation, the
power to execute and deliver written consents with respect to the Shares) of the
undersigned at every annual, special or adjourned meeting of Parent
stockholders, and in every written consent in lieu of such a meeting, or
otherwise, in favor of approval of (x) the amendment of Parent's Certificate of
Incorporation to increase its authorized share capital to allow for the issuance
of shares of its Common Stock by virtue of the Merger, (y) the issuance of
shares of such Common Stock by virtue of the Merger and (z) any matter that
could reasonably be expected to facilitate the Merger.
The attorneys and proxies named above may only exercise this proxy to vote
the Shares subject hereto at any time prior to termination of the Merger
Agreement at every annual, special or adjourned meeting of the stockholders of
the Company and in every written consent in lieu of such meeting, in favor of
approval of (x) the amendment of Parent's Certificate of Incorporation to
increase its authorized share capital to allow for the issuance of shares of its
Common Stock by virtue of the Merger, (y) the issuance of shares of such Common
Stock by virtue of the Merger and (z) any matter that could reasonably be
expected to facilitate the Merger. The undersigned stockholder may vote the
Shares on all other matters.
-1-
<PAGE>
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This proxy is irrevocable.
Dated: February 11, 1997
Signature of Stockholder:
--------------------------------------
Print Name of Stockholder:
-------------------------------------
Shares of Common Stock Beneficially Owned
---------------------
***METATOOLS PROXY***
-2-
<PAGE>
EXHIBIT 4
[Option from Fractal to MetaTools]
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT dated as of February 11, 1997 (the "AGREEMENT")
is entered into by and between Fractal Design Corporation, a California
corporation ("FRACTAL"), and MetaTools, Inc., a Delaware corporation
("METATOOLS").
RECITALS
--------
WHEREAS, concurrently with the execution and delivery of this Agreement,
Fractal, MetaTools and Rook Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of MetaTools ("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, Fractal and
MetaTools will enter into a business combination transaction to pursue their
long-term business strategies (the "MERGER"); and
WHEREAS, as a condition to MetaTools' willingness to enter into the Merger
Agreement, MetaTools has requested that Fractal agree, and Fractal has so
agreed, to grant to MetaTools an option to acquire shares of Fractal's Common
Stock, $0.001 par value, upon the terms and subject to the conditions set forth
herein;
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION
---------------
Fractal hereby grants to MetaTools an irrevocable option (the "OPTION") to
acquire up to a number of shares of the Common Stock, $0.001 par value, of
Fractal ("FRACTAL 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 $11.235 per share (the "EXERCISE PRICE")
and/or, at MetaTools' election, (ii) by exchanging therefor shares of the Common
Stock, par value $0.001 per share, of MetaTools ("METATOOLS SHARES") at a rate
(the "EXERCISE RATIO"), for each Option Share, of a number of MetaTools Shares
equal to the Exercise Price divided by the closing sale price of MetaTools
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.
Capitalized terms used in this Agreement but not defined herein shall have the
meanings ascribed thereto in the Merger Agreement.
<PAGE>
2. EXERCISE OF OPTION; MAXIMUM PROCEEDS
------------------------------------
(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 Fractal's shareholders with regard to,
an Acquisition Proposal with respect to Fractal with any party other than
MetaTools (or an affiliate of MetaTools) if the Board of Directors of Fractal
shall have withheld, withdrawn or modified in a manner adverse to MetaTools 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 MetaTools) after receipt of and in connection with an
Acquisition Proposal with respect to Fractal, (ii) immediately prior to the
consummation of a tender or exchange offer for 25% or more of any class of
Fractal's capital stock, or (iii) immediately prior to the time at which all of
the events specified in clauses (x), (y) and either (z)(i) or (z)(ii) of Section
7.3(b)(ii) of the Merger Agreement shall have occurred.
(b) MetaTools may deliver to Fractal 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 Fractal shall
have withheld, withdrawn or modified in a manner adverse to MetaTools 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 MetaTools) after receipt of and in connection with an
Acquisition Proposal with respect to Fractal, (ii) upon the commencement of a
tender or exchange offer for 25% or more of any class of Fractal'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(b)(ii)(x) and 7.3(b)(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
MetaTools, the closing of a purchase of Option Shares (a "CLOSING") specified in
such Exercise Notice shall take place at the principal offices of Fractal upon
the occurrence of an Exercise Event or at such later date prior to the
termination of the Option as may be designated by MetaTools 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
-------- -------
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.
Notwithstanding the foregoing, the Option may not be exercised if (i) MetaTools
shall have breached in any material respect any of its covenants or agreements
contained in the Merger Agreement or (ii)
<PAGE>
the representations and warranties of MetaTools 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 MetaTools receives in the aggregate pursuant to Section 7.3(b)
of the Merger Agreement together with proceeds in connection with any sales or
other dispositions of Option Shares and any dividends received by MetaTools
declared on Option Shares, more than the sum of (x) $4,000,000 plus (y) the
Exercise Price multiplied by the number of Fractal Shares purchased by MetaTools
pursuant to the Option, then all proceeds to MetaTools in excess of such sum
shall be remitted by MetaTools to Fractal.
3. CONDITIONS TO CLOSING
---------------------
The obligation of Fractal to issue Option Shares to MetaTools 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
MetaTools shall be entitled to deliver to Fractal 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; provided that neither Fractal
nor MetaTools nor any subsidiary or affiliate thereof will be required to agree
to any divestiture by itself or any of its affiliates of shares of capital stock
or of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
4. CLOSING
-------
At any Closing, (a) Fractal shall deliver to MetaTools a single certificate
in definitive form representing the number of Fractal Shares designated by
MetaTools in its Exercise Notice, such certificate to be registered in the name
of MetaTools and to bear the legend set forth in Section 10 hereof, against
delivery of (b) payment by MetaTools to Fractal of the aggregate purchase price
for the Fractal Shares so designated and being purchased by delivery of (i) a
certified check or bank check and/or, at MetaTools' election, (ii) a single
certificate in definitive form representing the number of MetaTools Shares being
issued by MetaTools in consideration therefor (based on the Exercise Ratio),
such certificate to be registered in the name of Fractal and to bear the legend
set forth in Section 10 hereof.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF FRACTAL
-----------------------------------------
Fractal represents and warrants to MetaTools that (a) Fractal is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California 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 Fractal and consummation by Fractal
of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Fractal and no other corporate
proceedings on the part of Fractal are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by Fractal and constitutes a legal, valid and binding
obligation of Fractal and, assuming this Agreement constitutes a legal, valid
and binding obligation of MetaTools, is enforceable against Fractal 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, Fractal 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 Fractal Shares for
MetaTools to exercise the Option in full and will take all necessary corporate
or other action to authorize and reserve for issuance all additional Fractal
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 Fractal Shares and any other
securities to MetaTools upon exercise of the Option, MetaTools will acquire such
Fractal 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 MetaTools; (f) the execution and delivery of this
Agreement by Fractal do not, and the performance of this Agreement by Fractal
will not, (i) violate the Articles of Incorporation or By-Laws of Fractal, (ii)
conflict with or violate any order applicable to Fractal 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
Fractal or any of its subsidiaries pursuant to, any contract or agreement to
which Fractal or any of its subsidiaries is a party or by which Fractal 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 Fractal; (g) the execution and delivery of this
Agreement by Fractal does not, and the performance of this Agreement by Fractal
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 MetaTools Shares acquired pursuant to this Agreement will not
be acquired by Fractal with a view to the public distribution thereof and
Fractal will not sell or otherwise dispose of such shares in violation of
applicable law or this Agreement.
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF METATOOLS
-------------------------------------------
MetaTools represents and warrants to Fractal that (a) MetaTools 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 MetaTools and the consummation by
MetaTools of the transactions contemplated hereby have been duly authorized by
all necessary corporate action on the part of MetaTools and no other corporate
proceedings on the part of MetaTools are necessary to authorize this Agreement
or any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by MetaTools and constitutes a legal, valid and binding
obligation of MetaTools and, assuming this Agreement constitutes a legal, valid
and binding obligation of Fractal, is enforceable against MetaTools 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, MetaTools has taken (or will in a timely manner take) all necessary
corporate and other action to authorize and reserve for issuance and to permit
it to issue upon exercise of the Option and will take all necessary corporate or
other action to authorize and reserve for issuance all additional MetaTools
Shares or other securities which may be issuable pursuant to Section 9(b) upon
exercise of the Option, all of which, upon their issuance and delivery in
accordance with the terms of this Agreement, will be validly issued, fully paid
and nonassessable; (e) upon delivery of MetaTools Shares to Fractal in
consideration of any acquisition of Fractal Shares pursuant hereto, Fractal will
acquire such MetaTools Shares free and clear of all material claims, liens,
charges, encumbrances and security interests of any kind or nature whatsoever,
excluding those imposed by Fractal; (f) the execution and delivery of this
Agreement by MetaTools do not, and the performance of this Agreement by
MetaTools will not, (i) violate the Certificate of Incorporation or By-Laws of
MetaTools, (ii) conflict with or violate any order applicable to MetaTools 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 MetaTools or any of its subsidiaries pursuant to, any contract or
agreement to which MetaTools or any of its subsidiaries is a party or by which
MetaTools 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 MetaTools; (g) the execution and
delivery of this Agreement by MetaTools does not, and the performance of this
Agreement by MetaTools 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 Fractal Shares acquired upon exercise of
the Option will not be acquired by MetaTools with a view to the public
distribution thereof and MetaTools will not sell or otherwise dispose of such
shares in violation of applicable law or this Agreement.
<PAGE>
7. CERTAIN RIGHTS
--------------
(a) METATOOLS PUT. MetaTools may deliver to Fractal a written notice
-------------
(a "PUT NOTICE") at any time during which MetaTools 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
MetaTools 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 MetaTools, the
closing of the Put (the "PUT CLOSING") shall take place at the principal offices
of Fractal upon the occurrence of an Exercise Event or at such later date prior
to the termination of the Option as may be designated by MetaTools 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.:
(i) The difference between the "MARKET/TENDER OFFER PRICE" for
Fractal Shares as of the date MetaTools 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 Fractal 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 Fractal 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 Fractal.
(ii) The Exercise Price paid by MetaTools for Fractal Shares
acquired pursuant to the Option plus the difference between the Market/Tender
----
Offer Price and such Exercise Price (but only if the Market/Tender Offer Price
is greater than the Exercise Price) multiplied by the number of Fractal Shares
so purchased. If MetaTools issued MetaTools 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 4 as if
MetaTools had exercised its right to pay cash instead of issuing MetaTools
Shares.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant
to this Section 7 Fractal shall not be required to pay MetaTools in excess of an
aggregate of (x) $4,000,000 plus (y) the Exercise Price paid by MetaTools for
----
Fractal Shares acquired pursuant to the Option minus (z) any amounts paid to
-----
MetaTools by Fractal pursuant to Section 7.3(b) of the Merger Agreement.
<PAGE>
(b) REDELIVERY OF METATOOLS SHARES. If MetaTools has acquired Fractal
------------------------------
Shares pursuant to exercise of the Option by the issuance and delivery of
MetaTools Shares, then Fractal shall, if so requested by MetaTools, 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 MetaTools Shares only,
redeliver the certificate(s) for such MetaTools Shares to MetaTools, free and
clear of all claims, liens, charges, encumbrances and security interests of any
kind or nature whatsoever, other than those imposed by MetaTools.
(c) PAYMENT AND REDELIVERY OF OPTION OR SHARES. At the Put Closing,
------------------------------------------
Fractal shall pay the required amount to MetaTools in immediately available
funds (and MetaTools Shares, if applicable) and MetaTools shall surrender to
Fractal the Option and the certificates evidencing the Fractal Shares purchased
by MetaTools pursuant thereto, and MetaTools 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 Fractal.
(d) FRACTAL CALL. If MetaTools has acquired Option Shares pursuant to
------------
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 Fractal 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
Fractal 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, Fractal may require MetaTools, upon delivery to MetaTools of
written notice, to sell to Fractal any Fractal Shares held by MetaTools 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 MetaTools pursuant to
exercise of the Option in connection with such Exercise Date. The per share
purchase price for such sale (the "FRACTAL CALL PRICE") shall be equal to the
Exercise Price, plus an amount equal to six percent (6.0%) of the Exercise Price
per annum, compounded annually, since the applicable Exercise Date, less any
dividends paid on the Fractal Shares to be purchased by Fractal pursuant to this
Section 7(d). The closing of any sale of Fractal Shares pursuant to this
Section 7(d) shall take place at the principal offices of Fractal at a time and
on a date designated by Fractal in the aforementioned notice to MetaTools, which
date shall be no more than 20 and no less than 12 business days from the date of
such notice. The Fractal Call Price shall be paid in immediately available
funds, provided that, in the event MetaTools has acquired Option Shares pursuant
--------
to exercise of the Option by issuance and delivery of MetaTools Shares, at the
option of Fractal, the Fractal Call Price for part or all of any purchase of
Fractal Shares pursuant to this Section 7(d), up to a number of such shares
equal to the number of Option Shares acquired by MetaTools by issuance and
delivery of MetaTools Shares, shall be paid by delivery of a number of MetaTools
Shares equal to the Fractal Call Price divided by the closing sale price of
MetaTools 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 Fractal pursuant to this Section 7(d) were originally issued to
MetaTools.
<PAGE>
(e) RESTRICTIONS ON TRANSFER. Until the termination of the Option,
------------------------
Fractal shall not sell, transfer or otherwise dispose of any MetaTools Shares
acquired by it pursuant to this Agreement.
8. REGISTRATION RIGHTS
-------------------
(a) Following the termination of the Merger Agreement, each party
hereto (a "HOLDER") may by written notice (a "REGISTRATION NOTICE") to the other
party (the "REGISTRANT") request the Registrant to register under the Securities
Act all or any part of the shares acquired by such Holder pursuant to this
Agreement (the "REGISTRABLE SECURITIES") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment underwritten
public offering in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person or group from purchasing
through such offering shares representing more than 1% of the outstanding shares
of Common Stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"); provided, however, that any such Registration Notice must relate to
-------- -------
a number of shares equal to at least 2% of the outstanding shares of Common
Stock of the Registrant on a fully diluted basis and that any rights to require
registration hereunder shall terminate with respect to any shares that may be
sold pursuant to Rule 144(k) under the Securities Act. 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
principle 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
- -------- -------
aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any
<PAGE>
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,
--------
however, that the Registrant shall not be required to qualify to do business in,
- -------
or consent to general service of process in, any jurisdiction by reason of this
provision.
(c) The registration rights set forth in this Section 8 are subject to
the condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to such Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required to
be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the 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
---------------
(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
<PAGE>
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.
(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
<PAGE>
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 Fractal Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, the Exercise
Ratio and the Exercise Price shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
MetaTools shall receive, upon exercise of the Option, the number and class of
shares or other securities or property that MetaTools would have received in
respect of the Fractal 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
Fractal nor MetaTools shall adopt a shareholders 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
shareholders 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 MetaTools hereunder,
and each certificate representing MetaTools Shares delivered to Fractal 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
<PAGE>
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 FEBRUARY 11, 1997, A COPY OF WHICH MAY BE
OBTAINED FROM THE ISSUER.
11. LISTING AND HSR FILING
----------------------
Fractal, upon the request of MetaTools, shall promptly file an application
to list the Fractal 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. MetaTools, upon the request of
Fractal, shall promptly file an application to list the MetaTools Shares issued
and delivered to Fractal pursuant to Section 4 for quotation on the Nasdaq
National Market and shall use its best efforts to obtain approval of such
listing as soon as practicable. Promptly after the date hereof, each of the
parties hereto shall promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and other documents and exhibits
required to be filed under the HSR Act to permit the acquisition of the Fractal
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.
<PAGE>
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
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 Fractal, to:
Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, California 95066
Attn: President and Chief Executive Officer
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Attn: James Brock, Esq.
<PAGE>
(b) if to MetaTools, to:
MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, California 93013
Attn: President and Chief Executive Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn: Jeffrey D. Saper, Esq.
Marty Korman, Esq.
18. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to agreements made and to be
performed entirely within such State.
19. COUNTERPARTS
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
FRACTAL DESIGN CORPORATION
By:____________________________________________
Name:
Title:
METATOOLS, INC.
By:_____________________________________________
Name:
Title:
***STOCK OPTION AGREEMENT***
(Fractal option to MetaTools)
<PAGE>
EXHIBIT 5
[Option from MetaTools to Fractal]
STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT dated as of February 11, 1997 (the "AGREEMENT")
is entered into by and between MetaTools, Inc., a Delaware corporation
("METATOOLS"), and Fractal Design Corporation, a California corporation
("FRACTAL").
RECITALS
--------
WHEREAS, concurrently with the execution and delivery of this Agreement,
MetaTools, Fractal and Rook Acquisition Corp., a Delaware corporation and a
wholly owned subsidiary of MetaTools ("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, MetaTools
and Fractal will enter into a business combination transaction to pursue their
long-term business strategies (the "MERGER"); and
WHEREAS, as a condition to Fractal's willingness to enter into the Merger
Agreement, Fractal has requested that MetaTools agree, and MetaTools has so
agreed, to grant to Fractal an option to acquire shares of MetaTools' Common
Stock, $0.001 par value, upon the terms and subject to the conditions set forth
herein;
AGREEMENT
---------
NOW, THEREFORE, in consideration of the foregoing and of the mutual
covenants and agreements set forth herein and in the Merger Agreement and for
other good and valuable consideration, the receipt and adequacy of which are
hereby acknowledged, the parties hereto agree as follows:
1. GRANT OF OPTION
---------------
MetaTools hereby grants to Fractal an irrevocable option (the "OPTION") to
acquire up to a number of shares of the Common Stock, $0.001 par value, of
MetaTools ("METATOOLS 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 $15.00 per share (the "EXERCISE PRICE")
and/or, at Fractal's election, (ii) by exchanging therefor shares of the Common
Stock, par value $0.001 per share, of Fractal ("FRACTAL SHARES") at a rate (the
"EXERCISE RATIO"), for each Option Share, of a number of Fractal Shares equal to
the Exercise Price divided by the closing sale price of Fractal 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. Capitalized terms
used in this Agreement but not defined herein shall have the meanings ascribed
thereto in the Merger Agreement.
<PAGE>
2. EXERCISE OF OPTION; MAXIMUM PROCEEDS
------------------------------------
(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 MetaTools' stockholders with regard
to, an Acquisition Proposal with respect to MetaTools with any party other than
Fractal (or an affiliate of Fractal) if the Board of Directors of MetaTools
shall have withheld, withdrawn or modified in a manner adverse to Fractal its
recommendation in favor of approving the issuance of the MetaTools Shares by
virtue of the Merger (and at that time there shall not have occurred a Material
Adverse Effect on Fractal) after receipt of and in connection with an
Acquisition Proposal with respect to MetaTools, (ii) immediately prior to the
consummation of a tender or exchange offer for 25% or more of any class of
MetaTools' capital stock, or (iii) immediately prior to the time at which all of
the events specified in clauses (x), (y) and either (z)(i) or (z)(ii) of Section
7.3(c)(ii) of the Merger Agreement shall have occurred.
(b) Fractal may deliver to MetaTools 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 MetaTools shall
have withheld, withdrawn or modified in a manner adverse to Fractal its
recommendation in favor of approving the issuance of the MetaTools Shares by
virtue of the Merger (and at that time there shall not have occurred a Material
Adverse Effect on Fractal) after receipt of and in connection with an
Acquisition Proposal with respect to MetaTools, (ii) upon the commencement of a
tender or exchange offer for 25% or more of any class of MetaTools' 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
Fractal, the closing of a purchase of Option Shares (a "CLOSING") specified in
such Exercise Notice shall take place at the principal offices of MetaTools upon
the occurrence of an Exercise Event or at such later date prior to the
termination of the Option as may be designated by Fractal 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
-------- -------
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.
Notwithstanding the foregoing, the Option may not be exercised if (i) Fractal
shall have breached in any material respect any of its covenants or agreements
contained in the Merger Agreement or (ii) the
<PAGE>
representations and warranties of Fractal 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 Fractal 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 Fractal
declared on Option Shares, more than the sum of (x) $4,000,000 plus (y) the
Exercise Price multiplied by the number of MetaTools Shares purchased by Fractal
pursuant to the Option, then all proceeds to Fractal in excess of such sum
shall be remitted by Fractal to MetaTools.
3. CONDITIONS TO CLOSING
---------------------
The obligation of MetaTools to issue Option Shares to Fractal 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
Fractal shall be entitled to deliver to MetaTools 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; provided that neither MetaTools
nor Fractal nor any subsidiary or affiliate thereof will be required to agree to
any divestiture by itself or any of its affiliates of shares of capital stock or
of any business, assets or property, or the imposition of any material
limitation on the ability of any of them to conduct their businesses or to own
or exercise control of such assets, properties and stock.
4. CLOSING
-------
At any Closing, (a) MetaTools shall deliver to Fractal a single certificate
in definitive form representing the number of MetaTools Shares designated by
Fractal in its Exercise Notice, such certificate to be registered in the name of
Fractal and to bear the legend set forth in Section 10 hereof, against delivery
of (b) payment by Fractal to MetaTools of the aggregate purchase price for the
MetaTools Shares so designated and being purchased by delivery of (i) a
certified check or bank check and/or, at Fractal's election, (ii) a single
certificate in definitive form representing the number of Fractal Shares being
issued by Fractal in consideration therefor (based on the Exercise Ratio), such
certificate to be registered in the name of MetaTools and to bear the legend set
forth in Section 10 hereof.
<PAGE>
5. REPRESENTATIONS AND WARRANTIES OF METATOOLS
-------------------------------------------
MetaTools represents and warrants to Fractal that (a) MetaTools is a
corporation duly organized, validly existing and in good standing under the laws
of the State of Delaware and has the corporate power and authority to enter into
this Agreement and to carry out its obligations hereunder; (b) the execution and
delivery of this Agreement by MetaTools and consummation by MetaTools of the
transactions contemplated hereby have been duly authorized by all necessary
corporate action on the part of MetaTools and no other corporate proceedings on
the part of MetaTools are necessary to authorize this Agreement or any of the
transactions contemplated hereby; (c) this Agreement has been duly executed and
delivered by MetaTools and constitutes a legal, valid and binding obligation of
MetaTools and, assuming this Agreement constitutes a legal, valid and binding
obligation of Fractal, is enforceable against MetaTools 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, MetaTools 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 MetaTools Shares for Fractal to
exercise the Option in full and will take all necessary corporate or other
action to authorize and reserve for issuance all additional MetaTools 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 MetaTools Shares and any other
securities to Fractal upon exercise of the Option, Fractal will acquire such
MetaTools 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 Fractal; (f) the execution and delivery
of this Agreement by MetaTools do not, and the performance of this Agreement by
MetaTools will not, (i) violate the Articles of Incorporation or By-Laws of
MetaTools, (ii) conflict with or violate any order applicable to MetaTools 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 MetaTools or any of its subsidiaries pursuant to, any contract or
agreement to which MetaTools or any of its subsidiaries is a party or by which
MetaTools 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 MetaTools; (g) the execution and
delivery of this Agreement by MetaTools does not, and the performance of this
Agreement by MetaTools 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 Fractal Shares acquired pursuant to this
Agreement will not be acquired by MetaTools with a view to the public
distribution thereof and MetaTools will not sell or otherwise dispose of such
shares in violation of applicable law or this Agreement.
<PAGE>
6. REPRESENTATIONS AND WARRANTIES OF FRACTAL
-----------------------------------------
Fractal represents and warrants to MetaTools that (a) Fractal is a
corporation duly incorporated, validly existing and in good standing under the
laws of the State of California 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 Fractal and the consummation by
Fractal of the transactions contemplated hereby have been duly authorized by all
necessary corporate action on the part of Fractal and no other corporate
proceedings on the part of Fractal are necessary to authorize this Agreement or
any of the transactions contemplated hereby; (c) this Agreement has been duly
executed and delivered by Fractal and constitutes a legal, valid and binding
obligation of Fractal and, assuming this Agreement constitutes a legal, valid
and binding obligation of MetaTools, is enforceable against Fractal 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, Fractal has taken (or will in a timely manner take) all necessary corporate
and other action to authorize and reserve for issuance and to permit it to issue
upon exercise of the Option and will take all necessary corporate or other
action to authorize and reserve for issuance all additional Fractal Shares or
other securities which may be issuable pursuant to Section 9(b) upon exercise of
the Option, all of which, upon their issuance and delivery in accordance with
the terms of this Agreement, will be validly issued, fully paid and
nonassessable; (e) upon delivery of Fractal Shares to MetaTools in consideration
of any acquisition of MetaTools Shares pursuant hereto, MetaTools will acquire
such Fractal Shares free and clear of all material claims, liens, charges,
encumbrances and security interests of any kind or nature whatsoever, excluding
those imposed by MetaTools; (f) the execution and delivery of this Agreement by
Fractal do not, and the performance of this Agreement by Fractal will not, (i)
violate the Certificate of Incorporation or By-Laws of Fractal, (ii) conflict
with or violate any order applicable to Fractal 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 Fractal or
any of its subsidiaries pursuant to, any contract or agreement to which Fractal
or any of its subsidiaries is a party or by which Fractal 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 Fractal; (g) the execution and delivery of this Agreement by
Fractal does not, and the performance of this Agreement by Fractal 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 MetaTools Shares acquired upon exercise of the Option will not be acquired
by Fractal with a view to the public distribution thereof and Fractal will not
sell or otherwise dispose of such shares in violation of applicable law or this
Agreement.
<PAGE>
7. CERTAIN RIGHTS
--------------
(a) FRACTAL PUT. Fractal may deliver to MetaTools a written notice (a
-----------
"PUT NOTICE") at any time during which Fractal 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 Fractal
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 Fractal, the closing of the Put
(the "PUT CLOSING") shall take place at the principal offices of MetaTools upon
the occurrence of an Exercise Event or at such later date prior to the
termination of the Option as may be designated by Fractal 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.:
(i) The difference between the "MARKET/TENDER OFFER PRICE" for
MetaTools Shares as of the date Fractal 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 MetaTools 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 MetaTools 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 MetaTools.
(ii) The Exercise Price paid by Fractal for MetaTools Shares acquired
pursuant to the Option plus the difference between the Market/Tender Offer Price
----
and such Exercise Price (but only if the Market/Tender Offer Price is greater
than the Exercise Price) multiplied by the number of MetaTools Shares so
purchased. If Fractal issued Fractal 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 4 as if Fractal had
exercised its right to pay cash instead of issuing Fractal Shares.
(iii) Notwithstanding subparagraphs (i) and (ii) above, pursuant
to this Section 7 MetaTools shall not be required to pay Fractal in excess of an
aggregate of (x) $4,000,000 plus (y) the Exercise Price paid by Fractal for
----
MetaTools Shares acquired pursuant to the Option minus (z) any amounts paid to
-----
Fractal by MetaTools pursuant to Section 7.3(c) of the Merger Agreement.
<PAGE>
(b) REDELIVERY OF FRACTAL SHARES. If Fractal has acquired MetaTools
----------------------------
Shares pursuant to exercise of the Option by the issuance and delivery of
Fractal Shares, then MetaTools shall, if so requested by Fractal, 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 Fractal Shares only, redeliver the
certificate(s) for such Fractal Shares to Fractal, free and clear of all claims,
liens, charges, encumbrances and security interests of any kind or nature
whatsoever, other than those imposed by Fractal.
(c) PAYMENT AND REDELIVERY OF OPTION OR SHARES. At the Put Closing,
------------------------------------------
MetaTools shall pay the required amount to Fractal in immediately available
funds (and Fractal Shares, if applicable) and Fractal shall surrender to
MetaTools the Option and the certificates evidencing the MetaTools Shares
purchased by Fractal pursuant thereto, and Fractal 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 MetaTools.
(d) METATOOLS CALL. If Fractal has acquired Option Shares pursuant to
--------------
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 MetaTools 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
MetaTools 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, MetaTools may require Fractal, upon delivery to Fractal of
written notice, to sell to MetaTools any MetaTools Shares held by Fractal 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 Fractal pursuant to
exercise of the Option in connection with such Exercise Date. The per share
purchase price for such sale (the "METATOOLS CALL PRICE") shall be equal to the
Exercise Price, plus an amount equal to six percent (6.0%) of the Exercise Price
per annum, compounded annually, since the applicable Exercise Date, less any
dividends paid on the MetaTools Shares to be purchased by MetaTools pursuant to
this Section 7(d). The closing of any sale of MetaTools Shares pursuant to this
Section 7(d) shall take place at the principal offices of MetaTools at a time
and on a date designated by MetaTools in the aforementioned notice to Fractal,
which date shall be no more than 20 and no less than 12 business days from the
date of such notice. The MetaTools Call Price shall be paid in immediately
available funds, provided that, in the event Fractal has acquired Option Shares
--------
pursuant to exercise of the Option by issuance and delivery of Fractal Shares,
at the option of MetaTools, the MetaTools Call Price for part or all of any
purchase of MetaTools Shares pursuant to this Section 7(d), up to a number of
such shares equal to the number of Option Shares acquired by Fractal by issuance
and delivery of Fractal Shares, shall be paid by delivery of a number of Fractal
Shares equal to the MetaTools Call Price divided by the closing sale price of
Fractal 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 MetaTools pursuant to this Section 7(d) were originally issued to
Fractal.
<PAGE>
(e) RESTRICTIONS ON TRANSFER. Until the termination of the Option,
------------------------
MetaTools shall not sell, transfer or otherwise dispose of any Fractal Shares
acquired by it pursuant to this Agreement.
8. REGISTRATION RIGHTS
-------------------
(a) Following the termination of the Merger Agreement, each party
hereto (a "HOLDER") may by written notice (a "REGISTRATION NOTICE") to the other
party (the "REGISTRANT") request the Registrant to register under the Securities
Act all or any part of the shares acquired by such Holder pursuant to this
Agreement (the "REGISTRABLE SECURITIES") in order to permit the sale or other
disposition of such shares pursuant to a bona fide firm commitment underwritten
public offering in which the Holder and the underwriters shall effect as wide a
distribution of such Registrable Securities as is reasonably practicable and
shall use reasonable efforts to prevent any person or group from purchasing
through such offering shares representing more than 1% of the outstanding shares
of Common Stock of the Registrant on a fully diluted basis (a "PERMITTED
OFFERING"); provided, however, that any such Registration Notice must relate to
-------- -------
a number of shares equal to at least 2% of the outstanding shares of Common
Stock of the Registrant on a fully diluted basis and that any rights to require
registration hereunder shall terminate with respect to any shares that may be
sold pursuant to Rule 144(k) under the Securities Act. 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
principle 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
- -------- -------
aggregate of two effective registration statements hereunder and (ii) the
Registrant will not be required to file any such registration statement during
any
<PAGE>
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,
--------
however, that the Registrant shall not be required to qualify to do business in,
- -------
or consent to general service of process in, any jurisdiction by reason of this
provision.
(c) The registration rights set forth in this Section 8 are subject to
the condition that the Holder shall provide the Registrant with such information
with respect to such Holder's Registrable Securities, the plan for distribution
thereof, and such other information with respect to such Holder as, in the
reasonable judgment of counsel for the Registrant, is necessary to enable the
Registrant to include in a registration statement all material facts required to
be disclosed with respect to a registration thereunder.
(d) A registration effected under this Section 8 shall be effected at
the Registrant's expense, except for underwriting discounts and commissions and
the fees and expenses of counsel to the Holder, and the Registrant shall provide
to the underwriters such documentation (including certificates, opinions of
counsel and "comfort" letters from auditors) as are customary in connection with
underwritten public offerings and as such underwriters may reasonably require.
In connection with any registration, the 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
---------------
(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
<PAGE>
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.
(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
<PAGE>
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 MetaTools Shares by reason of
stock dividends, stock splits, reverse stock splits, mergers (other than the
Merger), recapitalizations, combinations, exchanges of shares and the like, the
type and number of shares or securities subject to the Option, the Exercise
Ratio and the Exercise Price shall be adjusted appropriately, and proper
provision shall be made in the agreements governing such transaction so that
Fractal shall receive, upon exercise of the Option, the number and class of
shares or other securities or property that Fractal would have received in
respect of the MetaTools 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
MetaTools nor Fractal 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 Fractal hereunder,
and each certificate representing Fractal Shares delivered to MetaTools 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
<PAGE>
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 FEBRUARY 11, 1997, A COPY OF WHICH MAY BE OBTAINED FROM
THE ISSUER.
11. LISTING AND HSR FILING
----------------------
MetaTools, upon the request of Fractal, shall promptly file an application
to list the MetaTools 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. Fractal, upon the request of
MetaTools, shall promptly file an application to list the Fractal Shares issued
and delivered to MetaTools pursuant to Section 4 for quotation on the Nasdaq
National Market and shall use its best efforts to obtain approval of such
listing as soon as practicable. Promptly after the date hereof, each of the
parties hereto shall promptly file with the Federal Trade Commission and the
Antitrust Division of the United States Department of Justice all required
premerger notification and report forms and other documents and exhibits
required to be filed under the HSR Act to permit the acquisition of the
MetaTools 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.
<PAGE>
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
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 MetaTools, to:
MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, California 93013
Attn: President and Chief Executive Officer
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Attn Jeffrey D. Saper, Esq.
Marty Korman, Esq.
<PAGE>
(b) if to Fractal, to:
Fractal Design Corporation
5550 Scotts Valley Drive
Scotts Valley, California 95066
Attn: President and Chief Executive Officer
with a copy to:
Venture Law Group
2800 Sand Hill Road
Menlo Park, California 94025
Attn: James Brock, Esq.
18. GOVERNING LAW
-------------
This Agreement shall be governed by and construed in accordance with the
laws of the State of California applicable to agreements made and to be
performed entirely within such State.
19. COUNTERPARTS
------------
This Agreement may be executed in two counterparts, each of which shall be
deemed to be an original, but both of which, taken together, shall constitute
one and the same instrument.
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.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective duly authorized officers as of the date first above
written.
METATOOLS, INC.
By:
------------------------------------------------
Name:
Title:
FRACTAL DESIGN CORPORATION
By:
------------------------------------------------
Name:
Title:
***STOCK OPTION AGREEMENT***
(MetaTools option to Fractal)
<PAGE>
EXHIBIT 6
METATOOLS, INC.
AFFILIATE AGREEMENT
This METATOOLS, INC. AFFILIATE AGREEMENT ("AGREEMENT") is dated as of
February 11, 1997, between MetaTools, Inc., a Delaware corporation
("METATOOLS"), Fractal Design Corporation, a California corporation ("FRACTAL"),
and the undersigned affiliate ("AFFILIATE") of MetaTools.
WHEREAS, MetaTools and Fractal have entered into an Agreement and Plan of
Reorganization ("MERGER AGREEMENT") pursuant to which Fractal and MetaTools
intend to enter into a business combination transaction to pursue their long
term business strategies (the "MERGER") (capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Merger Agreement);
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of MetaTools, as the term "affiliate" is used in Accounting Series
Releases 130 and 135, as amended, although nothing contained herein shall be
construed as an admission by Affiliate that Affiliate is in fact an affiliate of
MetaTools;
WHEREAS, it will be a condition to effectiveness of the Merger pursuant to
the Merger Agreement that the independent accounting firms that audit the annual
financial statements of Fractal and MetaTools will have delivered their written
concurrences with the conclusions of management of Fractal and MetaTools to the
effect that the Merger will be accounted for as a pooling of interests under
Accounting Principles Board Opinion No. 16;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to MetaTools to enter into the Merger Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
----------------------------
that the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by MetaTools, Fractal, and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger Agreement and has discussed the requirements of this Agreement with
Affiliate's professional advisors, who are qualified to advise him with regard
to such matters.
<PAGE>
2. Covenants Related to Pooling of Interests. In accordance with SAB 65,
-----------------------------------------
until the second day after the day that MetaTools publicly announces financial
results covering at least 30 days of combined operations of MetaTools and
Fractal, Affiliate will not sell, exchange, transfer, pledge, distribute, make
any gift or otherwise dispose of or grant any option, establish any "short" or
put-equivalent position with respect to or enter into any similar transaction
(through derivatives or otherwise) intended or having the effect, directly or
indirectly, to reduce Affiliate's risk relative to any shares of MetaTools
Common Stock. MetaTools may, at its discretion, place a stock transfer notice
consistent with the foregoing with its transfer agent with respect to
Affiliate's shares. Notwithstanding the foregoing, Affiliate will not be
prohibited by the foregoing from selling or disposing of shares so long as such
sale or disposition is in accordance with the "de minimis" test set forth in SEC
Staff Accounting Bulletin No. 76.
3. Beneficial Ownership of Stock. Except for the MetaTools Common Stock
-----------------------------
and options to purchase MetaTools Common Stock set forth on the last page of
this Agreement, Affiliate does not beneficially own any shares of MetaTools
Common Stock or any other equity securities of MetaTools or any options,
warrants or other rights to acquire any equity securities of MetaTools.
4. Miscellaneous.
-------------
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted
and enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof).
(d) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement
shall be entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement signed
by both parties.
-2-
<PAGE>
Executed as of the date shown on the first page of this Agreement.
METATOOLS, INC.
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
FRACTAL DESIGN CORPORATION
By:
--------------------------------------------
Name:
--------------------------------------------
Title:
--------------------------------------------
AFFILIATE
By:
--------------------------------------------
Name of Affiliate:
-------------------------------
Name of Signatory (if different from name of
Affiliate):
--------------------------------------
Title of Signatory
(if applicable):
---------------------------------
Number of shares of MetaTools Common Stock beneficially owned by Affiliate:
- --------------------------------------------
Number of shares MetaTools Common Stock subject to options beneficially owned by
Affiliate:
- --------------------------------------------
***METATOOLS, INC. AFFILIATE AGREEMENT***
-3-
<PAGE>
EXHIBIT 7
FRACTAL DESIGN CORPORATION
AFFILIATE AGREEMENT
This FRACTAL DESIGN CORPORATION AFFILIATE AGREEMENT ("AGREEMENT") is dated
as of February 11, 1997, between MetaTools, Inc., a Delaware corporation
("METATOOLS"), Fractal Design Corporation, a California corporation ("FRACTAL")
and the undersigned affiliate ("AFFILIATE") of Fractal.
WHEREAS, Fractal and MetaTools have entered into an Agreement and Plan of
Reorganization ("MERGER AGREEMENT") pursuant to which Fractal and MetaTools
intend to enter into a business combination transaction to pursue their long
term business strategies (the "MERGER") (capitalized terms used and not
otherwise defined herein shall have the respective meanings ascribed to them in
the Merger Agreement);
WHEREAS, pursuant to the Merger, at the Effective Time outstanding shares
of Fractal Capital Stock, including any shares owned by Affiliate, will be
converted into the right to receive shares of MetaTools Common Stock as set
forth in the Merger Agreement;
WHEREAS, Affiliate has been advised that Affiliate may be deemed to be an
"affiliate" of Fractal, as the term "affiliate" is used (i) for purposes of
paragraphs (c) and (d) of Rule 145 of the Rules and Regulations of the
Securities and Exchange Commission (the "SEC") and (ii) in the SEC's Accounting
Series Releases 130 and 135, as amended, although nothing contained herein shall
be construed as an admission by Affiliate that Affiliate is in fact an affiliate
of Fractal;
WHEREAS, it will be a condition to consummation of the Merger pursuant
to the Merger Agreement that (i) the attorneys for each of MetaTools and Fractal
will have delivered written opinions that the Merger will constitute a
reorganization within the meaning of Section 368(a) of the Internal Revenue Code
of 1986, as amended (the "CODE"), and (ii) the independent accounting firms that
audit the annual financial statements of Fractal and MetaTools will have
delivered their written concurrences with the conclusions of management of
Fractal and MetaTools to the effect that the Merger will be accounted for as a
pooling of interests under Accounting Principles Board Opinion No. 16;
WHEREAS, the execution and delivery of this Agreement by Affiliate is a
material inducement to MetaTools to enter into the Merger Agreement.
NOW, THEREFORE, intending to be legally bound, the parties hereby agree as
follows:
1. Acknowledgments by Affiliate. Affiliate acknowledges and understands
----------------------------
that the representations, warranties and covenants by Affiliate set forth herein
will be relied upon by MetaTools, Fractal, and their respective affiliates,
counsel and accounting firms, and that substantial losses and damages may be
incurred by these persons if Affiliate's representations, warranties or
covenants are breached. Affiliate has carefully read this Agreement and the
Merger Agreement and has discussed the requirements of this Agreement with
Affiliate's professional advisors, who are qualified to advise
<PAGE>
Affiliate with regard to such matters.
2. Compliance with Rule 145 and the Act.
------------------------------------
(a) Affiliate has been advised that (i) the issuance of shares of
MetaTools Common Stock in connection with the Merger is expected to be effected
pursuant to a Registration Statement on Form S-4 under the Securities Act of
1933, as amended (the "ACT"), and as such will not be deemed "restricted
securities" within the meaning of Rule 144 promulgated thereunder and resale of
such shares will not be subject to any restrictions other than as set forth in
Rule 145 of the Act unless otherwise transferred pursuant to an effective
registration statement under the Act or an appropriate exemption from
registration, (ii) Affiliate may be deemed to be an affiliate of Fractal, and
(iii) no sale, transfer or other disposition by Affiliate of any MetaTools
Common Stock received by Affiliate will be registered under the Act. Affiliate
accordingly agrees not to sell, transfer or otherwise dispose of any MetaTools
Common Stock issued to Affiliate in the Merger unless (x) such sale, transfer or
other disposition is made in conformity with the requirements of Rule 145(d)
promulgated under the Act, or (y) Affiliate delivers to MetaTools a written
opinion of counsel, reasonably acceptable to MetaTools in form and substance,
that such sale, transfer or other disposition is otherwise exempt from
registration under the Act.
(b) MetaTools will give stop transfer instructions to its transfer
agent with respect to any MetaTools Common Stock received by Affiliate pursuant
to the Merger and there will be placed on the certificates representing such
MetaTools Common Stock, or any substitutions therefor, a legend stating in
substance:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED IN A
TRANSACTION TO WHICH RULE 145 PROMULGATED UNDER THE SECURITIES ACT OF
1933, AS AMENDED, APPLIES AND MAY ONLY BE TRANSFERRED IN CONFORMITY
WITH RULE 145(d) UNDER SUCH ACT OR IN ACCORDANCE WITH A WRITTEN
OPINION OF COUNSEL, REASONABLY ACCEPTABLE TO THE ISSUER IN THE FORM
AND SUBSTANCE THAT SUCH TRANSFER IS EXEMPT FROM REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED."
The legend set forth above shall be removed (by delivery of a substitute
certificate without such legend) and MetaTools shall so instruct its transfer
agent, if Affiliate delivers to MetaTools (i) satisfactory written evidence that
the shares have been sold in compliance with Rule 145 (in which case, the
substitute certificate will be issued in the name of the transferee), or (ii) an
opinion of counsel, in form and substance reasonably satisfactory to the effect
that public sale of the shares by the holder thereof is no longer subject to
Rule 145.
(c) To the extent required by applicable securities laws, MetaTools
agrees, for a period of two years from the date of this Agreement, to file with
the SEC in a timely manner all reports
-2-
<PAGE>
and other documents required of MetaTools under the Act and the Securities
Exchange Act of 1934, as amended.
3. Covenants Related to Pooling of Interests. In accordance with SAB 65,
-----------------------------------------
until the second day after the day that MetaTools publicly announces financial
results covering at least 30 days of combined operations of MetaTools and
Fractal, Affiliate will not sell, exchange, transfer, pledge, distribute, or
otherwise dispose of or grant any option, establish any "short" or put-
equivalent position with respect to or enter into any similar transaction
(through derivatives or otherwise) intended or having the effect, directly or
indirectly, to reduce its risk relative to any securities, or shares of
MetaTools Common Stock received by Affiliate in connection with the Merger.
MetaTools may, at its discretion, cause a restrictive legend to the foregoing
effect to be placed on MetaTools Common Stock certificates issued to Affiliate
in the Merger and place a stock transfer notice consistent with the foregoing
with its transfer agent with respect to the certificates, provided that such
restrictive legend shall be removed and/or such notice shall be countermanded
promptly upon expiration of the necessity therefor at the request of Affiliate.
Notwithstanding the foregoing, Affiliate will not be prohibited by the foregoing
from selling or disposing of shares, so long as such sale or disposition is in
accordance with the "de minimis" test set forth in SEC Staff Accounting Bulletin
No. 76 and so long as Affiliate has obtained MetaTools's prior written approval
of such sale or disposition.
4. Representations, Warranties and Covenants Related to Tax Effects of
-------------------------------------------------------------------
the Merger.
- ----------
(a) Affiliate is the beneficial owner of the number of shares of
Fractal Common Stock (including shares issuable upon exercise of stock options)
set forth on the last page of this Agreement and did not acquire any of the
Fractal Common Stock in contemplation of the Merger;
(b) Affiliate has not engaged in a Sale (as defined below) of any
shares of Fractal Common Stock in contemplation of the Merger;
(c) Affiliate has no plan or intention (a "PLAN") to engage in a
sale, exchange, transfer, redemption or reduction in any way of Affiliate's risk
of ownership by short sale or otherwise, or other disposition, directly or
indirectly (such actions being collectively referred to herein as a "SALE") of
more than 50% of the shares of MetaTools Common Stock to be received by
Affiliate in the Merger;
(d) If Affiliate is a partnership, then the term "sale" as used in
paragraph (c) above shall be deemed to include any distribution to the partners
of the undersigned unless no recipient of any such distribution will receive
shares of Fractal Common Stock representing 1% or more of the shares of Fractal
Common Stock presently outstanding;
(e) Affiliate is not aware of, or participating in, any Plan on the
part of the Affiliates of Fractal to engage in a Sale or Sales of the MetaTools
Common Stock to be received in the Merger such that the aggregate fair market
value, as of the Effective Date of the Merger, of the shares subject to such
Sales would exceed 50% of the aggregate fair market value of all shares of
outstanding Fractal Common Stock immediately prior to the Merger; and
-3-
<PAGE>
(f) Affiliate understands that Fractal, MetaTools and their
respective affiliates, as well as legal counsel to Fractal and MetaTools (in
connection with rendering their opinions that the Merger will be a
"reorganization" within the meaning of Section 368(a) of the Code) will be
relying on (a) the truth and accuracy of the representations contained herein
and (b) Affiliate's performance of the obligations set forth herein.
5. Miscellaneous.
-------------
(a) For the convenience of the parties hereto, this Agreement may be
executed in one or more counterparts, each of which shall be deemed an original,
but all of which together shall constitute one and the same document.
(b) This Agreement shall be enforceable by, and shall inure to the
benefit of and be binding upon, the parties hereto and their respective
successors and assigns. As used herein, the term "successors and assigns" shall
mean, where the context so permits, heirs, executors, administrators, trustees
and successor trustees, and personal and other representatives.
(c) This Agreement shall be governed by and construed, interpreted
and enforced in accordance with the internal laws of the State of California
(without regard to the principles of conflict of laws thereof.
(d) If a court of competent jurisdiction determines that any
provision of this Agreement is not enforceable or enforceable only if limited in
time and/or scope, this Agreement shall continue in full force and effect with
such provision stricken or so limited.
(e) Counsel to and accountants for the parties to the Agreement shall
be entitled to rely upon this Agreement as needed.
(f) This Agreement shall not be modified or amended, or any right
hereunder waived or any obligation excused, except by a written agreement signed
by both parties.
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<PAGE>
Executed as of the date shown on the first page of this Agreement.
METATOOLS, INC.
By: _____________________________________
Name: ___________________________________
Title: __________________________________
FRACTAL DESIGN CORPORATION
By: _____________________________________
Name: ___________________________________
Title: __________________________________
AFFILIATE
By: _____________________________________
Name of Affiliate: ______________________
Name of Signatory (if different from name
of Affiliate): __________________________
Title of Signatory
(if applicable): ________________________
Number of shares of Fractal Common Stock beneficially owned by Affiliate:
______________________________________
Number of shares of Fractal Common Stock subject to options beneficially owned
by Affiliate:
______________________________________
***FRACTAL DESIGN CORPORATION AFFILIATE AGREEMENT***
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