<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
Current Report Pursuant to Section 13 or 15(d)
of the Securities and Exchange Act of 1934
Date of Report (Date of Earliest Event Reported): December 31, 1996
Commission file number 0-27168
METATOOLS, INC.
(Exact name of registrant as specified in its charter)
Delaware 95-4102687
(State of incorporation) (I.R.S. Employer Identification Number)
6303 Carpinteria Ave., Carpinteria, CA 93013
(Address of principal executive offices)
(805) 566-6200
(Registrant's telephone number, including area code)
1
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Item 2. Acquisition or Disposition of Assets
On December 31, 1996, MetaTools, Inc. (the "Company") completed the
acquisition of Real Time Geometry Corporation ("RTG"), a privately held company
based in Princeton, New Jersey, specializing in real time 3D graphics and
visualization technologies, pursuant to the Stock Purchase Agreement, dated as
of December 23, 1996 (the "Purchase Agreement"). Under the terms of the
Purchase Agreement, the stockholders and optionholders of RTG received a
combination of shares of the Company's common stock and options to purchase
shares of the Company's common stock valued at approximately $12 million at
December 31, 1996, the closing date. The acquisition will be accounted for by
the Company under the purchase method of accounting.
RTG's existing operations will remain in Princeton, New Jersey as the
Company's Real Time Geometry research and development lab, led by Alexander
Migdal, Vice President and Chief Scientist, and Robert Rice, Vice President of
Business Development. In connection with the acquisition, the Company entered
into employment agreements with both Alexander Migdal and Robert Rice, entered
into a noncompetition agreement with Alexander Migdal, and amended and restated
its Investors' Rights Agreement.
The terms of the Purchase Agreement were derived through arm's-length
negotiations between the parties.
Item 7. Financial Statements and Exhibits
(a) Financial Statements
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the financial statements required by
this Item 7(a). In accordance with Item 7(a)(4) of Form 8-K, such financial
statements shall be filed by amendment to this Form 8-K no later than 60 days
after January 14, 1997.
(b) Pro Forma Financial Information
As of the date of filing of this Current Report on Form 8-K, it is
impracticable for the Registrant to provide the pro forma financial information
required by this Item 7(b). In accordance with Item 7(b) of Form 8-K, such
financial statements shall be filed by amendment to this Form 8-K no later than
60 days after January 14, 1997.
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(c) Exhibits
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Exhibit
Number Exhibit Title
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2.2 Stock Purchase Agreement between the Registrant and Real Time
Geometry Corporation dated December 23, 1996 (the exhibits
listed therein have been omitted and filed separately as
Exhibits 10.22, 10.23, 10.24, and 10.25)
10.22 Employment Agreement between the Registrant and Alexander
Migdal dated December 31, 1996
10.23 Employment Agreement between the Registrant and Robert Rice
dated December 31, 1996
10.24 Noncompetition Agreement between the Registrant and Alexander
Migdal dated December 31, 1996
10.25 Amended and Restated Investors' Rights Agreement
99.1 Press Release
</TABLE>
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this Report to be signed on its behalf by the
undersigned, thereunto duly authorized.
METATOOLS, INC.
(Registrant)
Date: January 14, 1997 /s/ TERANCE A. KINNINGER
------------------------
Terance A. Kinninger
Vice President and
Chief Financial Officer
4
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EXHIBIT 2.2
-----------
STOCK PURCHASE AGREEMENT
BY AND AMONG
METATOOLS, INC.
AND
CERTAIN STOCKHOLDERS AND OPTION HOLDERS OF
REAL TIME GEOMETRY CORP.
DATED AS OF DECEMBER 23, 1996
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TABLE OF CONTENTS
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ARTICLE I PURCHASE AND SALE OF STOCK........................................................................................ 2
1.1 Sale of Stock................................................................................................... 2
1.2 Exchange of Options............................................................................................. 2
1.3 Closing......................................................................................................... 2
1.4 Consideration and Payment...................................................................................... 2
1.5 Surrender of Certificates...................................................................................... 3
1.6 Tax Consequences............................................................................................... 3
1.7 Taking of Necessary Action; Further Action..................................................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS................................................................... 4
2.1 Organization of the Company..................................................................................... 4
2.2 Company Capital Structure....................................................................................... 4
2.3 Subsidiaries.................................................................................................... 5
2.4 No Conflicts and Consents....................................................................................... 5
2.5 Company Financial Statements.................................................................................... 5
2.6 No Undisclosed Liabilities...................................................................................... 5
2.7 No Changes...................................................................................................... 6
2.8 Tax and Other Returns and Reports............................................................................... 7
2.9 Restrictions on Business Activities............................................................................. 9
2.10 Title to Properties; Absence of Liens and Encumbrances.......................................................... 9
2.11 Intellectual Property........................................................................................... 10
2.12 Agreements, Contracts and Commitments........................................................................... 11
2.13 Interested Party Transactions................................................................................... 12
2.14 Compliance with Laws............................................................................................ 13
2.15 Litigation...................................................................................................... 13
2.16 Insurance....................................................................................................... 13
2.17 Minute Books.................................................................................................... 13
2.18 Environmental Matters........................................................................................... 13
2.19 Brokers' and Finders' Fees; Third Party Expenses................................................................ 14
2.20 Employee Matters and Benefit Plans.............................................................................. 14
2.21 Section 280(g).................................................................................................. 17
2.22 Representations Complete........................................................................................ 17
ARTICLE III REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH SELLER........................................................ 17
3.1 Authority....................................................................................................... 18
3.2 Good and Marketable Title....................................................................................... 18
3.3 Investment Representations...................................................................................... 18
3.4 Standstill and Restrictions on Transfer......................................................................... 19
3.5 Maximum Net Worth............................................................................................... 19
3.6 Tax Matters..................................................................................................... 19
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TABLE OF CONTENTS
(continued)
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ARTICLE IV REPRESENTATIONS AND WARRANTIES OF BUYER.......................................................................... 20
4.1 Organization, Standing and Power................................................................................ 20
4.2 Authority....................................................................................................... 21
4.3 Capital Structure............................................................................................... 21
4.4 SEC Documents; Buyer Financial Statements....................................................................... 21
4.5 No Material Adverse Change...................................................................................... 22
4.6 Litigation...................................................................................................... 22
4.7 Brokers' and Finders' Fees...................................................................................... 22
4.8 Continuity of Business Enterprise; Section 368 Reorganization................................................... 22
4.9 Employee Benefit Plans; ERISA................................................................................... 22
ARTICLE V CONDUCT PRIOR TO THE CLOSING...................................................................................... 23
5.1 Conduct of Business of the Company.............................................................................. 23
5.2 No Solicitation................................................................................................. 25
5.3 No Encumbrance.................................................................................................. 26
ARTICLE VI ADDITIONAL AGREEMENTS............................................................................................ 26
6.1 Access to Information........................................................................................... 26
6.2 Confidentiality................................................................................................. 27
6.3 Expenses........................................................................................................ 27
6.4 Public Disclosure............................................................................................... 27
6.5 Consents........................................................................................................ 27
6.6 FIRPTA Compliance............................................................................................... 28
6.7 Legal Requirements.............................................................................................. 28
6.8 Notification of Certain Matters................................................................................. 28
6.9 Certain Benefit Plans........................................................................................... 28
6.10 Buyer Stock Options............................................................................................. 29
6.11 Additional Documents and Further Assurances..................................................................... 29
6.12 Form S-8........................................................................................................ 29
6.13 Company's Auditors.............................................................................................. 29
6.14 Arrangements with Wexford....................................................................................... 29
6.15 Company Agreements.............................................................................................. 30
ARTICLE VII CONDITIONS TO THE PURCHASE...................................................................................... 30
7.1 Conditions to Obligations of Each Party to Effect the Purchase.................................................. 30
7.2 Additional Conditions to Obligations of the Sellers............................................................. 30
7.3 Additional Conditions to the Obligations of Buyer............................................................... 31
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TABLE OF CONTENTS
(continued)
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ARTICLE VIII SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION.................................................... 33
8.1 Survival of Representations and Warranties...................................................................... 33
8.2 Indemnity for Representations of Founders....................................................................... 33
8.3 Indemnity for Representations of Each Seller.................................................................... 33
ARTICLE IX TERMINATION, AMENDMENT AND WAIVER................................................................................ 34
9.1 Termination..................................................................................................... 34
9.2 Effect of Termination........................................................................................... 34
9.3 Amendment....................................................................................................... 35
9.4 Extension; Waiver............................................................................................... 35
ARTICLE X GENERAL PROVISIONS................................................................................................ 35
10.1 Notices......................................................................................................... 35
10.2 Interpretation.................................................................................................. 36
10.3 Counterparts.................................................................................................... 37
10.4 Entire Agreement; Assignment.................................................................................... 37
10.5 Severability.................................................................................................... 37
10.6 Other Remedies.................................................................................................. 37
10.7 Governing Law................................................................................................... 37
10.8 Rules of Construction........................................................................................... 37
10.9 Specific Performance............................................................................................ 37
10.10 Unified Disclosure Schedules.................................................................................... 38
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INDEX OF EXHIBITS
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EXHIBIT DESCRIPTION
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<C> <S>
Exhibit A-1 Form of Migdal Employment Agreement
Exhibit A-2 Form of Rice Employment Agreement
Exhibit B Form of Migdal Noncompete
Exhibit C Form of Amended and Restated Investors' Rights Agreement
Schedule I Allocation of Buyer Common Stock and Buyer Options
</TABLE>
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STOCK PURCHASE AGREEMENT
This STOCK PURCHASE AGREEMENT (this "Agreement") is made and entered into as
of December 23, 1996 among MetaTools, Inc., a Delaware corporation ("Buyer"),
Alexander Migdal ("Migdal"), Robert Rice ("Rice", and collectively with Migdal,
the "Founders"), Wexford Capital Partners II, LP ("Wexford Capital") and Wexford
Overseas Partners I, LP ("Wexford Overseas", and collectively with Wexford
Capital, "Wexford") and certain other stockholders of (the "Other Stockholders,"
and collectively with Migdal and Wexford, the "Stockholders"), and certain
holders of options, warrants or other rights to acquire capital stock of (the
"Option Holders," and collectively with the Stockholders, the "Sellers") of Real
Time Geometry Corp., a Delaware corporation (the "Company").
RECITALS
A. The parties believe it is in their respective best interests that Buyer
acquire the Company through the purchase (the "Purchase") by Buyer from the
Sellers of all capital stock of the Company ("Company Capital Stock") held by
them, together with all (subject to certain exceptions) outstanding options,
warrants or other rights to acquire or receive shares of Company Capital Stock
from the Company or from Migdal ("Company Options"), in exchange for shares of
voting Common Stock of Buyer ("Buyer Common Stock"), or options, warrants or
other rights to acquire or receive Buyer Common Stock, as applicable.
B. The Stockholders are collectively the owners of and have good and valid
title to approximately 97% of the Company Capital Stock, free and clear of any
legal or equitable encumbrances. The Option Holders and Wexford are collectively
the owners of and have good and valid title to all Company Options, free and
clear of any legal or equitable encumbrances.
C. Buyer and the Sellers desire to make certain representations and
warranties and other agreements in connection with the Purchase.
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
intending to be legally bound hereby the parties agree as follows:
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ARTICLE I
PURCHASE AND SALE OF STOCK
1.1 Sale of Stock. At the Closing (as defined in Section 1.3 hereof) and
-------------
subject to and upon the terms and conditions of this Agreement, each Stockholder
will sell, transfer, convey, assign and deliver to Buyer, and Buyer will
purchase and acquire from each Stockholder, good and valid title to all shares
of Company Capital Stock held by such Stockholder (collectively, the "Purchased
Shares"), free and clear of any liens, claims, charges, restrictions, pledges,
security interests, options, rights of any nature or other legal or equitable
encumbrances. At the Closing, each Stockholder will deliver to Buyer duly
executed instruments of transfer and assignment of the Purchased Shares
sufficient to vest in Buyer all right, title and interest in the Purchased
Shares in accordance with the terms of this Agreement. Except as set forth in
Section 1.5(c), Buyer will bear the cost of any documentary, stamp, sales,
excise, transfer or other taxes payable in respect of the sale of the Purchased
Shares. Each Stockholder's obligation to sell such Stockholder's Purchased
Shares to Buyer is a separate obligation.
1.2 Exchange of Options. At the Closing and subject to and upon the terms and
-------------------
conditions of this Agreement, the Option Holders will agree to cancel their
entire outstanding and unexercised Company Options, whether vested, unvested,
exercisable or unexercisable, in exchange for the grant by Buyer of new, fully
vested and immediately exercisable options, under the Buyer's 1996 Nonstatutory
Stock Option Plan, to acquire a number of shares of Buyer Common Stock as set
forth on Schedule I hereto. Such new options shall have a per share option
exercise price equal to the per share exercise price as set forth on Schedule I
hereto.
1.3 Closing. Unless this Agreement is earlier terminated pursuant to Article
-------
IX hereof, the closing of the purchase and sale of the Purchased Shares (the
"Closing") will take place as promptly as practicable, but no later than five
(5) business days, following satisfaction or waiver of the conditions set forth
in Article VII hereof, at the offices of Wilson Sonsini Goodrich & Rosati, 650
Page Mill Road, Palo Alto, California, unless another place or time is agreed to
by Buyer and the Founders. The date upon which the Closing actually occurs is
herein referred to as the "Closing Date"). Subsequent to the Closing, the
Company is sometimes referred to herein as the "Surviving Corporation").
1.4 Consideration and Payment.
-------------------------
(a) Common Stock Purchase Price. The consideration to be paid by Buyer
---------------------------
to each Stockholder selling Common Stock of the Company ("Company Common
Stock"), with respect to such Common Stock, shall be as set forth on Schedule I
hereto.
(b) Preferred Stock Purchase Price. The consideration to be paid by
------------------------------
Buyer to each Stockholder selling Preferred Stock of the Company ("Company
Preferred Stock"), with respect to such Preferred Stock, shall be as set forth
on Schedule I hereto.
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(c) No Adjustment for Subsequent Issuances. No adjustment shall be made
--------------------------------------
in the number of shares of Buyer Common Stock issued as a result of any cash
proceeds received by the Company from the date hereof to the Closing pursuant to
the exercise of any Company Options.
(d) Fractional Shares. No fraction of a share of Buyer Common Stock will
-----------------
be issued, but, in lieu thereof, each Stockholder who would otherwise be
entitled to a fraction of a share of Buyer Common Stock (after aggregating all
fractional shares of Buyer Common Stock to be received by such stockholder)
shall be entitled to receive from Buyer an amount of cash (rounded to the
nearest whole cent) equal to the product of (i) such fraction, multiplied by
(ii) the average closing price of a share of Buyer Common Stock for the five (5)
consecutive trading days ending on the trading day immediately prior to the
Closing Date, as reported on the Nasdaq National Market (the "Closing Fair
Market Value").
1.5 Surrender of Certificates.
-------------------------
(a) Surrender of Certificates. Each Stockholder shall deliver to Buyer
-------------------------
at the Closing all certificates, duly endorsed for transfer, representing all
shares of Company Capital Stock held by such Stockholder (the "Certificates").
(b) Lost, Stolen or Destroyed Certificates. In the event any
--------------------------------------
Certificates evidencing Purchased Shares shall have been lost, stolen or
destroyed, the Stockholder shall deliver to the Buyer an affidavit of that fact
and a bond in such sum as Buyer may reasonably request as indemnity against any
claim that may be made against Buyer with respect to the Certificates alleged to
have been lost, stolen or destroyed.
(c) Transfers of Ownership. If any certificate for shares of Buyer
----------------------
Common Stock is to be issued in a name other than that in which the Certificate
surrendered in exchange therefor is registered, it will be a condition of the
issuance thereof that the Certificate so surrendered will be properly endorsed
and otherwise in proper form for transfer and that the person requesting such
exchange will have paid to Buyer or any agent designated by it any transfer or
other taxes required by reason of the issuance of a certificate for shares of
Buyer Common Stock in any name other than that of the registered holder of the
Certificate surrendered, or established to the satisfaction of Buyer or any
agent designated by it that such tax has been paid or is not payable.
1.6 Tax Consequences. It is intended by the parties hereto that the Purchase
----------------
shall constitute a reorganization within the meaning of Section 368 of the
Internal Revenue Code of 1986, as amended (the "Code").
1.7 Taking of Necessary Action; Further Action. If, at any time after the
------------------------------------------
Closing, any such further action is necessary or desirable to carry out the
purposes of this Agreement and to vest Buyer with full right, title and
possession to all Purchased Shares, each Stockholder agrees to promptly, at its
own expense, take all such lawful and necessary action.
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ARTICLE II
REPRESENTATIONS AND WARRANTIES OF THE FOUNDERS
The Founders hereby represent and warrant to Buyer subject to such exceptions
as are specifically disclosed in the schedules (referencing the appropriate
section number) supplied by the Founders to Buyer (the "Company Schedules") and
dated as of the date hereof, as follows:
2.1 Organization of the Company. The Company is a corporation duly organized,
---------------------------
validly existing and in good standing under the laws of the State of Delaware.
The Company has the corporate power to own its properties and to carry on its
business as now being conducted and as proposed to be conducted by the Company.
The Company is duly qualified to do business and in good standing as a foreign
corporation in each jurisdiction in which the failure to be so qualified would
have a Material Adverse Effect (as defined below). (As used in this Agreement,
the term "Material Adverse Effect" means a material adverse effect on the
business, assets (including intangible assets), financial condition or results
of operations of the Company or the Buyer, as applicable). The Company has
delivered a true and correct copy of its Certificate of Incorporation and
Bylaws, each as amended to date, to Buyer.
2.2 Company Capital Structure.
-------------------------
(a) The authorized capital stock of the Company consists of 1,500 shares
of authorized Common Stock, of which 825 shares are issued and outstanding, and
200 shares of authorized Series A Preferred Stock, of which 200 shares are
issued and outstanding. The Company Capital Stock is held of record by the
persons, with the addresses of record and in the amounts set forth on Schedule
2.2(a). All outstanding shares of Company Capital Stock are duly authorized,
validly issued, fully paid and non-assessable and not subject to preemptive
rights created by statute, the Certificate of Incorporation or Bylaws of the
Company or any agreement to which the Company is a party or by which it is
bound.
(b) The Company has reserved 250 shares of Common Stock for issuance
upon exercise of the Company Options. Schedule 2.2(b) sets forth for each
outstanding Company Option, the name of the holder of such Company Option, the
domicile address of such holder, the number of shares of Common Stock subject to
such Company Option, the exercise price of such Company Option and the vesting
schedule for such Company Option, including the extent vested to date and
whether the exercisability of such Company Option will be accelerated and become
exercisable by reason of the transactions contemplated by this Agreement. Except
for the Company Options described in Schedule 2.2(b), there are no options,
warrants, calls, rights, commitments or agreements of any character, written or
oral, to which the Company or any stockholder of the Company is a party or by
which the Company is bound obligating the Company to issue, deliver, sell,
repurchase or redeem, or cause to be issued, delivered, sold, repurchased or
redeemed, any shares of the capital stock of the Company or obligating the
Company to grant, extend, accelerate the vesting of, change the price of,
otherwise amend or enter into any such option, warrant, call, right, commitment
or agreement. The holders of Company Options have been or will be given, or
shall have properly waived, any required notice prior to the Purchase.
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(c) As a result of the Purchase, Buyer will be the record and sole
beneficial owner of at least 97% of the Company Capital Stock and all rights to
acquire or receive Company Capital Stock.
2.3 Subsidiaries. The Company does not have and has never had any subsidiaries
------------
or affiliated companies and does not otherwise own and has never otherwise owned
any shares of capital stock or any interest in, and does not control, directly
or indirectly, any other corporation, partnership, association, joint venture or
other business entity.
2.4 No Conflicts and Consents. Except as set forth on Schedule 2.4, the
-------------------------
execution and delivery of this Agreement by the Sellers does not, and, as of the
Closing, the consummation of the transactions contemplated hereby will not,
conflict with, or result in any violation of, or default under (with or without
notice or lapse of time, or both), or give rise to a right of termination,
cancellation, modification or acceleration of any obligation or loss of any
benefit under (any such event, a "Conflict") (i) any provision of the
Certificate of Incorporation or Bylaws of the Company or (ii) any mortgage,
indenture, lease, contract or other agreement or instrument, permit, concession,
franchise, license, judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to the Company or its properties or assets. No consent,
waiver, approval, order or authorization of, or registration, declaration or
filing with, any court, administrative agency or commission or other federal,
state, county, local or foreign governmental authority, instrumentality, agency
or commission ("Governmental Entity") or any third party, including a party to
any agreement with the Company (so as not to trigger any Conflict) is required
by or with respect to the Company in connection with the execution and delivery
of this Agreement or the consummation of the transactions contemplated hereby,
except for (i) such consents, waivers, approvals, orders, authorizations,
registrations, declarations and filings as may be required under applicable
federal and state securities laws, and (ii) such other consents, waivers,
authorizations, filings, approvals and registrations which are set forth on
Schedule 2.4.
2.5 Company Financial Statements. Schedule 2.5(a) sets forth the Company's
----------------------------
unaudited balance sheet as of November 30, 1996 (the "Balance Sheet") and the
related unaudited statements of operations and cash flows for the eleven-month
period then ended (collectively, the "Company Financials"). The Company
Financials are complete and correct in all material respects and have been
prepared on a modified accrual basis which is consistent with financial
statements prepared under generally accepted accounting principles ("GAAP"),
except as disclosed in footnote 2 of the company Financials in accordance with
GAAP, applied on a basis consistent throughout the periods indicated and
consistent with each other. The Company Financials present fairly the financial
condition and operating results of the Company as of the dates and during the
periods indicated therein, subject, to normal year-end adjustments, which
adjustments will not be material in amount or significance.
2.6 No Undisclosed Liabilities. Except as set forth in Schedule 2.6, the
--------------------------
Company does not have any liability, indebtedness, obligation, expense, claim,
deficiency, guaranty or endorsement of any type, whether accrued, absolute,
contingent, matured, unmatured or other (whether or not required to be reflected
in financial statements in accordance with generally accepted accounting
-5-
<PAGE>
principles), which individually or in the aggregate, (i) has not been reflected
in the Balance Sheet, or (ii) has not arisen in the ordinary course of the
Company's business since the date of the Balance Sheet, consistent with past
practices.
2.7 No Changes. Except as set forth in Schedule 2.6 or Schedule 2.7, since
----------
the date of the Balance Sheet, there has not been, occurred or arisen any:
(a) transaction by the Company except in the ordinary course of business
as conducted on the date of the Balance Sheet and consistent with past
practices;
(b) amendments or changes to the Certificate of Incorporation or Bylaws
of the Company;
(c) capital expenditure or commitment by the Company, either individually
in excess of $5,000 or in the aggregate exceeding $50,000;
(d) destruction of, damage to or loss of any assets (including intangible
assets), business or customer of the Company (whether or not covered by
insurance);
(e) labor trouble or claim of wrongful discharge or other unlawful labor
practice or action;
(f) change in accounting methods or practices (including any change in
depreciation or amortization policies or rates) by the Company;
(g) revaluation by the Company of any of its assets;
(h) declaration, setting aside, or payment of a dividend or other
distribution with respect to the capital stock of the Company, or any direct or
indirect redemption, purchase or other acquisition by the Company of any of its
capital stock;
(i) increase in the salary or other compensation payable or to become
payable to any of its officers, directors, employees, consultants or advisors,
or the declaration, payment or commitment or obligation of any kind for the
payment of a bonus or other additional salary or compensation to any such
person;
(j) sale, lease, license or other disposition of any of the assets or
properties of the Company, except in the ordinary course of business as
conducted on that date and consistent with past practices;
(k) amendment or termination of any material contract, agreement or
license to which the Company is a party or by which it is bound;
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(l) loan by the Company to any person or entity, incurring by the Company
of any indebtedness, guaranteeing by the Company of any indebtedness, issuance
or sale of any debt securities of the Company or guaranteeing of any debt
securities of others, except for advances to employees for travel and business
expenses in the ordinary course of business, consistent with past practices;
(m) waiver or release of any right or claim of the Company, including any
write-off or other compromise of any account receivable of the Company;
(n) commencement or notice or threat of commencement of any lawsuit or
proceeding against or investigation of the Company or its affairs;
(o) notice of any claim of ownership by a third party of any Company
Intellectual Property Rights (as defined in Section 2.11 below) or of
infringement by the Company of any third party's intellectual property rights;
(p) issuance or sale by the Company of any of its shares of capital
stock, or securities exchangeable, convertible or exercisable therefor, or of
any other of its securities (except as contemplated by this Agreement);
(q) change in pricing or royalties set or charged by the Company to its
customers or licensees or in pricing or royalties set or charged by persons who
have licensed Intellectual Property to the Company;
(r) event or condition of any character that has or could be reasonably
expected to have a Material Adverse Effect on the Company; or
(s) negotiation or agreement by the Company or any officer, employee or
agent thereof to do any of the things described in the preceding clauses (a)
through (r) (other than negotiations with Buyer and its representatives
regarding the transactions contemplated by this Agreement).
2.8 Tax and Other Returns and Reports.
---------------------------------
(a) Definition of Taxes. For the purposes of this Agreement, "Tax" or,
-------------------
collectively, "Taxes", means any and all federal, state, local and foreign
taxes, assessments and other governmental charges, duties, impositions and
liabilities, 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.
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(b) Tax Returns and Audits.
----------------------
(i) The Company as of the Closing will have prepared and filed all
required federal, state, local and foreign returns, estimates, information
statements and reports ("Returns") relating to any and all Taxes concerning or
attributable to the Company or its operations and such Returns, if any, are true
and correct and have been completed in accordance with applicable law.
(ii) The Company as of the Closing: (A) will have paid or accrued
all Taxes it is required to pay or accrue and (B) 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) The Company has not been delinquent in the payment of any Tax
nor is there any Tax deficiency outstanding, proposed or assessed against the
Company, nor has the Company executed any waiver of any statute of limitations
on or extending the period for the assessment or collection of any Tax.
(iv) No audit or other examination of any Return of the Company is
currently in progress, nor has the Company been notified of any request for such
an audit or other examination.
(v) The Company does not have any liabilities for unpaid federal,
state, local and foreign Taxes which have not been accrued or reserved against
in accordance with GAAP on the Balance Sheet, whether asserted or unasserted,
contingent or otherwise, and the Company has no knowledge of any basis for the
assertion of any such liability attributable to the Company, its assets or
operations.
(vi) The Company has provided to Buyer copies of all federal and
state income and all state sales and use Tax Returns for all periods since the
date of Company's incorporation.
(vii) There are (and as of immediately following the Closing there
will be) no liens, pledges, charges, claims, security interests or other
encumbrances of any sort ("Liens") on the assets of the Company relating to or
attributable to Taxes, except for Liens for taxes not yet due and payable.
(viii) The Company has no knowledge of any basis for the assertion
of any claim relating or attributable to Taxes which, if adversely determined,
would result in any Lien on the assets of the Company.
(ix) None of the Company's assets are treated as "tax-exempt use
property" within the meaning of Section 168(h) of the Code.
-8-
<PAGE>
(x) The Company has not 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 the Company.
(xi) The Company is not a party to a tax sharing or allocation
agreement nor does the Company owe any amount under any such agreement.
(xii) The Company is not, and has not been at any time, a "United
States real property holding corporation" within the meaning of Section
897(c)(2) of the Code.
(xiii) The Company's tax basis in its assets for purposes of
determining its future amortization, depreciation and other federal income tax
deductions is accurately reflected on the Company's tax books and records.
2.9 Restrictions on Business. There is no agreement (noncompete or
------------------------
otherwise), commitment, judgment, injunction, order or decree to which the
Company is a party or otherwise binding upon the Company which has or reasonably
could be expected to have the effect of prohibiting or impairing any business
practice of the Company, any acquisition of property (tangible or intangible) by
the Company or the conduct of business by the Company. Without limiting the
foregoing, the Company has not entered into any agreement under which the
Company is restricted from selling, licensing or otherwise distributing any of
its products to any class of customers, in any geographic area, during any
period of time or in any segment of the market.
2.10 Title to Properties; Absence of Liens and Encumbrances.
------------------------------------------------------
(a) The Company owns no real property, nor has it ever owned any real
property. Schedule 2.10(a) sets forth a list of all real property currently, or
at any time in the past, leased by the Company, the name of the lessor, the date
of the lease and each amendment thereto and, with respect to any current lease,
the aggregate annual rental and/or other fees payable under any such lease. 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).
(b) The Company 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 the Company
Financials or in Schedule 2.10(b) 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.
-9-
<PAGE>
2.11 Intellectual Property.
---------------------
(a) The Company owns, or is licensed or otherwise possesses legally
enforceable rights to use, all patents, trademarks, trade names, service marks,
copyrights, and any applications therefor, net lists, schematics, technology,
know-how, computer software programs or applications (in both source code and
object code form as to software programs and applications owned by the Company
and in object code form as to software programs and applications licensed by the
Company), and tangible or intangible proprietary information or material that
are used in the business of the Company (the "Company Intellectual Property
Rights").
(b) Schedule 2.11(a) sets forth a complete list of all patents,
registered and material unregistered trademarks, registered copyrights, trade
names and service marks, and any applications therefor, included in the Company
Intellectual Property Rights, and specifies, where applicable, the jurisdictions
in which each such Company Intellectual Property Right has been issued or
registered or in which an application for such issuance and registration has
been filed, including the respective registration or application numbers and the
names of all registered owners. Schedule 2.11(b) sets forth a complete list of
all licenses, sublicenses and other agreements as to which the Company is a
party and pursuant to which the Company or any other person is authorized to use
any Company Intellectual Property Right or trade secret of the Company, and
includes the identity of all parties thereto, a description of the nature and
subject matter thereof, the applicable royalty or other fees and the term
thereof. The execution and delivery of this Agreement by the Company, and the
consummation of the transactions contemplated hereby, will neither cause the
Company to be in violation or default under any such license, sublicense or
agreement, nor entitle any other party to any such license, sublicense or
agreement to terminate or modify such license, sublicense or agreement. Except
as set forth in Schedules 2.11(a) or 2.11(b), the Company is the sole and
exclusive owner or licensee of, with all right, title and interest in and to
(free and clear of any liens or encumbrances), the Company Intellectual Property
Rights, and has sole and exclusive rights (and is not contractually obligated to
pay any compensation to any third party in respect thereof) to the use thereof
or the material covered thereby in connection with the services or products in
respect of which the Company Intellectual Property Rights are being used.
(c) No claims with respect to the Company Intellectual Property Rights
have been asserted or are threatened by any person, nor is the Company aware of
any valid grounds for any bona fide claims, (i) to the effect that the
manufacture, sale, licensing or use of any of the products of the Company
infringes on any copyright, patent, trade mark, service mark, trade secret or
other proprietary right of others, (ii) against the use by the Company of any
trademarks, service marks, trade names, trade secrets, copyrights, maskworks,
patents, technology, know-how or computer software programs and applications
used in the Company's business as currently conducted or as proposed to be
conducted by the Company, or (iii) challenging the ownership by the Company or
the validity or effectiveness of any of the Company Intellectual Property
Rights. All registered trademarks, service marks and copyrights held by the
Company are valid and subsisting. To the best of the Company's knowledge, the
Company has not infringed, and the business of the Company as currently
conducted or as proposed to be conducted does not infringe, any copyright,
patent, trademark, service mark, trade secret or other proprietary right of any
third party. The Company is not aware of any material unauthorized use,
infringement or misappropriation of any of the Company
-10-
<PAGE>
Intellectual Property Rights by any third party, including any employee or
former employee of the Company. No Company Intellectual Property Right or
product of the Company is subject to any outstanding decree, order, judgment, or
stipulation restricting in any manner the licensing thereof by the Company. Each
employee, consultant or contractor of the Company has executed a proprietary
information and confidentiality agreement substantially in the Company's
standard forms. All software included in the Company Intellectual Property
Rights is original with the Company and has been either created by employees of
the Company on a work-for-hire basis or by consultants or contractors who have
created such software themselves and have assigned all rights they may have had
in such software to the Company.
2.12 Agreements, Contracts and Commitments. Except as set forth on Schedule
-------------------------------------
2.12(a), the Company does not have, is not a party to nor is it bound by:
(i) any collective bargaining agreements,
(ii) any agreements or arrangements that contain any severance pay or
post-employment liabilities or obligations,
(iii) any bonus, deferred compensation, pension, profit sharing or
retirement plans, or any other employee benefit plans or arrangements,
(iv) any employment or consulting agreement, contract or commitment
with an employee or individual consultant or salesperson or any consulting or
sales agreement, contract or commitment under which any firm or other
organization provides services to the Company,
(v) any agreement or plan, including, without limitation, any stock
option plan, stock appreciation rights 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,
(vi) any fidelity or surety bond or completion bond,
(vii) any lease of personal property having a value individually in
excess of $10,000,
(viii) any agreement of indemnification or guaranty,
(ix) any agreement, contract or commitment containing any covenant
limiting the freedom of the Company to engage in any line of business or to
compete with any person,
-11-
<PAGE>
(x) any agreement, contract or commitment relating to capital
expenditures and involving future payments in excess of $10,000,
(xi) any agreement, contract or commitment relating to the disposition
or acquisition of assets or any interest in any business enterprise outside the
ordinary course of the Company's business,
(xii) any mortgages, indentures, loans or credit agreements, security
agreements or other agreements or instruments relating to the borrowing of money
or extension of credit, including guaranties referred to in clause (viii)
hereof,
(xiii) any purchase order or contract for the purchase of raw materials
involving $10,000 or more,
(xiv) any construction contracts,
(xv) any distribution, joint marketing or development agreement,
(xvi) any agreement pursuant to which the Company has granted or may
grant in the future, to any party, a source-code license or option or other
right to use or acquire, contingent or otherwise, source-code, or
(xvii) any other agreement, contract or commitment that involves $10,000
or more or is not cancelable without penalty within thirty (30) days.
The Company has not breached, violated or defaulted under, or received notice
that it has breached, violated or defaulted under, any of the terms or
conditions of any agreement, contract or commitment to which it is bound
(including those set forth in any of the Company Schedules) (any such agreement,
contract or commitment, a "Contract") in any manner which could reasonably be
expected to have a Material Adverse Effect. Each Contract is in full force and
effect and is not subject to any default thereunder of which the Company has
knowledge by any party obligated to the Company pursuant thereto.
2.13 Interested Party Transactions. Except as set forth in Schedule 2.13, no
-----------------------------
officer, director or stockholder of the Company (nor any ancestor, sibling,
descendant or spouse of any of such persons, or any trust, partnership or
corporation in which any of such persons has or has had an interest), has or has
had, directly or indirectly, (i) an economic interest in any entity which
furnished or sold, or furnishes or sells, services or products that the Company
furnishes or sells, or proposes to furnish or sell, (ii) an economic interest in
any entity that purchases from or sells or furnishes to the Company any goods or
services or (iii) a beneficial interest in any Contract; provided, that
ownership of no more than one percent (1%) of the outstanding voting stock of a
publicly-traded corporation shall not be deemed an "economic interest in any
entity" for purposes of this Section 2.13.
-12-
<PAGE>
2.14 Compliance with Laws. The Company has complied in all respects with, is
--------------------
not in violation of, and has not received any notices of violation with respect
to, any foreign, federal, state or local statute, law or regulation, the
violation of which could reasonably be expected to have a Material Adverse
Effect.
2.15 Litigation. Except as set forth in Schedule 2.15, there is no action,
----------
suit or proceeding of any nature pending or to the Company's knowledge
threatened against the Company, its properties or any of its officers or
directors, in their respective capacities as such. Except as set forth in
Schedule 2.15, there is no investigation pending or threatened against the
Company, its properties or any of its officers or directors by or before any
governmental entity. Schedule 2.15 sets forth, with respect to any pending or
threatened action, suit, proceeding or investigation, the forum, the parties
thereto, the subject matter thereof and the amount of damages claimed or other
remedy requested. No governmental entity has at any time challenged or
questioned the legal right of the Company to manufacture, offer or sell any of
its products in the present manner or style thereof. Schedule 2.15 also lists
all suits and legal actions initiated by the Company.
2.16 Insurance. With respect to the insurance policies and fidelity bonds
---------
covering the assets, business, equipment, properties, operations, employees,
officers and directors of the Company, there is no claim by the Company pending
under any of such policies or bonds as to which coverage has been questioned,
denied or disputed by the underwriters of such policies or bonds. All premiums
due and payable under all such policies and bonds have been paid, and the
Company is otherwise in material compliance with the terms of such policies and
bonds (or other policies and bonds providing substantially similar insurance
coverage). The Company has no knowledge of any threatened termination of, or
material premium increase with respect to, any of such policies. Such policies
of insurance and bonds are the type and in the amounts customarily carried by
persons conducting businesses similar to those of the Company.
2.17 Minute Books. The minute books of the Company made available to counsel
------------
for Buyer are the only minute books of the Company and contain an accurate
summary of all meetings of directors (or committees thereof) and stockholders or
actions by written consent since the time of incorporation of the Company.
2.18 Environmental Matters.
---------------------
(a) Hazardous Material. The Company has not operated any underground
------------------
storage tanks, and has no knowledge of the existence, at any time, of any
underground storage tank (or related piping or pumps), at any property that the
Company has at any time owned, operated, occupied or leased. The Company has not
released any 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, oil and petroleum
products, urea-formaldehyde and all substances listed as a "hazardous
substance," "hazardous waste," "hazardous material" or "toxic substance" or
words of similar import, under any law, including but not limited to, the
Comprehensive Environmental Response, Compensation, and Liability Act of 1980,
as amended; the Resource Conservation and Recovery Act of 1976, as amended; the
Federal Water Pollution Control Act, as amended; the Clean
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<PAGE>
Air Act, as amended, and the regulations promulgated pursuant to such laws, (a
"Hazardous Material"). No Hazardous Materials are present as a result of the
actions or omissions of the Company, or, to the Company'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 the Company has at any time owned, operated, occupied or leased.
(b) Hazardous Materials Activities. The Company has not 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, nor has the Company disposed of, transported, sold, or manufactured any
product containing a Hazardous Material (any or all of the foregoing being
collectively referred to as "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. The Company currently holds all environmental approvals,
-------
permits, licenses, clearances and consents (the "Environmental Permits")
necessary for the conduct of the Company's Hazardous Material Activities and
other businesses of the Company as such activities and businesses are currently
being conducted.
(d) Environmental Liabilities. No action, proceeding, revocation
-------------------------
proceeding, amendment procedure, writ, injunction or claim is pending or
threatened concerning any Environmental Permit, Hazardous Material or any
Hazardous Materials Activity of the Company. The Company is not aware of any
fact or circumstance which could involve the Company in any environmental
litigation or impose upon the Company any environmental liability.
2.19 Brokers' and Finders' Fees; Third Party Expenses. Other than pursuant
------------------------------------------------
to a Letter Agreement dated November 1, 1996 (executed by the Company on
November 7, 1996) between the Company and Hambrecht & Quist, the Company has not
incurred, nor will 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. Schedule 2.19 sets forth
the Founders' current reasonable estimate of all Third Party Expenses (as
defined in Section 5.4) expected to be incurred by the Company in connection
with the negotiation and effectuation of the terms and conditions of this
Agreement and the transactions contemplated hereby.
2.20 Employee Matters and Benefit Plans.
----------------------------------
(a) Definitions. With the exception of the definition of "Affiliate" set
-----------
forth in Section 2.20(a)(i) below (which definition shall apply only to this
Section 2.20), for purposes of this Agreement, the following terms shall have
the meanings set forth below:
(i) "Affiliate" shall mean any other person or entity under common
---------
control with the Company within the meaning of Section 414(b) or (c) of the Code
and the regulations thereunder;
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<PAGE>
(ii) "ERISA" shall mean the Employee Retirement Income Security Act
-----
of 1974, as amended;
(iii) "Company Employee Plan" shall refer to any plan, program,
---------------------
policy, practice, contract, agreement or other arrangement providing for
compensation, severance, termination pay, performance awards, stock or stock-
related awards, fringe benefits or other employee benefits or remuneration of
any kind, whether formal or informal, funded or unfunded, including without
limitation, each "employee benefit plan", within the meaning of Section 3(3) of
ERISA which is or has been maintained, contributed to, or required to be
contributed to, by the Company or any Affiliate for the benefit of any
"Employee" (as defined below), and pursuant to which the Company or any
Affiliate has or may have any material liability;
(iv) "Employee" shall mean any current, former, or retired employee,
--------
officer, or director of the Company or any Affiliate;
(v) "Employee Agreement" shall refer to each management, employment,
------------------
severance, consulting, relocation, repatriation, expatriation, visas, work
permit or similar agreement or contract between the Company or any Affiliate and
any Employee or consultant;
(vi) "IRS" shall mean the Internal Revenue Service;
---
(vii) "Multiemployer Plan" shall mean any "Pension Plan" (as defined
------------------
below) which is a "multiemployer plan", as defined in Section 3(37) of ERISA;
and
(viii) "Pension Plan" shall refer to each Company Employee Plan
------------
which is an "employee pension benefit plan", within the meaning of Section 3(2)
of ERISA.
(b) Schedule. Schedule 2.20(b) contains a complete list of each Company
--------
Employee Plan and each Employee Agreement. The Company does not have any legally
binding plan or commitment to establish any new Company Employee Plan or
Employee Agreement, to modify any Company Employee Plan or Employee Agreement
(except to the extent required by law or to conform any such Company Employee
Plan or Employee Agreement to the requirements of any applicable law, or as
required by this Agreement), or to enter into any Company Employee Plan or
Employee Agreement, nor does it have any present intention to do any of the
foregoing.
(c) Documents. The Company has provided to Buyer (i) correct and
---------
complete copies of all documents embodying each Company Employee Plan and each
Employee Agreement including all amendments thereto; (ii) the most recent annual
actuarial valuations, if any, prepared for each Company Employee Plan; (iii) the
most recent annual report (Series 5500 and all schedules thereto), if any,
required under ERISA or the Code in connection with each Company Employee Plan
or related trust; (iv) if the Company Employee Plan is funded, the most recent
annual and periodic accounting of Company Employee Plan assets; (v) the most
recent summary plan description together with the most recent summary of
material modifications, if any, required under ERISA with respect to each
Company Employee Plan; (vi) all IRS determination letters and rulings relating
to
-15-
<PAGE>
Company Employee Plans; and (vii) all communications material to any Employee or
Employees relating to any Company Employee Plan and any proposed Company
Employee Plans, in each case, relating to any amendments, terminations,
establishments, increases or decreases in benefits, acceleration of payments or
vesting schedules or other events which would result in any material liability
to the Company.
(d) Employee Plan Compliance. Except as set forth on Schedule 2.20(d),
------------------------
(i) the Company has performed in all material respects all obligations required
to be performed by it under each Company Employee Plan, and each Company
Employee Plan has been established and maintained in all material respects in
accordance with its terms and in compliance with all applicable laws, statutes,
orders, rules and regulations, including but not limited to ERISA or the Code;
(ii) no non-exempt "prohibited transaction", within the meaning of Section 4975
of the Code or Section 406 of ERISA, has occurred with respect to any Company
Employee Plan which would have a Material Adverse Effect; (iii) there are no
actions, suits or claims pending, or, to the knowledge of the Company,
threatened or anticipated (other than routine claims for benefits) against any
Company Employee Plan or against the assets of any Company Employee Plan; (iv)
there are no inquiries or proceedings pending or, to the knowledge of the
Company threatened by the IRS or the Department of Labor with respect to any
Company Employee Plan; and (v) the Company is not subject to any material
penalty or tax with respect to any Company Employee Plan under Section 502(i) of
ERISA or Section 4976 through 4980 of the Code.
(e) Pension Plans. The Company does not now, nor has it ever,
-------------
maintained, established, sponsored, participated in, or contributed to, any
Pension Plan which is subject to Part 3 of Subtitle B of Title I of ERISA, Title
IV of ERISA or Section 412 of the Code.
(f) Multiemployer Plans. At no time has the Company contributed to any
-------------------
Multiemployer Plan.
(g) No Post-Employment Obligations. Except as set forth in Schedule
------------------------------
2.20(g), no Company Employee Plan provides, or has any obligation to provide,
life insurance, medical or other employee benefits to any Employee upon his or
her retirement or termination of employment for any reason, except as may be
required by applicable law, rule or regulation, and the Company has never
represented, promised or contracted (whether in oral or written form) to any
Employee (either individually or to Employees as a group) that such Employee(s)
would be provided with life insurance, medical or other employee welfare
benefits upon their retirement or termination of employment, except to the
extent required by statute.
(h) Effect of Transaction.
----------------------
(i) Except as set forth on Schedule 2.20(h), the execution of this
Agreement and the consummation of the transactions contemplated hereby will not
(either alone or upon the occurrence of any additional or subsequent events)
constitute an event under any Company Employee Plan, Employee Agreement, trust
or loan that will or may result in any payment (whether
-16-
<PAGE>
of severance pay or otherwise), acceleration, forgiveness of indebtedness,
vesting, distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(ii) Except as set forth on Schedule 2.20(h), no payment or benefit
which will or may be made by the Company or Buyer or any of their respective
affiliates with respect to any Employee will be characterized as an "excess
parachute payment", within the meaning of Section 280G(b)(1) of the Code.
(i) Employment Matters. The Company (i) is in compliance in all material
------------------
respects with all applicable foreign, federal, state and local laws, rules and
regulations respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees; (ii) is
not liable for material amounts in respect of any arrears of wages or any
material penalty for failure to comply with any of the foregoing; and (iii) is
not liable for any payment to any trust or other fund or to any governmental or
administrative authority, with respect to unemployment compensation benefits,
social security or other benefits or obligations for Employees (other than
routine payments to be made in the normal course of business and consistent with
past practice).
(j) Labor. No work stoppage or labor strike against the Company is
-----
pending or, to the best knowledge of the Company, threatened. The Company is not
involved in or, to the best knowledge of the Company, threatened with, any labor
dispute, grievance, or litigation relating to labor, safety or discrimination
matters involving any Employee, including, without limitation, charges of unfair
labor practices or discrimination complaints, which, if adversely determined,
would, individually or in the aggregate, result in material liability to the
Company. Neither the Company nor any of its subsidiaries has engaged in any
unfair labor practices within the meaning of the National Labor Relations Act
which would, individually or in the aggregate, directly or indirectly result in
a material liability to the Company. The Company is not presently, nor has it
been in the past, a party to, or bound by, any collective bargaining agreement
or union contract with respect to Employees and no collective bargaining
agreement is being negotiated by the Company.
2.21 Section 280(g). The Company has obtained all stockholder consents
--------------
necessary to exempt any payments contemplated pursuant to this Agreement from
Section 280(g) of the Code.
2.22 Representations Complete. None of the representations or warranties made
------------------------
by the Founders (as modified by the Company Schedules), nor any statement made
in any schedule or certificate furnished by the Founders pursuant to this
Agreement contains or will contain at the Closing, any untrue statement of a
material fact, or omits or will omit at the Closing to state any material fact
necessary in order to make the statements contained herein or therein, in the
light of the circumstances under which made, not misleading.
ARTICLE III
REPRESENTATIONS, WARRANTIES AND COVENANTS OF EACH SELLER
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<PAGE>
Each Seller severally and not jointly hereby represents, warrants and
covenants to Buyer as follows:
3.1 Authority. Such Seller has all requisite power and authority to enter into
---------
this Agreement and to consummate the transactions contemplated hereby. If such
Seller is not an individual, the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby have been duly
authorized by all necessary corporate or partnership action on the part of the
Seller. If applicable, the Board of Directors (or comparable managing body) of
Seller has unanimously approved this Agreement and the transactions contemplated
hereby. This Agreement has been duly executed and delivered by the Seller and
constitutes the valid and binding obligation of the Seller, enforceable in
accordance with its terms except as such enforceability may be limited by
principles of public policy and subject to the laws of general application
relating to bankruptcy, insolvency and the relief of debtors and rules of law
governing specific performance, injunctive relief or other equitable remedies.
The execution and delivery of this Agreement by the Seller does not, and as of
the Closing Date the consummation of the transactions contemplated hereby will
not, result in any Conflict with (i) any provision of the Certificate of
Incorporation, Articles of Organization or Bylaws (or comparable organizational
document) of the Seller, if applicable, or (ii) any mortgage, indenture, lease,
contract or other agreement or instrument, permit, concession, franchise,
license, judgment, order, decree, statute, law, ordinance, rule or regulation
applicable to the Seller. No consent, waiver, approval, order or authorization
of, or registration, declaration or filing with, any Governmental Entity or any
third party (so as not to trigger any Conflict), is required by or with respect
to the Seller in connection with the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby.
3.2 Good and Marketable Title.
-------------------------
(a) Company Capital Stock. In the case of a Stockholder, Seller is the
---------------------
sole owner, beneficially and of record, of all Purchased Shares to be sold by
Seller hereunder and has not granted any other person any interest therein.
Seller has good and marketable title to all Purchased Shares, free and clear of
any and all liens, encumbrances, equities, security interests, and claims
whatsoever, with full right and authority to deliver the same hereunder, and
upon delivery of such Purchased Shares and payment of the consideration therefor
as contemplated hereby, will convey to Buyer good and marketable title to the
Purchased Shares free and clear of all liens, claims, encumbrances, equities,
security interests, preemptive rights, rights of first refusal, and any other
claim of any third party;
(b) Company Options. In the case of the Option Holders and Wexford,
---------------
Seller is the sole owner, beneficially and of record, of all Company Options to
be canceled by such person pursuant hereto and has not granted any other person
any interest therein. Seller has good and marketable title to all such Company
Options, free and clear of any and all liens, encumbrances, equities, security
interests, and claims whatsoever, with full right and authority to cancel the
same hereunder, and upon such cancellation and payment of the consideration
therefor as contemplated hereby, such Company Options will be extinguished and
of no further force or effect.
3.3 Investment Representations.
--------------------------
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<PAGE>
(a) Investment Intent. The Seller is acquiring the Buyer Common Stock or
-----------------
in the case of the Option Holders options therefor (collectively, the
"Securities") for the Seller's own account for investment purposes only and not
with a view to, or for resale in connection with any "distribution" thereof in
violation of the Securities Act of 1933, as amended (the "Securities Act").
(b) Information About Buyer. The Seller is aware of Buyer's business
-----------------------
affairs and financial condition and has acquired sufficient information about
Buyer to reach an informed and knowledgeable decision to acquire the Securities
(based in part on the representations and warranties of Buyer contained in
Article IV).
(c) High Risk. The Seller realizes that investment in the Securities
---------
involves a high degree of risk. The Seller is able to bear the risk of the
investment, to hold the Securities for an indefinite period of time and to
suffer a complete loss of the investment.
(d) Securities Not Registered. The Seller understands that the
-------------------------
Securities have not been registered under the Securities Act in reliance upon a
specific exemption therefrom.
(e) Held Indefinitely. The Seller further understands that the
-----------------
Securities may be disposed of only if subsequently registered under the
Securities Act or unless an exemption from registration is otherwise available.
In addition, the Seller understands that the certificate(s) evidencing the
Securities will be imprinted with a legend which prohibits the transfer of the
Securities unless they are registered or such registration is not required in
the opinion of counsel satisfactory to Buyer.
(f) Rule 144. The Seller is familiar with the provisions of Rule 144
--------
promulgated under the Securities Act.
(g) No Public Market. The Seller further understands that at the time
----------------
the Seller wishes to sell the Securities there may be no public market upon
which to make such a sale, and that, even if such a public market then exists,
Buyer may not be satisfying the current public information requirements of Rule
144, and that, in such event, the Seller would be precluded from selling the
Securities under Rule 144 even if the two-year minimum holding period had been
satisfied.
3.4 Standstill and Restrictions on Transfer. Seller agrees to abide by the
---------------------------------------
provisions of Sections 2.15 and 2.16 of the Rights Agreement (as defined herein)
with regard to any transfers of Buyer Common Stock, or other securities of
Buyer, by Seller.
3.5 Maximum Net Worth. In the case of any Seller who will acquire voting
-----------------
securities of Buyer having a Closing Fair Market Value of at least $15 million,
Seller (and any "ultimate parent entity" of Seller, as such term is defined in
the regulations to the Hart-Scott Rodino Antitrust Improvements Act of 1976) has
a net worth less than $100 million.
3.6 Tax Matters.
-----------
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<PAGE>
(a) Seller is the beneficial owner of all Company Capital Stock held by
such persons (including Company Capital Stock issuable upon exercise of Company
Options) and did not acquire any of the Company Capital Stock in contemplation
of the Purchase.
(b) Seller has not engaged in a Sale (as defined below) of any shares of
Company Capital Stock in contemplation of the Purchase.
(c) Seller has no current plan or intention (a "Plan") to engage in a
sale, exchange, transfer, redemption or reduction in any way of Seller'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
any of Buyer Common Stock (on a fully diluted basis, giving effect to all
options) to be received by Seller hereunder.
(d) If Seller is a partnership, then the term "Sale" as used in
paragraph (c) above shall not be deemed to include any distribution to Seller's
partners, provided that if any recipient of any such distribution will receive
shares of Buyer Common Stock having a fair market value of 1% or more of the
fair market value of all the shares of Company Capital Stock presently
outstanding, Seller is not aware of any Plan on the part of such recipient to
engage in a Sale of any of the shares of Buyer Common Stock (on a fully diluted
basis, giving effect to all options) to be received by such recipient in such
distribution.
(e) Seller is not aware of, or participating in, any Plan on the part of
the stockholders of the Company to engage in a Sale or Sales of the Buyer Common
Stock to be received hereunder such that the aggregate fair market value, as of
the Closing of the shares subject to such Sales would exceed 50% of the
aggregate fair market value of all shares of outstanding Company Capital Stock
immediately prior to such Closing.
(f) Seller understands that Buyer and its affiliates, as well as legal
counsel to Company and Buyer (in connection with rendering their opinions that
the Purchase will be a "reorganization" within the meaning of Section 368 of the
Code) will be relying on (a) the truth and accuracy of the representations
contained herein and (b) Seller's performance of the obligations set forth
herein.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF BUYER
Buyer represents and warrants to the Sellers as follows:
4.1 Organization, Standing and Power. Buyer is a corporation duly organized,
--------------------------------
validly existing and in good standing under the laws of the State of Delaware.
Buyer has the corporate power to own its properties and to carry on its business
as now being conducted and is duly qualified to do business and is in good
standing in each jurisdiction in which the failure to be so qualified would have
a material adverse effect on Buyer and its subsidiaries, taken as a whole.
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4.2 Authority. Buyer has all requisite corporate power and authority to
---------
enter into this Agreement and the Rights Agreement (as defined below) and to
consummate the transactions contemplated hereby. The execution and delivery of
this Agreement and the Rights Agreement and the consummation of the transactions
contemplated hereby have been duly authorized by all necessary corporate action
on the part of Buyer. This Agreement and the Rights Agreement have been duly
executed and delivered by Buyer and constitute the valid and binding obligations
of Buyer, enforceable in accordance with its terms.
4.3 Capital Structure.
-----------------
(a) The authorized stock of Buyer consists of 30,000,000 shares of
Common Stock, of which approximately 11,895,614 shares were issued and
outstanding as of November 8, 1996, and 5,000,000 shares of Preferred Stock,
none of which is issued or outstanding. All such shares have been duly
authorized, and all such issued and outstanding shares have been validly issued,
are fully paid and nonassessable and are free of any liens or encumbrances other
than any liens or encumbrances created by or imposed upon the holders thereof.
(b) The shares of Buyer Common Stock to be issued hereunder when issued,
will be duly authorized, validly issued, fully paid, non-assessable and, subject
to the accuracy of the representations of the Sellers as set forth in Article
III hereof, issued in compliance with applicable federal and state securities
laws.
4.4 SEC Documents; Buyer Financial Statements. Buyer has furnished or made
-----------------------------------------
available to the Founders or legal counsel to the Company true and complete
copies of all reports or registration statements filed by it with the SEC since
December 12, 1995, all in the form so filed (all of the foregoing being
collectively referred to as the "SEC Documents"). As of their respective filing
dates, the SEC Documents complied in all material respects with the requirements
of the Securities Act or the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), as the case may be, and none of the SEC Documents contained any
untrue statement of a material fact or omitted to state a material fact required
to be stated therein or necessary to make the statements made therein, in light
of the circumstances in which they were made, not misleading, except to the
extent corrected by a document subsequently filed with the SEC. The financial
statements of Buyer, including the notes thereto, included in the SEC Documents
(the "Buyer Financial Statements") comply as to form in all material respects
with applicable accounting requirements and with the published rules and
regulations of the SEC with respect thereto, have been prepared in accordance
with GAAP consistently applied (except as may be indicated in the notes thereto
or, in the case of unaudited statements, as permitted by Form 10-Q of the SEC)
and present fairly the consolidated financial position of Buyer at the dates
thereof and the consolidated results of its operations and cash flows for the
periods then ended (subject, in the case of unaudited statements, to normal
audit adjustments). There has been no change in Buyer accounting policies
except as described in the notes to Buyer Financial Statements; provided,
however, Buyer may have restated or may restate one or more of Buyer Financial
Statements to reflect acquisitions entered into subsequent to the respective
dates thereof.
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<PAGE>
4.5 No Material Adverse Change. Since the date of the balance sheet included
--------------------------
in Buyer's most recently filed report on Form 10-Q, Buyer has conducted its
business in the ordinary course and there has not occurred: (a) any material
adverse change in the financial condition, liabilities, assets or business of
Buyer; (b) any amendment or change in the Certificate of Incorporation or Bylaws
of Buyer (other than restatements of the Certificate or Incorporation which did
not require stockholders' approval); or (c) any damage to, destruction or loss
of any assets of Buyer, (whether or not covered by insurance) that materially
and adversely affects the financial condition or business of Buyer.
4.6 Litigation. There is no action, suit, proceeding, claim, arbitration or
----------
investigation pending, or as to which Buyer has received any notice of assertion
against Buyer, which in any manner challenges or seeks to prevent, enjoin, alter
or materially delay any of the transactions contemplated by this Agreement or,
if adversely determined, is reasonably likely to have a material adverse effect
on the financial condition or business of Buyer as a whole.
4.7 Brokers' and Finders' Fees. Other than pursuant to a Letter Agreement
--------------------------
dated December [__], 1996 between the Buyer and Cowen & Co., Buyer has not
incurred, now will 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.
4.8 Continuity of Business Enterprise; Section 368 Reorganization. It is
-------------------------------------------------------------
the present intention of Buyer to cause the Surviving Corporation to continue at
least one significant historic business line of the Company, or to use at least
a significant portion of the Company's historic business assets in a business,
in each case within the meaning of Treasury Regulation Section 1.368-1(d). Buyer
will use all reasonable efforts, and will cause the Surviving Corporation to use
all reasonable efforts, to take no action that would cause the Purchase not to
constitute a reorganization within the meaning of Section 368 of the Code.
4.9 Employee Benefit Plans; ERISA.
-----------------------------
(a) Except as described in the Buyer's SEC Documents filed prior to the
date of this Agreement or as would not have a material adverse effect on Buyer
and its subsidiaries taken as a whole, all Buyer Employee Benefit Plans (as
defined below) are in compliance with all applicable requirements of law,
including (without limitation) ERISA and the Code.
(b) As used herein:
(i) "Buyer Employee Benefit Plan" means any Plan (as defined below)
---------------------------
entered into, established, maintained, sponsored, contributed to or required to
be contributed to by Buyer or any of its subsidiaries for the benefit of the
current or former employees or directors of Buyer or any of its subsidiaries and
existing on the date of this Agreement or at any time subsequent thereto and on
or prior to the Closing and, in the case of a Plan which is subject to Part 3 of
Title I of ERISA, Section 412 of the Code or Title IV of ERISA, at any time
during the five-year period preceding the date of this Agreement; and
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<PAGE>
(ii) "Plan" means any employment, bonus, incentive compensation,
----
deferred compensation, pension, profit sharing, retirement, stock purchase,
stock option, stock ownership, stock appreciation rights, phantom stock, leave
of absence, layoff, vacation, day or dependent care, legal services, cafeteria,
life, health, medical, accident, disability, workmen's compensation or other
insurance, severance, separation, termination, change of control or other
benefit plan, agreement, practice, policy, program or arrangement of any kind,
whether written or oral, including, but not limited to any "employee benefit
plan" within the meaning of Section 3(3) of ERISA.
ARTICLE V
CONDUCT PRIOR TO THE CLOSING
5.1 Conduct of Business of the Company.
----------------------------------
(a) Company Conduct. During the period from the date of this Agreement
---------------
and continuing until the earlier of the termination of this Agreement and the
Closing, the Founders agree to cause the Company (except to the extent that
Buyer shall otherwise consent in writing) to carry on its business in the usual,
regular and ordinary course in substantially the same manner as heretofore
conducted, to pay its debts and Taxes when due, to pay or perform other
obligations when due, and, to the extent consistent with such business, to use
all reasonable efforts consistent with past practice and policies to preserve
intact its present business organization, keep available the services of its
present officers and key employees and preserve their relationships with
customers, suppliers, distributors, licensors, licensees, and others having
business dealings with it, all with the goal of preserving unimpaired its
goodwill and ongoing businesses at the Closing. The Founders shall promptly
notify Buyer of any event or occurrence or emergency not in the ordinary course
of its business, and any material event involving or adversely affecting the
Company or its business. Except as expressly contemplated by this Agreement, the
Founders shall not permit the Company, without the prior written consent of
Buyer:
(i) Enter into any commitment, activity or transaction not in the
ordinary course of business;
(ii) Transfer to any person or entity any rights to any Company
Intellectual Property Rights;
(iii) Enter into or amend any agreements pursuant to which any other
party is granted manufacturing, marketing, distribution or similar rights of any
type or scope with respect to any products of the Company;
(iv) Amend or otherwise modify (or agree to do so), except in the
ordinary course of business, or violate the terms of, any of the agreements set
forth or described in the Company Schedules;
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<PAGE>
(v) Commence any litigation;
(vi) Declare, set aside or pay any dividends on or make any other
distributions (whether in cash, stock or property) in respect of any of its
capital stock, or split, combine or reclassify any of its capital stock or issue
or authorize the issuance of any other securities in respect of, in lieu of or
in substitution for shares of capital stock of the Company, or repurchase,
redeem or otherwise acquire, directly or indirectly, any shares of its capital
stock (or options, warrants or other rights exercisable therefor);
(vii) Except for the issuance of shares of Company Capital Stock
upon exercise or conversion of presently outstanding Options or Preferred Stock,
issue, grant, deliver or sell or authorize or propose the issuance, grant,
delivery or sale of, or purchase or propose the purchase of, any shares of its
capital stock or securities convertible into, or subscriptions, rights, warrants
or options to acquire, or other agreements or commitments of any character
obligating it to issue any such shares or other convertible securities;
(viii) Cause or permit to be made any amendments to its Certificate
of Incorporation or Bylaws;
(ix) Acquire or agree to acquire by merging or consolidating with,
or by purchasing any assets or equity securities of, or by any other manner, any
business or any corporation, partnership, association or other business
organization or division thereof, or otherwise acquire or agree to acquire any
assets which are material, individually or in the aggregate, to the business of
the Company;
(x) Sell, lease, license or otherwise dispose of any of its
properties or assets, except in the ordinary course of business and consistent
with past practice;
(xi) Incur any indebtedness for borrowed money or guarantee any such
indebtedness or issue or sell any debt securities of the Company or guarantee
any debt securities of others, including, without limitation, pursuant to that
certain Revolving Credit and Security Agreement described in Section 5.17
hereof;
(xii) Grant any severance or termination pay to any director,
officer employee or consultant;
(xiii) Adopt or amend any employee benefit plan, program, policy or
arrangement, or enter into any employment contract, extend any employment offer,
pay or agree to pay any special bonus or special remuneration to any director,
employee or consultant, or increase the salaries or wage rates of its employees;
(xiv) Revalue any of its assets, including without limitation
writing down the value of inventory or writing off notes or accounts receivable
other than in the ordinary course of business and consistent with past practice;
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<PAGE>
(xv) Take any action, including the acceleration of vesting of any
options, warrants, restricted stock or other rights to acquire shares of the
capital stock of the Company, that could jeopardize the tax-free reorganization
hereunder;
(xvi) Pay, discharge or satisfy, in an amount in excess of $5,000,
in any one case, or $10,000, in the aggregate, 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 of liabilities reflected or reserved against in the Company Financial
Statements or incurred in the ordinary course of business since November 30,
1996;
(xvii) Make or change any material election in respect of Taxes,
adopt or change any accounting method in respect of Taxes, enter into any
closing agreement, settle any claim or assessment in respect of Taxes, or
consent to any extension or waiver of the limitation period applicable to any
claim or assessment in respect of Taxes;
(xviii) Enter into any strategic alliance, joint development or
joint marketing arrangement or agreement;
(xix) Fail to pay or otherwise satisfy its monetary obligations as
they become due, except such as are being contested in good faith;
(xx) Waive or commit to waive any rights with a value in excess of
$5,000, in any one case, or $10,000, in the aggregate;
(xxi) Cancel, materially amend or renew any insurance policy other
than in the ordinary course of business;
(xxii) Alter, or enter into any commitment to alter, its interest in
any corporation, association, joint venture, partnership or business entity in
which the Company directly or indirectly holds any interest on the date hereof;
or
(xxiii) Take, or agree in writing or otherwise to take, any of the
actions described in Sections 4.1(i) through (xxii) above, or any other action
that would prevent the Company from performing or cause the Company not to
perform its covenants hereunder.
(b) Buyer Conduct. Buyer shall promptly notify the Company of any event
-------------
or occurrence which is not in the ordinary course of business of Buyer and which
is material and adverse to the business of Buyer.
5.2 No Solicitation. Until the earlier of the Closing and the date of
---------------
termination of this Agreement pursuant to the provisions of Section 9.1 hereof,
each of the Sellers will not (nor will the Founders permit the Company or any of
the Company's officers, directors, stockholders, agents, representatives or
affiliates to) directly or indirectly, take any of the following actions with
any party other than Buyer and its designees: (a) solicit, initiate, entertain,
or encourage any proposals or offers from, or conduct discussions with or engage
in negotiations with, any person relating to any
-25-
<PAGE>
possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company, (b) provide
information with respect to it to any person, other than Buyer, relating to, or
otherwise cooperate with, facilitate or encourage any effort or attempt by any
such person with regard to, any possible acquisition of the Company (whether by
way of merger, purchase of capital stock, purchase of assets or otherwise), any
material portion of its or their capital stock or assets or any equity interest
in the Company, (c) enter into an agreement with any person, other than Buyer,
providing for the acquisition of the Company (whether by way of merger, purchase
of capital stock, purchase of assets or otherwise), any material portion of its
or their capital stock or assets or any equity interest in the Company, or (d)
make or authorize any statement, recommendation or solicitation in support of
any possible acquisition of the Company (whether by way of merger, purchase of
capital stock, purchase of assets or otherwise), any material portion of its or
their capital stock or assets or any equity interest in the Company by any
person, other than by Buyer. To the extent within such Seller's power, each
Seller shall immediately cease and cause to be terminated any such contacts or
negotiations made by or entered into by the Company or such Seller with third
parties relating to any such transaction or proposed transaction. In addition to
the foregoing, if the Company or any Seller receives prior to the Closing or the
termination of this Agreement any offer or proposal relating to any of the
above, to the extent within such Seller's knowledge, such Seller shall
immediately notify Buyer thereof, including information as to the identity of
the offeror or the party making any such offer or proposal and the specific
terms of such offer or proposal, as the case may be, and such other information
related thereto as Buyer may reasonably request. Except as contemplated by this
Agreement, disclosure by the Company or any Seller of the terms of this
Agreement (other than the prohibition of this section) shall be deemed to be a
violation of this Section 5.2. Nothing contained in this Section 5.2 shall
prohibit or restrict any of the Company's directors and officers from fulfilling
his or her fiduciary obligations in such capacity.
5.3 No Encumbrance. Until the earlier of the Closing Date or the date of
--------------
termination of this Agreement, each Seller will not (and such Seller will not
permit any of its officers, directors, agents, representatives or affiliates to)
directly or indirectly, take any action which could in any way and at any time
impair such Seller's good and valid title to all shares of Company Capital Stock
or Company Options or could cause or lead to the creation of any lien, claim,
charge, restriction, pledge, security interest, option, right of any nature or
other legal or equitable encumbrance with regard to any share or shares of
Company Capital Stock or Company Options.
ARTICLE VI
ADDITIONAL AGREEMENTS
6.1 Access to Information. Each party shall afford the others and its
---------------------
accountants, counsel and other representatives, reasonable access during normal
business hours during the period prior to the Closing to (a) all of its
properties, books, contracts, commitments and records, and (b) all other
information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of it as the others may reasonably
request, subject, in the case of Buyer, to reasonable limits on access to its
technical and other nonpublic information. No information or knowledge obtained
in any investigation pursuant to this Section 6.1 shall affect or be deemed to
modify any
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<PAGE>
representation or warranty contained herein or, except as provided by Section
7.3(h), the conditions to the obligations of the parties to consummate the
Purchase.
6.2 Confidentiality. Each of the parties hereto hereby agrees to keep such
---------------
information or knowledge obtained in any investigation pursuant to Section 6.1,
or pursuant to the negotiation and execution of this Agreement or the
effectuation of the transactions contemplated hereby, confidential; provided,
however, that the foregoing shall not apply to information or knowledge which
(a) a party can demonstrate was already lawfully in its possession prior to the
disclosure thereof by the other party, (b) is generally known to the public and
did not become so known through any violation of law, (c) becomes known to the
public through no fault of such party, (d) is later lawfully acquired by such
party from other sources, (e) is required to be disclosed by order of court or
government agency with subpoena powers or (f) which is disclosed in the course
of any litigation between any of the parties hereto.
6.3 Expenses.
--------
(a) If the Purchase is not consummated, all fees and expenses incurred
in connection with the Purchase, including without limitation, all legal,
accounting, financial advisory, consulting and all other fees and expenses of
third parties ("Third Party Expenses") incurred by Buyer, on the one hand, or by
the Company or the Sellers, on the other hand, in connection with the
negotiation and effectuation of the terms and conditions of this Agreement and
the transactions contemplated hereby, shall be the obligation of the respective
party incurring such fees and expenses.
(b) If the Purchase is consummated, all Third Party Expenses incurred by
Buyer or the Company (but not the Sellers individually and apart from the
Company) shall be the obligation of Buyer; provided, however, that Buyer shall
not be responsible for Third Party Expenses of the Company exceeding $175,000,
in addition to the $400,000 payable to Hambrecht & Quist pursuant to the
agreement referred to in Section 2.19 hereof, which shall be paid as provided in
Section 7.2(f).
6.4 Public Disclosure. Unless otherwise required by law (including, without
-----------------
limitation, federal and state securities laws) or, as to Buyer, by the rules and
regulations of the National Association of Securities Dealers, Inc., prior to
the Closing, no disclosure (whether or not in response to an inquiry) of the
subject matter of this Agreement shall be made by any party hereto unless
approved by Buyer and the Founders and Wexford prior to release, provided that
such approval shall not be unreasonably withheld.
6.5 Consents. The Sellers shall use their best efforts to obtain the
--------
consents, waivers and approvals under any of the Contracts or as may be required
in connection with the Purchase (all of which consents, waivers and approvals
are set forth in Schedule 7.3(c)) so as to preserve all rights of and benefits
to the Company under such contracts or to consummate the transactions
contemplated hereby.
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<PAGE>
6.6 FIRPTA Compliance. On or prior to the Closing Date, the Sellers shall
-----------------
cause the Company to deliver to Buyer a properly executed statement in a form
reasonably acceptable to Buyer for purposes of satisfying Buyer's obligations
under Treasury Regulation Section 1.1445-2(c)(3).
6.7 Legal Requirements. Subject to the terms and conditions provided in
------------------
this Agreement, each of the parties hereto shall use its reasonable efforts to
take promptly, or cause to be taken, all reasonable best actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals, to effect all necessary registrations and filings and to remove any
injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that Buyer shall not be required to agree to any
divestiture by Buyer or the Company or any of Buyer's subsidiaries or affiliates
of shares of capital stock or of any business, assets or property of Buyer or
its subsidiaries or affiliates or the Company or its affiliates, 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.
6.8 Notification of Certain Matters. Each Seller shall give prompt notice
-------------------------------
to Buyer, and Buyer shall give prompt notice to the Sellers, of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence of
which is likely to cause any representation or warranty of such Seller or Buyer,
respectively, contained in this Agreement to be untrue or inaccurate at or prior
to the Closing and (ii) any failure of such Seller or Buyer, as the case may be,
to comply with or satisfy any covenant, condition or agreement to be complied
with or satisfied by it hereunder; provided, however, that the delivery of any
notice pursuant to this Section 6.8 shall not limit or otherwise affect any
remedies available to the party receiving such notice.
6.9 Certain Benefit Plans. Following the Closing, Buyer shall take such
---------------------
reasonable actions as are necessary to allow eligible employees of the Company
to participate in the benefit programs of Buyer, or alternative benefits
programs substantially comparable to those applicable to employees of Buyer on
similar terms, as soon as practicable after the Closing. Without limiting the
generality of the above, Buyer shall, with respect to all employees of the
Company who become employees of Buyer or Surviving Corporation, or who are
employees of the Company, in each case, on or after the Closing (the
"Employees"), provide coverage under welfare benefit plans, programs and
arrangements (the "Welfare Plans") providing benefits not substantially less
favorable in the aggregate to the Employees than the Welfare Plans covering the
other similarly situated employees of Buyer as in effect immediately prior to
the Closing, including (without limitation) group health plans which do not
exclude or limit the coverage of the Employees on account of waiting periods or
preexisting conditions, and which have in all material respects identical or
superior coverage in terms of employee participation. The Employees shall be
subject to the other personnel and compensation policies and practices of the
Buyer in the same manner as Buyer's similarly situated employees. For purposes
of any length of service requirements, waiting periods, vesting periods or
differential benefits based on length of service under any Welfare Plans or
other plans for which an
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<PAGE>
Employee may be eligible after the Closing, Buyer shall ensure that service by
such Employee with the Company shall be treated in the same manner as service
with the Buyer.
6.10 Buyer Stock Options.
-------------------
(a) After the date hereof, but prior to the Closing Date, Buyer and
Company shall agree upon the allocation to certain directors, officers and other
employees of the Company of options to purchase an aggregate of 500,000 shares
of Buyer Common Stock (the "Employee Options").
(b) At the Closing, Buyer shall grant the Employee Options in accordance
with such previously agreed upon allocation under Buyer's 1996 Nonstatutory
Stock Option Plan. Each such option granted to any of the Sellers shall vest and
become exercisable at a rate of 1/3rd of the shares subject thereto on each of
the first, second and third anniversaries of the date of grant. Each such option
granted to any other person shall vest in accordance with Buyer's standard
vesting schedule of 25% of such options vesting upon the one-year anniversary of
the date of grant and 1/48th vesting monthly thereafter, except for each such
option granted to any of the Sellers, which shall vest and become exercisable as
to one-third of such options upon each of the first three anniversaries of this
Agreement. The exercise price of each such option shall be equal to the closing
sale price of Buyer's Common Stock, as traded on the Nasdaq National Market and
reported by the Wall Street Journal, on the last business day immediately
preceding the Closing Date.
6.11 Additional Documents and Further Assurances. Each party hereto, at the
-------------------------------------------
request of the other party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting completely the consummation of this
Agreement and the transactions contemplated hereby.
6.12 Form S-8. Promptly after the Closing, Buyer shall file a registration
--------
statement on Form S-8 covering, and any necessary application to qualify for
trading on the principal market for the Buyer Common Stock, the shares of Buyer
Common Stock issuable with respect to the Employee Options and the options
issuable to the Option Holders pursuant to Section 1.2.
6.13 Company's Auditors. The Company will use its best efforts to cause its
------------------
management and its independent auditors to facilitate on a timely basis (i) the
preparation of financial statements (including pro forma financial statements if
required) as required by Buyer to comply with applicable SEC regulations and
(ii) the review of the Company's audit work papers for up to the past three
years, including the examination of selected interim financial statements and
data.
6.14 Arrangements with Wexford. At the Closing, Buyer shall pay all
-------------------------
outstanding principal amounts, together with all accrued and unpaid interest
thereon, due under the Revolving Credit and Security Agreement, dated August 6,
1996, among the Company, as borrower, Wexford Capital and Wexford Overseas, as
lenders, and Wexford Management LLC, as Agent. The aggregate amount outstanding
thereunder as of December 16, 1996 was $1,200,000 plus accrued interest of
$21,944.44. At the Closing, Buyer (or the Surviving Corporation) shall execute
and deliver an Instrument of Assignment and Assumption with respect to certain
office premises in Short Hills,
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<PAGE>
New Jersey satisfactory to Wexford. At the closing, Buyer or the Surviving
Corporation shall pay to Wexford $45,000 in reimbursement of internal and
external counsel fees and $25,000 in payment for accounting and Schedules
preparation services in respect of this Agreement and the transactions
contemplated hereby; provided, however, that such aggregate amounts of $70,000
shall be deemed to be Third Party Expenses for the purposes of Section 6.3
(notwithstanding anything to the contrary contained in Section 6.3).
Simultaneously, Wexford shall deliver all necessary documents requested by Buyer
to terminate all security interests, reconvey all pledged or assigned assets and
release all collateral pledged in connection with the foregoing agreement.
6.15 Company Agreements. The Sellers hereby waive all rights they may have
------------------
under that certain Stockholders Agreement, dated as of August 6, 1996, among any
or all of them or between or among any or all of them and the Company, and any
other rights they may have under any other agreements, that are inconsistent
with their rights and obligations under the Agreement and hereby agree that all
such agreements shall terminate without further action on the part of the
Sellers upon the Closing.
ARTICLE VII
CONDITIONS TO THE PURCHASE
7.1 Conditions to Obligations of Each Party to Effect the Purchase. The
--------------------------------------------------------------
respective obligations of each party to this Agreement to effect the Purchase
shall be subject to the satisfaction at or prior to the Closing of the following
conditions:
(a) No Injunctions or Restraints; Illegality. No temporary restraining
----------------------------------------
order, preliminary or permanent injunction or other order issued by any court of
competent jurisdiction or other legal or regulatory restraint or prohibition
preventing the consummation of the Purchase shall be in effect.
(b) Allocation of Buyer Options. The Company and Buyer shall have agreed
---------------------------
upon the allocation of the Buyer Options.
(c) Employment Agreements. Buyer shall have entered into (i) employment
---------------------
agreements substantially in the form attached hereto as Exhibits A-1 and A-2
(the "Employment Agreements") with Migdal and Rice, respectively, and (ii) the
Noncompete Agreement substantially in the form attached hereto as Exhibit B with
Migdal.
7.2 Additional Conditions to Obligations of the Sellers. The obligations of
---------------------------------------------------
each Seller to consummate the Purchase and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by the Founders and Wexford:
-30-
<PAGE>
(a) Representations and Warranties. The representations and warranties
------------------------------
of Buyer contained in this Agreement shall be true and correct in all material
respects on and as of the Closing Date, 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 date), with the same force and effect as if made on and as of the Closing
Date; and the Sellers shall have received a certificate to such effect signed on
behalf of Buyer by a duly authorized officer of Buyer.
(b) Agreements and Covenants. Buyer 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 Closing;
and the Sellers shall have received a certificate to such effect signed on
behalf of Buyer by a duly authorized officer of Buyer.
(c) Third Party Consents. The Company shall have been furnished with
--------------------
evidence satisfactory to it that Buyer has obtained the consents, approvals and
waivers set forth in Schedule 7.2(c).
(d) Amended and Restated Investors' Rights Agreement. Buyer, each Seller
------------------------------------------------
and the other parties to that certain Investors' Rights Agreement, dated January
24, 1994, as amended on September 30, 1994 and on October 25, 1995, shall have
entered into an Amended and Restated Investors' Rights Agreement in the form
attached hereto as Exhibit D (the "Rights Agreement").
(e) Legal Opinion. The Sellers shall have received a legal opinion from
-------------
Wilson Sonsini Goodrich & Rosati, Professional Corporation, counsel to Buyer, in
form and substance satisfactory to the Founders.
(f) H&Q Fees and Expenses. Buyer shall pay to H&Q the amount of
---------------------
$400,000.00 owing to H&Q by the Company under the agreement referred to in
Section 2.19 for investment banking services rendered to the Company.
7.3 Additional Conditions to the Obligations of Buyer. The obligations of
-------------------------------------------------
Buyer to consummate the Purchase and the transactions contemplated by this
Agreement shall be subject to the satisfaction at or prior to the Closing of
each of the following conditions, any of which may be waived, in writing,
exclusively by Buyer:
(a) Representations and Warranties. The representations and warranties
------------------------------
of the Founders and the Sellers contained in this Agreement shall be true and
correct in all material respects on and as of the Closing Date, 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 date), with the same force and effect as if
made on and as of the Closing Date; and Buyer shall have received a certificate
to such effect signed by each Founder and each Seller.
-31-
<PAGE>
(b) Agreements and Covenants. The Founders and the Sellers 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 Closing; and Buyer shall have received a certificate to such effect
signed by each Founder and each Seller.
(c) Third Party Consents. Buyer shall have been furnished with evidence
--------------------
satisfactory to it that the consents, approvals and waivers set forth in
Schedule 7.3(c) have been obtained.
(d) Legal Opinion. Buyer shall have received a legal opinion from
-------------
Milbank, Tweed, Hadley & McCloy, legal counsel to the Company and the Sellers,
in form and substance satisfactory to Buyer.
(e) Resignation of Directors. All directors of the Company shall have
------------------------
tendered their resignations effective as of the Closing.
(f) Material Adverse Effect. Since the date of the Balance Sheet, no
-----------------------
event or condition of any character shall have occurred that has or could be
reasonably expected to have a Material Adverse Effect on the Company.
(g) Minimum Participation. Stockholders holding at least 97% of the
---------------------
outstanding shares of Company Capital Stock shall have executed this Agreement
and be prepared to tender all of their shares of Company Capital Stock at the
Closing.
(h) Due Diligence Investigation. Buyer shall have completed its due
---------------------------
diligence investigation of the Company to Buyer's satisfaction, provided that no
information or knowledge obtained in such investigation shall affect or be
deemed to modify any representation or warranty of the Founders or the Sellers
contained herein.
(i) Cancellation of Wexford Options. Immediately prior to the Closing,
-------------------------------
that certain Stock Purchase Option, dated April 4, 1996, to purchase up to 162
shares of the Company's Common Stock held by Wexford Capital and that certain
Stock Purchase Option, dated April 4, 1996, to purchase up to 38 shares of the
Company's Common Stock held by Wexford Overseas (collectively, the "Wexford
Options") shall be canceled and shall be of no further force or effect.
(j) Fairness Opinion. Buyer shall have received a fairness opinion from
----------------
Cowen & Co. stating that the consideration to be issued to the Sellers hereunder
is fair to Buyer and its stockholders from a financial point of view.
(k) Termination of Wexford Management Agreement. The Company shall
-------------------------------------------
deliver to Buyer evidence of the termination of any existing management
agreement or relationship, or evidence of the absence of any such agreement or
relationship, in such form as is reasonably satisfactory to Buyer.
-32-
<PAGE>
ARTICLE VIII
SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNIFICATION
8.1 Survival of Representations and Warranties. All representations and
------------------------------------------
warranties of the Founders and the Sellers (other than the representations of
the Sellers in Sections 3.1 and 3.2) in this Agreement or in any instrument
delivered pursuant to this Agreement shall survive the Purchase and continue
until 5:00 p.m., California time, on the date which is one year following the
Closing Date (the "Expiration Date"). The representations of the Sellers
contained in Sections 3.1 and 3.2 shall survive the Closing indefinitely.
8.2 Indemnity for Representations of Founders. Each of the Founders
-----------------------------------------
agrees to indemnify and hold harmless each of Buyer and its affiliates for any
claims, losses, liabilities, damages, deficiencies, costs and expenses,
including reasonable attorneys' fees and expenses, and expenses of investigation
and defense (hereinafter individually a "Loss" and collectively "Losses")
----
incurred by Buyer, its officers, directors, or affiliates (including the
Surviving Corporation) directly or indirectly as a result of any inaccuracy or
breach of a representation or warranty of the Founders contained herein or any
failure by the Founders to perform or comply with any covenant contained herein;
provided, however that the indemnification obligation of each Founder under this
Section 8.2 shall be limited to the Closing Fair Market Value of the total
consideration received by each pursuant to Article I of this Agreement (which
value in the case of Rice shall be calculated based upon the difference between
the exercise price per share of the option granted to Rice pursuant to Section
1.2 and the Closing Fair Market Value); provided that each Founder shall be
obligated for that portion of a Loss that is commensurate with the portion
received by such Founder of the aggregate Closing Fair Market Value of the
consideration received by both Founders pursuant to Section 1.2 (calculated as
aforesaid in the case of Rice), that such obligation may be satisfied by the
transfer to Buyer of shares of Buyer Common Stock delivered to Migdal in
accordance with Section 1.4(a), in the case of Migdal, or a portion or all of
the option granted pursuant to Section 1.2, in the case of Rice, having an
aggregate Closing Fair Market Value (calculated as aforesaid in the case of
Rice), equal to such obligation, and that the Founders shall have customary
rights to participate in (at their own expense) but not to control the defense
against, or any settlement of, any third party claim that could result in a
Loss, which control shall be exercised by Buyer or the Surviving Corporation
reasonably and in good faith in view of the indemnification obligation of each
Founder under this Section 8.2.
8.3 Indemnity for Representations of Each. Each Seller, severally and not
-------------------------------------
jointly, agrees to indemnify and hold harmless each of Buyer and its affiliates
for any incurred by Buyer, its officers, directors or affiliates (including the
Surviving Corporation) directly or indirectly as a result of any inaccuracy or
breach of a representation or warranty of such Seller contained in Section 3 or
any failure of such Seller to perform or comply with any covenant contained
herein; provided, however, that the indemnification obligation of each Seller
under this Section 8.3 shall be limited to the Closing Fair Market Value of the
total consideration received by such Seller pursuant to Article I of this
Agreement (and may be satisfied as provided in Section 8.2 with respect to
indemnification obligations of the Founders).
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<PAGE>
ARTICLE IX
TERMINATION, AMENDMENT AND WAIVER
9.1 Termination. Except as provided in Section 8.2 below, this Agreement
-----------
may be terminated and the Purchase abandoned at any time prior to the Closing:
(a) by mutual consent of Buyer and a majority in interest of the
Sellers;
(b) by Buyer or a majority in interest of the Sellers if: (i) the
Closing has not occurred before 5:00 p.m. (Pacific time) on December 31, 1996
(provided that the right to terminate this Agreement under this clause 9.1(b)(i)
shall not be available to any party whose willful failure to fulfill any
obligation hereunder has been the cause of, or resulted in, the failure of the
Closing to occur on or before such date); (ii) there shall be a final
nonappealable order of a federal or state court in effect preventing
consummation of the Purchase; or (iii) there shall be any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Purchase by any governmental entity that would make consummation of the Purchase
illegal;
(c) by Buyer if there shall be any action taken, or any statute, rule,
regulation or order enacted, promulgated or issued or deemed applicable to the
Purchase, by any Governmental Entity, which would: (i) prohibit Buyer's or the
Company's ownership or operation of all or any portion of the business of the
Company or (ii) compel Buyer or the Company to dispose of or hold separate all
or a portion of the business or assets of the Company or Buyer as a result of
the Purchase;
(d) by Buyer if it is not in material breach of its obligations under
this Agreement and there has been a breach of any representation, warranty,
covenant or agreement contained in this Agreement on the part of a Founder or a
Seller and (i) such breach has not been cured within five (5) business days
after written notice to the Sellers (provided that no cure period shall be
required for a breach which by its nature cannot be cured), and (ii) as a result
of such breach the conditions set forth in Section 7.3(a) or 7.3(b), as the case
may be, would not then be satisfied;
(e) by a majority in interest of the Sellers if the Founders and the
Sellers are not in material breach of their respective obligations under this
Agreement and there has been a breach of any representation, warranty, covenant
or agreement contained in this Agreement on the part of Buyer and (i) such
breach has not been cured within five (5) business days after written notice to
Buyer (provided that no cure period shall be required for a breach which by its
nature cannot be cured), and (ii) as a result of such breach the conditions set
forth in Section 7.2(a) or 7.2(b), as the case may be, would not then be
satisfied.
9.2 Effect of Termination. In the event of termination of this Agreement as
---------------------
provided in Section 9.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of Buyer, the Founders or any
Seller, or their respective officers, directors or stockholders, provided that
each party shall remain liable for any breaches of this Agreement prior to
-34-
<PAGE>
its termination; and provided further that, the provisions of Sections 6.2 and
6.3 and Article IX of this Agreement shall remain in full force and effect and
survive any termination of this Agreement.
9.3 Amendment. This Agreement, 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.
9.4 Extension; Waiver. At any time prior to the Closing, Buyer on the one
-----------------
hand, and the Sellers, on the other, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other party
hereto, (ii) waive any inaccuracies in the representations and warranties made
to such party contained herein or in any document delivered pursuant hereto, and
(iii) waive compliance with any of the agreements or conditions for the benefit
of such party contained herein. Any agreement on the part of a party hereto to
any such extension or waiver shall be valid only if set forth in an instrument
in writing signed on behalf of such party.
ARTICLE X
GENERAL PROVISIONS
10.1 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given upon receipt or, if earlier, (a) five (5) days after
deposit with the U.S. Postal Service or other applicable postal service, if
delivered by first class mail, postage prepaid, (b) upon delivery, if delivered
by hand, (c) one business day after the business day of deposit with Federal
Express or similar overnight courier, freight prepaid or (d) one business day
after the business day of facsimile transmission, if delivered by facsimile
transmission with copy by first class mail, postage prepaid, and shall be
addressed:
-35-
<PAGE>
(a) if to Buyer to:
MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, CA 93013
Attention: John J. Wilczak
Telephone No.: (805) 566-6200
Facsimile No.: (805) 566-6384
with a copy to:
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304
Attention: Jeffrey D. Saper, Esq.
Telephone No.: (415) 493-9300
Facsimile No.: (415) 493-6811
(b) if to the Founders or the Sellers, to:
Robert E. Rice
Real Time Geometry Corp.
51 John F. Kennedy Parkway
Suite 303
Short Hills, NJ 07078
Telephone No.: (201) 379-9888
Facsimile No.: (201) 379-0441
with a copy to:
Milbank, Tweed, Hadley & McCloy
One Chase Manhattan Plaza
New York, NY 10005
Attention: Guil W. Gaylord, Esq.
Telephone No.: (212) 530-5000
Facsimile No.: (212) 539-5219
10.2 Interpretation. 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. References to the knowledge or awareness of
the Company used herein shall be deemed to include the knowledge and awareness
of the Founders and any other officers of the Company.
-36-
<PAGE>
10.3 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.
10.4 Entire Agreement; Assignment. This Agreement, the Schedules and
----------------------------
Exhibits hereto, and the documents and instruments and other agreements among
the parties hereto referenced herein: (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; (b) are not intended to confer upon any
other person any rights or remedies hereunder; and (c) shall not be assigned by
operation of law or otherwise except as otherwise specifically provided, except
that Buyer may assign their respective rights and delegate their respective
obligations hereunder to their respective affiliates.
10.5 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.
10.6 Other Remedies. 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.
10.7 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 laws thereof.
Each 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.
10.8 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.
10.9 Specific Performance. 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.
-37-
<PAGE>
10.10 Unified Disclosure Schedules. The disclosure made in any Schedule to
----------------------------
this Agreement shall be deemed to be made in each other Schedule to this
Agreement.
-38-
<PAGE>
IN WITNESS WHEREOF, Buyer, the Company and the Sellers have caused this
Agreement to be signed by their duly authorized respective officers, all as of
the date first written above.
METATOOLS, INC.:
By /s/ JOHN WILCZAK
------------------------------
Name: John Wilczak
Title: Chairman and CEO
SELLERS:
FOUNDERS: WEXFORD CAPITAL PARTNERS II, LP:
/s/ ALEXANDER MIGDAL By /s/ ROBERT HOLTZ
- -------------------------------- -----------------------------
Name: Alexander Migdal Name: Robert Holtz
Title: Sr. Vice President
/s/ ROBERT RICE
- --------------------------------
Name: Robert Rice WEXFORD OVERSEAS PARTNERS I, LP:
By /s/ ROBERT HOLTZ
-----------------------------
OTHER STOCKHOLDERS: Name: Robert Holtz
Title: Sr. Vice President
/s/ ALEXEI LEBEDEV
- -------------------------------
Name: Alexei Lebedev
/s/ BORIS LIPOVSKY
- -------------------------------
Name: Boris Lipovsky
/s/ MICHAEL PETROV
- -------------------------------
Name: Michael Petrov
OPTION HOLDER:
/s/ DMIRY PAPERNEY
- --------------------------------
Name: Dmitry Paperney
***STOCK PURCHASE AGREEMENT***
-39-
<PAGE>
SCHEDULE I
----------
Allocation of Buyer Common Stock and Buyer Options
--------------------------------------------------
- -------------------------------------------------------------------------------
SHARE AND OPTION EXCHANGE IN ACQUISITION
- -------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF SHARES OF
RTG SHARES CLASS METATOOLS
CURRENTLY OF COMMON STOCK
STOCKHOLDERS HELD STOCK TO BE ISSUED
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Alexander Migdal 700 Common 815,469
Alexei Lebedev 75 Common 91,283
Michael Petrov 25 Common 30,427
Boris Lipovsky 25 Common 30,427
Wexford Overseas 38 Preferred 69,207
Partners I, L.P.
Wexford Capital 162 Preferred 295,043
Partners II, L.P.
<CAPTION>
NUMBER OF
OPTIONS TO
PURCHASE NUMBER OF EXERCISE
RTG RTG SHARES METATOOLS PRICE
OPTION CURRENTLY OPTIONS TO PER
HOLDERS HELD BE ISSUED SHARE
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
Robert E. Rice 75 90,165 $5.03
Dmitry Paperny 5 6,011 $0.08
</TABLE>
-40-
<PAGE>
EXHIBIT 10.22
-------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of December 31, 1996 by and between MetaTools, Inc., a
Delaware corporation (the "Company"), and Alexander Migdal ("Executive").
WHEREAS, concurrently with the execution and delivery of this Agreement, the
Company is acquiring by means of a merger transaction all of the shares of
capital stock to be issued and outstanding of Real Time Geometry Corp., a
Delaware corporation ("RTG"), of which Executive has been an executive officer
and a holder of shares of capital stock; and
WHEREAS, the Company desires to employ Executive as an executive officer of
the Company, and Executive desires so to serve the Company, upon the terms and
conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Prior Agreements. Executive hereby represents and warrants to the Company
----------------
that all agreements, understandings or arrangements between Executive and any
other person or entity contain no terms that would be breached by Executive as a
result of, or that would in any way preclude or prohibit Executive from,
entering into this Agreement with the Company or performing any of the
responsibilities provided for in this Agreement.
2. Employment and Responsibilities.
-------------------------------
(a) General. Upon the terms and conditions herein set forth, the Company
-------
hereby agrees to employ Executive and Executive agrees to serve as Vice
President, Senior Scientist of the Company, for the Term of Employment (as
defined in Section 3 hereof). In such capacity, Executive shall be responsible
for the research and development activities and other operations of the
Princeton Laboratory of RTG and shall have authority over the hiring and
terminating of personnel of RTG or the Company employed at the Princeton
Laboratory and over all other activities conducted by or at the Princeton
Laboratory, provided that he shall exercise such authority consistent with the
budget for the Princeton Laboratory in effect from time to time. It is the
Company's present intention that the current activity levels of the Princeton
Laboratory be maintained during the Term of Employment.
(b) Nature of Services. Except as provided in Sections 2(c) and 2(d)
------------------
hereof, during the Term of Employment Executive shall, except as from time to
time may be otherwise agreed to in writing by the Company, devote his full time
and attention during
-1-
<PAGE>
normal business hours to carrying out his responsibilities hereunder, shall
diligently serve the Company, shall in all respects conform to, comply with and
execute the lawful directions and instructions given to him by the Company, and
shall diligently use his best efforts, skills and abilities to promote the
interests of the Company.
(c) Covenant Not to Compete.
-----------------------
(i) Executive shall sign a Noncompetition Agreement concurrently with
this Agreement and shall abide by the terms and conditions of the Noncompetition
Agreement. Failure to abide by the terms of the Noncompetition Agreement shall
be considered a material breach of this Agreement.
(ii) Executive represents that he (i) is familiar with the foregoing
covenants not to solicit and not to compete, and (ii) is fully aware of his
obligations hereunder, including, without limitation, the reasonableness of the
length of time, scope and geographic coverage of these covenants.
(iii) Executive shall sign and abide by the Company's standard
invention assignment agreement.
(d) Charitable or other Activities. Subject to the restrictions contained
------------------------------
in Section 2(c) hereof, Executive may (i) serve on corporate, civic or
charitable boards or committees, (ii) deliver lectures, fulfill speaking
engagements or teach at educational institutions, and (iii) manage personal and
immediate family investments, so long as such activities do not interfere with
the fulfillment of Executive's responsibilities hereunder.
(e) Place of Performance. The principal place of employment of
--------------------
Executive shall be at offices maintained by the Company (or RTG) in Princeton,
New Jersey or another location within 10 miles of Princeton, New Jersey, and the
Company understands that Executive and his family shall have their permanent
residence in or around Princeton, New Jersey. Subject to the foregoing,
Executive realizes that his responsibilities hereunder shall require travel to
and the rendering of services in Carpenteria, California, where the headquarters
offices of the Company are located, and other locations.
3. Term of Employment. Subject to the provisions of Section 5 hereof,
------------------
Executive's term of employment under this Agreement shall commence on January 1,
1997 (the "Commencement Date") and shall terminate on December 31, 1999 (the
"Term of Employment").
4. Compensation and Other Benefits. The Company shall pay and provide the
-------------------------------
following compensation and other benefits to Executive during the Term of
Employment (except as otherwise provided in Section 4(b) hereof) for the
services to be provided hereunder:
-2-
<PAGE>
(a) Base Salary. The Company shall pay to Executive a base salary (the
-----------
"Base Salary") at the rate of $150,000 per annum, payable in approximately equal
installments in accordance with the customary payroll practices of the Company.
If the rate per annum of the base salary paid to Executive is increased during
the Term of Employment, such increased rate shall thereafter constitute the Base
Salary for all purposes of this Agreement.
(b) Stock Option and Employee Benefit Plans. During the Term of
---------------------------------------
Employment, Executive shall be entitled to participate in such stock option,
pension, retirement, life insurance, health and other welfare plans, programs
and benefits as are maintained by the Company from time to time for the benefit
of its executive employees (the "Plans").
(c) Vacation; Fringe Benefits. During the Term of Employment,
-------------------------
Executive shall be entitled to four weeks of vacation per year and to any other
fringe benefits and perquisites that are accorded to its executive employees
generally by the Company from time to time (the "Fringe Benefits").
(d) Carpenteria Living Stipend; Reimbursement of Expenses. As referred
-----------------------------------------------------
to in Section 2(e) hereof, the parties anticipate that Executive's
responsibilities hereunder shall require the rendering of services in
Carpenteria, California, where the headquarters offices of the Company are
located. The Company shall pay Executive a monthly stipend of $3,000 in lieu of
reimbursement of Executive for accommodations, meals and other living expenses
(but not travel expenses) in respect of his rendering of services in
Carpenteria, California (the "Carpenteria Living Expenses"). The parties also
anticipate that in the course of fulfilling his responsibilities under this
Agreement, Executive will incur other reasonable travel, entertainment and other
out-of-pocket business expenses for the account of the Company. Executive shall
be entitled to reimbursement for all reasonable out-of-pocket business expenses
so incurred (other than Carpenteria Living Expenses), upon submission to the
Company of an adequate, written accounting which complies with the Company's
policies regarding reimbursement for business expenses. The travel expense
policy applicable to Executive shall be that applicable to the most senior
executives of the Company.
(e) Company Loan. At the Closing, the Company shall loan to Employee the
------------
principal amount of $2,000,000 pursuant to a note and other instruments and
agreements as shall be consistent with the terms of this Section 4(e) (the
"Loan"). The Loan shall be repayable on January 15, 2000, shall be prepayable
without penalty in whole or in part (including all accrued interest on the
principal amount prepaid), and shall bear interest at the Applicable Federal
Rate under Section 1274(d) of the Internal Revenue Code of 1986, as amended, as
reported by the Internal Revenue Service, on the date the loan is made, payable
at maturity or upon prepayment as aforesaid, and compounded semi-annually. The
Loan shall be secured by shares of Common Stock owned by Executive having a fair
market value on the date the Loan is made of not less than $2,000,000, pursuant
to arrangements that permit the release of such shares in order to permit the
sale or pledge thereof to raise after-tax proceeds to pay or prepay principal
and accrued interest on the Loan at maturity or from time
-3-
<PAGE>
to time before maturity. Executive shall not be personally obligated to pay any
principal of or interest on the Loan nor shall any of his assets secure payment
of the principal of and interest on the Loan, except for such shares, solely
from which the Company shall seek to realize payment in the event of any failure
of payment on the part of Executive.
5. Termination of the Term of Employment.
-------------------------------------
(a) Termination for Cause or Without Good Reason.
--------------------------------------------
(i) The Company shall have the right to terminate the Term of
Employment for Cause (as defined in Section 5(a)(ii) hereof) prior to December
31, 1999, and Executive shall have the right to terminate the Term of Employment
without Good Reason (as defined in Section 5(b)(ii) hereof) prior to December
31, 1999. If the Term of Employment is so terminated, Executive shall be
entitled to receive payment of the pro rata portion of the Base Salary through
and including the date of such termination and payment when due of the non-
competition consideration (the "Non-Competition Payments") during the non-
competition period set forth in the Non-Competition Agreement, dated as of
December 20, 1996, by and between Executive and the Company (the "NonCompetition
Agreement") unless Executive is in breach of the Non-Competition Agreement.
Executive shall not be eligible to receive Base Salary or to participate in any
of the Plans or to receive any of the Fringe Benefits with respect to any
periods after the date of such termination, except for the right to receive
vested or statutorily available benefits under any of the Plans in which
Executive participates in accordance with the terms of such Plans.
(ii) "Cause" shall mean (A) The commission of an act of fraud or
embezzlement which results in loss, damage or injury to the Company, whether
directly or indirectly; (B) Executive's use of narcotics, liquor or illicit
drugs has had a detrimental effect on the performance of his employment
responsibilities, as determined by the Company's Board of Directors; (C) The
arrest, indictment or filing of charges relating to a felony or misdemeanor,
either in connection with the performance of the Executive's obligations to the
Company or which shall adversely affect the Executive's ability to perform such
obligations; (D) Gross negligence, dishonesty, breach of fiduciary duty or
material breach of the terms of the Noncompetition Agreement or any other
agreement in favor of the Company; or (E) The commission of an act which
constitutes unfair competition with the Company. "Good Reason" shall mean a
material breach by the Company of its obligations under this Agreement which is
not remedied within 30 calendar days after receipt by the Company of written
notice of such breach from Executive, including without limitation any
diminution in the responsibilities of Executive hereunder, any change in the
principal place of employment of Executive or any reduction of or failure to pay
when due the Base Salary.
(iii) The date of termination of the Term of Employment by the
Company under this Section 5(a) shall be the date specified in a written notice
of termination delivered by the Company to Executive (which date shall not be
earlier than the date of such written notice), unless no such date is specified
in such notice, in which case the date of termination shall be the date of
receipt by Executive of written notice of termination. The
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date of termination of the Term of Employment by Executive under this Section
5(a) shall be 60 calendar days after receipt by the Company of written notice of
termination.
(b) Termination Without Cause or for Good Reason.
--------------------------------------------
(i) The Company shall have the right to terminate the Term of
Employment without Cause prior to December 31, 1999, and Executive shall have
the right to terminate the Term of Employment for Good Reason prior to December
31, 1999. If the Term of Employment is so terminated, Executive shall be
entitled to receive (A) payment when due under Section 4 hereof of the Base
Salary and bonus, if any, through December 31, 1999, (B) payment when due of the
NonCompetition Payments pursuant to the Non-Competition Agreement, (C) such
benefits and payments as may be provided in the event of termination of
employment or resignation under the terms and provisions of any of the Plans in
which Executive participates, (D) reimbursement in accordance with Section 4(e)
hereof of all business expenses incurred through the date of termination, (E)
payment of all vacation pay not previously paid, and (F) continuation of such
coverage for Executive and Executive's immediate family as was in effect on the
date of termination under any of the Plans, or comparable benefits, commencing
on the date of such termination and ending on December 31, 1999; provided,
however, that such coverage shall cease, with respect to any or all of the
Plans, when Executive is covered by an employee plan or program providing
substantially similar or more generous benefits. After such termination of the
Term of Employment, Executive shall no longer be entitled to any of the Fringe
Benefits. Any obligations of the Company pursuant to this Section are contingent
on Executive signing a Release of Claims. A "Release of Claims" shall mean a
waiver by Executive, in a form reasonably satisfactory to the Company, of all
employment related obligations of and claims and causes of action against the
Company.
(ii) The amounts provided for in Section 5(b)(i) hereof are intended
to be liquidated damages in lieu of any other liability or obligations of the
Company in respect of termination of the Term of Employment by the Company
without Cause or by Executive for Good Reason.
(iii) The date of termination of the Term of Employment by the
Company under this Section 5(b) shall be the date specified in a written notice
of termination delivered by the Company to Executive (which date shall not be
earlier than the date of such written notice), unless no such date is specified
in such notice, in which case the date of termination shall be the date of
receipt by Executive of written notice of termination. The date of termination
of the Term of Employment by Executive under this Section 5(b) shall be 30
calendar days after receipt by the Company of written notice of termination,
provided that the Good Reason specified in such notice shall not have been
remedied by the Company during such 30 calendar day period.
(c) Death. If Executive dies during the Term of Employment, the Term of
-----
Employment and any non-competition period shall terminate on the date of death
and Executive's beneficiary or estate shall be entitled to receive (i) payment
of the pro rata portion
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of the Base Salary and the Non-Competition Payments pursuant to the Non-
Competition Agreement through and including the date of death, (ii) payment
(promptly, rather than when normally due) of a pro rata portion of any bonus
corresponding to the portion of the year occurring prior to the date of death,
and (iii) such survivor benefits and payments for Executive's family as
Executive is entitled to under any of the Plans.
(d) Disability. If Executive becomes Permanently Disabled (as defined
----------
below in this Section 5(d)) during the Term of Employment, the Company shall be
entitled to terminate the Term of Employment and any non-competition period by
written notice to Executive specifying the reason for and date of such
termination (which date shall not be earlier than the date of such written
notice). In the event of such termination, Executive shall be entitled to
receive (i) payment of the pro rata portion of the Base Salary and the Non-
Competition Payments pursuant to the Non-Competition Agreement through and
including the date of termination, (ii) payment (promptly, rather than when
normally due) of a pro rata portion of any bonus corresponding to the portion of
the year occurring prior to the date of death, and (iii) such disability and
other benefits and payments as Executive is entitled to under any of the Plans.
Executive shall be deemed "Permanently Disabled" when, and only when, he is, and
has for a period of six consecutive months been, unable by reason of illness or
accident to substantially perform his responsibilities hereunder.
6. Confidentiality; Company Property.
---------------------------------
(a) Confidentiality. Executive recognizes that the services to be
---------------
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder and his association with the Company, he may
acquire or has acquired Confidential Information concerning the Company the use
or disclosure of which could cause the Company substantial loss which could not
be readily calculated and for which no remedy at law would be adequate.
Accordingly, Executive agrees that he will not at any time, except in
fulfillment of his responsibilities hereunder or with the written consent of the
Company disclose any Confidential Information that he may learn or has learned
by reason of his employment or association with the Company or use any such
information for his own personal benefit or gain. The term "Confidential
Information" means information not previously disclosed to the public or to the
trade by the Company's management with respect to the Company's products,
facilities and methods, trade secrets and other intellectual property, systems,
procedures, manuals, confidential reports, price information, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Company's activities or products), business plans, prospects,
opportunities or other information. Confidential Information shall not include
information which (i) is or becomes generally available to the public other than
as a result of disclosure by Executive in violation of this Section 6(a) or (ii)
Executive is required to disclose under any applicable laws, regulations or
directives of any government agency, tribunal or authority having jurisdiction
in the matter or under subpoena or other process of law. Executive understands
and agrees that the rights and obligations set forth in this Section 6(a) shall
extend beyond the Term of Employment.
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(b) Company Property. Executive confirms that all Confidential
----------------
Information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by Executive relating to the
business of the Company or any Confidential Information shall be and remain the
property of the Company. Upon the termination of the Term of Employment or upon
the request of the Company at any time, Executive shall promptly deliver to the
Company, and shall not without the prior express written consent of the Company
retain, all copies of (i) any written materials not previously made available to
the public, or (ii) records and documents made by Executive or coming into his
possession concerning any Confidential Information. Executive agrees that the
rights and obligations set forth in this Section 6(b) shall extend beyond the
Term of Employment.
(c) Injunctive Relief. Without intending to limit the remedies
-----------------
available to the Company, Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order or a preliminary or permanent injunction restraining
Executive from engaging in activities prohibited by this Section 6.
7. Assignability.
-------------
(a) By Executive. Neither this Agreement nor any right, duty,
------------
obligation or interest hereunder shall be assignable by Executive without the
prior express written consent of the Company.
(b) By the Company. This Agreement and all of the Company's rights and
--------------
obligations hereunder may be assigned or transferred by it to any entity which
at any time by sale, merger, consolidation or other transaction acquires all or
substantially all of the assets of the Company or to which the Company transfers
all or substantially all of its assets, provided that any such assignee agrees
in writing to assume all of the obligations of the Company hereunder. Upon such
assignment or transfer, and upon such assumption, any such entity shall be
deemed to be substituted for all purposes as the Company hereunder.
8. Severability. If the final determination of a court of competent
------------
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term
hereof is invalid or unenforceable, (a) the remaining terms hereof shall be
unimpaired and (b) the invalid or unenforceable term shall be deemed replaced by
a term that is valid and enforceable and that comes closest to implementing the
intention of the invalid or unenforceable term.
9. Amendment; Waiver. This Agreement may not be modified, amended or
-----------------
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of any provision of this Agreement.
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<PAGE>
10. Withholding. The Company shall be entitled to deduct and withhold all
-----------
applicable Federal, state and local taxes which the Company is required to
deduct or withhold from any payments to or on behalf of Executive under this
Agreement.
11. Beneficiaries. Executive shall be entitled to select a beneficiary or
-------------
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such selection, in either case by giving the
Company written notice thereof.
12. Governing Law. All matters affecting this Agreement, including the
-------------
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of Delaware.
13. Notices. Any notice hereunder by either party to the other shall be
-------
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed to
Executive at the address specified in the Company's personnel records or such
other address as may be specified in a notice of change of address given by
Executive to the Company, or if addressed to the Company, the notice shall be
delivered or mailed to:
MetaTools, Inc.
6303 Carpenteria Avenue
Santa Barbara, California 93013
Attn: Chief Executive officer
or to such other address as may be specified in a notice of change of address
given by the Company to Executive. A notice shall be deemed given, if by
personal delivery, on the date of such delivery or, if by certified mail, on the
date shown on the applicable return receipt.
14. Merger. This Agreement supersedes all prior or contemporaneous
------
negotiations, commitments and agreements between the Company and Executive with
respect to the subject matter hereof, and such other negotiations, commitments
and agreements will have no further force or effect.
15. Counterparts. This Agreement may be executed by either of the parties
------------
hereto in counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
16. Headings. The headings of paragraphs herein are included solely for
--------
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. Effectiveness of Agreement. This Agreement shall not be effective unless
--------------------------
the transaction contemplated by the Stock Purchase Agreement, dated as of
December 20, 1996
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<PAGE>
(the "Stock Purchase Agreement") is consummated and the Stock Purchase Agreement
is signed by the Company and RTG (the "Purchase"). In the event the Purchase is
terminated pursuant to Section 8.1 of the Stock Purchase Agreement, this
Agreement shall be null and void.
18. Arbitration.
------------
(a) Except as provided in Section 6(c), Executive agrees, that any dispute
or controversy arising out of, relating to or in connection with this Agreement,
or the interpretation, validity, construction, performance, breach, or
termination thereof, shall be finally settled by binding arbitration to be held
in Santa Barbara County, California under the National Rules for the Resolution
of Employment Disputes supplemented by the Supplemental Procedures for Large
Complex Disputes, of the American Arbitration Association as then in effect (the
"Rules"). The arbitrator may grant injunctions or other relief in such dispute
or controversy. The decision of the arbitrator shall be final, conclusive and
binding on the parties to the arbitration. Judgment may be entered on the
arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply Delaware law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitrations proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law.
(c) Except as is otherwise provided in Section 21 below, the Company and
the Executive shall each pay half of the costs and expenses of such arbitration.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION 18, WHICH DISCUSSES
ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT, EXECUTIVE
AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN CONNECTION WITH
THIS AGREEMENT, ANY ASPECT OF THE EMPLOYER/EMPLOYEE RELATIONSHIP, OR THE
INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH OR TERMINATION
THEREOF TO BINDING ARBITRATION, AND THAT THIS ARBITRATION CLAUSE CONSTITUTES A
WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE RESOLUTION OF ALL
DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE RELATIONSHIP.
19. No Mitigation; No Offset. In the event of any termination of employment
------------------------
under Section 5, Executive shall be under no obligation to seek other employment
and there shall be no offset against any amounts due Executive under this
Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 5 are in
the nature of severance payments, or liquidated damages, or both, and are not in
the nature of a penalty.
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20. Legal Fees and Other Expenses. In the event that a claim for payment or
-----------------------------
benefits under this Agreement is disputed, Executive shall be reimbursed for all
attorney fees and expenses incurred by Executive in pursuing such claim,
provided that Executive is successful as to a substantial part of the disputed
claim by reason of litigation, arbitration or settlement.
21. Indemnification. The Company agrees that if Executive is made a party or
---------------
is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he is or was a director or officer of the Company and/or any
affiliate or subsidiary or is or was serving at the request of the Company
and/or any affiliate or subsidiary as a director, officer, member, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a director, officer, member, employee or agent while
serving as a director, officer, member, employee or agent, he shall be
indemnified and held harmless by the Company to the fullest extent authorized by
Delaware law, including without limitation by the advancement of his expenses,
as the same exists or may hereafter be amended, against all expenses incurred or
suffered by Executive in connection therewith, and such indemnification shall
continue as to Executive even if Executive has ceased to be an officer, director
or agent, or is no longer employed by the Company and shall inure to the benefit
of his heirs, executors and administrators.
IN WITNESS WHEREOF, the Company has caused this Agreement to be executed
pursuant to the authority of its Board of Directors, and Executive has executed
this Agreement, as of the day and year first written above.
METATOOLS, INC.
By: /s/ JOHN WILCZAK
----------------------------
Name John Wilczak
--------------------------
Title: Chairman and CEO
------------------------
/s/ ALEXANDER MIGDAL
-------------------------------
Alexander Migdal
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EXHIBIT 10.23
-------------
EMPLOYMENT AGREEMENT
--------------------
AGREEMENT, dated as of December 31, 1996 by and between MetaTools, Inc., a
Delaware corporation (the "Company"), and Robert E. Rice ("Executive").
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Company is acquiring by means of a merger transaction all of the shares of
capital stock to be issued and outstanding of Real Time Geometry Corp., a
Delaware corporation ("RTG"), of which Executive has been an executive officer
and a holder of shares of capital stock or options or other rights to acquire
shares; and
WHEREAS, the Company desires to employ Executive as an executive officer of
the Company, and Executive desires so to serve the Company, upon the terms and
conditions contained in this Agreement;
NOW, THEREFORE, in consideration of the premises and the mutual covenants
herein contained, the parties hereto agree as follows:
1. Prior Agreements. Executive hereby represents and warrants to the
----------------
Company that all agreements, understandings or arrangements between Executive
and any other person or entity contain no terms that would be breached by
Executive as a result of, or that would in any way preclude or prohibit
Executive from, entering into this Agreement with the Company or performing any
of the responsibilities provided for in this Agreement.
2. Employment and Responsibilities.
--------------------------------
(a) General. Upon the terms and conditions herein set forth, the
-------
Company hereby agrees to employ Executive and Executive agrees to serve as Vice
President, Business Development of the Company, for the Term of Employment (as
defined in Section 3 hereof). In such capacity, Executive shall be responsible
for the business of RTG and the strategic business development activities of RTG
and shall report solely and directly to John J. Wilczak, Chairman, President and
Chief Executive Officer of the Company, or to any successor Chief Executive
officer of the Company.
(b) Nature of Services. Except as provided in Sections 2(c) and 2(d)
------------------
hereof, during the Term of Employment Executive shall, except as from time to
time may be otherwise agreed to in writing by Mr. Wilczak, devote his full time
and attention during normal business hours to carrying out his responsibilities
hereunder, shall diligently serve the Company, shall in all respects conform to,
comply with and execute the lawful directions and
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<PAGE>
instructions given to him by Mr. Wilczak, or any successor Chief Executive
Officer of the Company, and shall diligently use his best efforts, skills and
abilities to promote the interests of the Company.
(c) Other Employment. During the Term of Employment, Executive may
----------------
render employment or consulting services to, invest in and engage in related
activities for (including, without limitation, acting as a director, partner or
joint venturer) Wexford Management LLC or any of its investment funds or other
affiliates and shall use reasonable, good faith efforts to do so in ways which
will (i) minimize any interference with the fulfillment of his responsibilities
hereunder, (ii) not result in the disclosure of any Confidential Information (as
defined in Section 6(a)) in violation of this Agreement, and (iii) not result in
any conflict of interest between the Company and any such Wexford entity.
(d) Charitable or Other Activities. Executive may (i) serve on
------------------------------
corporate, civic or charitable boards or committees, (ii) deliver lectures,
fulfill speaking engagements or teach at educational institutions, and (iii)
manage personal and immediate family investments, so long as such activities do
not interfere with the fulfillment of Executive's responsibilities hereunder.
(e) Place of Performance. The principal place of employment of
--------------------
Executive shall be at offices maintained by the Company (or RTG) in Short Hills,
New Jersey or another location within 10 miles of Short Hills, New Jersey, and
the Company understands that Executive and his family shall have their permanent
residence in or around Short Hills, New Jersey. Subject to the foregoing,
Executive realizes that his responsibilities hereunder may require travel to and
the rendering of services in Carpenteria, California, where the headquarters
offices of the Company are located, and other locations.
3. Term of Employment. Subject to the provisions of Section 5 hereof,
------------------
Executive's term of employment under this Agreement shall commence on January 1,
1997 (the "Commencement Date") and shall terminate on December 31, 1999 (the
"Term of Employment").
4. Compensation and Other Benefits. The Company shall pay and provide
-------------------------------
the following compensation and other benefits to Executive during the Term of
Employment for the services to be provided hereunder:
(a) Base Salary. The Company shall pay to Executive a base salary
-----------
(the "Base Salary") at the rate of $150,000 per annum, payable in approximately
equal installments in accordance with the customary payroll practices of the
Company. If the rate per annum of the base salary paid to Executive is
increased during the Term of Employment, such increased rate shall thereafter
constitute the Base Salary for all purposes of this Agreement.
(b) Annual Bonus. Executive shall be paid a cash bonus with respect
------------
to the first year of the Term of Employment of not less than $100,000 and with
respect to each
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subsequent year of the Term of Employment in amounts which are commensurate with
the bonuses awarded to the senior executives of the Company (the "Annual
Bonus"). The Annual Bonus shall be paid in accordance with the policies of the
Company, but in no event later than two months after the end of each such year.
(c) Company Stock Options. The Company shall grant to Executive
---------------------
options (the "Options") to purchase 200,000 shares of Common Stock of the
Company plus such additional number of shares to be determined on the date
hereof (the "Common Stock"). The Options shall conform to the following terms:
(i) the Options shall be granted on or before January 15, 1997;
(ii) the Options shall be exercisable at a price per share equal to
the fair market value per share of the Common Stock on the date of grant;
(iii) the Options shall become exercisable with respect to one
third of the number of shares of Common Stock subject to them each year on the
anniversary of the date of grant;
(iv) the Options shall become exercisable with respect to all of the
shares of Common Stock subject to them upon any termination of the Term of
Employment by the Company without Cause or by Executive for Good Reason pursuant
to Section 5(b) hereof or upon any Change of Control (as defined below in this
Section 4(c)) [Side letter to follow re: FD transaction];
(v) The Options shall be issued under the Company's 1996 Nonstatutory
Stock Option Plan and except as expressly stated in this Section, in all other
respects, the Options shall conform to the terms of the Company's standard
option agreement; provided, however, that the Options may only be amended with
-----------------
the prior consent of Executive;
(vi) as soon as possible after the Closing the shares of Common Stock
subject to the Options shall be registered under the Securities Act of 1933, as
amended, pursuant to a Registration Statement on Form S-8 that has been declared
effective as to such shares by the Securities and Exchange Commission, and such
shares shall be qualified for trading on the principal markets for the Common
Stock upon their issuances; and
(vii) the Options shall be approved by the Board of Directors of
the Company or a compensation committee thereof satisfying the conditions
specified for approval by a Board of Directors or committee thereof consisting
of "nonemployee directors" under Rule 16b-3 promulgated under the Securities
Exchange Act of 1934, as amended.
The grant of the Options shall not preclude Executive from participating in
stock option plans maintained by the Company from time to time for the benefit
of its Executive Employees generally. "Change in Control" shall mean (i) the
acquisition by any individual, entity or
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group (as defined for purposes of Sections 13 and 14 of the Securities Exchange
Act of 1934, as amended) of 35% or more of the combined voting power of the then
outstanding voting securities of the Company entitled to vote generally in the
election of directors or (ii) the approval by the shareholders of the Company of
a reorganization, merger, consolidation or other transaction that upon
consummation would effectively result in such an acquisition of (as described
above in (i)) voting securities of the Company (or of any successor or surviving
entity).
(d) Employee Benefit Plans. During the Term of Employment, Executive
----------------------
shall be entitled to participate in such pension, retirement, life insurance,
health and other welfare plans, programs and benefits as are maintained by the
Company from time to time for the benefit of its executive employees (the
"Plans").
(e) Vacation; Fringe Benefits. During the Term of Employment,
-------------------------
Executive shall be entitled to four weeks of vacation per year and to any other
fringe benefits and perquisites that are accorded to its executive employees
generally by the Company from time to time (the "Fringe Benefits").
(f) Reimbursement of Expenses. The parties anticipate that in the
-------------------------
course of fulfilling his responsibilities under this Agreement, Executive will
incur reasonable travel, entertainment and other out-of-pocket business expenses
for the account of the Company. Executive shall be entitled to reimbursement
for all reasonable out-of-pocket business expenses so incurred, upon submission
to the Company of an adequate, written accounting which complies with the
Company's policies regarding reimbursement for business expenses. The travel
expense policy applicable to Executive shall be that applicable to the most
senior executives of the Company.
(g) Company Loan. At the Closing, the Company shall loan to Employee
------------
the principal amount of $1,000,000 pursuant to a note and other instruments and
agreements as shall be consistent with the terms of this Section 4(g) (the
"Loan"). The Loan shall be repayable on January 15, 2000, shall be prepayable
without penalty in whole or in part (including all accrued interest on the
principal amount prepaid), and shall bear interest at the Applicable Federal
Rate under Section 1274(d) of the Internal Revenue Code of 1986, as amended, as
reported by the Internal Revenue Service, on the date the loan is made, payable
at maturity or upon prepayment as aforesaid, and compounded semiannually. The
Loan shall be secured by all of the shares of Common Stock underlying the fully-
exercisable and vested stock options received by Executive under Section 1.2 of
the Stock Purchase Agreement (as defined below) and held by Executive as of the
date the Loan is made, pursuant to arrangements that permit the release of
shares underlying such options in order to permit the sale or pledge thereof to
raise after-tax proceeds to pay or prepay principal and accrued interest on the
Loan at maturity or from time to time before maturity. Executive shall not be
personally obligated to pay any principal of or interest on the Loan nor shall
any of his assets secure payment of the principal of and interest on the Loan,
except for such shares underlying such options, solely from which the Company
shall seek to realize payment in the event of any failure of payment on the part
of Executive.
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5. Termination of the Term of Employment.
-------------------------------------
(a) Termination for Cause or Without Good Reason.
--------------------------------------------
(i) The Company shall have the right to terminate the Term of
Employment for Cause (as defined in Section 5(a)(ii) hereof) prior to December
31, 1999, and Executive shall have the right to terminate the Term of Employment
without Good Reason (as defined in Section 5(b)(ii) hereof) prior to December
31, 1999. If the Term of Employment is so terminated, Executive shall be
entitled to receive payment of the pro rata portion of the Base Salary through
and including the date of such termination. Executive shall not be eligible to
receive Base Salary or to participate in any of the Plans or to receive any of
the Fringe Benefits with respect to any periods after the date of such
termination, except for the right to receive vested or statutorily available
benefits under any of the Plans in which Executive participates in accordance
with the terms of such Plans. The Company shall also pay to Executive promptly
(rather than when normally payable) a pro rata portion of the Annual Bonus (with
respect to only the first year of the Term of Employment) corresponding to the
portion of the year occurring prior to the date of such termination.
(ii) "Cause" shall mean (A) the commission of an act of fraud or
embezzlement which results in loss, damage or injury to the Company, whether
directly or indirectly; (B) Executive's use of narcotics, liquor or illicit
drugs has had a detrimental effect on the performance of his employment
responsibilities, as determined by the Company's Board of Directors; (C) the
arrest, indictment or filing of charges relating to a felony or misdemeanor,
either in connection with the performance of the Executive's obligations to the
Company or which shall adversely affect the Executive's ability to perform such
obligations; (D) gross negligence, breach of fiduciary duty or material breach
of the terms of this Agreement; or (E) the commission of an act which
constitutes unfair competition with the Company. "Good Reason" shall mean a
material breach by the Company of its obligations under this Agreement which is
not remedied within 30 calendar days after receipt by the Company of written
notice of such breach from Executive, including without limitation any
diminution in the responsibilities of Executive hereunder, any change in the
office to which Executive reports, any change in the principal place of
employment of Executive or any reduction of or failure to pay when due the Base
Salary or the Annual Bonus (as and to the extent provided for in Section 4(b)
above).
(iii) The date of termination of the Term of Employment by the
Company under this Section 5(a) shall be the date specified in a written notice
of termination delivered by the Company to Executive (which date shall not be
earlier than the date of such written notice), unless no such date is specified
in such notice, in which case the date of termination shall be the date of
receipt by Executive of written notice of termination. The date of termination
of the Term of Employment by Executive under this Section 5(a) shall be 60
calendar days after receipt by the Company of written notice of termination.
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(b) Termination Without Cause or for Good Reason.
--------------------------------------------
(i) The Company shall have the right to terminate the Term of
Employment without Cause prior to December 31, 1999, and Executive shall have
the right to terminate the Term of Employment for Good Reason prior to December
31, 1999. If the Term of Employment is so terminated, Executive shall be
entitled to receive (A) payment when due under Section 4 hereof of the Base
Salary and Annual Bonus through December 31, 1999, (B) such benefits and
payments as may be provided in the event of termination of employment or
resignation under the terms and provisions of any of the Plans in which
Executive participates, (C) reimbursement in accordance with Section 4(f) hereof
of all business expenses incurred through the date of termination, (D) payment
of all vacation pay not previously paid, and (E) continuation of such coverage
for Executive and Executive's immediate family as was in effect on the date of
termination under any of the Plans, or comparable benefits, commencing on the
date of such termination and ending on December 31, 1999; provided, however,
that such coverage shall cease, with respect to any or all of the Plans, when
Executive is covered by an employee plan or program providing substantially
similar or more generous benefits. In the event of such termination of the Term
of Employment, the Options shall become exercisable on the date of termination
with respect to all of the shares of Common Stock subject to them. After such
termination of the Term of Employment, Executive shall no longer be entitled to
any of the Fringe Benefits. Any obligations of the Company pursuant to this
Section are contingent on Executive signing a Release of Claims. A "Release of
Claims" shall mean a waiver by Executive, in a form reasonably satisfactory to
the Company, of all employment related obligations of and claims and causes of
action against the Company (other than claims for any such severance payments
due and payable).
(ii) The amounts provided for in Section 5(b)(i) hereof are intended
to be liquidated damages in lieu of any other liability or obligations of the
Company in respect of termination of the Term of Employment by the Company
without Cause or by Executive for Good Reason.
(iii) The date of termination of the Term of Employment by the
Company under this Section 5(b) shall be the date specified in a written notice
of termination delivered by the Company to Executive (which date shall not be
earlier than the date of such written notice), unless no such date is specified
in such notice, in which case the date of termination shall be the date of
receipt by Executive of written notice of termination. The date of termination
of the Term of Employment by Executive under this Section 5(b) shall be 30
calendar days after receipt by the Company of written notice of termination,
provided that the Good Reason specified in such notice shall not have been
remedied by the Company during such 30 calendar day period.
(c) Death. If Executive dies during the Term of Employment, the Term
-----
of Employment shall terminate on the date of death and Executive's beneficiary
or estate shall be entitled to receive (i) payment of the pro rata portion of
the Base Salary through and including the date of death, (ii) payment (promptly,
rather than when normally due) of a pro rata portion of the Annual Bonus
corresponding to the portion of the year occurring prior to
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<PAGE>
the date of death, and (iii) such survivor benefits and payments for Executive's
family as Executive is entitled to under any of the Plans.
(d) Disability. If Executive becomes Permanently Disabled (as defined
----------
below in this Section 5(d)) during the Term of Employment, the Company shall be
entitled to terminate the Term of Employment by written notice to Executive
specifying the reason for and date of such termination (which date shall not be
earlier than the date of such written notice). In the event of such
termination, Executive shall be entitled to receive (i) payment of the pro rata
portion of the Base Salary through and including the date of termination, (ii)
payment (promptly, rather than when normally due) of a pro rata portion of the
Annual Bonus corresponding to the portion of the year occurring prior to the
date of death, and (iii) such disability and other benefits and payments as
Executive is entitled to under any of the Plans. Executive shall be deemed
"Permanently Disabled" when, and only when, he is, and has for a period of six
consecutive months been, unable by reason of illness or accident to
substantially perform his responsibilities hereunder.
6. Confidentiality; Company Property.
---------------------------------
(a) Confidentiality. Executive recognizes that the services to be
---------------
performed by him hereunder are special, unique and extraordinary in that, by
reason of his employment hereunder and his association with the Company, he may
acquire or has acquired Confidential Information concerning the Company the use
or disclosure of which could cause the Company substantial loss which could not
be readily calculated and for which no remedy at law would be adequate.
Accordingly, Executive agrees that he will not at any time, except in
fulfillment of his responsibilities hereunder or with the written consent of the
Company disclose any Confidential Information that he may learn or has learned
by reason of his employment or association with the Company or use any such
information for his own personal benefit or gain. The term "Confidential
Information" means information not previously disclosed to the public or to the
trade by the Company's management with respect to the Company's products,
facilities and methods, trade secrets and other intellectual property, systems,
procedures, manuals, confidential reports, price information, customer lists,
financial information (including the revenues, costs or profits associated with
any of the Company's activities or products), business plans, prospects,
opportunities or other information. Confidential Information shall not include
information which (i) is or becomes generally available to the public other than
as a result of disclosure by Executive in violation of this Section 6(a) or (ii)
Executive is required to disclose under any applicable laws, regulations or
directives of any government agency, tribunal or authority having jurisdiction
in the matter or under subpoena or other process of law. Executive understands
and agrees that the rights and obligations set forth in this Section 6(a) shall
extend beyond the Term of Employment.
(b) Company Property. Executive confirms that all Confidential
----------------
Information is and shall remain the exclusive property of the Company. All
business records, papers and documents kept or made by Executive relating to the
business of the Company or any Confidential Information shall be and remain the
property of the Company. Upon the
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<PAGE>
termination of the Term of Employment or upon the request of the Company at any
time, Executive shall promptly deliver to the Company, and shall not without the
prior express written consent of the Company retain, all copies of (i) any
written materials not previously made available to the public, or (ii) records
and documents made by Executive or coming into his possession concerning any
Confidential Information. Executive agrees that the rights and obligations set
forth in this Section 6(b) shall extend beyond the Term of Employment.
(c) Assignment of Inventions. Executive shall sign and abide by the
------------------------
Company's standard invention assignment agreement.
(d) Injunctive Relief. Without intending to limit the remedies
-----------------
available to the Company, Executive acknowledges that a breach of any of the
covenants contained in this Section 6 may result in material irreparable injury
to the Company for which there is no adequate remedy at law, that it will not be
possible to measure damages for such injuries precisely and that, in the event
of such a breach or threat thereof, the Company shall be entitled to obtain a
temporary restraining order or a preliminary or permanent injunction restraining
Executive from engaging in activities prohibited by this Section 6.
7. Assignability.
--------------
(a) By Executive. Neither this Agreement nor any right, duty,
------------
obligation or interest hereunder shall be assignable by Executive without the
prior express written consent of the Company.
(b) By the Company. This Agreement and all of the Company's rights
--------------
and obligations hereunder may be assigned or transferred by it to any entity
which at any time by sale, merger, consolidation or other transaction acquires
all or substantially all of the assets of the Company or to which the Company
transfers all or substantially all of its assets, provided that any such
assignee agrees in writing to assume all of the obligations of the Company
hereunder. Upon such assignment or transfer, and upon such assumption, any such
entity shall be deemed to be substituted for all purposes as the Company
hereunder.
8. Severability. If the final determination of a court of competent
------------
jurisdiction declares, after the expiration of the time within which judicial
review (if permitted) of such determination may be perfected, that any term
hereof is invalid or unenforceable, (a) the remaining terms hereof shall be
unimpaired and (b) the invalid or unenforceable term shall be deemed replaced by
a term that is valid and enforceable and that comes closest to implementing the
intention of the invalid or unenforceable term.
9. Amendment; Waiver. This Agreement may not be modified, amended or
-----------------
waived in any manner except by an instrument in writing signed by both parties
hereto. The waiver by either party of compliance with any provision of this
Agreement by the other party shall not operate or be construed as a waiver of
any other provision of this Agreement, or of any subsequent breach by such party
of any provision of this Agreement.
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<PAGE>
10. Withholding. The Company shall be entitled to deduct and withhold all
-----------
applicable Federal, state and local taxes which the Company is required to
deduct or withhold from any payments to or on behalf of Executive under this
Agreement.
11. Beneficiaries. Executive shall be entitled to select a beneficiary or
-------------
beneficiaries to receive any compensation or benefit payable hereunder following
Executive's death, and may change such selection, in either case by giving the
Company written notice thereof.
12. Governing Law. All matters affecting this Agreement, including the
-------------
validity thereof, are to be governed by, interpreted and construed in accordance
with the laws of the State of Delaware.
13. Notices. Any notice hereunder by either party to the other shall be
-------
given in writing by personal delivery or certified mail, return receipt
requested. If addressed to Executive, the notice shall be delivered or mailed
to Executive at the address specified in the Company's personnel records or such
other address as may be specified in a notice of change of address given by
Executive to the Company, or if addressed to the Company, the notice shall be
delivered or mailed to:
MetaTools, Inc.
6303 Carpenteria Avenue
Santa Barbara, California 93013
Attn: Mr. John J. Wilczak
or to such other address as may be specified in a notice of change of address
given by the Company to Executive. A notice shall be deemed given, if by
personal delivery, on the date of such delivery or, if by certified mail, on the
date shown on the applicable return receipt.
14. Merger. This Agreement supersedes all prior or contemporaneous
------
negotiations, commitments and agreements between the Company and Executive with
respect to the subject matter hereof, and such other negotiations, commitments
and agreements will have no further force or effect.
15. Counterparts. This Agreement may be executed by either of the parties
------------
hereto in counterparts, each of which shall be deemed to be an original, but all
such counterparts shall together constitute one and the same instrument.
16. Headings. The headings of paragraphs herein are included solely for
--------
convenience of reference and shall not control the meaning or interpretation of
any of the provisions of this Agreement.
17. Effectiveness of Agreement. This Agreement shall not be effective
--------------------------
unless the transaction contemplated by the Stock Purchase Agreement dated as of
December 20, 1996 (the "Stock Purchase Agreement"), is consummated and the Stock
Purchase Agreement is
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<PAGE>
signed by the Company and RTG (The "Purchase"). In the event the Purchase is
terminated pursuant to Section 8.1 of the Stock Purchase Agreement, this
Agreement shall be null and void.
18. Arbitration.
------------
(a) Except as provided in Section 6(d), Executive agrees, that any
dispute or controversy arising out of, relating to or in connection with this
Agreement, or the interpretation, validity, construction, performance, breach,
or termination thereof, shall be finally settled by binding arbitration to be
held in Santa Barbara County, California under the National Rules for the
Resolution of Employment Disputes supplemented by the Supplemental Procedures
for Large Complex Disputes, of the American Arbitration Association as then in
effect (the "Rules"). The arbitrator may grant injunctions or other relief in
such dispute or controversy. The decision of the arbitrator shall be final,
conclusive and binding on the parties to the arbitration. Judgment may be
entered on the arbitrator's decision in any court having jurisdiction.
(b) The arbitrator(s) shall apply Delaware law to the merits of any
dispute or claim, without reference to rules of conflicts of law. The
arbitrations proceedings shall be governed by federal arbitration law and by the
Rules, without reference to state arbitration law.
(c) Except as is otherwise provided in Section 21 below, the Company
and the Executive shall each pay half of the costs and expenses of such
arbitration.
(d) EXECUTIVE HAS READ AND UNDERSTANDS THIS SECTION 18, WHICH
DISCUSSES ARBITRATION. EXECUTIVE UNDERSTANDS THAT BY SIGNING THIS AGREEMENT,
EXECUTIVE AGREES TO SUBMIT ANY CLAIMS ARISING OUT OF, RELATING TO, OR IN
CONNECTION WITH THIS AGREEMENT, ANY ASPECT OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP, OR THE INTERPRETATION, VALIDITY, CONSTRUCTION, PERFORMANCE, BREACH
OR TERMINATION THEREOF TO BINDING ARBITRATION AND THAT THIS ARBITRATION CLAUSE
CONSTITUTES A WAIVER OF EXECUTIVE'S RIGHT TO A JURY TRIAL AND RELATES TO THE
RESOLUTION OF ALL DISPUTES RELATING TO ALL ASPECTS OF THE EMPLOYER/EMPLOYEE
RELATIONSHIP.
19. No Mitigation; No Offset. In the event of any termination of
------------------------
employment under Section 5, Executive shall be under no obligation to seek other
employment and there shall be no offset against any amounts due Executive under
this Agreement on account of any remuneration attributable to any subsequent
employment that Executive may obtain. Any amounts due under Section 5 are in
the nature of severance payments, or liquidated damages, or both, and are not in
the nature of a penalty.
20. Legal Fees and Other Expenses. In the event that a claim for payment
-----------------------------
or benefits under this Agreement is disputed, Executive shall be reimbursed for
all attorney fees and expenses incurred by Executive in pursuing such claim,
provided that Executive is
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<PAGE>
successful as to a substantial part of the disputed claim by reason of
litigation, arbitration or settlement.
21. Indemnification. The Company agrees that if Executive is made a party
---------------
or is threatened to be made a party to any action, suit or proceeding, whether
civil, criminal, administrative or investigative (a "Proceeding"), by reason of
the fact that he is or was a director or officer of the Company and/or any
affiliate or subsidiary or is or was serving at the request of the Company
and/or any affiliate or subsidiary as a director, officer, member, employee or
agent of another corporation or of a partnership, joint venture, trust or other
enterprise, including, without limitation, service with respect to employee
benefit plans, whether or not the basis of such Proceeding is alleged action in
an official capacity as a director, officer, member, employee or agent while
serving as a director, officer, member, employee or agent, he shall be
indemnified and held harmless by the Company to the fullest extent authorized by
Delaware law, including without limitation by the advancement of his expenses,
as the same exists or may hereafter be amended, against all expenses incurred or
suffered by Executive in connection therewith, and such indemnification shall
continue as to Executive even if Executive has ceased to be an officer, director
or agent, or is no longer employed by the Company and shall inure to the benefit
of his heirs, executors and administrators.
IN WITNESS WHEREOF, the Company has caused this Agreement to be
executed pursuant to the authority of its Board of Directors, and Executive has
executed this Agreement, as of the day and year first written above.
METATOOLS, INC.
By: /s/JOHN WILCZAK
----------------------------
Name John Wilczak
----------------------
Title: Chairman and CEO
--------------------
/s/ROBERT E. RICE
----------------------------
Robert E. Rice
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<PAGE>
EXHIBIT 10.24
-------------
NONCOMPETITION AGREEMENT
------------------------
This NONCOMPETITION AGREEMENT, dated the 31st day of December, 1996 (the
"Agreement") is made as of the Effective Date indicated below by and between
MetaTools, Inc., a Delaware corporation (MetaTools), and Alexander Migdal (the
"Founder").
BACKGROUND
----------
This Agreement is entered into in connection with and is ancillary to a
Stock Purchase Agreement dated as of December 20, 1996 (the "Stock Purchase
Agreement") between MetaTools and certain stockholders and option holders of
Real Time Geometry Corp., a Delaware corporation ("RTG"), pursuant to which
MetaTools has acquired RTG on the date hereof (the "Effective Date").
Founder is a founder, stockholder and executive of RTG and has been
actively involved in the development and marketing of RTG's products. MetaTools
intends to continue the business of RTG after the Effective Date and integrate
such business into MetaTools's ongoing business. To preserve and protect the
assets of RTG, including RTG's goodwill, customers and trade secrets of which
Founder has, and will, in his role as an employee of MetaTools, have knowledge,
and to preserve and protect MetaTools's goodwill and business interests going
forward, and in consideration for MetaTools's entering into and performing under
the Stock Purchase Agreement, Founder has agreed to enter into this Agreement.
Founder and MetaTools believe the limitations as to time, geographical area
and scope of activity contained in this Agreement hereof are reasonably
necessary to, and no greater than that required to, protect the goodwill and
business interests purchased by MetaTools.
1. Consideration. In consideration for Founder's performance pursuant to
-------------
the terms and conditions of this Agreement, MetaTools shall (1) purchase all of
the shares of RTG owned by Founder pursuant to the Stock Purchase Agreement and
(2) pay Founder (i) $300,000 upon the execution of this Agreement and (ii)
$150,000 on each of the first and second anniversary dates of this Agreement.
2. Noncompete. For three years following the Effective Date, or one year
----------
from the termination of employment of Founder by MetaTools, whichever is longer,
Founder will not individually or as an employee, partner, officer, director or
stockholder or in any other capacity whatsoever of or for any person, firm,
partnership, company or corporation other than MetaTools or its subsidiaries:
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<PAGE>
(a) Own, manage, operate, sell, control or participate in the ownership,
management, operation, sales or control of any business engaged, in the
geographical areas referred to in Section 3 below, in the design, research,
development, marketing, sale, or licensing of any product that is substantially
similar to or competitive with any product created, distributed or known by
Founder to be under development by MetaTools or any of its subsidiaries prior to
the termination of Founder's employment with MetaTools;
(b) Own, manage, operate, sell, control or participate in the ownership,
operation, sales or control of any business engaged, in the geographical areas
referred to in Section 3 below, in the design, research, development, marketing,
sale, or licensing of any product that is substantially similar to or
competitive with the products of MetaTools or any of its subsidiaries;
(c) Directly or indirectly develop any product that is substantially
similar to or competitive with any other products the creation or development of
which he participated in during Founder's employment with RTG, MetaTools or any
of its subsidiaries; or
(d) Recruit, attempt to hire, solicit, assist others in recruiting or
hiring, or refer to others concerning employment, in or with respect to the
geographical areas referred to in Section 3 below, any person who is an employee
of MetaTools or any of its subsidiaries or induce or attempt to induce any such
employee to terminate his employment with MetaTools or any of its subsidiaries.
3. Geographic Area. The geographical areas in which the restrictions
---------------
provided for in this Agreement apply include all cities, counties and states of
the United States, and all other countries, in which MetaTools or any of its
subsidiaries has engaged in licensing or sales or otherwise conducted business
or selling or licensing efforts at any time during the two years prior to the
Effective Date hereof or during the term of this Agreement. The agreement not to
compete in each such geographic subdivision is a separate and severable
agreement from all such other agreements. Founder acknowledges that the scope
and period of restrictions and the geographical area to which the restrictions
imposed in this Section 3 applies are fair and reasonable and are reasonably
required for the protection of MetaTools and that this Agreement accurately
describes the business to which the restrictions are intended to apply.
4. Injunctions. Founder acknowledges that any breach of the covenants of
-----------
this Agreement will result in immediate and irreparable injury to MetaTools and,
accordingly, consents to the application of injunctive relief and such other
equitable remedies for the benefit of MetaTools as may be appropriate in the
event such a breach occurs or is threatened. The foregoing remedies will be in
addition to all other legal remedies to which MetaTools may be entitled
hereunder, including, without limitation, monetary damages.
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<PAGE>
5. Miscellaneous.
--------------
(a) Notices. Any and all notices permitted or required to be given
-------
under this Agreement must be in writing. Notices will be deemed given (i) when
personally received or when sent by facsimile transmission (to the receiving
party's facsimile number), (ii) on the first business day after having been sent
by commercial overnight courier with written verification of receipt, or (iii)
on the third business day after having been sent by registered or certified mail
from a location on the United States mainland, return receipt requested, postage
prepaid, whichever occurs first, at the address set forth below or at any new
address, notice of which will have been given in accordance with this Section
5(a):
If to MetaTools: MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, CA 93013
Attn: Chief Executive Officer
With a copy to: Wilson Sonsini Goodrich & Rosati
650 Page Mill Road
Palo Alto California 94304-1050
Attn: Jeffrey D. Saper, Esq.
If to Founder, at Founder's address in the personnel records of MetaTools.
(b) Amendments. This Agreement contains the entire agreement and supersedes
----------
and replaces all prior agreements between MetaTools and Founder or RTG and
Founder concerning the subject matter hereof. This Agreement may not be changed
or modified in whole or in part except by a writing signed by the party against
whom enforcement of the change or modification is sought.
(c) Successors and Assigns. This Agreement will not be assignable by either
----------------------
Founder or MetaTools except that the rights and obligations of MetaTools under
this Agreement may be assigned to a corporation which becomes the successor to
MetaTools as the result of a merger or other corporate reorganization and which
continues the business of MetaTools or any other subsidiary of MetaTools,
provided that, in the case of a subsidiary, MetaTools guarantees the performance
by such assignee of MetaTools's obligations hereunder.
(d) Governing Law. This Agreement will be governed by and interpreted
-------------
according to the substantive laws of the State of California without regard to
such state's conflicts law.
(e) No Waiver. The failure of either party to insist on strict compliance
---------
with any of the terms of this Agreement in any instance or instances will not be
deemed to be
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<PAGE>
a waiver of any term of this Agreement or of that party's right to require
strict compliance with the terms of this Agreement in any other instance.
(f) Severability. Founder and MetaTools recognize that the limitations
------------
contained herein are reasonably and properly required for the adequate
protection of the interests of MetaTools and therefore it is the intent of the
parties that the provisions of this Agreement be enforced to the fullest extent
permissible, under applicable law. If for any reason a court of competent
jurisdiction or binding arbitration proceeding finds any provision of this
Agreement, or the application thereof, to be unenforceable, the remaining
provisions of this Agreement will be interpreted so as best to reasonably effect
the intent of the parties. The parties further agree that the court or
arbitrator shall replace any such invalid or unenforceable provisions with valid
and enforceable provisions designed to achieve, to the extent possible, the
business purposes and intent of such unenforceable provisions.
(g) Counterparts. This Agreement may be executed in counterparts which when
------------
taken together will constitute one instrument. Any copy of this Agreement with
the original signatures of all parties appended will constitute an original.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first written above.
METATOOLS, INC. FOUNDER
/s/ALEXANDER MIGDAL
-------------------
By /s/JOHN WILCZAK Alexander Migdal
-----------------
Title Chairman and CEO
------------------
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<PAGE>
EXHIBIT 10.25
METATOOLS, INC.
AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this "Agreement") is
dated as of the 31st day of December 1996, by and among MetaTools, Inc., a
Delaware corporation (formerly known as HSC Software Corp.) ("Company"), and the
entities set forth in Schedule 1 attached hereto (individually herein
"Purchaser" and herein collectively referred to as "Purchasers").
Recitals
--------
WHEREAS Company and the Original Stockholders (as set forth on the
signature pages hereto) are parties to that certain Investors' Rights Agreement,
dated January 21, 1994, as amended by an Amendment dated September 30, 1994 and
an Amendment dated October 25, 1995 (the "Prior Agreement");
WHEREAS pursuant to that certain Stock Purchase Agreement dated the date
hereof (the "Purchase Agreement"), Company is acquiring approximately 97% of the
outstanding capital stock of Real Time Geometry Corp., a Delaware corporation
("RTG"), from certain stockholders of RTG (the "Former RTG Holders") in exchange
for Common Stock of Company (the "Purchase");
WHEREAS in connection with the Purchase, Company shall grant the Option
Holders (as defined in the Purchase Agreement) certain options to purchase
Common Stock of Company (the "Former RTG Options");
WHEREAS in order to induce the Former RTG Holders and the Option Holders to
consummate the Purchase, Company and the Original Stockholders desire that
Company grant to the Former RTG Holders and the Option Holders the registration
and other rights set forth herein.
The parties hereby agree as follows:
1. DEFINITIONS.
1.1 "Agreement" shall mean, and the words "Herein," "Hereof," "Hereunder"
and words of similar import shall refer to this instrument and any amendment
hereto.
1.2 "Commission" shall refer to the Securities and Exchange Commission.
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<PAGE>
1.3 "Exchange Act" shall refer to the Securities Exchange Act of 1934, as
amended.
1.4 "Person" shall refer to any corporation, trust, partnership,
individual, association, or other entity.
1.5 "Registrable Securities" shall refer to Company's Common Stock as set
forth on Schedule 2 attached hereto ("Schedule 2") and Common Stock issuable
upon exercise of the Former RTG Options as set forth on Schedule 2; provided,
however, that (i) for the purposes of Section 2.1 (Demand Registration Rights)
Registrable Securities shall not include any securities owned by the Former RTG
Holders, as set forth on Schedule 2, or issuable upon exercise of the Former RTG
Options and (ii) for purposes of Section 2.3 (Form S-3) Registrable Securities
shall not include, until December 31, 1998, any securities owned by any Former
RTG Holder or issuable upon exercise of any Former RTG Options other than any
securities owned by Wexford Capital Partners II, LP and Wexford Overseas
Partners I, LP.
1.6 "Securities Act" shall refer to the Securities Act of 1933, as amended.
1.7 "Seller" as used in Article 2 refers to a holder of the Registrable
Securities selling or otherwise transferring pursuant to this Agreement such
shares.
2. REGISTRATION RIGHTS
2.1 Demand Registration Rights.
--------------------------
(a) Upon the written request to register Registrable Securities by the
holders of at least forty percent (40%) of the Registrable Securities, Company
shall within ten (10) days of receipt of such request deliver written notice of
such request to all Persons owning Registrable Securities who shall have thirty
(30) days to indicate in writing their desire to be included in such
registration. Company will use its best efforts to expeditiously effect the
registration of all Registrable Securities whose holders request participation
in such registration under the Securities Act, but only to the extent provided
for in the following provisions of this Article 2; provided, however, that
Company shall not be required to effect registration pursuant to requests under
Section 2.1 hereof more than once for the holders of the Registrable Securities
as a group and unless the registration can reasonably be expected to result in
an aggregate sales price to the public of at least One Million Five Hundred
Thousand Dollars ($1,500,000).
(b) Whenever a requested registration pursuant to 2.1(a) is for an
underwritten offering, only Registrable Securities which are to be included in
the underwriting may be included in the registration, and, if the managing
underwriting determines in good faith that the number of Registrable Securities
so included which are to be sold by the holders of the Registrable Securities is
limited due to market conditions, the parties with Registrable Securities in
such underwriting and registration shall share pro rata in
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<PAGE>
the number of such Registrable Securities being underwritten and registered for
their account, such sharing to be based on the number of all Registrable
Securities held by such holders, respectively. Except as permitted herein,
Company may not cause any other registration of securities for sale for its own
account (other than a registration effected solely to implement an employee
benefit plan or a transaction to which Rule 145 of the Commission is applicable)
to become effective less than ninety (90) days after the effective date of any
registration required pursuant to Section 2.1.
(c) Company shall file a registration statement covering the
Registrable Securities requested to be registered pursuant to this Section 2.1
or Section 2.10 as soon as practical, but in any event within sixty (60) days
after receipt of such request or requests; provided, however, that if Company
shall furnish to the requesting Purchasers a certificate signed by the President
of Company stating that in the good faith judgment of at least two-thirds of the
members of the Board of Directors it would be seriously detrimental to Company
and its shareholders for such registration statement to be filed at the date
filing would be required and it is therefore essential to defer the filing of
such registration statement, Company shall have an additional period of not more
than one hundred twenty (120) days after the expiration of the initial sixty
(60) day period within which to file such registration statement. Such right to
delay a request may be exercised by Company not more than once in any two (2)
year period. Nothing in this Section 2.1(c) shall preclude a holder of
Registrable Securities from enjoying registration rights which it might
otherwise possess under Section 2.2 hereof.
2.2 Piggyback Registration. If Company at any time proposes to register any
----------------------
of its securities under the Securities Act, either for its own account or the
account of a security holder or holders, (other than a registration effected
solely to implement an employee benefit plan, a transaction to which Rule 145 of
the Commission is applicable or any other form or type of registration in which
Registrable Securities cannot be included pursuant to Commission rule or
practice), it will give written notice to all holders of outstanding Registrable
Securities of its intention to do so. If such registration is proposed to be on
a form which permits inclusion of the Registrable Securities, upon the written
request of any holders of the Registrable Securities given within ten (10) days
after transmittal by Company to the holders of such notice, Company will,
subject to the limits contained in this Section 2.2, use its best efforts to
cause all such Registrable Securities of said requesting holders to be
registered under the Securities Act and qualified for sale under any state blue
sky law, all to the extent requisite to permit such sale or other disposition by
such holder of the Registrable Securities so registered; provided, that if the
underwriter managing such transaction notifies the holders of Registrable
Securities in writing that market or economic conditions limit the amount of
securities which may reasonably be expected to be sold on behalf of selling
stockholders, the number of Registrable Securities which are included in such
registration shall be reduced. Any reduction will first be imposed on holders
without registration rights and holders of registration rights other than the
holders of the Registrable Securities and to the extent that further reduction
is required, such reduction will be imposed pro rata among the holders of
Registrable Securities, based on their respective ownership of Registrable
Securities; provided that such underwriter may limit the Registrable Securities
-3-
<PAGE>
sought to be registered by the holders of Registrable Securities on the
Company's registration statement to not less than thirty percent (30%) of the
total number of shares being registered.
2.3 Registration Procedures. If and whenever Company is required by the
-----------------------
provisions of this Article 2 to use its best efforts to effect the registration
of any of its securities under the Securities Act, Company will, as
expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best efforts to cause such registration
statement to become and remain effective for a period not in excess of ninety
(90) days (or at the request of a majority of the selling holders, an additional
ninety (90) days);
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise dispose of the same, but only to the extent provided in this Article
2;
(c) furnish to each seller such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such seller may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such seller;
(d) use every reasonable effort to register or qualify the securities
covered by such registration statement under such other securities or state blue
sky laws of such jurisdictions as each seller shall reasonably request, and do
any and all other acts and things which may be necessary under such securities
or blue sky laws to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the securities owned by such seller, except
that Company shall not for any such purpose be required to qualify to do
business as a foreign corporation in any jurisdiction wherein it is not so
qualified;
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by the
holders of a majority of Registrable Securities included in such registration
copies of such documents proposed to be filed, which shall be subject to the
reasonable approval of such counsel; and
(f) furnish to each prospective seller of more than fifty thousand
(50,000) shares of Registrable Securities a signed counterpart, addressed to the
prospective seller, of an opinion of counsel for Company, dated the effective
date of the registration statement, covering substantially the same matters with
respect to the registration statement (and the prospectus included therein) as
are customarily covered (at the time of such registration) in opinions of
Company's counsel delivered to the underwriters in underwritten public offerings
of securities.
-4-
<PAGE>
2.4 Expenses. All expenses incurred in effecting the registration provided
--------
for in Section 2.1 and for all registrations provided for in Sections 2.2 and
2.10, including without limitation, all registration and filing fees, printing
expenses, fees and disbursements of counsel for Company and fees of one special
counsel of the selling holders of Registrable Securities selected by the holders
of a majority of the Registrable Securities included in the registration but
reasonably acceptable by Company both as to experience and to fees, underwriting
expenses (other than commissions or discounts), expenses of any audits of
Company's financial statements incident to or required by any such registration
and expenses of complying with the securities or blue sky laws of any
jurisdictions pursuant to Section 2.3(d) hereof (all of such expenses referred
to "Registration Expenses") shall be paid by Company, provided, that if an
offering pursuant to any registration commenced pursuant to Section 2.1(a) is
abandoned by the sellers (other than by reason of adverse information pertaining
to Company's business affairs or financial position, as opposed to stock market
conditions, unknown to the sellers and Company prior to the commencement of such
registration proceedings, in which event Company shall bear all Registration
Expenses), such sellers shall bear any costs incurred by Company in conjunction
with such registration or at their option forfeit their demand right under
Section 2.1.
2.5 Indemnification.
---------------
(a) Indemnification by Company. In the event of any registration of
any of its securities under the Securities Act pursuant to this Article, Company
shall indemnify and hold harmless each of the following parties ("Indemnified
Parties"):
(i) the seller of such securities;
(ii) each underwriter (as defined in the Securities Act);
(iii) each other Person who participates in the offering of such
securities; and
(iv) each other Person, if any, who controls (within the meaning
of the Securities Act) such seller, underwriter or participating Person,
against any losses, claims, damages or liabilities, including any legal fees or
other cost or expense incurred for investigating or defending same (collectively
a "Liability"), joint or several, to which such Indemnified Party may become
subject under the Securities Act or any other statute or at common law, insofar
as such Liability (or action in respect thereof) arises out of or is based upon:
(a) any alleged untrue statement of any material fact
contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or
-5-
<PAGE>
(b) any alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein
not misleading.
Notwithstanding the foregoing, Company shall not be liable to any Indemnified
Party in any such case to the extent that any such Liability arises out of or is
based upon any alleged untrue statements or alleged omission made in such
registration statement, preliminary or final prospectus, or amendment or
supplement thereto, in reliance upon and in conformity with information
furnished to Company by such Person specifically for use therein. Moreover,
Company shall not be required to indemnify any Person against any Liability
arising from any untrue or misleading statement or omission contained in any
preliminary prospectus if such deficiency is corrected in the final prospectus
or for any liability which arises out of the failure of any such Person to
deliver a prospectus as required by the Securities Act. The indemnity provided
for in this Section 2.5 shall remain in full force and effect regardless of any
investigation made by or on behalf of such Indemnified Party and shall survive
transfer of such securities by such seller. Any legal fees or other costs and
expenses incurred by an Indemnified Party in connection with any liability
shall, subject to a good faith judgment of the Board of Directors of Company
that there is no reasonable basis for not indemnifying the Indemnified Party
pursuant to the requirements of this Agreement and the receipt of an acceptable
undertaking to reimburse the Indemnifying Party in the event that the
Indemnifying Party is not entitled to indemnification pursuant to the terms of
this Agreement, be reimbursed as incurred by Indemnified Party.
(b) Indemnification by Holders of Registrable Securities. Each holder
----------------------------------------------------
of any Registrable Securities shall, by acceptance thereof, indemnify and hold
harmless each other holder of any Registrable Securities, Company, its directors
and officers, each underwriter and each other Person, if any, who controls
Company or such underwriter or other holder ("Indemnitee") against any liability
(including fees and expenses incurred in investigating and defending same),
joint or several, to which Indemnitee may become subject under the Securities
Act or any other statute or at common law, insofar as such liability (or actions
in respect thereof) arises out of or is based upon:
(i) the disposition by such holder of such Registrable Securities
in violation of the provisions of this Article;
(ii) any alleged untrue statement of any material fact contained,
on the effective date thereof, in any registration statement under which
securities were registered under the Securities Act at the request of such
holder, any preliminary prospectus or final prospectus contained therein, or any
amendment or supplement thereto; or
(iii) any alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading.
Such indemnification in the case of (ii) and (iii) applies to the extent, but
only to the extent, that such alleged untrue statement or alleged omission was
made in such registration state-
-6-
<PAGE>
ment, preliminary or final prospectus, amendment or supplement thereto (A) in
reliance upon and in conformity with information furnished to Company by such
holder specifically for use therein, and (B) not based on the authority of an
expert as to which the holder had no reasonable ground to believe, and did not
believe, that the statements made on the authority of such expert were untrue or
that there was an omission to state a material fact. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such Indemnitee and shall survive transfer of such securities by such holder.
(c) Liability Exclusion for Holders. No holder of Registrable
-------------------------------
Securities shall be required to indemnify any Person against any liability
arising from any untrue or misleading statement or omission contained in any
preliminary prospectus if such deficiency is corrected in the final prospectus
or for any liability which arises out of the failure of any such Person to
deliver a prospectus as required by the Securities Act. Moreover, the liability
of any holder of Registrable Securities pursuant to this Section 2.5 shall be
limited to an amount equal to the total public offering price, less underwriting
discounts and commissions, for the Registrable Securities sold by such holder
or, in the situation described in (i) of subsection (b), limited to an amount
equal to proceeds of the disposition referred to therein.
(d) Contribution. If the indemnification provided for in Section
------------
2.5(a) or 2.5(b) is unavailable or insufficient to hold harmless an Indemnified
Party in respect of any Liability, then the person required under such Section
2.5(a) or (b), as the case may be (the "Indemnifying Party"), shall contribute
to the amount paid or payable by such Indemnified Party as a result of such
Liability in such proportion as is appropriate to reflect the relative fault of
the Indemnifying Party on the one hand, and the Indemnified Party on the other,
in connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities, expenses or actions as well as any other relevant
equitable considerations, including the failure to give the notice required
hereunder. The relative fault of the Indemnifying Party and the Indemnified
Party shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact relates to information
supplied by the Indemnifying Party or the Indemnified Party and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. Company and the holders of Registrable
Securities agree that it would not be just and equitable if contributions
pursuant to this Section 2.5(d) were determined by pro rata allocation or by any
other method of allocation which did not take account of the equitable
considerations referred to above. The amount paid or payable to an Indemnified
Party as a result of the Liabilities shall be deemed to include any legal or
other expenses reasonably incurred by such Indemnified Party in connection with
investigating or defending any such action or claim. Notwithstanding the
contribution provisions of this Section 2.5(d), in no event shall the amount
contributed by any seller of Registrable Securities exceed the aggregate net
offering proceeds received by such seller from the sale of Registrable
Securities to which such contribution or indemnification claim relates. No
person guilty of fraudulent misrepresentations (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution from any person
who is not guilty of such fraudulent misrepresentation.
-7-
<PAGE>
(e) Further Indemnity. Indemnification similar to that specified in
-----------------
paragraphs (a) through (d) of this Section shall be given by Company and each
holder of any Registrable Securities (with such modifications as may be
appropriate) with respect to any required registration or other qualification of
the Registrable Securities under any federal or state law or regulation of
governmental authority other than the Securities Act.
(f) Procedures, Rights to Separate Counsel. In the event an
--------------------------------------
Indemnified Party or Indemnitee ("Claimant") receives a complaint, claim or
other notice of any loss, claim or damage, liability or action giving rise to a
claim for indemnification under this Section, the Claimant shall promptly notify
the Indemnifying Party of such complaint, notice, claim or action, and such
Indemnifying Party shall have the right to investigate and defend any such loss,
claim, damage, liability or action. The Claimant shall have the right to employ
separate counsel in any such action and to participate in the defense thereof,
but the fees and expenses of such counsel shall not be at the expense of the
Indemnifying Party unless the Indemnifying Party fails to promptly defend, in
which case the fees and expenses of such separate counsel shall be borne by the
Indemnifying Party, provided, however, that a Claimant shall have the right to
retain its own counsel, with the fees and expenses to be paid by the
Indemnifying Party, if the representation of such Claimant would be
inappropriate due to actual or potential differing interests between the
Claimant and the other party represented by such counsel in such proceeding. In
no event shall an Indemnifying Party be obligated to indemnify any Person for
any settlement of any claim or action effected without the Indemnifying Party's
prior written consent.
2.6 Termination of Registration. Notwithstanding the foregoing provisions
---------------------------
of this Article 2, the rights to registration and the designation of Registrable
Securities shall terminate as to any particular securities when such securities
shall have been lawfully sold by the holder to the public thereof pursuant to a
registration statement or Rule 144 and as to all Registrable Securities on the
earlier of seven (7) years from the date hereof or December 12, 2000.
2.7 Compliance with Rule 144. At the request of any holder of Registrable
------------------------
Securities who proposes to sell the Registrable Securities in compliance with
Rule 144 of the Commission, Company shall forthwith furnish to such holder or
holders a written statement of compliance with the filing requirements of the
Commission as set forth in such Rule, as such Rule may be amended from time to
time and make available to the public and such holders such information as will
enable the holders to make sales of Registrable Securities pursuant to Rule 144.
2.8 Consent to be Bound. Each subsequent holder of Registrable Securities
-------------------
must consent in writing to be bound by the terms and conditions of this Article
2 in order to acquire the rights granted pursuant to Article 2 and shall be
required to execute such customary underwriting agreements as may be proposed by
the managing underwriter.
2.9 Amendments. The provisions of this Agreement may be amended, and
----------
Company may take any action herein prohibited or omit to perform any act herein
required to
-8-
<PAGE>
be performed by it, only if Company has obtained the written consent of the
holders of at least two thirds (2/3) of the Registrable Securities.
2.10 Form S-3. As of December 20, 1996, the Company is, and it shall use
--------
its best efforts to remain, qualified for registration on Form S-3. The holders
of the Registrable Securities shall have the right to request unlimited
registrations on Form S-3 (such requests shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such holder or holders). Company shall
not be required to effect a registration pursuant to this Section 2.10 if, in
the good faith judgment of Company, such registration will hinder or interfere
with a concurrent or proposed security issuance of, or acquisition by, Company
or if the holder or holders requesting registration propose to dispose of shares
of the Registrable Securities having an aggregate disposition price (before
deduction of underwriting discounts and expenses of sale) of less than Five
Hundred Thousand Dollars ($500,000). This Section shall not be interpreted to
restrict Company from acquiring its own shares or to require Company to sell its
own shares. Company shall give notice to all holders of the Registrable
Securities of the receipt of a request for registration pursuant to this Section
2.10 and shall provide a reasonable opportunity for other holders to participate
in the registration. Subject to the foregoing, Company will use its best
efforts, in each case, to effect promptly the registration of all shares of the
Registrable Securities on Form S-3 to the extent requested by the holder or
holders thereof for purposes of disposition.
2.11 Assignability of Registration. Subject to Section 2.8 hereof, the
-----------------------------
registration rights set forth in this Article 2 are assignable to each assignee
of Registrable Securities conveyed in accordance herewith (i) who agrees in
writing to be bound by the terms and conditions of this Agreement and (ii) who
after such transfer owns at least fifty thousand (50,000) shares of Registrable
Securities or is an affiliate of such transferror or is a Purchaser.
2.12 Designation of Underwriter. In the case of any registration effected
--------------------------
pursuant to this Article 2, Company shall have the right to designate the
managing underwriter, subject to the approval of Purchasers, which approval will
not be unreasonably withheld.
2.13 Rights Which May Be Granted to Subsequent Investors. Company may not
---------------------------------------------------
grant any registration rights to third parties which are senior to or on a
parity with those granted to Purchasers pursuant to this Agreement without
consent of two thirds (2/3) of the shares of Registrable Securities held by
Purchasers.
2.14 Information by Seller. The holder or holders of Registrable
---------------------
Securities included in any registration shall furnish to Company such
information regarding such holder or holders, the Registrable Securities held by
them and the distribution proposed by such holder or holder as Company may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Article.
-9-
<PAGE>
2.15 Standstill. As consideration for Company's agreeing to its
----------
obligations under this Article 2, in connection with any registration of the
Common Stock of Company, each holder of Registrable Securities does hereby, upon
the request of the underwriters managing any underwritten offering of Company's
securities, agree not to sell or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of Company or such underwriters, as the case may be, for such period of
time (not to exceed one hundred eighty (180) days) from the effective date of
such registration as the Company and underwriters may specify. Such agreement
is conditioned upon each executive officer, director and holder of three percent
(3%) or more of Company's Common Stock (on a fully diluted basis) entering into
a like agreement.
2.16 Restrictions on Transfer.
------------------------
(a) Unless and until otherwise permitted by this Agreement, each
certificate for the securities issued to a Purchaser (the "Securities") or to
any subsequent transferee of any such certificate shall be stamped or otherwise
imprinted with a legend in substantially the following form:
"The shares represented by this certificate have been acquired for
investment and have not been registered under the Securities Act of 1933.
Such shares may not be sold or transferred in the absence of such
registration or unless the Company receives an opinion of counsel or other
evidence reasonably acceptable to it stating that such sale or transfer is
exempt from the registration requirements of said act. Copies of the
agreement covering the purchase of these shares and restricting their
transfer may be obtained from the secretary of the Company."
(b) Prior to any transfer or attempted transfer of any Securities
bearing the legend set forth in paragraph (a) of this Section, the holder
thereof shall give Company written notice of its intention to transfer. If, in
the written opinion of counsel for the holder, accompanying such notice and in
form and substance satisfactory to Company and its counsel, addressed to Company
and the holder, the proposed transfer may be effected without registration of
such security, the securities proposed to be transferred may be transferred in
accordance with the terms of said notice and in compliance with applicable state
securities laws and regulations. Company shall not be required to effect any
such transfer prior to the receipt of such favorable opinion or opinions;
provided that, if the proposed transfer is governed by Rule 144 promulgated by
the Commission, or any successor rule, such opinion shall not be required, but
Company may prevent such transfer until it receives evidence satisfactory to it
and its counsel that the transfer complies with Rule 144. Each transfer shall
comply with all applicable Commissioner's rules and applicable state securities
laws. Each certificate evidencing securities transferred as above provided
shall bear the restrictive legend set forth in paragraph (a) of this Section
2.16, unless the transfer is made pursuant to Rule 144 or the opinion of counsel
referred to above is to the further effect that such legend is not required in
order to establish compliance with the Securities Act. Upon the removal of
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<PAGE>
the restrictive legend, all obligations of a holder pursuant to this Section
2.16 shall immediately terminate.
(c) The proposed transfer of such securities may not be effected
without registration thereof under the Securities Act, such holder shall not
consummate the proposed transfer. Company may order its transfer agents to stop
the transfer of any Securities bearing the legend required by this Section until
the conditions herein with respect to transfer of such securities have been
satisfied.
3. COVENANTS OF COMPANY.
3.1 Financial Statements and Other Information.
------------------------------------------
Company will deliver to each holder of at least fifty thousand (50,000)
shares of Registrable Securities within ten (10) days of transmission thereof,
copies of all financial statements, proxy statements and reports that Company
sends to its stockholders, and copies of all registration statements and all
regular, special or periodic reports which it or any of its officers or
directors file with the Commission or with any securities exchange on which any
of its securities are then listed, and copies of all press releases and other
statements made available generally by Company to the public concerning material
developments in Company's business. The right to receive materials under this
Section shall not be transferable unless the transferee and any affiliates after
such transfer own at least fifty thousand (50,000) shares of Registrable
Securities.
4. MISCELLANEOUS.
4.1 Consent to Amendments. Except as otherwise expressly provided herein
---------------------
and except for amendments of this Section (which require the unanimous consent
of the holders of the Registrable Securities), the provisions of this Agreement
may be amended and Company may take any action herein prohibited, or omit to
perform any act herein required to be performed by them, only if it has obtained
the written consent of holders of at least two thirds (2/3) of the Registrable
Securities. No course of dealing between Company and the holder of any security
issued pursuant to this Agreement or any delay in exercising any rights
hereunder will operate as a waiver of any rights of any such holders.
4.2 Successors and Assigns. Except as otherwise expressly provided
------------------------
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not.
4.3 Severability. Whenever possible, each provision of this Agreement
------------
will be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
-11-
<PAGE>
4.4 Counterparts. This Agreement may be executed in two or more
------------
counterparts, any one of which need not contain the signatures of more than one
party, but all such counterparts when taken together will constitute one and the
same Agreement.
4.5 Descriptive Headings. The descriptive headings of this Agreement are
--------------------
inserted for convenience only and do not constitute a part of this Agreement.
4.6 Notices. Any approvals, consents or notices required or permitted to
-------
be sent or given shall be delivered in writing personally or mailed, certified
mail, return receipt requested, to the following addresses and shall be deemed
to have been received upon such personal delivery or within five (5) days after
such mailing:
If to holders
of Registrable
Securities: To the Addresses set forth on Schedule 1
If to Company: MetaTools, Inc.
6303 Carpinteria Avenue
Carpinteria, CA 93013
With a Copy to: Wilson Sonsini Goodrich & Rosati, Professional
Corporation
650 Page Mill Road
Palo Alto, CA 94304
Attention: Jeffrey D. Saper, Esq.
4.7 Governing Law. The validity, meaning and effect of this Agreement
-------------
shall be determined in accordance with the laws of California applicable to
contracts made and to be performed in that state.
4.8 Schedules and Exhibits. All schedules and exhibits are an integral
----------------------
part of this Agreement.
4.9 Litigation Costs. If any legal action or any arbitration or other
----------------
proceeding is brought for the enforcement of this Agreement, or because of an
alleged dispute, breach, default, or misrepresentation in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
4.10 Remedies. Any Person having any rights under any provision of this
--------
Agreement will be entitled to enforce such rights specifically, to recover
damages by reason of any breach of any provision of this Agreement, and to
exercise all other rights granted by law, which rights may be exercised
cumulatively and not alternatively. Moreover, the parties
-12-
<PAGE>
acknowledge that each party's obligation under this Agreement is unique. If any
party should default in its obligations under this Agreement, the parties each
acknowledge that it would be extremely impracticable to measure the resulting
damages; accordingly, the nondefaulting party, in addition to any other
available rights or remedies, may sue in equity for specific performance and the
parties each expressly waive the defense that a remedy in damages will be
adequate.
4.11 Final Agreement. This Agreement constitutes the final agreement of
---------------
the parties concerning the matters herein, and supersedes all prior and
contemporaneous agreements and understandings (including, but not limited to,
the Prior Agreement, which shall be of no further force or effect).
-13-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
December 31, 1996.
METATOOLS, INC.
By: /s/JOHN WILCZAK
--------------------------
Its: Chairman and CEO
-------------------------
ORIGINAL STOCKHOLDERS:
LAGUNITAS PARTNERS, L.P.
By: /s/J. PATTERSON MCBAINE
--------------------------
J. Patterson McBaine
Its: General Partner
-------------------------
GT AMERICAN SPECIAL SITUATIONS
FUND
By:
---------------------------
Its:
--------------------------
--------------------------
DIOSDADO BANATAO
/s/KAI KRAUSE
--------------------------
KAI KRAUSE
-14-
<PAGE>
SPUME & COMPANY
By:
---------------------------
Its:
--------------------------
COWEN & COMPANY
By:
---------------------------
Its:
--------------------------
JAPAN ASSOCIATED FINANCE CO., LTD.
By:
--------------------------
Masaki Yoshida
Its: President
JAFCO G-3 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/ MASAKI YOSHIDA
--------------------------
Masaki Yoshida
Its: President
Marina Capital II
Japan Associated Finance Co., Ltd.
Its: Executive Partner
JAFCO G-4 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/MASAKI YOSHIDA
--------------------------
Masaki Yoshida
Its: President
Japan Associated Finance Co., Ltd.
Its: Executive Partner
-15-
<PAGE>
JAFCO G-5 INVESTMENT ENTERPRISE
PARTNERSHIP
By: /s/ MASAKI YOSHIDA
--------------------------
Masaki Yoshida
Its: President
Japan Associated Finance Co., Ltd.
Its: Executive Partner
JANNEY MONTGOMERY SCOTT INC.
CUSTODIAN FBO: BARRY ODLEN (IRA)
A/C #6325-3945
By: /s/ BARRY OLDEN
--------------------------
Its: Custodian FBO IRA
-------------------------
MARINA CAPITAL II
By: /s/ THOMAS MACINO
--------------------------
Thomas Mancino
Its: Managing General Partner
-------------------------
JOSEPH AND SHARON LALLY,
TRUSTEES FBO JOSEPH AND
SHARON LALLY LIVING TRUST UTD 6/8/92
/s/ JOSEPH LALLY
------------------------------
Joseph Lally
/s/ SHARON LALLY
------------------------------
Sharon Lally
-----------------------------
KEVIN WENCK
-----------------------------
NANCY WENCK
-16-
<PAGE>
-----------------------------
JERROLD B. NEWMAN
/s/ NICHOLAS STIASSNI
------------------------------
NICHOLAS STIASSNI
/s/ SAMUEL H. JONES, JR.
------------------------------
SAMUEL H. JONES, JR.
/s/ HOWARD MORGAN
------------------------------
HOWARD MORGAN
/s/ JOHN J. WILCZAK
------------------------------
JOHN J. WILCZAK
RISA, INC.
By:
--------------------------
Peter Weiner
UNITED STATES TRUST COMPANY OF
NEW YORK, AS TRUSTEE U/D
WILLIAM A. KAYNOR DATED 7/20/88,
ACCOUNT #24297300
By:
---------------------------
Its:
--------------------------
------------------------------
RONALD YARA
VULCAN VENTURES INC.
By: /s/ WILLIAM SAVOY
--------------------------
William Savoy
-17-
<PAGE>
FORMER RTG HOLDERS:
/s/ SASHA MIGDAL
------------------------------
SASHA MIGDAL
/s/ ALEXEI LEBEDEV
------------------------------
ALEXEI LEBEDEV
/s/ MICHAEL PETROV
------------------------------
MICHAEL PETROV
/s/ BORIS LIPOVSKY
------------------------------
BORIS LIPOVSKY
WEXFORD MANAGEMENT I, L.P.
By: Wexford Management LLC
Its: Investment Manager
By: /s/ ROBERT HOLTZ
--------------------------
Title: Sr. Vice President
-----------------------
WEXFORD MANAGEMENT II, L.P.
By: Wexford Management LLC
Its: Investment Manager
By: /s/ ROBERT HOLTZ
--------------------------
Title: Sr. Vice President
-----------------------
RTG OPTION HOLDERS:
/s/ ROBERT E. RICE
------------------------------
ROBERT E. RICE
/s/ DMITRY PAPERNY
------------------------------
DMITRY PAPERNY
-18-
<PAGE>
SCHEDULE 1
----------
To The Investors' Rights Agreement
----------------------------------
<TABLE>
<CAPTION>
NAME AND ADDRESS NAME AND ADDRESS
<S> <C>
Lagunitas Partners Cowen & Company
Attn: J. Patterson McBaine 345 California Street
Gruber & McBaine Suite 2600
50 Osgood Place San Francisco, CA 94104
San Francisco, CA 94133
Vulcan Ventures Incorporated Japan Associated Finance Co., Ltd.
110 110th Avenue NE, Suite JAFCO G-3 Investment Enterprise Partnership
550 JAFCO G-4 Investment Enterprise Partnership
Attn: William Savoy JAFCO G-5 Investment Enterprise Partnership
Bellevue, WA 98004-5840 Attn: H.C. Thor
International Operations Department
GT American Special 10th Floor Toshiba Building
Situation Fund 1-1-1 Shibaura Minato-Ku
Attn: Peter Duarino Tokyo, Japan 105
GT Capital
50 California St., 27th Floor
San Francisco, CA 94111
Kevin Wenck Joseph and Sharon Lally, Trustees FBO Joseph and
28 Tappan Lane Sharon Lally Living Trust UTD 6/8/92
Orinda, CA 94563-1332 1436 Warnall Avenue
Los Angeles, CA 90024-5333
Nancy Wenck Kai Krause
28 Tappan Lane 601 Cowles Road
Orinda, Ca 94563-1332 Montecito, CA 93108-1801
Marina Capital II
Attn: Thomas E. Mancino
2190 Washington Street #901
San Francisco, CA 94109
Jerrold Newman Nicholas Stiassni
Cowen & Company PaineWebber, Inc.
Financial Square 725 S. Figueroa St., 40th Floor
New York, NY 10005 Los Angeles, CA 90017
Howard Morgan Samuel H. Jones, Jr.
The ARCA Group, Inc. U.S. Route 40, P.O. Box 169
764 Mt. Moro Road Woodstown, NJ 08098-0169
Villanova, PA 19085
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
NAME AND ADDRESS NAME AND ADDRESS
<S> <C>
Diosdado Banatao United States Trust Company of New York, as
S/3/ Incorporated Trustee
2880 San Tomas Expressway U/D William A. Kaynor dated 7/20/88, Account
Santa Clara, CA 95051-0981 #24297300
1001 Fifth Avenue
New York, NY 10028
Janney Montgomery Scott Inc. John J. Wilczak
Custodian FBO: Barry Odlen 1029 Alston Road
(IRA) A/C #6325-3945 Montecito, CA 93108
1801 Market Street
Philadelphia, PA 19103
RISA Incorporated Ronald Yara
Attn: Peter Weiner S/3/ Incorporated
[get new address] 2880 San Tomas Expressway
Malibu, CA 90265 Santa Clara, CA 95051-0981
Spume & Co. Alexander Migdal
Attn: Kevin Wenck Real Time Geometry Corp.
50 California Street 51 John F. Kennedy Parkway
27th Street Suite 303
San Francisco, CA 94111 Short Hills, NJ 07078
Robert E. Rice Alexei Lebedev
Real Time Geometry Corp. Real Time Geometry Corp.
51 John F. Kennedy Parkway 51 John F. Kennedy Parkway
Suite 303 Suite 303
Short Hills, NJ 07078 Short Hills, NJ 07078
Dmitry Paperny Michael Petrov
Real Time Geometry Corp. Real Time Geometry Corp.
51 John F. Kennedy Parkway 51 John F. Kennedy Parkway
Suite 303 Suite 303
Short Hills, NJ 07078 Short Hills, NJ 07078
Boris Lipovsky Wexford Overseas Partners I, L.P.
Real Time Geometry Corp. Wexford Capital Partners II, L.P.
51 John F. Kennedy Parkway c/o Wexford Management LLC
Suite 303 Attn: Robert Holtz
Short Hills, NJ 07078 411 West Putnam Avenue
Greenwich, CT 06830
</TABLE>
-2-
<PAGE>
SCHEDULE 2
----------
To the Investors' Rights Agreement
----------------------------------
<TABLE>
<CAPTION>
CURRENT METATOOLS NUMBER OF
SHAREHOLDERS HOLDING SHARES OF
REGISTRATION RIGHTS COMMON STOCK
- ----------------------------------------------------------
<S> <C>
Diosdado Banatao 20,000
Cowen & Company 110,000
GT American Special Situations Fund 24,000
Spume and Co. (U.S. Small Companies Fund) 136,000
JAFCO G-3 Investment Enterprise Partnership 109,863
JAFCO G-4 Investment Enterprise Partnership 82,398
JAFCO G-5 Investment Enterprise Partnership 95,738
Japan Associated Finance Co. Ltd. 72,001
Janney Montgomery (Odlen IRA Account) 6,000
Samuel H. Jones, Jr. 608,000
Samuel H. Jones, Jr. (warrants) 260,055
William Kaynor (Trust) 180,000
William Kaynor (Trust) (warrant) 5,100
Kai Krause (warrant) 94,445
Lagunitas Partners 100,000
Mr. & Mrs. Joseph Lally 1,000
Marina Capital II 40,000
Howard L. Morgan 108,500
Jerrold Newman 8,000
RISA Inc. (Peter Weiner) (warrant) 600
Nicolas Stiassni 2,000
Vulcan Ventures Incorporated 2,000,000
Kevin Wenck 4,100
Nancy Wenck 400
John J. Wilczak 10,000
John J. Wilczak (warrants) 28,333
Ronald Yara 20,000
---------
TOTAL 4,126,533
=========
</TABLE>
<PAGE>
SCHEDULE 2
----------
To the Investors' Rights Agreement
----------------------------------
- ----------------------------------------------------------------------
SHARE AND OPTION EXCHANGE IN ACQUISITION
- ----------------------------------------------------------------------
<TABLE>
<CAPTION>
NUMBER OF
NUMBER OF RTG SHARES OF
SHARES CLASS METATOOLS
CURRENTLY OF COMMON STOCK
STOCKHOLDERS HELD STOCK TO BE ISSUED
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Alexander Migdal 700 Common 815,469
Alexei Lebedev 75 Common 91,283
Michael Petrov 25 Common 30,427
Boris Lipovsky 25 Common 30,427
Wexford Overseas 38 Preferred 69,207
Partners I, L.P.
Wexford Capital 162 Preferred 295,043
Partners II, L.P.
<CAPTION>
NUMBER OF
OPTIONS TO
PURCHASE NUMBER OF EXERCISE
RTG RTG SHARES METATOOLS PRICE
OPTION CURRENTLY OPTIONS TO PER
HOLDERS HELD BE ISSUED SHARE
- ----------------------------------------------------------------------
<S> <C> <C> <C>
Robert E. Rice 75 90,165 $ 5.03
Dmitry Paperny 5 6,011 $ 0.08
</TABLE>
<PAGE>
FOR IMMEDIATE RELEASE
Contact: Sallie Olmsted/Jason Ysais Moira Conlon/Steve Seidler
MetaTools, Inc. Financial Relations Board
805-566-6263/6333 310-442-0599
[email protected]/
[email protected]
METATOOLS, INC. ACQUIRES REAL TIME GEOMETRY CORPORATION
-Real Time 3D Enabling Technologies Increase MetaTools Reach
into Computer Graphics Markets-
Carpinteria, Calif., December 23, 1996 -- MetaTools, Inc. (Nasdaq: MTLS), the
visual computing software company, announced today a definitive agreement to
acquire Real Time Geometry Corporation ("RTG"), a privately held company based
in Princeton, New Jersey, specializing in real time 3D graphics and
visualization technologies. The acquisition of RTG expands MetaTools ability
to participate in the rapid expansion of broad application areas that will
utilize 3D technology. The RTG technologies are being developed for
applications on Windows, Macintosh, SGI, Sun, Nintendo, Sega and Sony
PlayStation platforms.
TRANSACTION DETAILS
- -------------------
MetaTools plans to issue 1,360,000 shares of MetaTools common stock in
exchange for all the outstanding shares of RTG. MetaTools will also issue
approximately 800,000 Nonqualified stock options to purchase MetaTools common
stock to current RTG employees. The majority of the options to be issued in the
transaction will have an exercise price equal to the fair market value of the
MetaTools common stock on the issuance date and will vest over three to four
years. The remaining options for approximately 100,000 shares of MetaTools
common stock will have an average exercise price of $4.69 per share.
The acquisition, which is expected to close by December 31, 1996, will be
accounted for by the purchase method of accounting by MetaTools. If the common
stock of MetaTools on the closing date is $14.50 per share (the closing price on
December 20, 1996) then MetaTools would expect to charge approximately $17
million against earnings during the fourth quarter ended December 31, 1996
related to the write-off of research and development in-process at RTG and other
costs related to the transaction.
3D ENABLING AND APPLICATION TECHNOLOGY
- --------------------------------------
The addition of RTG's core innovations and development capabilities in real
time 3D graphics accelerate MetaTools strategic expansion in the rapidly
emerging consumer, prosumer and professional markets for 3D tools, applications
and titles. Key innovations of RTG's real time 3D technology include: 1)
decreasing the time required to create, render and display 3D images and
environments; 2) enabling the creation of dynamic, real time resolution changes
to 3D models; 3) improving the visual resolution and navigation of 3D graphics.
RTG's 3D graphics innovations, combined with MetaTools design and application
development expertise, will allow the RTG technology to be incorporated into
MetaTools existing and planned professional tools and consumer creative
entertainment software products. The company also anticipates strategic
licensing agreements with third party hardware and software companies, including
developers of 3D acceleration chips, still and motion imaging, animation and
video graphics products, computer and console games, architectural and
engineering design products, financial visualization and medical applications
software.
INCORPORATION OF RTG'S ENGINEERING TEAM WITH METATOOLS R&D
- ----------------------------------------------------------
Real Time Geometry's existing operations of 23 people, including 20 research
employees, will remain in Princeton, New Jersey as the MetaTools' Real Time
Geometry research and development lab. Alexander "Sasha" Migdal and Robert Rice
will continue to lead the development of Real Time Geometry's 3D imaging
technologies. Through the acquisition of RTG, Sasha Migdal will assume the
role of vice president & chief scientist and Robert Rice will become vice
president of business development.
-1-
<PAGE>
"We are extremely pleased to be joining forces with MetaTools, a recognized
innovator in user interface design and real time computer graphics," said Sasha
Migdal, vice president & senior scientist.
"Real Time Geometry brings to MetaTools significant advances in basic 3D
technology with a wide range of applications. Sasha Migdal has assembled an
extraordinary research and development team utilizing applied mathematics and
theoretical physics to meet the challenges facing computer visualization
technologies," commented John Wilczak, MetaTools co-founder and CEO.
- ------------------------
MetaTools, the visual computing software company, designs, develops,
publishes, markets and supports software tools and enabling technologies for
creating, editing, and manipulating computer graphic images, digital art and
Internet/online content for Windows, Macintosh and other digital computing and
editing systems. Working with distributors in North America, Europe and Asia,
MetaTools' professional and consumer software is available in more than fifty
countries. The company is located in Santa Barbara County at 6303 Carpinteria
Ave., Carpinteria, CA 93013; Tel: 805-566-6200; Fax: 805-566-6385. MetaTools'
International Operations Center is located at Europa House, Harcourt Street, 4th
Floor, Dublin 2, Ireland. Tel: 353(1)475-1721; Fax: 353(1)475-1728; World Wide
Web server: http://www.metatools.com.
- ------------------------
Editor's note: Biography of Sasha Migdal appears below.
A conference call discussing this acquisition will take place on Monday
December 23rd at 4:30PM EST/1:30PM PST. Dial in on 800-553-2506. Replay
service will be available through December 27th by calling 800-696-1588,
request call i.d. number 161538.
- ------------------------
ALEXANDER A. MIGDAL
BIOGRAPHY
Award-winning and noted physicist, Alexander "Sasha" Migdal, is the chief
scientist and president of Real Time Geometry Corporation, a high-tech research
company specializing in 3D graphics and visualization technologies based in
Princeton, New Jersey. Mr. Migdal has thirty years of experience in theoretical
and computational physics and 11 years of experience in large scale scientific
and applied computations and software development. He has written more than 80
scientific papers on the theory of phase transitions, high energy physics and
mathematical physics and computational fluid dynamics.
In addition to co-founding Real Time Geometry, Mr. Migdal was a joint
professor of physics and applied and computational mathematics at Princeton
University from 1989 to 1996. Immediately after leaving the USSR with his
family in 1988, he spent a year as a visiting professor of physics at the
University of California, San Diego (UCSD). While in the USSR, Mr. Migdal was
the head of the Laboratory of Computational Physics in the Cybernetics Council
of the Soviet Academy of Sciences and was a senior research fellow at the Landau
Institute for Theoretical Physics.
Mr. Migdal holds a doctor of science and Ph.D. from the Landau Institute for
Theoretical Physics, Chernogolovka, USSR; a M.S. in Physics from Moscow Physical
Technical Institute, Moscow, USSR; as well as an honorary degree of professor
from the Cybernetics Council of the Soviet Academy of Sciences.
-2-
